UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended ______________
Commission File Number ______________
FIRST MAJESTIC SILVER CORP.
(Exact name of registrant as specified in its charter)
British Columbia, Canada | 1041 | Not Applicable |
(Province or other jurisdiction | (Primary Standard Industrial | (I.R.S. Employer |
of incorporation or | Classification Code Number) | Identification Number) |
organization) |
Suite 1805 925 West Georgia Street
Vancouver,
(604) 688-3033
(Address and telephone number of Registrants principal executive offices)
Copies to: | |
National Registered Agents, Inc. | Stewart L. Muglich |
1090 Vermont Avenue N.W. | Clark Wilson LLP |
Suite 910 | 800 885 West Georgia Street |
Washington D.C. 20005 | Vancouver, BC V6C 3H1 |
(202) 371-8090 | (604) 891-7701 |
Name, address (including zip code) | |
and telephone number (including | |
area code) of agent for service in | |
the United States |
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class: | Name of exchange on which registered: |
Common Shares, no par value | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: Not Applicable
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this Form.
[ ] Annual information form [ ] Audited annual financial statements
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report. Not Applicable
Indicate by check mark whether the Registrant by filing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934 (the Exchange Act). If yes is marked, please indicate the filing number
assigned to the Registration in connection with such Rule.
[ ]
Yes [X] No
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ ] Yes [X]
No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the Registrant was required to submit and post such files).
[ ] Yes [X] No
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DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES
First Majestic Silver Corp. (the Registrant) prepares its financial statements, which are filed with this report on Form 40-F in accordance with Canadian generally accepted accounting practices (GAAP), and are subject to Canadian auditing and auditor independence standards. They may not be comparable to financial statements of United States companies. The Registrant is permitted, under a multi-jurisdictional disclosure system adopted by the United States, to prepare this report in accordance with Canadian disclosure requirements, which are different from those of the United States. Significant differences between Canadian GAAP and United States GAAP as pertains to the Registrant for the years ended December 31, 2009, 2008 and 2007 are described in Exhibit 99.9 to this Registration Statement.
FORWARD-LOOKING STATEMENTS
This Registration Statement and the Exhibits incorporated by reference into it contain forward-looking statements. Forward-looking statements are frequently characterized by words such as plan, expect, project, intend, believe, anticipate, and other similar words, or statements that certain events or conditions may or will or can occur. Forward-looking statements are based on the opinions and estimates of management on the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the exploration, development, and mining of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties relating to the availability and costs of financing needed in the future, as well as those factors discussed in the section entitled Description of the Business - Risk Factors in the Annual Information Form of the Registrant filed as Exhibit 99.2 to this Registration Statement. Although the Registrant has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
Forward-looking statements contained in the Exhibits incorporated by reference into this Registration Statement are made as of the respective dates set forth in such Exhibits and the Registrant disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
RESOURCE AND RESERVES ESTIMATES
The terms Mineral Reserve, Proven Mineral Reserve and Probable Mineral Reserve are Canadian mining terms as defined in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects (NI 43-101) under the guidelines set out in the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) CIM Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as may be amended from time to time by the CIM. These definitions differ from the definitions in the United States Securities and Exchange Commission (SEC) Industry Guide 7 (SEC Industry Guide 7) under the Securities Act of 1933. The definitions of proven and probable reserves used in NI 43-101 differ from the definitions in SEC Industry Guide 7. Under SEC Industry Guide 7 standards, a final or bankable feasibility study is required to report reserves, the three year history average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.
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In addition, the terms Mineral Resource, Measured Mineral Resource, Indicated Mineral Resource and Inferred Mineral Resource are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. Inferred Mineral Resources have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.
Accordingly, information contained in this report and the documents incorporated by reference herein containing descriptions of our mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
DOCUMENTS FILED PURSUANT TO GENERAL INSTRUCTIONS
In accordance with General Instruction B.(1) of Form 40-F, the Registrant hereby incorporates by reference Exhibits 99.1 through 99.8, Exhibits 99.10 through 99.129 and Exhibits 99.135 through 99.139, inclusive, as set forth in the Exhibit Index attached hereto.
In accordance with General Instruction B.(2) of Form 40-F, the Registrant hereby makes reference to the sections entitled Authorized Share Structure on page 3 of the Notice of Articles of the Registrant filed as Exhibit 99.135 and on page 2 of the Notice of Articles of the Registrant filed as Exhibit 99.136, as set forth in the Exhibit Index attached hereto.
In accordance with General Instruction C.(2) of Form 40-F, the Registrant hereby incorporates by reference (i) Exhibits 99.4 and 99.7, the Audited Consolidated Financial Statements of the Registrant for the years ended December 31, 2009, 2008 and 2007; (ii) Exhibits 99.3 and 99.6, Managements Discussion and Analysis of Financial Condition and Results of Operation for the period ended December 31, 2009 and December 31, 2008, respectively; and (iii) Exhibit 99.9, Reconciliation to United States Generally Accepted Accounting Principles for years ended December 31, 2009, 2008 and 2007.
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In accordance with General Instruction D.(9) of Form 40-F, the Registrant has filed written consents of certain experts named in the foregoing Exhibits as Exhibit 99.130 through Exhibit 99.134, inclusive, as set forth in the Exhibit Index attached hereto.
OFF-BALANCE SHEET ARRANGEMENTS
The Registrant has no off-balance sheet arrangements.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table lists, as of December 31, 2009, information with respect to the Registrants known contractual obligations.
Payment due by period | |||||
Contractual Obligations | Total |
Less than
1 year |
1-3 years | 3-5 years |
More than 5
years |
Long-Term Debt Obligations | 4,309,159 | 1,095,672 | 1,676,605 | 1,536,882 | - |
Capital (Finance) Lease Obligations | 2,807,636 | 2,139,352 | 668,284 | - | - |
Metal Prepayment Obligation | 450,940 | 450,940 | - | - | - |
Property Purchase Obligations | 1,261,200 | 1,261,200 | - | - | - |
Construction Contract Obligations | 2,071,102 | 2,071,102 | - | - | - |
Other Long-Term Liabilities Reflected on the Registrants Balance Sheet under GAAP of the primary financial statements Asset Retirement Obligations | 4,336,088 | - | - | - | 4,336,088 |
Total |
15,236,125 |
7,018,266 |
2,344,889 |
1,536,882 |
4,336,088 |
UNDERTAKINGS
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
CONSENT TO SERVICE OF PROCESS
Concurrently with the filing of this Registration Statement on Form 40-F, the Registrant will file with the Commission an Appointment of Agent for Service of Process and Undertaking on Form F-X.
Any change to the name or address of the Registrants agent for service shall be communicated promptly to the Commission by amendment to Form F-X referencing the file number of the Registrant.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized.
Date: November 23, 2010
FIRST MAJESTIC SILVER CORP.
By: | /s/ Raymond Polman | |
Name: Raymond Polman | ||
Title: Chief Financial Officer |
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EXHIBIT INDEX
Annual Information
Quarterly Information
- 8 -
Shareholder Meeting Materials
- 9 -
Material Change Reports
99.36. | |
99.37. | |
99.38. | |
99.39. | |
99.40. | |
99.41. | |
99.42. | |
99.43. | |
99.44. | |
99.45. | |
99.46. | |
99.47. | |
99.48. | |
99.49. | |
99.50. | |
99.51. | |
99.52. | |
99.53. | |
99.54. | |
99.55. | |
99.56. | |
99.57. | |
99.58. |
- 10 -
99.59. | |
99.60. | |
99.61. | |
99.62. | |
99.63. | |
99.64. | |
99.65. | |
99.66. | |
99.67. | |
99.68. | |
99.69. | |
99.70. | |
99.71. |
News Releases
99.72. | |
99.73. | |
99.74. | |
99.75. | |
99.76. | |
99.77. | |
99.78. | |
99.79. | |
99.80. | |
99.81. |
- 11 -
- 12 -
Technical Reports
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Consents
Constating Documents
99.135. | |
99.136. | |
99.137. | |
99.138. |
Material Contracts
99.139. | Arrangement Agreement dated September 11, 2009 |
FIRST MAJESTIC SILVER CORP.
2009 ANNUAL REPORT
TSX:FR
ITS WHATS INSIDE THAT COUNTS
|
|
FIRST MAJESTIC IS A WORLD-CLASS SILVER PRODUCER FOCUSED ON THE ACQUISITION AND EXPANSION OF ADVANCED-STAGE SILVER PROJECTS IN MEXICO. WE ARE COMMITTED TO BUILDING SUSTAINABLE MINING OPERATIONS BASED ON SOUND SOCIAL AND ENVIRONMENTAL PRACTICES. | |
Steadfastly driven to become one of North America’s top silver producers, First Majestic has had a remarkable year in 2009 highlighted by profitability, major improvements to its facilities, a strategic acquisition, and more industry recognition for its exemplary corporate citizenship. |
TABLE OF CONTENTS
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 3
MESSAGE FROM THE
|
LETTER TO SHAREHOLDERS
2009 HAS BEEN A TREMENDOUSLY EXCITING YEAR for First Majestic. We continued to aggressively execute our strategy to become a senior silver producer through the development of our existing assets and through the acquisition of additional assets. This was realized by completing a major expansion at the La Encantada Silver Mine and by acquiring Normabec Mining Resources Ltd. the owner of the exciting Real de Catorce Silver Project.
Gross revenues were very strong at $71.5 million growing by over 27%. We also experienced an 18% increase in shipments resulting in net income of $6.3 million, compared to a net loss of $5.1 million in 2008. We also invested over $33 million into our existing assets and reduced our liabilities by over $20 million.
First Majestics largest operation, the La Encantada, has undergone a $33 million facelift with the addition of a new cyanidation plant. When fully operational in Q2, 2010, this upgrade will result in the La Encantadas silver production to be in the form of silver Doré bars instead of concentrates. At full production, La Encantada will contribute over four million ounces of silver annually.
GROSS REVENUES REMAINED STRONG AND GREW BY 27.5%.
The other significant event in 2009 was the acquisition of the Real de Catorce Silver Project. This project added over 47 million ounces of silver to First Majestics asset base and, at the same time, has given the Company ownership of a 6000 hectare prolific silver district that is under explored and under developed.
At the Del Toro Silver Mine in Zacatecas, preparations are underway for our next major construction project. Breaking ground for the construction of our fourth operation is slated to begin in late 2010, with a planned opening in late 2011.
To the credit of our team in Mexico, First Majestic was recognized for the second year running for our commitment and dedication to operating a socially and environmentally responsible company. First Majestic received an award from the Mexican authorities for the 2nd consecutive year the Socially Responsible Business Distinction Award for 2009.
First Majestics year ended on a very positive note, with the fourth quarter results being the strongest in our history. It is noteworthy that these results in 2009 can be primarily credited to the La Parrilla and San Martin operations as the La Encantada expansion project was commissioned in November and had not delivered significant production increases by year end.
We are confident that 2010 will be an even better year financially for First Majestic due to increases in production and profitability expected from the recent expansion at La Encantada.
Our top priority is to continue to increase the scale of operations and continually make ongoing improvements as necessary. This strategy has proven successful to date and is expected to drive profits higher and ultimately translate to increasing the value of the Company for the benefit of all shareholders.
Keith Neumeyer
President & CEO
4
MESSAGE FROM
|
THANKS TO THE HARD WORK of our dedicated team in Mexico, we are proud that La Parrilla and San Martin mines now have a significantly improved productivity and efficiency in their operations. La Encantada is in the final stage of its upgrade and is expected to be at full capacity in the second quarter of 2010.
WE ARE CONFIDENT OUR EFFORTS WILL GREATLY IMPROVE OUR RESULTS IN 2010
We are working daily to improve our performance in all key areas of operations: hitting our production targets with special focus on metallurgical recoveries, maintaining our cost levels, providing safe and environmentally sound operations, and modernizing our facilities with new equipment and technologies. We are confident our efforts will greatly improve our results in 2010, and we look forward to advancing our Del Toro and Real de Catorce projects.
Our success over the last five years is the result of an exceptionally hard-working team of people. I wish to thank our Board of Directors, the management team for their support of the operations, and our committed team of employees who have worked so diligently over the years. Our partners and consultants also deserve our gratitude for the tremendous support they have given our operations. To our exploration team, who discovered and upgraded our resources, and to our administrative team, I say thank you. With their ongoing effort and dedication, we can rely on them to continue to drive our growth for many years to come.
Ramon Davila, Ing
Chief Operating Officer
HIGHLIGHTS
RELENTLESS DRIVE TO BECOME ONE OF NORTH AMERICAS LARGEST
SILVER PRODUCERS
|
|
| Gross revenue up 27.5% to $71.5M |
| Total production up 2.5% to 4,337,103 ounces of silver equivalents |
| Completed construction of $33 million upgrade at La Encantada |
| Continued focus on reduction of costs |
| Generated net income of $6.3 million (EPS of $0.08) |
| Invested over $33 million into existing properties |
| Acquired the Real de Catorce Silver Project |
| Company recognition for Distinction of Socially Responsible Business |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 5
WELCOME TO SILVER-RICH MEXICO
Mexico remains one of the world’s most attractive regions for mining and exploration. As one of the largest silver producing nations in the world, Mexico provides a strong mining culture, excellent geology, political stability, free trade agreements, a skilled workforce and efficient permitting regimes. Mexico is ranked in the 5th position – just below Australia, Canada, Chile and USA – as a low risk country, according to the 2009 study of the Behre Dolbear group’s “ranking countries for mining investment.”
A large number of free trade agreements further facilitate mining in Mexico, most importantly enabling 100% foreign direct investment (FDI). Interest rates and inflation have been well managed, and bureaucratic hurdles have been minimized.
First Majestic’s growth continues to be driven by acquisitions, continued development and exploration, and a firm commitment to the country.
6
COMMUNITY SUPPORT FROM THE GROUND UP
First Majestic is committed to the highest possible standard in corporate citizenship. We believe in supporting our communities from the ground up.
We take pride in making meaningful contributions to the communities we are active in wherever possible. We engage local workforces and stimulate well-being beyond our operations.
We are actively involved in improving and aiding in a variety of essential areas: healthcare services including supporting doctors, paramedics and ambulance services, supplying clean water to primary schools, paving of roads, providing funding for parks and recreation, upgrading of elementary and high schools, and assisting with agricultural subsidies and capital improvement projects.
In both 2008 & 2009, this commitment was recognized by the Centro Mexicano para la Filantropia with a Socially Responsibility Business Distinction award. This Distinction recognizes excellence in corporate ethics, quality of work, community citizenship, and environmental responsibility. We are particularly proud to have been recognized within the Mexican community two years running.
WE SUPPORT OUR LOCAL COMMUNITIES
In addition to the many things we do as a Company to assist the local populations, we also provide academic scholarships towards university degrees focused in geology and engineering, All of these efforts are simply reflections of the manner in which First Majestic operates.
First Majestic remains dedicated to maintaining a clean and safe work environment, and we continue to engage and work with our employees to provide the best training, tools, equipment and supervision on our worksites.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 7
THERES NO SUBSTITUTE FOR SILVER |
8
SILVER |
The diversity of silver uses in critical applications makes silver one of the most compelling investments today. As mankind becomes more reliant on technology, we become more reliant on silver. This trend seems to have no end in sight.
As an investment, the outlook for silver is expected to remain strong for many years. Silver has benefitted from being both an industrial metal and a cheap precious metal. Industrial metals have rallied strongly as the economic recovery has taken hold, while at the same time, precious metals have done well as investors and world banks have been divesting away from the US dollar. Jewellery demand has also been strong.
Given the diverse nature of silver demand, prices are expected to perform well. (Source: ScotiaMocatta, Silver Forecast 2010)
SOME OF THE KEY SILVER USES IN THE MARKET TODAY, ARE:
• Pharmaceuticals |
• Anti-Bacterial Applications |
• Electric Wiring |
• Chemical Catalyst |
• Reflectants |
• Printed Circuitry |
• Superconductors |
• Electroplating |
• Brazing & Soldering |
• Coins & Bars for investment |
• Photography (incl. X-Ray’s) |
• Silverware & Jewellery |
• Mirrors & Window Coatings |
• Solar Energy |
• Water Purification |
FIRST MAJESTIC’S SILVER BARS & BULLION
FIRST MAJESTIC CONTINUES TO INNOVATE WITH THE INTRODUCTION OF AN ONLINE BULLION E-STORE
After many months of development, First Majestic recently launched our online E-store for the sale of our own silver coins and bars. Online sales now represent a significant portion of our sales.
This unique approach to selling our silver directly to investors gives First Majestic a new revenue source, higher than normal margins and more importantly, provides access for individuals who may otherwise find it difficult to source physical silver at reasonable prices. The company is pleased to continue to provide this opportunity for bullion investors, and are happy to hear that often these investors become shareholders.
First Majestic continues to strive to fill customer demand resulting in the introduction of a new 50 ounce free-poured bar to its product line. These innovative 50-ounce bars are hand-poured and marked the old-fashioned way, resulting in a rustic look that makes each bar a unique work of art.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 9
THE KEY TO OUR TREMENDOUS GROWTH HAS BEEN THE STRENGTH AND COMMITMENT OF OUR PEOPLE. IN JUST SEVEN SHORT YEARS, FIRST MAJESTIC HAS GROWN TO OVER $70 MILLION IN GROSS REVENUES, EMPLOYING OVER 1500 PEOPLE, WHICH INCLUDES ONE OF THE MOST RESPECTED OPERATIONAL TEAMS IN MEXICO.
COLLECTIVELY OUR TOP 40 EXECUTIVES HAVE OVER 600 YEARS OF MINING AND MANAGEMENT EXPERIENCE.
THE FIRST MAJESTIC TEAM OF ENERGETIC, TALENTED PEOPLE IN BOTH MEXICO AND CANADA ARE ALL FOCUSED ON ONE COMMON VISION-TO BE ONE OF THE LARGEST SILVER PRODUCERS IN NORTH AMERICA.
10
DRIVEN BY DEDICATED PROFESSIONALS
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 11
OUR TEAM VANCOUVER OFFICE
Raymond L. Polman
, B.Sc (Econ), CA
Mr. Polman has over 25 years of public accountancy and corporate finance experience in the Canadian and US financial markets. Mr. Polman has a Bachelor of Science (Economics) Degree from the University of Victoria and is a member of the Institute of Chartered Accountants of British Columbia. Mr. Polman served as a CA with Deloitte & Touche, LLP, for eight years prior to leaving public practice and heading up Finance for Rescan Consulting. He has also served as a Chief Financial Officer for a group of junior and growth stage public companies in the high tech sector.
Connie Lillico,
B.A.
Ms. Lillico has worked in public company management and administration since 2000. She was previously the Corporate Secretary of several publicly traded mining and oil & gas companies for three years, prior to which she was a Paralegal with a publicly traded software company for two-and-a-half years. Ms. Lillico also worked in corporate and securities law as a Paralegal with a large national legal firm for eight years. She has a Bachelor of Arts degree from Simon Fraser University and a Paralegal certification from Capilano College. MEXICO OFFICE
Francisco Garza,
CP
Mr. Garza is a Chartered Public Accountant with over 42 years of experience during which he held positions with Grupo Mexico, San Luis Corporación, and Silver Eagle. Previous positions held by Mr. Garza include CFO, VP of Finance and Administration, and President of Auto Parts Division in the San Luis Group (LUISMIN). |
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1. |
Raymond L. Polman |
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2. |
Connie Lillico |
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3. |
Francisco Garza |
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12
Sergio Ramírez,
Ing
Mr. Ramírez is a mining engineer with over 42 years of experience. He spent over 32 years in several key positions within Grupo Mexico and prior to that with the Mexican Government. In his five years with First Majestic, Mr. Ramírez has held several senior management positions within our operations. Previous positions held by Mr. Ramírez, include: Chief of Engineering, Chief of Planning, Mine Superintendent, Assistant Mine Manager, Mine Manager and Operations Director.
Florentino Muñoz,
Ing
Mr. Muñoz is a Geological Engineer who holds a Masters Degree in Economic Geology. Mr Muñoz’s 36 years of experience includes positions with Grupo Mexico, Luismin and Exploraciones Geologicas de Occidente. Mr. Muñoz also worked as an independent consultant. Mr. Muñoz’s prior positions include Chief Geologist, Geology Superintendent, Chief of Petrography and Mineragraphy, and Regional Exploration Manager.
Mario Maldonado,
Lic.
Mr. Maldonado holds a Bachelor Degree in Industrial Administration and has over 32 years of experience working in Human Resources for various firms. Mr. Maldonado has held positions with Industrias Peñoles, Refrescos del Norte, Embotelladora Aga, Jugos del Valle, and Casas Geo. Some of Mr. Maldonado’s earlier positions include Chief of Organization Development and Corporate Manager of Human Resources.
Oscar Melgar,
Ing
Mr. Melgar is a Mechanical Engineer who holds a Masters Degree in Metallurgy and has over 35 years of experience. Mr. Melgar has held positions with Movisa, Minera San Francisco del Oro, Industrias Peñoles, Minera Maple, Svedala-Metso, Weir Envirotech, and Gammon Lake. Previous positions held by Mr. Melgar include Design Engineer, Assistant Maintenance Superintendent, Maintenance Superintendent, Manager of Spare Parts, and Purchasing Manager. |
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4. |
Sergio Ramírez |
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5. |
Florentino Muñoz |
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6. |
Mario Maldonado |
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7. |
Oscar Melgar |
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FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 13
LA ENCANTADA SILVER MINE, COAHUILA, MEXICO
MAJOR EXPANSION COMPLETED IN 2009 WILL DRAMATICALLY INCREASE PRODUCTION
LOCATION: COAHUILA, MÉXICO | |||||||
100
%
OWNERSHIP |
96,250
MONTHLY CAPACITY (TONNES) |
641
EMPLOYEES |
1,446,660
2009 PRODUCTION (SILVER EQ. OZ.) |
US$
6.10
2009 DIRECT CASH COSTS PER OUNCE |
US$
10.20
2009 CASH COSTS PER OUNCE (ALL IN) |
US$
45.59
2009 TOTAL COSTS PER TONNE |
3,500,000
2010 PROJECTED SILVER EQ. OZ. PRODUCTION |
14
LA ENCANTADA SILVER MINE is First Majestics highest-grade mine and lowest-cost producer. It is located in the Coahuila State in Northern Mexico, easily accessible by road, and approximately an hour and half by plane from the city of Torreon. The mine site comprises of 4,076 hectares of mining rights and 1,343 hectares of surface land ownership. The closest city is Melchor Muzquiz. The mine consists of a complete 3,500 tpd cyanidation plant and a 1,000 tpd flotation plant including all related facilities and infrastructure; a mining camp with 180 houses, administrative offices, laboratory, recreation centre, schools, church, general store and a private airstrip. First Majestic owns 100% of the La Encantada Silver Mine. WE ARE CONVINCED THAT THE NEXT YEARS WILL BE A GREAT SUCCESS FOR ALL OF US AT FIRST MAJESTIC. During 2009, a major expansion was completed at the La Encantada which resulted in the commissioning of a new 3500 tpd cyanidation plant. This new plant is currently in the ramp-up stage. Commercial production was achieved on April 1st, 2010 and full capacity is anticipated later in Q2 2010. The expansion is projected to add over 2.0 million ounces to the Companys production in 2010, while bringing total production to over 4.0 million ounces in the form of Doré bars annually. Th e positive results of exploration and development of the high-grade area within the mine, including completing the learning curve on the new cyanidation plant, will allow the La Encantada to be one of the leading producers of low-cost silver in Mexico. We are in the process of ramping up the new plant and the challenge is very exciting for all of us. We are convinced that the next years will be a great success for all of us at First Majestic.
Miguel Riós, Ing
Mr. Riós is a Mining Engineer with more than 28 years of experience during which he has worked with several mining groups such as Peñoles and Pan American Silver (Plata Panamericana). His previous positions include Mine Foreman, Mine and Planning Superintendent, Mine Superintendent, and General Manager. Mr. Riós has been with First Majestic for five years and has been the manager at each of the Companys operations. He is currently the General Manager of the La Encantada mine. |
NI 43-101 CHART - see pg. 23
|
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 15
LA PARRILLA SILVER MINE, DURANGO, MEXICO
DISCOVERY AT LAS VACAS, UNDER DEVELOPMENT FOR PRODUCTION IN 2011
LOCATION: DURANGO, MEXICO | |||||||
100
%
OWNERSHIP |
23,375
MONTHLY CAPACITY (TONNES) |
423
EMPLOYEES |
1,643,207
2009 PRODUCTION (SILVER EQ. OZ.) |
US$
4.26
2009 DIRECT CASH COSTS PER OUNCE |
US$
7.84
2009 CASH COSTS PER OUNCE (ALL IN) |
US$
38.60
2009 TOTAL COSTS PER TONNE |
1,600,000
2010 PROJECTED SILVER EQ. OZ. PRODUCTION |
16
LA PARRILLA was the first mine developed by First Majestic. It began commercial silver production in October 2004 and its operations have been scaled up continually from 180 tpd in early 2005 to the current capacity of 850 tpd. The La Parrilla Silver Mine is located approximately 75 km southeast of the city of Durango in Central Mexico. Excellent infrastructure exists in the area with the mine only 4 km away from a major highway. First Majestic owns 100% of the La Parrilla mine. The plant processes both oxide and sulphide silver ores in two separate 425 tpd parallel circuits. Both Doré metal bars and flotation concentrates are being produced. The Company’s mining claims surrounding the main mine and mill complex cover a very large, 53,249 hectare (131,558 acres) land package consisting of several known areas of mineralization, such as: the Los Rosarios, La Rosa and La Blanca/San Jose vein system (Rosarios System); San Marcos; Quebradillas; Las Vacas; San Nicolas; Las Animas, and numerous other targets for exploration along several known structures and projected intersections, such as Milagros, La Vibora and Sacramento. During 2009, a key focus of the development program underway at La Parrilla was to reach the lower levels of the La Rosa/Rosarios vein. During the year, the 8th and 9th levels were developed, allowing the mine to increase the Proven and Probable Reserves and improve the quality of the resources that are located in these areas. At Quebradillas, the development work was focused on reaching a high-volume deeper ore body. This development proved successful, and the area is currently being prepared for production for 2010. “La Parrilla is at a crucial stage due to the high mining potential both at the Rosarios System and at the Quebradillas mine, which will give us the opportunity to increase production in the near future. I feel very proud to work with a team of professionals that have a firm commitment with our Company. First Majestic has had a vision to acquire new projects with high potential, which has positioned the Company as one of the most important silver producers in Mexico. I am glad to be a part of it, and it is a privilege to work for First Majestic.”
Mario Valdez, Ing
Mr. Valdez is a mining engineer with over 28 years of experience during which he has worked with several Mexican and Canadian mining companies such as Minera Autlan, Compañía Minera del Norte, Grupo Mexico, Baramin, Silver Eagle, Dia Bras, and Gammon Lake. Positions held include Mine Foreman, Chief of Engineering and Planning, Mine Superintendent, Mine Manager, Operations Manager, and Planning and Engineering Director. |
NI 43-101 CHART - see pg. 22
|
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 17
SAN MARTIN SILVER MINE, JALISCO, MEXICO
SAN MARTIN CONTINUES TO PRODUCE SUBSTANTIAL OUNCES OF SILVER
LOCATION: JALISCO, MEXICO | |||||||
100
%
OWNERSHIP |
26,125
MONTHLY CAPACITY (TONNES) |
342
EMPLOYEES |
1,247,236
PRODUCTION (SILVER EQ. OZ.) |
US$6.71
2009 DIRECT CASH COSTS PER OUNCE |
US$7.35
2009 CASH COSTS PER OUNCE (ALL IN) |
US$28.06
2009 TOTAL COSTS PER TONNE |
1,250,000
2010 PROJECTED SILVER EQ. OZ. PRODUCTION |
18
SAN MARTIN SILVER MINE is located in the Bolanos river valley, a 250 km drive north of Guadalajara, adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine and mill has been in continuous operation since 1983 and is a major contributor to the economy of the town of San Martin de Bolanos, which has a population of approximately 3,000 people. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface land rights where the 950 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings and offices are located. First Majestic has been focused on increasing its silver reserves/resources in Oxides while at the same time maintaining production at present levels. The mill has historically produced 100% Doré bars and continues to do so. First Majestic owns 100% of the San Martin Silver Mine. A mill expansion program was launched in 2008 and completed in 2009 resulting in the current mill capacity. The upgrades included the construction and addition of a new thickener, new clarifiers and new filter presses. The expansion program also resulted in many improvements to the facilities, including the repair and reinforcing of the older leaching tanks and construction of spill containment systems. During 2009, additional development was completed in a new area at the San Martin mine, referred to as the San Pedro area, which is located at the footwall of the Zuloaga vein. This development program has enabled access to higher grade ores and additional tonnage of reserves. An underground drill program is currently underway that is completing short horizontal holes into the footwall and hanging way. This program was responsible for discovering the San Pedro area and is anticipated to discover other similar areas. Th e potential for increasing the reserves and thus the life of the mine is great; we just began working in a new vein called La Esperanza in which we have very high expectations. Th e team that is working at the San Martin mine is excellent and we are working very hard to meet our targets.
Alfredo Flores, Ing
Mr. Flores is a mining engineer with over 31 years of experience during which he has worked with several different Mexican and Canadian mining companies such as Compañia Fresnillo, Industrias Peñoles, Luismin, and Excellon. Positions held include: Mine Foreman, Development Foreman, Assistant of Mine Superintendent, Mine Superintendent, Mine Manager, Operations Manager, and Regional Manager. |
NI 43-101 CHART - see pg. 24
|
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 19
DEVELOPMENT PROJECTS
20
DEL TORO SILVER MINE, ZACATECAS, MEXICO THE DEL TORO SILVER MINE is located 60 km southeast of the Company’s La Parrilla Silver Mine. The Del Toro operation represents the consolidation of two old silver mines: the Perseverancia and San Juan mines, which are approximately one kilometre apart. Del Toro consists of mining rights that cover 393 hectares within 21 titled concessions plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine entrance. Access to the properties is through the nearby Interstate 45 highway and the state roads which connect the Chalchihuites Town and several country and trail roads. Local infrastructure, including electricity, water and telephones, and accommodations are excellent. Exploration efforts at Del Toro have been highly successful in delineating a significant Resource base within a short period of time and at relatively low cost. All necessary permits for the construction of a 1,000 tpd flotation mill were granted in Q4 2009 and Q1 2010 by the Mexican authorities. No immediate plans are in place to commence construction, although the Company anticipates a final decision to proceed later in 2010. |
NI 43-101 CHART - see pg. 25
|
|
REAL DE CATORCE SILVER PROJECT, SAN LUIS POTOSÍ, MEXICO THE REAL DE CATORCE SILVER PROJECT is located approximately 25 km west of the town of Matehuala in the San Luis Potosí state of México, which lies about 259 km to the south of the industrial city of Saltillo and about 170 km north of the city of San Luis Potosí. The Real de Catorce was acquired on November 13, 2009, with the all-share acquisition of Normabec Mining Resources. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares, with historical production of 230 million ounces between 1773 and 1990. First Majestic owns 100% of the Real de Catorce Silver Project. In 2010, First Majestic plans to reconfirm the existing geological information and launch an aggressive drilling and exploration program in the latter half of the year. |
NI 43-101 CHART - see pg. 25 |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 21
LA PARRILLA SILVER MINE
NI 43-101 RESOURCES DATED
SEPTEMBER 30, 2008
TOTAL PROVEN + PROBABLE MINERAL RESERVES (1,2,3,4,5)
CATEGORY | TONNES | GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC (4)
% |
SILVER ONLY
OZ. |
SILVER (OZ.) INCLUDING
LEAD CREDIT |
||
Proven Reserves
(Oxides plus Sulphides) |
288,468 | 302 | 1.36 | 0.93 | 2,797,487 | 3,064,952 |
Probable Reserves
(Oxides plus Sulphides) |
217,060 | 287 | 1.45 | 1.12 | 2,002,158 | 2,182,002 |
Total Proven
Plus Probable Reserves |
505,528 | 295 | 1.40 | 1.01 | 4,799,645 | 5,246,954 |
TOTAL MEASURED + INDICATED RESOURCES
CATEGORY |
TONNES |
GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC
% |
SILVER ONLY
OZ. |
SILVER (OZ.)
INCLUDING
LEAD CREDIT |
||
Measured Resources
(Oxides plus Sulphides) |
2,195,448 | 264 | 2.59 | 4.54 | 18,637,618 | 22,806,628 |
Indicated Resources
(Oxides Plus Sulphides) |
861,488 | 245 | 3.46 | 6.07 | 6,785,685 | 7,940,379 |
Total Measured Plus
Indicated Resources (Oxides plus Sulphides)(6) |
3,100,000 | 255 | 2.84 | 4.97 | 25,400,000 | 30,700,000 |
TOTAL INFERRED RESOURCES
CATEGORY | TONNES | GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC (4)
% |
SILVER ONLY
OZ. |
SILVER (OZ.)
INCLUDING
LEAD CREDIT |
||
Total Inferred Resources
(Oxides Plus Sulphides) (6) |
8,000,000 | 169 | 0.87 | 1.49 | 43,900,000 | 52,800,000 |
1. |
Estimates by First Majestic reviewed by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery included. |
2. |
Silver equivalent based on sales. Prices used for evaluation: Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb. |
3. |
Oxides Ag equivalent includes gold credit based on sales. Au Credit = 6 g/tonne Ag. |
4. |
Sulphides Ag equivalent includes Pb credit = 47 g/tonne Ag. Zinc is considered at 70% met. Recovery = 30 g/tonne Ag. |
5. |
Cut-off grade estimated as 184 g/tonne Ag net of Au credit in oxide ores; and 246 g/tonne Ag net of Pb credit in sulphide ores. Zinc not considered in COG estimates. |
6. |
Rounded figures. |
22
LA ENCANTADA SILVER MINE
NI 43-101 RESOURCES
DATED SEPTEMBER 30, 2008
TOTAL PROVEN + PROBABLE MINERAL RESERVES (MINEABLE RESERVES) (4)
CATEGORY | TONNES | GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC (5)
% |
SILVER ONLY
OZ. |
SILVER (OZ.) INCLUDING
LEAD CREDIT |
||
Proven Reserves | 683,992 | 354 | 2.23 | 0.92 | 7,777,602 | 8,261,401 |
Probable Reserves | 4,511,686 | 186 | 2.45 | 2.54 | 26,936,651 | 27,287,462 |
Total Proven + Probable
Reserves |
5,195,677 | 208 | 2.42 | 2.33 | 34,714,253 | 35,548,863 |
TOTAL MEASURED + INDICATED RESOURCES (4)
CATEGORY | TONNES | GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC (5)
% |
SILVER ONLY
OZ. |
SILVER (OZ.) INCLUDING
LEAD CREDIT |
||
Measured Resources | 445,650 | 399 | 4.15 | 0.65 | 5,710,055 | 6,025,271 |
Indicated Resources
(6, 7, 8) |
4,931,103 | 156 | 1.15 | 0.87 | 24,774,263 | 27,082,017 |
Total Measured + Indicated
Resources |
5,376,753 | 176 | 1.40 | 0.85 | 30,484,318 | 33,107,288 |
Total Proven and Probable
Reserves plus Measured and Indicated Resources (9) |
10,572,000 | 192 | 1.90 | 1.58 | 65,199,000 | 68,700,000 |
TOTAL INFERRED RESOURCES (1, 2, 3, 4)
CATEGORY | TONNES | GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC (5)
% |
SILVER ONLY
OZ. |
SILVER (OZ.) INCLUDING
LEAD CREDIT |
||
Total Inferred Resources (5, 9) | 2,557,000 | 220 | 1.00 | 1.00 | 18,226,765 | 20,034,145 |
1. |
Cut Off Grade (COG) estimated as 250 g/tonne Ag only; and 228g/tonne Ag eqv net of Pb credit. |
2. |
Estimated Reserves are exclusive of Resources. |
3. |
Silver equivalent includes Pb credit, at prices US$12.00/oz-Ag, US$0.75/lb-Pb. Pb credit=22 g/tonne-Ag. |
4. |
Mining dilution is included at over 2.00m width. Estimates do not include mining recovery. |
5. |
Zinc is not recovered. |
6. |
Dump stockpile is considered as Measured Resource because the average grade is below COG -- 203 g/tonne Ag only and 186 g/tonne Ag eqv however with pre-screening may be processed. |
7. |
La Morena sulphide deposit requires additional metallurgical test work to prove its economic recovery. La Encantada mill does not have an operating zinc circuit at this time. |
8. |
Tailings are included within the Indicated Resources due to required additional test work and grade below Cut-off grade - 111 g/tonne Ag. |
9. |
Rounded figures |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT
|
23
SAN MARTIN SILVER MINE
NI 43-101 RESOURCES DATED SEPTEMBER 30, 2008
TOTAL PROVEN + PROBABLE MINERAL RESERVES (MINEABLE RESERVES) (1, 2, 3, 4, 5)
CATEGORY | TONNES | GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC (4)
% |
SILVER ONLY
OZ. |
SILVER (OZ.) INCLUDING
LEAD CREDIT |
||
Proven Reserves (Oxides) | 527,373 | 273 | 4,636,211 | 4,805,765 | ||
Probable Reserves (Oxides) | 243,091 | 276 | 2,154,571 | 2,232,727 | ||
Total Proven and Probable Reserves | 770,464 | 274 | 6,790,782 | 7,038,492 |
TOTAL MEASURED + INDICATED RESOURCES (2, 3, 5)
CATEGORY | TONNES | GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC (4)
% |
SILVER ONLY
OZ. |
SILVER (OZ.) INCLUDING
LEAD CREDIT |
||
Measured Resources
(Oxides) |
122,404 | 233 | 915,774 | 955,128 | ||
Measured Resources
(Sulfides) |
415,771 | 97 | 0.87 | 2.07 | 1,292,213 | 1,292,213 |
Indicated Resources
(Oxides) |
294,361 | 288 | 2,729,201 | 2,823,840 | ||
Indicated Resources
(Sulfides) |
670,684 | 116 | 0.94 | 1.64 | 2,498,639 | 2,498,639 |
Total Measured and
Indicated Resources (Oxides plus Sulfides) |
1,503,220 | 154 | 0.91 | 1.80 | 7,435,827 | 7,569,820 |
Proven and Probable
Reserves Plus Measured and Indicated Resources |
2,273,684 | 195 | 0.91 | 1.80 | 14,226,609 | 14,608,312 |
TOTAL INFERRED RESOURCES (2, 3, 5)
CATEGORY | TONNES | GRADE | METAL CONTAINED | |||
SILVER
G/TONNE |
LEAD
% |
ZINC (4)
% |
SILVER ONLY
OZ. |
SILVER (OZ.) INCLUDING
LEAD CREDIT |
||
Total Inferred Resources (Oxides plus Sulfides) | 8,200,000 | 185 | 1.40 | 1.60 | 48,900,000 | 50,037,365 |
1. Estimated Reserves are exclusive of Resources.
2. Cut Off
estimates as 146 g/tonne Ag for oxides, and 87 g/tonne Ag for dump recovered;
Ageq=Au/Pb credits= 10g/tonne Ag
3. Metal prices at $708/oz-Au, $12.00/oz
-Ag, $0.75/lb -Pb, $0.50/lb -Zn.
4. Mine dilution is included at a minimum
mining width of 2.00m. Estimates do not include mining recovery.
5. Base
metals, Lead and Zinc are not recovered due to low market prices.
To download the entire San Martin 43-101 Technical Report - Click here to view (PDF, 9.34 MB)
24
DEL TORO SILVER MINE
NI 43-101 RESOURCES
ESTIMATE DATED JULY 31, 2008
CATEGORY | TONNES | GRADE | CONTAINED SILVER EQV. OUNCES | ||
SILVER
G/TONNE |
LEAD
% |
ZINC
% |
|||
Measured + Indicated - Oxides | 728,444 | 194 | 2.45 | 2.71 | 2,947,000 |
Measured + Indicated - Sulphides | 649,528 | 353 | 7.20 | 7.14 | 17,996,000 |
Total Measured + Indicated Resources | 1,377,972 | 269 | 4.69 | 4.80 | 20,943,000 |
Total Inferred Resources | 1,831,738 | 306 | 5.77 | 5.94 | 35,970,000 |
1. |
Resource estimated in situ |
2. |
Price considerations $12.70/oz Ag, $0.90/lb-Pb and $0.85/lb-Zn. |
3. |
Mill recovery estimated: Oxides -- Ag 65%: Sulphides -- Ag 85%, Pb 85% and Zn 80%. |
4. |
Minimum mining width -- 2.00 m. |
5. |
Rounded figures. |
REAL DE CATORCE SILVER PROJECT
NI 43-101 RESOURCES
ESTIMATE DATED JULY 25, 2008
Update Resource Calculation November 10,
2008
CATEGORY |
TONNES
(6,7,8) |
GRADE | METAL CONTAINED (2,5) SILVER (OZ.) | ||
SILVER
G/TONNE (3,4) |
LEAD
% |
ZINC
% |
|||
Measured Resources (oxides) | 2,656,428 | 222 | 0.08 | 0.06 | 18,938,779 |
Indicated Resources (sulphides) | 1,052,170 | 316 | 0.73 | 0.74 | 10,675,742 |
Measured in Tailings | 1,403,233 | 90 | 4,075,305 | ||
Total Measured and Indicated Resources | 5,111,831 | 205 | 0.27 | 0.25 | 33,689,826 |
TOTAL INFERRED RESOURCES
CATEGORY |
TONNES
(6,7,8) |
GRADE | METAL CONTAINED (2,5) SILVER (OZ.) | ||
SILVER
G/TONNE (3,4) |
LEAD
% |
ZINC
% |
|||
Total Inferred Resources | 1,854,963 | 220 | 0.22 | 0.17 | 13,097,701 |
1. |
Estimated are exclusive of Resources. |
2. |
Metal contained is Silver only. |
3. |
Grade capping at 605 g/t Ag for oxides and 1500 g/t Ag for sulphides. |
4. |
Cut Off Grade (COG) estimated as 100 g/tonne Ag. |
5. |
Metal contained not include credits derived from the lead and zinc. |
6. |
Mining dilution is included at over 1.50 m width. Estimates do not include mining recovery. |
7. |
The datebase for resource estimate consist of diamond drilling (surface grid 50 x 50 m-underground) and surface channel sampling. |
8. |
Method; polygons maximum radius 50 m. |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 25
1805, 925 West Georgia Street
Vancouver, B.C. Canada V6C 3L2 Phone: 604.688.3033 Fax: 604.639.8873 Toll Free: 1.866.529.2807 info@firstmajestic.com www.firstmajestic.com |
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of First Majestic Silver Corp. (the “Company”) are the responsibility of the Company’s management. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada and reflect management’s best estimates and judgment based on information currently available.
Management has developed and maintains a system of internal controls to ensure that the Company’s assets are safeguarded, transactions are authorized and properly recorded, and financial information is reliable.
The Board of Directors is responsible for ensuring management fulfills its responsibilities. The Audit Committee reviews the results of the audit and the annual consolidated financial statements prior to their submission to the Board of Directors for approval.
The consolidated financial statements have been audited by Deloitte & Touche LLP and their report outlines the scope of their examination and gives their opinion on the financial statements.
Keith Neumeyer | Raymond Polman, CA |
President & CEO | Chief Financial Officer |
March 19, 2010 | March 19, 2010 |
26
Deloitte & Touche LLP
2800 - 1055 Dunsmuir Street 4 Bentall Centre P.O. Box 49279 Vancouver, BC Canada V7X 1P4 Tel: 604-669-4466 Fax: 604-685-0395 www.deloitte.ca |
AUDITORS’ REPORT
To the Shareholders of
First Majestic Silver Corp.
We have audited the consolidated balance sheets of First Majestic Silver Corp. as at December 31, 2009 and 2008, and the consolidated statements of income (loss), shareholders’ equity and comprehensive income (loss), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
Vancouver, Canada
March 19, 2010
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 27
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED BALANCE SHEETS |
AS AT DECEMBER 31, 2009 AND 2008 |
(Expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
CONTINGENT LIABILITIES (Note
22)
COMMITMENTS (Note 23)
Director | Director |
The accompanying notes are an integral part of these consolidated financial statements
28
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF INCOME (LOSS) |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Expressed in Canadian dollars, except share amounts) |
2009 | 2008 | |||||
$ | $ | |||||
Revenues (Note 15) | 59,510,669 | 44,324,887 | ||||
Cost of sales | 34,351,853 | 30,419,415 | ||||
Amortization and depreciation | 3,504,065 | 3,169,226 | ||||
Depletion | 2,748,709 | 3,034,137 | ||||
Accretion of reclamation obligation (Note 21) | 445,090 | 200,477 | ||||
Mine operating earnings | 18,460,952 | 7,501,632 | ||||
General and administrative | 8,089,087 | 7,549,079 | ||||
Stock-based compensation | 3,302,780 | 3,680,111 | ||||
Write-down of mineral properties (Note 9 (f)) | 2,589,824 | - | ||||
13,981,691 | 11,229,190 | |||||
Operating income (loss) | 4,479,261 | (3,727,558 | ) | |||
Interest and other expenses | (2,101,862 | ) | (1,372,768 | ) | ||
Investment and other income | 1,129,527 | 1,180,742 | ||||
Impairment of marketable securities | (390,467 | ) | - | |||
Foreign exchange loss | (36,426 | ) | (3,144,654 | ) | ||
Income (loss) before taxes | 3,080,033 | (7,064,238 | ) | |||
Income tax expense - current | 85,786 | 136,533 | ||||
Income tax (recovery) - future | (3,315,978 | ) | (2,055,987 | ) | ||
Income tax recovery (Note 18) | (3,230,192 | ) | (1,919,454 | ) | ||
NET INCOME (LOSS) FOR THE YEAR | 6,310,225 | (5,144,784 | ) | |||
EARNINGS (LOSS) PER COMMON SHARE | ||||||
BASIC | $ | 0.08 | $ | (0.07 | ) | |
DILUTED | $ | 0.07 | $ | (0.07 | ) | |
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||
BASIC | 83,389,253 | 71,395,164 | ||||
DILUTED | 85,913,487 | 71,395,164 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 29
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS) |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Expressed in Canadian dollars, except share amounts) |
Accumulated | |||||||||||||||||
Other | |||||||||||||||||
Comprehensive | Total | ||||||||||||||||
Share capital | Contributed | Income (Loss) | AOCI | ||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and deficit | Total | ||||||||||
$ | $ | $ | $ | $ | $ | $ | |||||||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | ||||||
Net loss | - | - | - | - | - | (5,144,784 | ) | (5,144,784 | ) | (5,144,784 | ) | ||||||
Other comprehensive loss: | |||||||||||||||||
Translation adjustment | - | - | - | - | (7,616,671 | ) | - | (7,616,671 | ) | (7,616,671 | ) | ||||||
Unrealized loss on marketable securities | - | - | - | - | (413,512 | ) | - | (413,512 | ) | (413,512 | ) | ||||||
Total comprehensive loss | (13,174,967 | ) | (13,174,967 | ) | |||||||||||||
Shares issued for: | |||||||||||||||||
Exercise of options | 436,650 | 1,398,566 | - | - | - | - | - | 1,398,566 | |||||||||
Exercise of warrants | 7,500 | 31,875 | - | - | - | - | - | 31,875 | |||||||||
First Silver arrangement | 1,861,500 | 9,009,660 | (9,009,660 | ) | - | - | - | - | - | ||||||||
Public offering, net of issue costs (Note 14(a)(iv)) | 8,500,000 | 40,144,471 | - | - | - | - | - | 40,144,471 | |||||||||
Stock option expense, net of deferred compensation | - | - | - | 3,609,247 | - | - | - | 3,609,247 | |||||||||
Warrants issued during the year | - | - | - | 2,737,000 | - | - | - | 2,737,000 | |||||||||
Transfer of contributed surplus upon exercise of stock options | - | 363,990 | - | (363,990 | ) | - | - | - | - | ||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | ||||||
Net income | - | - | - | - | - | 6,310,225 | 6,310,225 | 6,310,225 | |||||||||
Other comprehensive loss: | |||||||||||||||||
Translation adjustment | - | - | - | - | (17,411,904 | ) | - | (17,411,904 | ) | (17,411,904 | ) | ||||||
Impairment of marketable securities | - | - | - | - | 390,467 | - | 390,467 | 390,467 | |||||||||
Unrealized loss on marketable securities | - | - | - | - | (1,087 | ) | - | (1,087 | ) | (1,087 | ) | ||||||
Total comprehensive loss | (10,712,299 | ) | (10,712,299 | ) | |||||||||||||
Shares issued for: | |||||||||||||||||
Exercise of options | 36,250 | 97,963 | - | (29,125 | ) | - | - | - | 68,838 | ||||||||
Exercise of warrants | 50,000 | 165,000 | - | - | - | - | - | 165,000 | |||||||||
Public offering, net of issue costs (Note 14(a)(i)) | 8,487,576 | 18,840,890 | - | 848,758 | - | - | - | 19,689,648 | |||||||||
Private placements, net of issue costs (Note 14(a )(i i)) | 4,167,478 | 9,051,069 | - | 389,000 | - | - | - | 9,440,069 | |||||||||
Debt settlements (Note 14(a )(iii)) | 1,191,852 | 2,741,260 | - | - | - | - | - | 2,741,260 | |||||||||
Acquisition of Normabec (Note 13) | 4,867,778 | 16,696,479 | - | - | - | - | - | 16,696,479 | |||||||||
Stock option expense during the year | - | - | - | 3,302,780 | - | - | - | 3,302,780 | |||||||||
Balance at December 31, 2009 | 92,648,744 | 244,241,006 | 276,495 | 27,808,671 | (40,238,914 | ) | (33,166,658 | ) | (73,405,572 | ) | 198,920,600 |
(1) AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries which primarily affects the mining interests, except for the unrealized loss of $1,087 (2008 - unrealized loss of $391,000) on marketable securities classified as "available for sale".
The accompanying notes are an integral part of these consolidated financial statements
30
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Expressed in Canadian dollars) |
2009 | 2008 | |||
$ | $ | |||
OPERATING ACTIVITIES | ||||
Net income (loss) for the year | 6,310,225 | (5,144,784 | ) | |
Adjustment for items not affecting cash | ||||
Depletion | 2,748,709 | 3,034,137 | ||
Depreciation | 3,504,065 | 3,169,226 | ||
Stock-based compensation | 3,302,780 | 3,680,111 | ||
Accretion of reclamation obligation | 445,090 | 200,477 | ||
Write-down of other assets | - | 240,000 | ||
Write-down of mineral property interests | 2,589,824 | - | ||
Write-down of marketable securities | 390,467 | - | ||
Future income taxes | (3,315,978 | ) | (2,055,987 | ) |
Other income from derivative financial instruments | (1,002,780 | ) | - | |
Unrealized foreign exchange loss and other | 566,553 | 1,510,431 | ||
15,538,955 | 4,633,611 | |||
Net change in non-cash working capital items | ||||
(Decrease) Increase in accounts receivable and other receivables | (960,183 | ) | 1,517,537 | |
Decrease (Increase) in inventories | 365,964 | (1,571,118 | ) | |
Increase in prepaid expenses and other | (1,144,849 | ) | (588,697 | ) |
(Decrease) Increase in accounts payable and accrued liabilities | (5,813,014 | ) | 1,055,694 | |
Increase in unearned revenue | 47,889 | 110,258 | ||
Decrease in taxes receivable and payable | (89,190 | ) | (369,312 | ) |
Increase in vendor liability and interest | - | 399,112 | ||
(Decrease) Increase in vendor liability on mineral property | (1,242,543 | ) | 1,372,973 | |
6,703,029 | 6,560,058 | |||
INVESTING ACTIVITIES | ||||
Expenditures on mineral property interests (net of accruals) | (14,025,158 | ) | (24,485,036 | ) |
Additions to plant and equipment (net of accruals) | (19,365,209 | ) | (14,921,672 | ) |
Increase in derivative financial instruments | - | (127,153 | ) | |
Decrease (increase) in silver futures contract deposits | 1,355,163 | (363,278 | ) | |
Investment in marketable securities | (300,000 | ) | - | |
Increase in deposits on long term assets and other | (2,508,617 | ) | (704,487 | ) |
Acquisition of Normabec, less cash acquired | (531,419 | ) | - | |
(35,375,240 | ) | (40,601,626 | ) | |
FINANCING ACTIVITIES | ||||
Issuance of common shares and warrants, net of issue costs | 29,363,555 | 41,574,912 | ||
Payment of capital lease obligations | (2,708,513 | ) | (2,551,752 | ) |
Prepayment facility, net of repayments | 415,632 | - | ||
Payment of restricted cash into trust account | (14,258,332 | ) | - | |
Payment of short-term Arrangement liability | - | (388,836 | ) | |
Proceeds from FIFOMI debt facility | 4,309,159 | - | ||
17,121,501 | 38,634,324 | |||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (11,550,710 | ) | 4,592,756 | |
EFFECT OF EXCHANGE RATE ON CASH HELD IN FOREIGN CURRENCY | 16,380 | (3,816 | ) | |
CASH AND CASH EQUIVALENTS - BEGINNING OF THE YEAR | 17,424,123 | 12,835,183 | ||
CASH AND CASH EQUIVALENTS - END OF THE YEAR | 5,889,793 | 17,424,123 | ||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | - | |||
Cash | 5,296,059 | 495,168 | ||
Short-term deposits | 593,734 | 2,988,718 | ||
Restricted cash (Notes 5 and 10) | - | 13,940,237 | ||
5,889,793 | 17,424,123 | |||
Interest paid | 636,950 | 883,307 | ||
Income taxes paid | - | 135,847 | ||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 24) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 31
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
1. DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS
First Majestic Silver Corp. (the “Company” or “First Majestic”) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent on the price of silver in global commodity markets, and on maintaining profitable operations or obtaining sufficient funds from alternative sources as required to augment operations and for ongoing capital developments. If the Company were unable to continue as a going concern, material adjustments may be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”).
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”), First Silver Reserve Inc. (“First Silver”) and Normabec Mining Resources Ltd. (“Normabec”) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (“First Majestic Plata”), Minera El Pilon, S.A. de C.V. (“El Pilon”), Minera La Encantada, S.A. de C.V. (“La Encantada”), Majestic Services S.A. de C.V. (“Majestic Services”), Minera Real Bonanza, S.A. de C.V. (“MRB”) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (“Servicios”). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 10. Intercompany balances and transactions are eliminated on consolidation.
Variable Interest Entities (“VIEs”) as defined by the Accounting Standards Board in Accounting Guideline 15 “Consolidation of Variable Interest Entities” are entities in which equity investors do not have the characteristics of a “controlling financial interest” or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIEs are subject to consolidation by the primary beneficiary who will absorb the majority of the entities expected losses and/or expected residual returns. The Company has determined that it has no VIEs.
Measurement Uncertainties
The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Significant areas where management judgment is applied include, among others, the expected economic lives and the future operating results and net cash flows expected to result from exploitation of resource properties and related assets, the amount of proven and probable mineral reserves, accounting for income tax provisions, stock-based compensation, the determination of the fair value of assets acquired in business combinations and the amount of future site reclamation costs and asset retirement obligations. Actual results could differ from those reported.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market instruments with terms to maturity not exceeding 90 days at date of issue. The Company does not believe it is exposed to significant credit or interest rate risk although cash and cash equivalents are held in excess of federally insured limits with major financial institutions. In 2008, cash and cash equivalents included restricted cash of $13.9 million as described in Note 5.
Inventories
Silver coins and bullion, finished products of silver doré and silver concentrates, ore in process and stockpile (unprocessed ore) are valued at the lower of cost and net realizable value. Cost is determined as the average production cost of saleable silver and metal by-product. Materials and supplies are valued at the lower of cost and net replacement cost.
32
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Mineral Property Interests
Mineral property costs and exploration, development and field support costs directly relating to mineral properties are deferred until the property to which they directly relate is placed into production, sold, abandoned or subject to a condition of impairment. The deferred costs are amortized over the useful life of the ore body following commencement of production, or written off if the property is sold or abandoned. Administration costs and other exploration costs that do not relate to any specific property are expensed as incurred.
The acquisition, development and deferred exploration costs are depleted on a units-of-production basis over the estimated economic life of the ore body following commencement of production.
The Company reviews and evaluates its mining properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The carrying value of exploration stage mineral property interests represent costs incurred to date. The Company is in the process of exploring its other mineral property interests and has not yet determined whether they contain ore reserves that are economically recoverable. Accordingly, the recoverability of these capitalized costs is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete their exploration and development, and upon future profitable production.
Although the Company has taken steps to verify ownership and legal title to mineral properties in which it has an interest, according to the usual industry standards for the stage of mining, development and exploration of such properties, these procedures do not guarantee the Companys title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects. Management is not aware of any such agreements, transfers or defects.
From time to time, the Company acquires or disposes of properties pursuant to the terms of option agreements. Options are exercisable entirely at the discretion of the optionee and, accordingly, are recorded as mineral property costs or recoveries when the payments are made or received.
Impairment of Long-Lived Assets
Long-lived assets are assessed for impairment at least annually, and when events and circumstances warrant. The carrying value of a long-lived asset is impaired when the carrying amount exceeds the estimated undiscounted net cash flow from use or disposal. In the event that a long-lived asset is determined to be impaired, the amount by which the carrying value exceeds its fair value is charged to earnings.
Asset Retirement Obligations and Reclamation Costs
Future costs to retire an asset including dismantling, remediation and ongoing treatment and monitoring of the site are recognized and recorded as a liability at fair value at the date the liability is incurred. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. Future site restoration costs are capitalized as part of the carrying value of the related mineral property at their initial value and amortized over the mineral property’s useful life based on a units-of-production method.
Translation of Foreign Currencies
(i) Foreign Currency Transactions
The currency of measurement for the Company’s Mexican operating subsidiaries is the Mexican peso. Transaction amounts denominated in foreign currencies (currencies other than the Mexican peso) are translated into Mexican pesos at exchange rates prevailing on the transaction dates. Carrying values of foreign currency denominated monetary assets and liabilities are translated into the currency of measurement at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities are translated at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at the historical exchange rates in effect at the time of the transactions. Exchange gains and losses arising from the translation of these foreign currency denominated monetary assets and liabilities are included in operations.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 33
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(ii) Subsidiary Financial Statements
The financial statements of Mexican self-sustaining subsidiaries that are measured in Mexican pesos are translated into Canadian dollars using the current rate method. Translation gains and losses related to current rate translation of non-monetary items as at the reporting date are included as an element of the exchange gains and losses and included as a separate component of accumulated other comprehensive income.
The financial statements of the Company’s integrated Mexican subsidiaries, MRB and Servicios, are translated into Canadian dollars using the temporal method. Under this method, monetary assets and liabilities in foreign currency of the subsidiary are translated at the exchange rate in effect at the balance sheet date, whereas other assets and liabilities are translated at the exchange rate in effect at the transaction date. Revenue and expenses in foreign currency are translated at the average rate in effect during the year, with the exception of revenue and expenses relating to non-monetary assets and liabilities, which are translated at the historical rate. Gains and losses are included in the earnings for the year.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the financial statements and their respective tax bases (temporary differences), using substantively enacted income tax rates. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation applied from the commencement of operations, calculated using the straight line method over the following useful lives not to exceed the life of mine:
Computer equipment | 3 years straight-line |
Automobile | 5 years straight-line |
Office equipment | 5 years straight-line |
Machinery and equipment | 10 years straight-line |
Buildings | 20 years straight-line |
Leasehold improvements | 56 months straight-line |
Construction in progress costs are not amortized until the related asset is complete, ready for use, and utilized in commercial production.
Revenue Recognition
Revenue from the sale of silver is recorded in the Companys accounts when title transfers to the customer (which generally occurs on the date the shipment is delivered) when collection is reasonably assured, and when the price is reasonably determinable. Revenue is recorded in the statement of operations net of relevant smelting and refining treatment costs, and transportation costs paid to counterparties. Revenue from the sale of silver is subject to adjustment upon final settlement of estimated weights and assays. Silver metal prices are established upon delivery and do not require settlement changes. By-product revenues are included as a component of net sales revenues.
Unearned Revenue
Unearned revenue is recorded when cash has been received from customers prior to shipping of the related silver coins, ingots and bullion products.
Earnings or Loss Per Share
Basic earnings (loss) per share is computed by dividing the earnings (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the if converted method. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method.
34
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based Compensation
The Company uses the fair value method for recording compensation for all awards made to directors, employees and non-employees including stock appreciation rights, direct awards of stock and stock-based awards that call for settlement in cash or other assets. The compensation expense is determined as the fair value of the option at the date of grant and is calculated using the Black-Scholes Option Pricing Model . The contributed surplus balance is reduced as the options are exercised and the amount initially recorded is transferred to share capital. The effect of forfeitures of stock-based compensation is recorded as an adjustment to stock-based compensation expense in the period the option is forfeited.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (OCI). OCI represents changes in shareholders equity during a period arising from transactions other than changes related to transactions with owners. OCI includes unrealized gains and losses on financial assets classified as available-for-sale, changes in the fair value of the effective portion of derivative instruments included in cash flow hedges and currency translation adjustments on the Companys net investment in self-sustaining foreign operations.
Cumulative changes in OCI are included in accumulated other comprehensive income (AOCI).
Financial Instruments Recognition and Measurement and Hedges
Financial assets and liabilities, including derivatives, are recognized on the consolidated balance sheet when the Company becomes a party to the contractual provisions of the financial instrument. All financial instruments are required to be measured at fair value on initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities. Transaction costs are expensed as incurred for financial instruments classified as held-for-trading. For financial instruments classified as other than held-for-trading, transaction costs are added to the carrying amount of the financial asset or liability on initial recognition and amortized using the effective interest method.
Financial assets and financial liabilities held-for-trading are measured at fair value with changes in those fair values recognized in the consolidated statements of income (loss). Loans and receivables and other financial liabilities are measured at amortized cost using the effective interest method. Available-for-sale financial assets are presented in prepaid expenses and other assets in the Companys consolidated balance sheet and measured at fair value with unrealized gains and losses, including changes in foreign exchange rates, recognized in OCI. Other than temporary unrealized losses on available-for-sale, financial assets are recognized in the consolidated statements of income (loss). Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market are measured at cost.
The Company may periodically use foreign exchange and commodity contracts to manage exposure to fluctuations in foreign exchange rates and commodity prices. Derivative financial instruments are recorded on the Companys balance sheet at their fair values with changes in fair values recorded in the results of operations during the period in which the change occurred.
Derivative instruments are recorded on the consolidated balance sheet at fair value, including those derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts. Changes in the fair values of derivative instruments are recognized in net income.
The Company has designated its financial assets and liabilities as follows:
Comparative Figures
Certain comparative figures have been reclassified to conform to the classifications used in 2009.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 35
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Changes in Accounting Policies
Goodwill and Intangible Assets
The CICA issued Handbook Section 3064, “Goodwill and Intangible Assets”, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of internally developed intangible assets, including certain preproduction and start-up costs that do not meet the definition of an asset, and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009 and did not have a material impact on the Company. In regards to the start-up costs related to the ramp-up of the La Encantada mill expansion, Section 3061 “Property, Plant and Equipment” provides guidance for the capitalization of start-up costs which will be deferred until “commercial stage” production has been achieved.
Credit Risk and the Fair Value of Financial Assets and Liabilities
The Company adopted EIC-173, “Credit Risk and the Fair Value of Financial Assets and Liabilities”, which provides guidance on how to take into account an entity’s own credit risk and that of the counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. Upon adoption of this EIC, there were no resulting material changes to the Company’s financial position or results of operations.
Mining Exploration Costs
The Company adopted EIC-174, “Mining Exploration Costs”, which provides guidance on how to account for mineral exploration costs as well as when and how to assess for impairment when such exploration costs are capitalized. Upon adoption of this EIC, there were no resulting material changes to the Company’s financial position or results of operations.
Financial Instruments – Disclosures
In June 2009, the CICA amended Handbook Section 3862, “Financial Instruments – Disclosures” to include additional disclosure requirements about fair value measurements of financial instruments and to enhance liquidity risk disclosure requirements for publicly accountable enterprises. The amendments are applicable for the Company’s annual consolidated financial statements for the year ended December 31, 2009. The Company has only one financial instrument to which this amendment applies and it considers its marketable securities to be “Level 1” of the fair value hierarchy. Level 1 uses unadjusted quoted prices in active markets.
Financial Instruments – Recognition and Measurement
In July 2009, the Company adopted the amendments made by the CICA to Handbook Section 3855, “Financial Instruments – Recognition and Measurement” to provide additional guidance concerning the assessment of embedded derivatives upon reclassification of a financial asset out of the held-for-trading category, amend the definition of loans and receivables, amend the categories of financial assets into which debt instruments are required or permitted to be classified, amend the impairment guidance for held-to-maturity debt instruments and require reversal of impairment losses on available-for-sale debt instruments when conditions have changed. The additional guidance on assessment of embedded derivatives is applicable for reclassifications made on or after July 1, 2009. All other amendments are applicable as of January 1, 2009. The adoption of these amendments did not result in a material impact on the Company’s consolidated financial statements for the year ended December 31, 2009.
Future Accounting Pronouncements
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, “Business Combinations”, Section 1601 “Consolidations” and Section 1602 “Non-controlling Interests” to harmonize with International Financial Reporting Standards (“IFRS”). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has not adopted these new standards for the year ended December 31, 2009.
International Financial Reporting Standards (“IFRS”)
In 2006, the Canadian Accounting Standards Board (“AcSB”) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five-year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canada’s own GAAP. The transition date is January 1, 2011, and relates to interim and annual financial statements on or after January 1, 2011. The transition will require the restatement for comparative purposes of amounts reported by the Company for all reporting periods beginning after January 1, 2010.
The Company has commenced planning its transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is continuing its diagnosis and impact assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. The Company will continue to monitor changes in IFRS during implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting.
36
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
3. MANAGEMENT OF CAPITAL RISK
The Company’s objective when managing capital is to maintain its ability to continue as a going concern while at the same time maximizing growth of its business and providing returns on its shareholders’ investments. The Company’s overall strategy with respect to capital risk management remains unchanged from the prior year ended December 31, 2008.
The Company’s capital structure consists of debt facilities and shareholders’ equity, comprising issued capital, share capital to be issued, contributed surplus, deficit and accumulated other comprehensive loss.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Company’s Board of Directors.
The Company’s investment policy is to invest its cash in highly liquid short term interest bearing investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. The Company expects that the capital resources available to it will be sufficient to carry out its development plans and operations for at least the next twelve months, provided there are no materially adverse developments with commodity prices during this period.
4. FINANCIAL INSTRUMENTS AND RISKS
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
Credit Risk
Credit risk is the risk of financial loss if a customer or
counterparty fails to meet its contractual obligations. The Companys credit
risk relates primarily to trade receivables in the ordinary course of business
and value added tax and other receivables. The Company sells and receives
payment upon delivery of its silver doré and by-products primarily through one
international organization. Additionally, silver concentrates and related base
metal byproducts are sold primarily through one international organization with
a good credit rating. Payments of receivables are scheduled, routine and
received within sixty days of submission; therefore, the balance of overdue
trade receivables owed to the Company in the ordinary course of business is not
significant. The Company has a Mexican value added tax receivable of $6.0
million as at December 31, 2009, a significant portion which is past due. The
Company is proceeding through a lengthy and slow review process with Mexican tax
authorities, but the Company expects to fully recover these amounts.
The carrying amount of financial assets recorded in the financial statements represents the Companys maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Companys credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they arise. The Company has in place a
planning and budgeting process to help determine the funds required to support
the Companys normal operating requirements on an ongoing basis and to support
its expansion plans. As at December 31, 2009, the Company had a loan facility
with the Mexican Mining Development Trust - Fideicomiso de Fomento Minero
(FIFOMI) amounting to $4.3 million repayable over a five-year period. As at
December 31, 2009, the Company has outstanding accounts payable and accrued
liabilities of $11.3 million which are generally payable in 90 days or less.
Although, the Company does not have a history of operating profits, the Company believes it has sufficient cash on hand to meet operating requirements as they arise for at least the next twelve months.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 37
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
4. FINANCIAL INSTRUMENTS AND RISKS (continued)
The Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 2,807,636 | $ | 2,139,352 | $ | 668,284 | $ | - | $ | - | |||||
FIFOMI Loan Facilities | 4,309,159 | 1,095,672 | 1,676,605 | 1,536,882 | - | ||||||||||
Trafigura Prepayment Facility | 450,940 | 450,940 | - | - | - | ||||||||||
Real de Catorce Payments (1) | 1,261,200 | 1,261,200 | - | - | - | ||||||||||
Purchase Obligations (2) | 2,071,102 | 2,071,102 | - | - | - | ||||||||||
Asset Retirement Obligations | 4,336,088 | - | - | - | 4,336,088 | ||||||||||
Accounts Payable and Accrued Liabilities | 11,304,170 | 11,304,170 | - | - | - | ||||||||||
$ | 26,540,295 | $ | 18,322,436 | $ | 2,344,889 | $ | 1,536,882 | $ | 4,336,088 |
(1) |
Contract commitments to acquire surface rights and geological i nformation relating to the Real de Catorce Project. |
(2) |
Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project. |
Currency Risk
Financial instruments that impact the Companys net earnings or other comprehensive income due to currency fluctuations include Mexican peso denominated cash and cash equivalents, accounts receivable, investments in mining interests, accounts payable and loans payable. The sensitivity of the Companys net earnings and other comprehensive income due to changes in the exchange rate between the Mexican peso and the Canadian dollar is included in the table below.
Commodity Price Risk
Commodity price risk is the risk that movements in the spot price of silver have a direct and immediate impact on the Companys income or the value of its related financial instruments. The Company also derives by-product revenue from the sale of gold and lead. The Companys sales are directly dependent on commodity prices that have shown volatility and are beyond the Companys control.
The Company does not use derivative instruments to hedge its commodity price risk.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
The Companys interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Companys interest bearing financial liabilities comprise a floating rate loan with FIFOMI and a floating rate operating line, plus fixed rate debt instruments and capital leases with terms to maturity ranging up to three years. The FIFOMI loans are floating at 7.51% and 7.31% over the Mexican Interbank Rate which is currently at 4.91%
The sensitivity analyses below have been determined based on the undernoted risks at December 31, 2009.
(1) |
These sensitivities are hypothetical and should be used with caution, favourable hypothetical changes in the assumptions result in an increased amount and unfavourable hypothetical changes in the assumptions result in a decreased amount of net income and/or other comprehensive income. |
Fair Value Estimation
The Companys financial instruments are comprised of cash and cash equivalents, marketable securities, accounts receivables, other receivables, derivative financial instruments, accounts payable, capital lease obligations and debt facilities.
38
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
4. FINANCIAL INSTRUMENTS AND RISKS (continued)
Marketable securities and derivative instruments are carried at fair value. The fair values of accounts receivable, other receivables, accounts payable and accrued liabilities and unearned revenue approximate their carrying value due to the short term nature of these items. The fair values of capital lease obligations and debt facilities approximate their carrying value due to the floating interest rate on these items. The fair value of the vendor liability and interest payable is not readily determinable due to the uncertainty with respect to the outcome of the litigation described in Note 10.
5. RESTRICTED CASH
On July 22, 2008, the Company secured its outstanding vendor liability (Note 10) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. In addition, a further $545,522 was paid into the Supreme Court of British Columbia in January 2009 and the Letter of Credit increased to a total Restricted Cash balance of $14,485,759. On July 16, 2009, the Company agreed to a consent order whereby $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the previous Majority Shareholder of First Silver. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust by legal counsel to the vendor pending the outcome of the litigation. These funds would only become accessible to the Company in the event of a favourable outcome to the litigation.
6. OTHER RECEIVABLES
Details of the components of other receivables are as follows:
2009 | 2008 | |||
$ | $ | |||
Value a dded taxes recoverable | 6,030,775 | 6,109,943 | ||
Other taxes recoverable | 107,741 | 406,536 | ||
Interest receivable | 6,860 | 188,111 | ||
Loans receivable from employees | 101,789 | 67,240 | ||
Loan receivable from s upplier | 478,824 | 440,863 | ||
6,725,989 | 7,212,693 |
7. INVENTORIES
Inventories consist of the following:
2009 | 2008 | |||
$ | $ | |||
Silver coins and bullion including in process shipments | 273,262 | 247,368 | ||
Finished product - doré and concentrates | 343,990 | 1,342,550 | ||
Ore in process | 463,549 | 196,169 | ||
Stockpile | 387,836 | 1,631,625 | ||
Materials and s upplies | 2,343,823 | 1,523,628 | ||
3,812,460 | 4,941,340 |
8. PREPAID EXPENSES AND OTHER
Details of prepaid expenses and other are as follows:
2009 | 2008 | |||
$ | $ | |||
Prepayments to suppliers and contractors | 832,880 | 1,380,509 | ||
Deposits | 215,036 | 252,941 | ||
Marketable s ecurities | 387,425 | 50,375 | ||
Derivative financial instruments | - | 490,431 | ||
Prepaid mineral rights | 32,418 | - | ||
1,467,759 | 2,174,256 |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 39
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
9. MINING INTERESTS AND PLANT AND EQUIPMENT
Mining interests and plant and equipment, net of accumulated depreciation and depletion, are as follows:
2009 | 2008 | |||||||||||
Accumulated | Accumulated | |||||||||||
depreciation | depreciation | |||||||||||
and | Net Book | and | Net Book | |||||||||
Cost | depletion | Value | Cost | depletion | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Mining properties | 183,585,673 | 17,185,500 | 166,400,173 | 167,130,756 | 14,436,791 | 152,693,965 | ||||||
Plant and equipment | 69,026,387 | 8,637,857 | 60,388,530 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||
252,612,060 | 25,823,357 | 226,788,703 | 215,402,188 | 20,580,843 | 194,821,345 |
A summary of the net book value of mining properties is as follows:
2009 | 2008 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depletion | Value | Cost | Depletion | Value | |||||||
MEXICO | ||||||||||||
Producing properties | ||||||||||||
La Encantada (a) | 13,055,900 | 2,886,830 | 10,169,070 | 8,922,466 | 2,276,963 | 6,645,503 | ||||||
La Parrilla (b) | 22,371,850 | 3,009,041 | 19,362,809 | 18,644,777 | 2,038,223 | 16,606,554 | ||||||
San Martin (c) | 38,902,227 | 11,289,629 | 27,612,598 | 36,803,283 | 10,121,605 | 26,681,678 | ||||||
74,329,977 | 17,185,500 | 57,144,477 | 64,370,526 | 14,436,791 | 49,933,735 | |||||||
Exploration properties | ||||||||||||
La Encantada (a) | 2,467,451 | - | 2,467,451 | 2,858,043 | - | 2,858,043 | ||||||
La Parrilla (b) | 7,625,168 | - | 7,625,168 | 8,722,897 | - | 8,722,897 | ||||||
San Martin (c) (1) | 65,931,244 | - | 65,931,244 | 77,582,247 | - | 77,582,247 | ||||||
Del Toro (d) | 11,855,627 | - | 11,855,627 | 11,881,557 | - | 11,881,557 | ||||||
Real de Catorce (e) | 21,376,206 | - | 21,376,206 | - | - | - | ||||||
Cuitaboca (f) | - | - | - | 1,715,486 | - | 1,715,486 | ||||||
109,255,696 | - | 109,255,696 | 102,760,230 | - | 102,760,230 | |||||||
183,585,673 | 17,185,500 | 166,400,173 | 167,130,756 | 14,436,791 | 152,693,965 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
A summary of plant and equipment is as follows:
2009 | 2008 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
La Encantada Silver Mine | 42,001,694 | 1,954,699 | 40,046,995 | 19,541,421 | 1,221,301 | 18,320,120 | ||||||
La Parrilla Silver Mine | 17,228,300 | 3,792,818 | 13,435,482 | 18,590,746 | 2,568,373 | 16,022,373 | ||||||
San Martin Silver Mine | 9,751,407 | 2,889,290 | 6,862,117 | 10,139,265 | 2,354,378 | 7,784,887 | ||||||
Real de Catorce Silver Project | 44,986 | 1,050 | 43,936 | - | - | - | ||||||
Used in Mining Operations | 69,026,387 | 8,637,857 | 60,388,530 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||
Corporate office equipment | 767,782 | 358,501 | 409,281 | 712,525 | 229,475 | 483,050 | ||||||
69,794,169 | 8,996,358 | 60,797,811 | 48,983,957 | 6,373,527 | 42,610,430 |
40
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
9. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
Details of plant and equipment and corporate office equipment by specific assets are as follows:
2009 | 2008 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Land | 2,279,494 | - | 2,279,494 | 2,302,273 | - | 2,302,273 | ||||||
Automobile | 401,056 | 204,920 | 196,136 | 427,817 | 140,703 | 287,114 | ||||||
Buildings | 5,918,355 | 578,177 | 5,340,178 | 6,250,748 | 399,982 | 5,850,766 | ||||||
Machinery and equipment | 26,154,678 | 7,311,470 | 18,843,208 | 27,744,171 | 5,053,326 | 22,690,845 | ||||||
Computer equipment | 560,018 | 279,783 | 280,235 | 566,511 | 239,162 | 327,349 | ||||||
Office equipment | 577,215 | 460,070 | 117,145 | 600,413 | 447,405 | 153,008 | ||||||
Leasehold improvements | 320,304 | 161,938 | 158,366 | 320,304 | 92,949 | 227,355 | ||||||
Construction in progress (1)(2) | 33,583,049 | - | 33,583,049 | 10,771,720 | - | 10,771,720 | ||||||
69,794,169 | 8,996,358 | 60,797,811 | 48,983,957 | 6,373,527 | 42,610,430 |
(1) |
Construction in progress includes $31,283,949 relating to La Encantada, $535,604 relating to La Parrilla and $1,763,496 relating to San Martin (2008 - $8,537,075 relating to La Encantada, $422,247 relating to La Parrilla and $1,812,398 relating to San Martin). |
(2) |
At December 31, 2009, the La Encantada Mill Expansion Project had not achieved a commercial stage of production, therefore the net amount of revenues less production costs of $496,371 in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period were offset to construction in progress |
Mineral property options paid and future option payments in U.S. dollars are due as follows:
Del Toro | |||
Note 9(d) | |||
(US$) | |||
Paid as at December 31, 2009 | 5,987,500 | ||
Payable in 2010 | 225,000 | ||
Total Current and Future Option Payments | 6,212,500 |
(a) La Encantada Silver Mine, Coahuila State
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest towns, Muzquiz and Boquillas del Cármen, are 225 kilometres away and 45 kilometres away, respectively, via unpaved road. The La Encantada Silver Mine consists of a 3,500 tonne per day cyanidation plant, a 1,000 tonnes-per-day flotation plant, an airstrip, and a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine. During the year ended December 31, 2009, $22.7 million in expenditures were incurred at La Encantada and classified as construction in progress at December 31, 2009 as the plant has not yet achieved commercial production levels.
(b) La Parrilla Silver Mine, Durango State
The La Parrilla Silver Mine is a system of connecting underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 kilometres southeast of the city of Durango, in Durango State Mexico. Located at the mine are: mining equipment, a 425 tonne-per-day cyanidation plant, a 425 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
There is a net smelter royalty agreement (NSR) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. For the year ended December 31, 2009, the Company paid US$135,363 (December 31, 2008 US$69,000) relating to royalties.
(c) San Martin Silver Mine, Jalisco State
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface rights where the 950 tonne-per-day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 41
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
9. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
(d) Del Toro Silver Mine, Zacatecas State
The Del Toro Silver Mine is located 60 km to the southeast of the Companys La Parrilla Silver Mine and consists of 392 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart. The Company owns 100% of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package. The US$225,000 option payments due in 2010 relate to a new land acquisition of 50 hectares. All other option payments have been made.
(e) Real de Catorce Silver Project, San Luis Potosi State
The Real de Catorce Silver Project is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares. The Company owns 100% of the Real de Catorce Silver Project. Upon commencement of commercial production on the property, the Company has agreed to pay an amount of US$200,000 to a previous owner. The property is subject to a 3% net smelter return royalty, of which 1.75% may be acquired in increments of 0.25% for a price of US$250,000 per increment for the first five years from the date of the first payment and at a price of US$300,000 per increment for the following five years.
In addition, the Company has agreed to acquire the surface rights forming part of the property, including the buildings located thereon and covering the location of the previous mining operations, in consideration for a single payment of US$1,000,000 to be made in December 2010.
The Company has also agreed to make a payment of US$200,000 on December 10, 2010 for all technical and geological information collected over the area. Such payment is not related to the acquisition of the mining concessions or the surface rights and buildings agreement.
(f) Cuitaboca Silver Project, Sinaloa State
During the year ended December 31, 2009, management elected not to proceed with the acquisition of the Cuitaboca Silver Project. Accordingly, the historical investment totalling $2,589,824 was written off during the year.
10. VENDOR LIABILITY AND INTEREST
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53,365,519. The purchase price was payable to the shareholder of First Silver (the Majority Shareholder) in three instalments. The first instalment of $26,682,759, for 50% of the purchase price, was paid upon closing on May 30, 2006. An additional 25% instalment of $13,341,380 was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum was payable quarterly on the outstanding vendor balance.
In November 2007, an action was commenced by the Company and First Silver against the Majority Shareholder (the Defendant) who was previously a director, President & Chief Executive Officer of First Silver. The Company and First Silver allege that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
On March 14, 2008, the Defendant filed a Counterclaim in the Action against the Company in which he claimed for unpaid amounts and interest arising out of the agreement between the Company and the Defendant under which the Company acquired the Defendant’s shares (approximately 24,649,200 shares) in First Silver. As of July 16, 2009, the claimed unpaid amount, together with interest calculated at the contractual interest rate of 6% amounted to $14,881,912. This amount was partly secured by a Letter of Credit posted in Court by First Majestic in the sum of $14,485,760.
On July 16, 2009, an Order was granted by the Court, with the consent of all parties, under which the Defendant obtained a judgment in the amount of $14,881,912. The Company agreed to pay out $14,258,332 from the Letter of Credit to the Defendant’s lawyer’s trust account (the “Trust Funds”) in partial payment of the Judgment. The remaining $227,420 from the Letter of Credit was paid out to the Company. The Consent Order requires, that the Trust Funds be held pending the outcome of the Action. If the trial has not commenced by June 30, 2011, the Trust Funds can be released on that date to the Defendant, unless otherwise ordered by the court. At the present time, the trial is scheduled to commence in the Supreme Court of British Columbia, Vancouver, British Columbia on February 21, 2011. The Consent Order does not affect the standing of the Company’s claims for relief against the Defendant in the Action. These funds would only become accessible to the Company in the event of a favourable outcome to the litigation.
42
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
11. DEBT FACILITIES
(a) Pre-Payment Facility
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, $1.6 million (US$1.5 million) was advanced against the Company’s lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required. The repayment of the credit facility is guaranteed by the parent company. Subsequent to the year end, this agreement was amended and restated to provide an additional six-month prepayment facility of up to $1.6 million (US$1.5 million).
A total of $1.6 million (US$1.5 million) was drawn on this pre-payment facility and as at December 31, 2009, after supplying monthly quotas of lead concentrates, the Company had a remaining balance payable of $450,940 (US$431,497) after by-product shipments and interest charges of $7,553 (US$7,228).
(b) FIFOMI Loan Facilities
In October 2009, the Company entered into an agreement for two loan facilities totaling $53.8 million Mexican pesos (CAD$4.3 million) from the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI). Funds from these loans will be used for the completion of the 3,500 tonne-per-day cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% per annum and is repayable over a 60-month period. The working capital loan, for up to $6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% per annum and is a 90-day revolving loan. The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine.
A total of $53.8 million Mexican pesos was drawn down during 2009 and at December 31, 2009, the balance was $53.8 Mexican pesos (CAD$4.3 million) of which $1.1 million was classified as current.
Payments Due By Period | |||||||||||||||
Total | Less than | 1-3 | 4-5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
FIFOMI Loan Facilities | $ | 4,309,159 | $ | 1,095,672 | $ | 1,676,605 | $ | 1,536,882 | $ | - |
12. DEPOSITS ON LONG-TERM ASSETS
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
2009 | 2008 | |||
$ | $ | |||
Deposit on equipment at La Encantada | 2,876,717 | 1,986,517 | ||
Deposit on equipment at La Parrilla | 1,429,702 | - | ||
4,306,419 | 1,986,517 |
13. ACQUISITION OF NORMABEC MINING RESOURCES LTD.
On November 13, 2009, the Company completed a plan of arrangement (the Arrangement) to acquire all of the issued and outstanding shares of Normabec Mining Resources Ltd. (Normabec). Normabecs primary asset is the Real de Catorce Project located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico.
Concurrent with the completion of the Arrangement, the non-Mexican assets of Normabec were divested to a newly formed entity Brionor Resources Inc. (Brionor). Holders of Normabec shares received 0.060425 First Majestic shares and 0.25 Brionor shares for each Normabec common share.
The Company also purchased, via private placement, 2,115,195 common shares of Brionor for an aggregate purchase price of $300,000, representing a price per share of approximately $0.1418. These shares represented 9.9% of the total issued and outstanding shares of Brionor upon completion of the transaction at November 13, 2009. Brionor is a public company listed on the TSX Venture Exchange.
The acquisition of Normabec has been accounted for as an asset acquisition, with First Majestic identified as the acquirer, and with First Majestic recording the acquisition at its estimated fair value at the date of acquisition.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 43
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
13. ACQUISITION OF NORMABEC MINING RESOURCES LTD. (continued)
The allocation of the purchase price to the assets acquired and liabilities assumed is as follows:
Consideration: | |||
Arrangement shares (4,652,778 at $3.43) | $ | 15,959,029 | |
Settlement of liabilities with cash and shares ($196,762 in cash and 215,000 shares at $3.43) | 934,212 | ||
Other costs incurred relating to the acquisition of Norma bec | 504,297 | ||
$ | 17,397,538 | ||
Allocation of purchase price: | |||
Net working capital | $ | 154,914 | |
Investments (First Gold Inc - 225,000 shares at $0.185 per s hare) | 38,513 | ||
Property, plant and equipment | 44,986 | ||
Mining rights | 21,215,673 | ||
Future income taxes | (4,056,548 | ) | |
$ | 17,397,538 |
14. SHARE CAPITAL
(a) Authorized unlimited number of common shares without par value
Issued | Year ended December 31, 2009 | Year ended December 31, 2008 | |||||||||||
Shares | $ | Shares | $ | ||||||||||
Balance - beginning of the year | 73,847,810 | 196,648,345 | 63,042,160 | 145,699,783 | |||||||||
Issued during the year | |||||||||||||
For cash: | |||||||||||||
Exercise of options | 36,250 | 68,838 | 436,650 | 1,398,566 | |||||||||
Exercise of warrants | 50,000 | 165,000 | 7,500 | 31,875 | |||||||||
Public offering of units (i) (v) | 8,487,576 | 18,840,890 | 8,500,000 | 40,144,471 | |||||||||
Private placements (ii) | 4,167,478 | 9,051,069 | - | - | |||||||||
For debt settlements (iii) | 1,191,852 | 2,741,260 | - | - | |||||||||
For Normabec acquisition (iv) | 4,867,778 | 16,696,479 | - | - | |||||||||
For First Silver Arrangement | - | - | 1,861,500 | 9,009,660 | |||||||||
Transfer of contributed surplus for stock options exercised | - | 29,125 | - | 363,990 | |||||||||
Balance - end of the year | 92,648,744 | 244,241,006 | 73,847,810 | 196,648,345 |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,689,648, of which $18,840,890 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one common share at a price of $3.50 expiring on March 5, 2011. |
(ii) |
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011, and 334,239 warrants expire on September 16, 2011. Finders fees in the amount of $101,016 and 50,000 warrants were paid regarding a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. |
(iii) |
In August and September 2009, the Company settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a value of $2.30 per share. |
44
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL (continued)
(iv) |
On November 13, 2009, the Company issued 4,867,778 common shares at a value of $3.43 per share in connection with the acquisition of Normabec (see Note 13). |
(v) |
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 units at an issue price of $5.35 per unit for net proceeds to the Company of $42,881,471, of which $40,144,471 was allocated to the common shares, $2,380,000 was allocated to the warrants and $357,000 was allocated to the underwriters warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 warrants at a price of $0.56 per warrant. The underwriters did not exercise their option to purchase any option shares, but did acquire the 637,500 warrants (see Note 14(c)). |
(b) Stock Options
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the years ended December 31, 2009 and 2008 are as follows:
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |||||||||||||
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |||||||||||||
Balance, beginning of the year | 6,862,500 | 3.84 | 2.78 years | 5,892,500 | 4.04 | 2.75 years | ||||||||||||
Granted | 2,842,500 | 2.88 | 3.58 years | 2,672,500 | 2.93 | 3.67 years | ||||||||||||
Exercised | (36,250 | ) | 1.90 | 2.47 years | (436,650 | ) | 3.20 | 0.51 years | ||||||||||
Forfeited or expired | (1,065,000 | ) | 4.11 | 0.73 years | (1,265,850 | ) | 3.05 | 0.45 years | ||||||||||
Balance, end of the year | 8,603,750 | 3.50 | 2.42 years | 6,862,500 | 3.84 | 2.78 years |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 45
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL (continued)
(b) Stock Options (continued)
The following table summarizes both the stock options outstanding and those that are exercisable at December 31, 2009:
Price | Options | Options | |||||||
$ | Outstanding | Exercisable | Expiry Dates | ||||||
5.50 | 200,000 | 200,000 | February 1, 2010 | ||||||
4.64 | 75,000 | 75,000 | June 1, 2010 | ||||||
4.17 | 100,000 | 100,000 | August 8, 2010 | ||||||
3.72 | 30,000 | 30,000 | September 24, 2010 | ||||||
3.98 | 20,000 | 20,000 | October 17, 2010 | ||||||
4.45 | 530,000 | 530,000 | October 30, 2010 | ||||||
4.34 | 25,000 | 25,000 | November 1, 2010 | ||||||
4.34 | 200,000 | 200,000 | December 5, 2010 | ||||||
4.42 | 50,000 | 50,000 | February 20, 2011 | ||||||
4.65 | 100,000 | 100,000 | March 25, 2011 | ||||||
4.19 | 20,000 | 20,000 | April 26, 2011 | ||||||
4.02 | 100,000 | 100,000 | May 15, 2011 | ||||||
4.30 | 450,000 | 450,000 | June 19, 2011 | ||||||
4.67 | 120,000 | 90,000 | July 4, 2011 | ||||||
4.15 | 300,000 | 225,000 | July 28, 2011 | ||||||
3.62 | 565,000 | 423,750 | August 28, 2011 | ||||||
1.60 | 200,000 | 150,000 | October 8, 2011 | ||||||
1.27 | 118,750 | 87,500 | October 17, 2011 | ||||||
4.32 | 245,000 | 245,000 | December 6, 2011 | ||||||
4.41 | 400,000 | 400,000 | December 22, 2011 | ||||||
5.00 | 155,000 | 155,000 | February 7, 2012 | ||||||
2.03 | 730,000 | 365,000 | May 7, 2012 | ||||||
4.65 | 25,000 | 25,000 | June 20, 2012 | ||||||
2.62 | 60,000 | 15,000 | September 16, 2012 | ||||||
2.96 | 25,000 | 6,250 | October 28, 2012 | ||||||
3.38 | 25,000 | 6,250 | November 5, 2012 | ||||||
4.34 | 925,000 | 925,000 | December 5, 2012 | ||||||
3.52 | 560,000 | 140,000 | December 7, 2012 | ||||||
3.70 | 535,000 | 133,750 | December 15, 2012 | ||||||
3.62 | 100,000 | 75,000 | August 28, 2013 | ||||||
1.44 | 240,000 | 180,000 | November 10, 2013 | ||||||
1.56 | 550,000 | 412,500 | December 17, 2013 | ||||||
2.03 | 462,500 | 231,250 | May 7, 2014 | ||||||
2.32 | 12,500 | 6,250 | June 15, 2014 | ||||||
3.70 | 350,000 | 87,500 | December 15, 2014 | ||||||
8,603,750 | 6,285,000 |
During the year ended December 31, 2009, the Company granted stock options to directors, officers and employees to purchase 2,842,500 shares of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, the fair value of stock options granted in 2009 was $3,991,000, of which $1,455,279 was expensed in the current year, $39,175 was exercised in the current year, and $2,496,546 will be deferred over the remaining vesting period of the stock options.
The weighted average fair value of each stock options granted during the year was $1.41 (2008 - $1.05) . Fair value of stock options is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
Year ended | Year ended | |
December 31, 2009 | December 31, 2008 | |
Risk-free interest rate | 1.1% | 2.4% |
Es timated volatility | 83.7% | 64.9% |
Expected life | 2.2 years | 2.35 years |
Expected dividend yield | 0% | 0% |
Option pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide an accurate measure of the actual fair value of the Companys stock options.
46
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL (continued)
(c) Share Purchase Warrants
The changes in share purchase warrants for the years ended December 31, 2009 and 2008 are as follows:
Year ended December 31, 2009 | Year ended December 31, 2008 | |||||||||||
Weighted | Weighted | |||||||||||
Average | Weighted | Average | Weighted | |||||||||
Number of | Exercise Price | Average Term to | Number of | Exercise Price | Average Term to | |||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||
Balance, beginning of the year | 5,078,791 | 6.99 | 1.19 years | 5,845,240 | 5.66 | 0.89 years | ||||||
Issued (i) (ii) (iii) (iv) (v) (vi) | 6,638,492 | 3.66 | 2.12 years | 4,887,500 | 7.00 | 2.00 years | ||||||
Exercised | (50,000 | ) | 3.30 | 1.65 years | (7,500 | ) | 4.25 | 0.86 years | ||||
Cancelled or expired | (309,818 | ) | 7.69 | 0.00 years | (5,646,449 | ) | 5.62 | 0.00 years | ||||
Balance, end of the year | 11,357,465 | 5.04 | 0.84 years | 5,078,791 | 6.99 | 1.19 years |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35.0%, expected life of 2 years and expected dividend yield of 0%) and $848,758 was credited to contributed surplus. |
(ii) |
On August 20, 2009, the Company issued 1,799,500 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 3,499,000 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years and expected dividend yield of 0%) and $328,047 was credited to contributed surplus. |
(iii) |
On September 16, 2009, the Company issued 334,239 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 668,478 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years and expected dividend yield of 0%) and $60,953 was credited to contributed surplus. |
(iv) |
On November 13, 2009, the Company issued 118,527 warrants exercisable at a price of $9.11 per share expiring on December 13, 2009 and 142,438 warrants exercisable at a price of $9.11 per share expiring on January 2, 2010 in connection with the acquisition of Normabec (see Note 13). The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.26%, volatility of 67%, expected life of 0.1 years and expected dividend yield of 0%). No value was credited to contributed surplus. |
(v) |
On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2,380,000 was credited to contributed surplus. |
(vi) |
On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus. |
The following table summarizes the share purchase warrants outstanding at December 31, 2009:
Exercise Price | Warrants | |||||
$ | Outstanding | Expiry Dates | ||||
9.11 | 142,438 | January 2, 2010 | ||||
7.00 | 4,887,500 | March 25, 2010 | ||||
3.50 | 4,243,788 | March 5, 2011 | ||||
3.30 | 1,749,500 | August 20, 2011 | ||||
3.30 | 334,239 | September 16, 2011 | ||||
11,357,465 |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 47
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL (continued)
(d) Share Capital to be Issued
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc. and the San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic.
At December 31, 2009, the prior shareholders of First Silver had yet to exchange the remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic resulting in a remaining value of shares to be issued of $276,495.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
15. REVENUE
Details of the components of revenue are as follows:
Years Ended December 31, | ||||
2009 | 2008 | |||
$ | $ | |||
Combined revenue - silver doré bars, concentrates, coins and ingots | 76,596,113 | 56,994,724 | ||
Less: intercompany eliminations | (5,070,039 | ) | (892,265 | ) |
Consolidated gross revenue | 71,526,074 | 56,102,459 | ||
Less: refining a nd s melting charges, net of intercompany eliminations | (9,310,475 | ) | (9,895,208 | ) |
Less: metal deductions, net of i ntercompany eliminations | (2,704,930 | ) | (1,882,364 | ) |
Net revenue | 59,510,669 | 44,324,887 |
At December 31, 2009, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore cash receipts of $944,468 in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period was not recorded as sales revenues and instead was recorded as a reduction of capital costs in construction in progress (Note 9).
16. RELATED PARTY TRANSACTIONS
During the period ended December 31, 2009, the Company:
a) |
incurred $281,065 (2008 - $248,025) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
b) |
incurred $275,214 (2008 - $310,920) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
c) |
incurred $1,317,437 (2008 - $8,010,843) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $232,444 was unpaid as at December 31, 2009 (2008 - $3,122,130). This relationship was terminated in February 2009. |
d) |
incurred $nil (2008 - $7,365) to a director of the Company as finders fees upon the completion of certain option agreements relating to Del Toro. |
e) |
provided a loan of $nil (US$nil) (2008 $36,540 or US$30,000) to a director of the Company. This loan was fully repaid in the year ended December 31, 2009. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
48
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
17. SEGMENTED INFORMATION
The Company considers that it has three operating segments located in Mexico, one retail market segment in Canada and one corporate segment with locations in Canada and Mexico. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Year ended December 31, 2009 | ||||||||||||
First Majestic | Corporate | |||||||||||
El Pilon | Plata | La Encantada | and Other | |||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Revenue | 20,122,274 | 22,377,951 | 16,789,464 | 5,132,099 | (4,911,119 | ) | 59,510,669 | |||||
Cost of sales | 11,592,357 | 11,923,081 | 10,523,284 | 4,860,844 | (4,547,713 | ) | 34,351,853 | |||||
Amortiza tion, depreciation and accretion | 925,383 | 1,957,005 | 1,066,767 | - | - | 3,949,155 | ||||||
Depletion | 1,168,024 | 970,818 | 609,867 | - | - | 2,748,709 | ||||||
Mine operating earnings (loss) | 6,436,510 | 7,527,047 | 4,589,546 | 271,255 | (363,406 | ) | 18,460,952 | |||||
General and administrative | - | - | - | - | 8,089,087 | 8,089,087 | ||||||
Stock-based compensation | - | - | - | - | 3,302,780 | 3,302,780 | ||||||
Write-down of mineral properties | 2,589,824 | - | - | - | - | 2,589,824 | ||||||
Write-down of marketable securities | - | - | - | - | (390,467 | ) | (390,467 | ) | ||||
Net interest, other income (expense) and foreign exchange | (3,036,124 | ) | (2,392,401 | ) | (2,764,988 | ) | - | 7,184,752 | (1,008,761 | ) | ||
Income tax expense (recovery) | - | - | - | - | (3,230,192 | ) | (3,230,192 | ) | ||||
Net income (loss) | 810,562 | 5,134,646 | 1,824,558 | 271,255 | (1,730,796 | ) | 6,310,225 | |||||
Capital expenditures | 3,256,314 | 6,688,038 | 28,672,840 | - | 180,088 | 38,797,280 | ||||||
Total assets | 103,853,548 | 60,345,812 | 62,550,666 | 651,642 | 24,173,584 | 251,575,252 |
Year ended December 31, 2008 | ||||||||||||
First Majestic | Corporate | |||||||||||
El Pilon | Plata | La Encantada | and Other | |||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Revenue | 11,707,631 | 15,983,118 | 17,145,790 | 380,613 | (892,265 | ) | 44,324,887 | |||||
Cost of sales | 10,083,947 | 12,219,616 | 8,613,007 | 377,170 | (874,325 | ) | 30,419,415 | |||||
Amortization, depreciation and accretion | 1,280,949 | 1,467,927 | 620,827 | - | - | 3,369,703 | ||||||
Depletion | 1,544,162 | 737,087 | 752,888 | - | - | 3,034,137 | ||||||
Mine operating earnings (loss) | (1,201,427 | ) | 1,558,488 | 7,159,068 | 3,443 | (17,940 | ) | 7,501,632 | ||||
General and administrative | - | - | - | - | 7,549,079 | 7,549,079 | ||||||
Stock-based compensation | - | - | - | - | 3,680,111 | 3,680,111 | ||||||
Net interest, other income (expense) and foreign exchange | (2,209,177 | ) | (2,883,908 | ) | (1,363,857 | ) | - | 3,120,262 | (3,336,680 | ) | ||
Income tax (recovery) expense | 27,030 | (897,488 | ) | 87,976 | - | (1,136,972 | ) | (1,919,454 | ) | |||
Net income (loss) | (3,437,634 | ) | (427,932 | ) | 5,707,235 | 3,443 | (6,989,896 | ) | (5,144,784 | ) | ||
Capital expenditures | 12,003,673 | 19,636,692 | 16,299,105 | - | 173,844 | 48,113,314 | ||||||
Total assets | 118,741,809 | 58,033,744 | 33,087,571 | 247,368 | 21,049,157 | 231,159,649 |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 49
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
18. INCOME TAXES
The reconciliation of the income tax provision computed at statutory rates to the reported income tax provision is as follows:
2009 | 2008 | |||||
$ | $ | |||||
Combined federal a nd provincial income tax rate | 30.00% | 31.00% | ||||
Income tax benefit computed at Canadian statutory rates | (924,010 | ) | 2,189,914 | |||
Foreign tax rates different from s tatutory rates | 8,602 | (127,363 | ) | |||
Impact of change in ta x rates on future income taxes | 836,147 | - | ||||
Non-deductible expenses | (424,678 | ) | (2,106,551 | ) | ||
Change in valuation allowance | 1,493,871 | 2,032,710 | ||||
Foreign exchange | 2,409,644 | 1,050,000 | ||||
Difference between statutory and a ctual tax rates | 232,498 | (27,375 | ) | |||
Other | (401,882 | ) | (1,091,881 | ) | ||
3,230,192 | 1,919,454 |
Significant components of the Company's future tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:
2009 | 2008 | |||||
$ | $ | |||||
Future income tax assets | ||||||
Net tax losses carried forward | 19,453,298 | 16,446,519 | ||||
Other assets/liabilities | 3,235,061 | 1,511,108 | ||||
Share issue costs | 1,707,129 | 1,684,688 | ||||
Capital losses | 530,986 | 529,968 | ||||
Valuation allowance | (6,175,094 | ) | (6,886,775 | ) | ||
Net future income tax assets | 18,751,380 | 13,285,508 | ||||
Future income tax liabilities | ||||||
Excess of carrying value of mineral property assets over tax value | (47,168,391 | ) | (43,975,595 | ) | ||
Future income tax liabilities, net | (28,417,011 | ) | (30,690,087 | ) |
The Company has approximately $13.0 million (2008 - $17.8 million) of non-capital losses that may be available for future tax purposes and will expire in the following years:
2025 | $ 3,748,753 |
2026 | $ 6,298,941 |
2027 | $ 2,967,115 |
The Company has capital losses available for deduction against future capital gains of $4.1 million (2008 - $4.1 million) that may be available for tax purposes in Canada. These capital losses may be carried forward indefinitely. Management believes that uncertainty exists regarding the realization of these future tax assets and therefore a valuation allowance has been recorded.
In addition, subject to certain restrictions, the Company has tax pools of approximately $64.5 million (2008 - $47.6 million) available to offset future taxable income in Mexico.
19. OTHER LONG TERM LIABILITIES
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the fully agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the advance received from the bank, but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $753,657 (2008-$832,769).
50
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
20. CAPITAL LEASE OBLIGATIONS
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for $14.1 million (US$11.2 million) of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. On March 13, 2009, the Company executed a restructuring agreement for the balance of $3.6 million (US$2.9 million) payable to the equipment lease vendor, to be paid over 24 monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.
On January 12, 2009, the Company executed two additional financing arrangements with an equipment vendor, committing the Company to total payments of approximately $2.6 million (US$2.0 million) representing the purchase price plus interest with terms of 36 monthly lease payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
The following is a schedule of future minimum lease payments under the capital leases as at December 31, 2009:
$US | $CA | |||||
2010 Gross lease payments | 2,127,454 | 2,235,960 | ||||
2011 Gross lease payments | 651,155 | 684,364 | ||||
2012 Gross lease payments | 132,549 | 139,309 | ||||
2,911,158 | 3,059,633 | |||||
Less: interest | (239,769 | ) | (251,997 | ) | ||
Total payments, net of interest | 2,671,389 | 2,807,636 | ||||
Less: current portion | (2,035,540 | ) | (2,139,352 | ) | ||
Capital Lease Obligation | 635,849 | 668,284 |
21. ASSET RETIREMENT OBLIGATIONS | ||||
Year ended | Year ended | |||
December 31, 2009 | December 31, 2008 | |||
$ | $ | |||
Balance, beginning of the year | 5,304,369 | 2,290,313 | ||
Effect of change i n estimates | (877,834 | ) | 2,979,726 | |
Interest accretion | 445,090 | 200,477 | ||
Effect of translation of foreign currencies | (535,537 | ) | (166,147 | ) |
Balance, end of the year | 4,336,088 | 5,304,369 |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | 2009 | 2008 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2020 | 1,815,518 | 1,865,674 | ||||||
La Parrilla Silver Mine | 2025 | 998,293 | 1,609,602 | ||||||
San Martin Silver Mine | 2019 | 1,522,277 | 1,829,093 | ||||||
4,336,088 | 5,304,369 |
During the year ended December 31, 2009, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $6.1 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $1.7 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.0 million of the obligation relates to the San Martin Silver Mine, and $2.5 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
22. CONTINGENT LIABILITIES
Due to the size, complexity and nature of the Companys operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, these matters will not have a material effect on the consolidated financial statements of the Company.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 51
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
23. COMMITMENTS
The Company is obligated to make certain mining property option payments as described in Note 9, in connection with the acquisition of its mineral property interests.
The Company has office lease commitments of $116,880 per annum in 2010 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at December 31, 2009, the Company is committed to construction contracts of approximately $2.1 million (US$2.0 million) (2008 - $5.9 million or US$4.9 million) relating to the La Encantada Project which is currently in the final stage of completion.
As a result of the acquisition of Normabec, the Company is committed to make a US$1 million payment in December 2010 to acquire surface rights forming part of the Real de Catorce Project. It is also committed to make a payment of US$200,000 in December 2010 for technical and geological information collected over the Real de Catorce area.
The Company is committed to making severance payments amounting to $1.9 million (2008 - $0.7 million) to four officers in the event of a change of control of the Company.
24. NON-CASH FINANCING AND INVESTING ACTIVITIES
2009 | 2008 | |||||
$ | $ | |||||
NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||
Fair value of warrants upon completion of public offering | 848,758 | 2,737,000 | ||||
Fair value of warrants upon completion of private placements | 389,000 | - | ||||
Issuance of shares for debt settlement | 2,741,260 | - | ||||
Issuance of shares for acquisition of Normabec | 16,696,479 | - | ||||
Issuance of shares for First Silver Arrangement | - | 9,009,660 | ||||
Transfer of contributed surplus to common shares for options exercised | 29,125 | 363,990 | ||||
Assets acquired by capital lease | 2,259,380 | 1,621,135 |
25. SUBSEQUENT EVENTS
Subsequent to December 31, 2009:
(a) |
A total of 50,000 options were exercised for proceeds of $92,000; |
(b) |
On January 2, 2010, 142,438 warrants exercisable at a price of $9.11 per share expired unexercised; |
(c) |
On January 8, 2010, 25,000 warrants were exercised at a price of $3.30 per share; |
(d) |
On February 1, 2010, 200,000 options exercisable at a price of $5.50 per share expired unexercised; |
(e) |
On February 2, 2010, 200,000 options were granted at a price of $3.56 per share expiring on February 2, 2013; |
(f) |
On March 19, 2010, 25,000 options were granted at a price of $3.15 per share expiring on March 19, 2013. |
52
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
MANAGEMENT’S DISCUSSION AND ANALYSIS
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “forecast”, “project”, ”intend”, ”believe”, ”anticipate”, “outlook” and other similar words, or statements that certain events or conditions “may” or “will” occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Company’s Annual Information Form under the heading “Risk Factors”. The Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (“First Majestic” or “the Company”) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in Mexico. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively. The common shares are also quoted on the OTCQX in the U.S. under the symbol “FRMSF” and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol “FMV”. Silver producing operations of the Company are carried out through three operating mines: the La Encantada, La Parrilla, and San Martin Silver Mines.
The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2009. Additional information on the Company, including the Company’s Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”), First Silver Reserve Inc. (“First Silver”) and Normabec Mining Resources Ltd. (“Normabec”) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (“First Majestic Plata”), Minera El Pilon, S.A. de C.V. (“El Pilon”), Minera La Encantada, S.A. de C.V. (“La Encantada”), Majestic Services S.A. de C.V. (“Majestic Services”), Minera Real Bonanza, S.A. de C.V. (“MRB”) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (“Servicios”). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation which it is involved as the plaintiff, described herein in the Liquidity section.
QUALIFIED PERSONS
Unless otherwise indicated, Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the Qualified Person for the Company and has reviewed the technical information herein. National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine can be found on the Company’s website at www.firstmajestic.com or on SEDAR at www.sedar.com.
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of March 19, 2010, unless otherwise stated.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 53
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
2009 ANNUAL AND Q4 FINANCIAL PERFORMANCE AND HIGHLIGHTS
|
Consolidated gross revenue (prior to smelting, refining and metal deductions) for the year ended 2009 was $71.5 million compared to $56.1 million in 2008, an increase of $15.4 million or 27.5%. |
|
Consolidated gross revenue (prior to smelting, refining and metal deductions) for the quarter ended December 31, 2009 (Q4) was $21,436,456 or $18.71 (US$17.72) per ounce compared to $11,712,165 or $14.15 (US$11.67) per ounce for the quarter ended December 31, 2008 for an increase of $9,724,291, or 83%. The improvement in revenues in the fourth quarter of 2009 is attributable to a 38% increase in equivalent silver ounces sold and a 32% increase in the average gross revenue per ounce realized. These improvements resulted in net revenue for the fourth quarter increasing from $9,106,605 in 2008 to $18,374,117 in 2009, an increase of 102%. |
|
In 2009 the Company shipped (sold) 4,233,703 ounces of silver equivalent at an average price of $16.89 per ounce (US$14.79) compared to 3,590,202 ounces in 2008 at an average price of $15.63 per ounce (US$14.66), representing an increase of 18% in shipments. |
|
Total production for 2009 was 4,337,103 ounces of silver equivalents consisting of 3,797,520 ounces of silver, 2,670 ounces of gold, 6,587,074 pounds of lead and 8,913 pounds of zinc. This compares to the 4,229,998 ounces of silver equivalents produced in 2008, which consisted of 3,654,698 ounces of silver, 1,661 ounces of gold, 7,457,707 pounds of lead and 425,710 pounds of zinc. |
|
Net sales revenue (after smelting and refining charges and metals deductions) for 2009 was $59.5 million, an increase of 34.3% compared to $44.3 million for 2008. Smelting and refining charges and metal deductions decreased to 17% of gross revenue in 2009 compared to 21% of gross revenue in 2008. Average smelting charges for doré in 2009 were US$0.48 per equivalent silver ounce whereas for concentrates they were US$3.96 per equivalent silver ounce. |
|
The Company generated net income for 2009 of $6.3 million, or earnings per common share (EPS) of $0.08 compared to a net loss in 2008 of $5.1 million or a loss per common share of $(0.07). Net income for 2009 was after deducting non-cash stock-based compensation expense of $3.3 million, a write-down of mineral properties of $2.6 million, a write-down of marketable securities totalling $0.4 million and an income tax recovery of $3.2 million. Neglecting the effect of write-downs, earnings per share in 2009 would have been $0.11 per share (this is a non-GAAP measure). |
|
Net income for the quarter ended December 31, 2009 was $2,492,488 or $0.03 per common share compared to a net loss of $5,538,906 or $(0.08) per common share in the quarter ended December 31, 2008, for an increase of $8,031,394. |
|
|
|
Direct cash costs per ounce of silver for 2009 decreased to US$5.61 per ounce of silver, compared to US$5.87 per ounce of silver for 2008. During 2009, the Companys operations achieved operational efficiencies resulting in reductions in production costs per tonne and cash costs per ounce. |
|
Direct cash costs per ounce of silver for Q4 of 2009 decreased to US$5.69 per ounce of silver, compared to US$6.37 per ounce of silver for Q4 of 2008. |
|
Mine operating earnings for 2009 increased by 146% to $18.5 million, an increase of $11.0 million, compared to mine operating earnings of $7.5 million for 2008, due to an increase in sales volume from 3.6 million ounces of silver equivalent in 2008 to 4.2 million ounces in 2009, combined with an increase in sales revenue per ounce from $15.63 (US$14.66) in 2008 to $16.89 (US$14.79) in 2009. |
|
Mine operating earnings increased by 818% to $8,092,993 for the quarter ended December 31, 2009 from a mine operating loss of $1,126,697 for the same quarter in the prior year. This was primarily due to the increase in net revenue. |
|
The Company had operating income of $4.5 million for 2009 compared to an operating loss of $3.7 million for 2008, an increase of $8.2 million or 220%. |
|
Operating income increased by $5,758,869 or 152% to $1,971,450 for the quarter ended December 31, 2009, from an operating loss of $3,787,419 for the quarter ended December 31, 2008, due to the increase in mine operating earnings. |
|
During the fourth quarter of 2009, the new cyanidation process plant at the La Encantada Silver Mine was commissioned and the ramp up process commenced. By the beginning of the second quarter of 2010, this new plant is expected to achieve commercial production levels, reaching full capacity of 3,500 tonnes-per-day and producing at an annualized rate of over four million ounces by Q2 of 2010. Total capitalized construction in progress at La Encantada at December 31, 2009 consisted of $31.3 million (US$29.8 million) with a further $2.9 million (US$2.7 million) advanced to contractors for equipment. |
54
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
|
During the year ended December 31, 2009, the Company raised a total of $35.3 million through a combination of debt and equity. New funds consisted of $29.4 million from equity issuances, $4.3 million from a Mexican government sponsored development loan, as well as $1.6 million from the pre-sale of lead concentrates from the La Parrilla mine. This compares to $41.6 million raised in the year ended December 31, 2008. |
|
During the year ended December 31, 2009, the Company invested $14.0 million in its mineral properties and a further $19.4 million in additions to plant and equipment on a cash basis. This compares to $24.5 million invested in its mineral properties and a further $14.9 million in additions to plant and equipment in the year ended December 31, 2008. |
|
During 2009, the Company reduced current liabilities by $19.6 million. This was achieved by (i) placing $14.3 million in a lawyers trust pending the outcome of the Companys action against a previous majority owner of First Silver, (ii) settling certain other current liabilities amounting to $2.7 million by the issuance of 1,191,852 common shares, and (iii) through additional reductions of accounts payable and accrued liabilities by $2.6 million. |
|
In November 2009, First Majestic acquired Normabec Mining Resources Ltd. (Normabec) in an all-share transaction by way of plan of arrangement (the Arrangement). First Majestic acquired Normabec in exchange for the issuance directly to Normabecs shareholders of 0.060425 First Majestic shares and 0.25 shares of Brionor Resources Inc., a newly formed entity, for each Normabec common share outstanding. Normabecs primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí State, Mexico. The results of operations of Normabec were consolidated into the operations of the Company effective November 14, 2009. |
The subsidiaries, mines, mills and properties in Mexico are as follows:
Subsidiaries | Mine and Mill | Exploration Properties |
First Majestic Plata, S.A. de C.V. |
La Parrilla Silver Mine
Del Toro Silver Mine |
La Parrilla properties
Del Toro properties |
Minera El Pilón, S.A. de C.V. | San Martin Silver Mine |
San Martin property
Jalisco Group of Properties |
Minera La Encantada, S.A. de C.V. | La Encantada Silver Mine | La Encantada property |
Minera Real Bonanza, S.A. de C.V. | Real de Catorce Silver Project | Real de Catorce property |
Majestic Services, S.A. de C.V. (a labour services company) | (services for all of the above) | (services for all of the above) |
Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. | (inactive services company) | (inactive services company) |
Corporación First Majestic, S.A. de C.V. (holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) | (holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) | (holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) |
Certain financial results in this MD&A, regarding operations and cash costs are presented in the Mine Operating Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars. U.S. dollar results are translated using the U.S. dollar rates on the dates which the transactions occurred.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 55
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
MINING OPERATING RESULTS
Quarter Ended December 31, |
CONSOLIDATED FIRST MAJESTIC
RESULTS |
Year to Date December 31, | ||
2009 | 2008 | 2009 | 2008 | |
251,258 | 215,646 | Ore processed/tonnes milled (4) | 887,638 | 758,338 |
235 | 207 | Average silver grade (g/tonne) | 215 | 219 |
65% | 65% | Recovery (%) | 64% | 68% |
1,103,840 | 930,120 | Silver ounces produced (4) | 3,797,520 | 3,654,698 |
701 | 403 | Gold ounces produced (4) | 2,670 | 1,661 |
48,576 | 31,650 | Equivalent ounces from gold (4) | 189,419 | 100,496 |
1,574,819 | 2,093,988 | Pounds of lead produced (4) | 6,587,074 | 7,457,707 |
97,152 | 93,239 | Equivalent ounces from lead (4) | 349,294 | 450,423 |
- | 24,413 | Pounds of zinc produced (4) | 8,913 | 425,710 |
- | 1,403 | Equivalent ounces from zinc (4) | 870 | 24,381 |
1,249,568 | 1,056,219 | Total production - ounces silver equivalent (4) | 4,337,103 | 4,229,998 |
1,145,562 | 827,845 | Ounces of silver equivalents sold (1) (4) | 4,233,703 | 3,590,202 |
$8.61 | $8.71 | US cash cost per ounce (2) (3) | $8.49 | $8.94 |
$5.69 | $6.37 | Direct US cash cost per ounce (2) (3) | $5.61 | $5.87 |
5,266 | 5,845 | Underground development (m) | 21,390 | 27,890 |
1,031 | 4,194 | Diamond drilling (m) | 7,459 | 61,440 |
$42.01 | $37.57 | Total US production cost per tonne (3) | $37.29 | $43.08 |
Quarter Ended December 31, |
LA ENCANTADA
RESULTS |
Year to Date December 31, | ||
2009 | 2008 | 2009 | 2008 | |
104,864 | 79,480 | Ore processed/tonnes milled (4) | 318,382 | 257,960 |
305 | 281 | Average silver grade (g/tonne) | 276 | 283 |
51% | 59% | Recovery (%) | 50% | 62% |
399,810 | 427,753 | Silver ounces produced (4) | 1,317,080 | 1,442,566 |
5 | - | Gold ounces produced (4) | 5 | - |
321 | - | Equivalent ounces from gold (4) | 321 | - |
536,801 | 1,195,557 | Pounds of lead produced (4) | 2,545,339 | 3,312,869 |
35,714 | 56,299 | Equivalent ounces from lead (4) | 129,259 | 193,675 |
435,845 | 484,053 | Total production - ounces of silver equivalent (4) | 1,446,660 | 1,636,242 |
363,364 | 450,063 | Ounces of silver equivalents sold (4) | 1,371,337 | 1,529,301 |
$10.80 | $6.13 | US cash cost per ounce (2) (3) | $10.20 | $8.21 |
$6.83 | $3.82 | Direct US cash cost per ounce (2) (3) | $6.10 | $3.59 |
2,251 | 3,075 | Underground development (m) | 10,214 | 8,463 |
- | 2,107 | Diamond drilling (m) | 2,397 | 8,048 |
$54.32 | $32.98 | Total US production cost per tonne (3) | $45.59 | $45.93 |
(1) |
Includes (8,822) ounces in the fourth quarter ended December 31, 2009 and (14,727) ounces in the year ended December 31, 2009 (after adjustments for intercompany eliminations) sold as coins, ingots and bullion from Canadian operations and minesite transfers. |
(2) |
The Company reports non-GAAP measures which include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver (prior to smelting charge), and smelting charges per ounce of silver in order to manage and evaluate operating performance at each of the Companys mines. These measures are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP on page 9. |
(3) |
Direct Cash Costs do not include smelting; production costs per tonne include smelter charges. |
(4) |
At December 31, 2009, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore the net margin of $496,371 in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period was recorded as a reduction of construction in progress during the year. The tables above include the production from the mill expansion , however average silver grade, recovery, US cash cost per ounce, direct cash cost per ounce and total US production cost per tonne are based on production excluding pre-commercial stage production of 68,026 silver equivalent ounces. |
56
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
MINING OPERATING RESULTS
Quarter Ended December 31, |
LA PARRILLA
RESULTS |
Year to Date December 31, | ||
2009 | 2008 | 2009 | 2008 | |
75,475 | 66,395 | Ore processed/tonnes milled | 277,917 | 246,166 |
222 | 206 | Average silver grade (g/tonne) | 214 | 234 |
73% | 70% | Recovery (%) | 71% | 70% |
395,761 | 305,685 | Silver ounces produced | 1,367,742 | 1,291,210 |
151 | 297 | Gold ounces produced | 645 | 864 |
12,119 | 15,899 | Equivalent ounces from gold | 54,560 | 47,139 |
1,038,018 | 897,031 | Pounds of lead produced | 4,041,735 | 3,979,046 |
61,438 | 36,864 | Equivalent ounces from lead | 220,035 | 245,056 |
- | 24,414 | Pounds of zinc produced | 8,913 | 24,414 |
- | 1,403 | Equivalent ounces from zinc | 870 | 1,403 |
469,318 | 359,851 | Total production - ounces of silver equivalent | 1,643,207 | 1,584,808 |
478,121 | 228,661 | Ounces of silver equivalents sold | 1,648,020 | 1,282,340 |
$7.61 | $10.21 | US cash cost per ounce (2) (3) | $7.84 | $8.47 |
$3.82 | $6.68 | Direct US cash cost per ounce (1) (2) | $4.26 | $5.39 |
2,047 | 1,557 | Underground development (m) | 7,774 | 10,457 |
114 | 668 | Diamond drilling (m) | 2,682 | 37,944 |
$39.91 | $47.01 | Total US production cost per tonne (2) | $38.60 | $44.42 |
Quarter Ended December 31, |
SAN MARTIN
RESULTS |
Year to Date December 31, | ||
2009 | 2008 | 2009 | 2008 | |
70,919 | 69,771 | Ore processed/tonnes milled | 291,339 | 254,211 |
184 | 124 | Average silver grade (g/tonne) | 157 | 141 |
73% | 71% | Recovery (%) | 76% | 80% |
308,269 | 196,681 | Silver ounces produced | 1,112,698 | 920,921 |
545 | 106 | Gold ounces produced | 2,020 | 797 |
36,136 | 15,751 | Equivalent ounces from gold | 134,538 | 53,357 |
- | 1,399 | Pounds of lead produced | - | 165,792 |
- | 75 | Equivalent ounces from lead | - | 11,691 |
- | - | Pounds of zinc produced | - | 401,297 |
- | - | Equivalent ounces from zinc | - | 22,979 |
344,405 | 212,315 | Total production - ounces of silver equivalent | 1,247,236 | 1,008,948 |
312,899 | 149,121 | Ounces of silver equivalents sold | 1,229,073 | 778,561 |
$7.53 | $12.00 | US cash cost per ounce (1) (2) | $7.35 | $10.74 |
$6.85 | $11.44 | Direct US cash cost per ounce (1) (2) | $6.71 | $10.12 |
968 | 1,214 | Underground development (m) | 3,402 | 8,971 |
917 | 1,419 | Diamond drilling (m) | 2,380 | 15,448 |
$32.73 | $33.81 | Total US production cost per tonne (2) | $28.06 | $38.90 |
(1) |
The Company reports non-GAAP measures which include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver (prior to smelting charge) and smelting charges per ounce of silver in order to manage and evaluate operating performance at each of the Companys mines. These measures are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP on page 9. |
(2) |
Direct Cash Costs do not include smelting; production costs per tonne include smelter charges. |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 57
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
RECONCILIATION OF COST OF SALES TO CASH COSTS
FOR THE YEARS
ENDED DECEMBER 31, 2009 AND 2008
|
For the Years Ended | ||||||||
December 31, 2009 | December 31, 2008 | ||||||||
San Martin | La Parrilla | La Encantada | Total | San Martin | La Parrilla | La Encantada | Total | ||
COST OF SALES | US$ | 10,115,010 | 10,602,682 | 9,298,262 | 30,015,954 | 9,517,664 | 10,550,960 | 8,087,833 | 28,156,457 |
ADD: THIRD PARTY SMELTING & REFINING | US$ | 715,834 | 4,897,387 | 5,126,869 | 10,740,090 | 571,209 | 3,977,917 | 6,667,136 | 11,216,262 |
DEDUCT: BYPRODUCT CREDITS | US$ | (1,852,368) | (4,121,098) | (1,499,708) | (7,473,174) | (1,094,506) | (4,339,639) | (2,613,425) | (8,047,570) |
ADD (DEDUCT): ROYALTIES | US$ | - | (127,483) | - | (127,483) | - | (49,157) | - | (49,157) |
ADD (DEDUCT): PROFIT SHARING | US$ | - | - | (59,120) | (59,120) | - | - | - | - |
INVENTORY CHANGES | US$ | (676,545) | (160,757) | (89,537) | (926,839) | 893,499 | 466,693 | (293,719) | 1,066,473 |
OTHER | US$ | (125,755) | (361,991) | (31,393) | (519,139) | - | 328,123 | - | 328,123 |
TOTAL CASH COSTS (A) | US$ | 8,176,176 | 10,728,740 | 12,745,373 | 31,650,289 | 9,887,866 | 10,934,897 | 11,847,825 | 32,670,588 |
DEDUCT: THIRD PARTY SMELTING | US$ | (715,834) | (4,897,387) | (5,126,869) | (10,740,090) | (571,209) | (3,977,917) | (6,667,136) | (11,216,262) |
DIRECT MINING EXPENSES CASH COST (B) | US$ | 7,460,342 | 5,831,353 | 7,618,504 | 20,910,199 | 9,316,657 | 6,956,980 | 5,180,689 | 21,454,326 |
TONNES PRODUCED (Note 1) | TONNES | 291,339 | 277,917 | 279,536 | 848,792 | 254,211 | 246,167 | 257,960 | 758,338 |
OUNCES OF SILVER PRODUCED (C) (Note 1) | OZ | 1,112,698 | 1,367,742 | 1,249,377 | 3,729,817 | 920,921 | 1,291,211 | 1,442,566 | 3,654,699 |
OUNCES OF SILVER EQ PRODUCED (Note 1) | OZ EQ | 134,538 | 275,465 | 129,257 | 539,260 | 88,027 | 302,203 | 199,626 | 589,856 |
TOTAL OZ OF SILVER EQ PRODUCED (Note 1) | OZ EQ | 1,247,236 | 1,643,207 | 1,378,634 | 4,269,077 | 1,008,948 | 1,593,414 | 1,642,192 | 4,244,555 |
CASH COST PER OUNCE PRODUCED (A/C) | US$/OZ | 7.35 | 7.84 | 10.20 | 8.49 | 10.74 | 8.47 | 8.21 | 8.94 |
SMELTING/REFINING/TRANSPORTATION COST PER OUNCE | US$/OZ | (0.64) | (3.58) | (4.10) | (2.88) | (0.62) | (3.08) | (4.62) | (3.07) |
DIRECT MINING EXPENSES CASH COST (B/C) | US$/OZ | 6.71 | 4.26 | 6.10 | 5.61 | 10.12 | 5.39 | 3.59 | 5.87 |
MINING | $/Tonne | 11.62 | 13.88 | 14.08 | 13.17 | 17.88 | 18.20 | 11.03 | 15.65 |
MILLING | $/Tonne | 13.22 | 15.67 | 9.98 | 12.96 | 12.93 | 21.30 | 7.16 | 13.69 |
INDIRECT | $/Tonne | 5.82 | 4.76 | 6.95 | 5.84 | 9.88 | 5.43 | 11.14 | 8.86 |
DIRECT CASH COST | $/Tonne | 30.66 | 34.31 | 31.01 | 31.97 | 40.69 | 44.93 | 29.33 | 38.20 |
SELLING AND TRANSPORT COSTS | $/Tonne | 1.30 | 1.50 | 1.61 | 1.47 | 0.31 | 1.01 | 0.91 | 0.74 |
SMELTING AND REFINING COSTS | $/Tonne | 2.46 | 17.62 | 18.34 | 12.65 | 2.25 | 16.16 | 25.85 | 14.79 |
BY PRODUCT CREDITS | $/Tonne | (6.36) | (14.83) | (5.37) | (8.80) | (4.31) | (17.63) | (10.13) | (10.61) |
DIRECT COST PER TONNE | $/Tonne | 28.06 | 38.60 | 45.59 | 37.29 | 38.90 | 44.42 | 45.93 | 43.08 |
MINING | $/Oz. | 3.04 | 2.82 | 3.15 | 3.00 | 4.94 | 3.47 | 1.97 | 3.25 |
MILLING | $/Oz. | 3.46 | 3.19 | 2.23 | 2.95 | 3.57 | 4.06 | 1.28 | 2.84 |
INDIRECT | $/Oz. | 1.52 | 0.97 | 1.55 | 1.33 | 2.73 | 1.04 | 1.99 | 1.84 |
SELLING AND TRANSPORT COSTS | $/Oz. | 0.34 | 0.31 | 0.36 | 0.33 | 0.09 | 0.19 | 0.16 | 0.15 |
SMELTING AND REFINING COSTS | $/Oz. | 0.64 | 3.58 | 4.10 | 2.88 | 0.62 | 3.08 | 4.62 | 3.07 |
BY PRODUCT CREDITS | $/Oz. | (1.66) | (3.01) | (1.20) | (2.00) | (1.19) | (3.36) | (1.81) | (2.20) |
CASH COST PER OUNCE | $/Oz. | 7.35 | 7.84 | 10.20 | 8.49 | 10.74 | 8.47 | 8.21 | 8.94 |
SMELTING AND REFINING COSTS | $/Oz. | (0.64) | (3.58) | (4.10) | (2.88) | (0.62) | (3.08) | (4.62) | (3.07) |
DIRECT CASH COST | $/Oz. | 6.71 | 4.26 | 6.10 | 5.61 | 10.12 | 5.39 | 3.59 | 5.87 |
Note 1 The table above does not include 68,026 silver equivalent ounces of pre-commercial production from the La Encantada mill expansion project.
58
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
RECONCILIATION OF COST OF SALES TO CASH COSTS
FOR THE QUARTER ENDED DECEMBER 31, 2009 AND 2008
|
For the Three Months Ended | ||||||||
December 31, 2009 | December 31, 2008 | ||||||||
San Martin | La Parrilla | La Encantada | Total | San Martin | La Parrilla | La Encantada | Total | ||
COST OF SALES | US$ | 2,386,293 | 2,873,412 | 2,774,725 | 8,034,430 | 2,130,065 | 2,408,276 | 2,046,037 | 6,584,377 |
ADD: THIRD PARTY SMELTING & REFINING | US$ | 209,716 | 1,499,186 | 1,319,294 | 3,028,196 | 110,772 | 1,080,074 | 988,885 | 2,179,732 |
DEDUCT: BYPRODUCT CREDITS | US$ | (502,223) | (1,313,641) | (371,932) | (2,187,796) | (187,427) | (673,849) | (589,497) | (1,450,773) |
ADD (DEDUCT): ROYALTIES | US$ | - | (41,893) | - | (41,893) | - | - | - | - |
ADD (DEDUCT): PROFIT SHARING | US$ | 53,874 | - | - | 53,874 | - | - | - | - |
INVENTORY CHANGES | US$ | 172,909 | (4,217) | (135,669) | 33,023 | 305,899 | (196,454) | 176,063 | 285,508 |
OTHER | US$ | 896 | (288) | - | 608 | - | 503,377 | - | 503,377 |
TOTAL CASH COSTS (A) | US$ | 2,321,465 | 3,012,559 | 3,586,418 | 8,920,442 | 2,359,309 | 3,121,425 | 2,621,488 | 8,102,221 |
DEDUCT: THIRD PARTY SMELTING | US$ | (209,716) | (1,499,186) | (1,319,294) | (3,028,196) | (110,772) | (1,080,074) | (988,885) | (2,179,732) |
DIRECT MINING CASH COSTS (B) | US$ | 2,111,749 | 1,513,373 | 2,267,124 | 5,892,246 | 2,248,537 | 2,041,351 | 1,632,603 | 5,922,489 |
TONNES PRODUCED (Note 1) | TONNES | 70,919 | 75,475 | 66,018 | 212,412 | 69,771 | 66,396 | 79,479 | 215,646 |
OUNCES OF SILVER PRODUCED (C) (Note1) | OZ | 308,269 | 395,761 | 332,107 | 1,036,137 | 196,682 | 305,685 | 427,753 | 930,121 |
OUNCES OF SILVER EQ PRODUCED (Note 1) | OZ EQ | 36,136 | 73,557 | 35,712 | 145,405 | 15,633 | 62,771 | 62,250 | 140,654 |
TOTAL OZ OF SILVER EQ PRODUCED (Note 1) | OZ EQ | 344,405 | 469,318 | 367,819 | 1,181,542 | 212,315 | 368,456 | 490,003 | 1,070,774 |
CASH COST PER OUNCE PRODUCED (A/C) | US$/OZ | 7.53 | 7.61 | 10.80 | 8.61 | 12.00 | 10.21 | 6.13 | 8.71 |
SMELTING/REFINING/TRANSPORTATION COST PER OUNCE | US$/OZ | (0.68) | (3.79) | (3.97) | (2.92) | (0.56) | (3.53) | (2.31) | (2.34) |
DIRECT MINING EXPENSES CASH COST (B/C) | US$/OZ | 6.85 | 3.82 | 6.83 | 5.69 | 11.44 | 6.68 | 3.82 | 6.37 |
MINING | $/Tonne | 14.32 | 15.22 | 18.15 | 15.83 | 13.18 | 17.96 | 11.69 | 14.10 |
MILLING | $/Tonne | 14.38 | 15.75 | 10.20 | 13.57 | 13.84 | 18.50 | 9.77 | 13.78 |
INDIRECT | $/Tonne | 7.17 | 5.01 | 9.94 | 7.27 | 7.91 | 3.34 | 5.91 | 5.77 |
DIRECT CASH COST | $/Tonne | 35.87 | 35.98 | 38.29 | 36.67 | 34.93 | 39.80 | 27.37 | 33.65 |
SELLING AND TRANSPORT COSTS | $/Tonne | 0.98 | 1.47 | 1.68 | 1.38 | (0.02) | 1.09 | 0.58 | 0.54 |
SMELTING AND REFINING COSTS | $/Tonne | 2.96 | 19.86 | 19.98 | 14.26 | 1.59 | 16.27 | 12.44 | 10.11 |
BY PRODUCT CREDITS | $/Tonne | (7.08) | (17.40) | (5.63) | (10.30) | (2.69) | (10.15) | (7.42) | (6.73) |
DIRECT COST PER TONNE | $/Tonne | 32.73 | 39.91 | 54.32 | 42.01 | 33.81 | 47.01 | 32.98 | 37.57 |
MINING | $/Oz. | 3.30 | 2.90 | 3.61 | 3.25 | 4.68 | 3.90 | 2.17 | 3.27 |
MILLING | $/Oz. | 3.31 | 3.00 | 2.03 | 2.78 | 4.91 | 4.02 | 1.82 | 3.19 |
INDIRECT | $/Oz. | 1.65 | 0.96 | 1.98 | 1.49 | 2.81 | 0.73 | 1.10 | 1.34 |
SELLING AND TRANSPORT COSTS | $/Oz. | 0.23 | 0.28 | 0.33 | 0.28 | (0.01) | 0.24 | 0.11 | 0.13 |
SMELTING AND REFINING COSTS | $/Oz. | 0.68 | 3.79 | 3.97 | 2.92 | 0.56 | 3.53 | 2.31 | 2.34 |
BY PRODUCT CREDITS | $/Oz. | (1.63) | (3.32) | (1.12) | (2.11) | (0.95) | (2.20) | (1.38) | (1.56) |
CASH COST PER OUNCE | $/Oz. | 7.53 | 7.61 | 10.80 | 8.61 | 12.00 | 10.21 | 6.13 | 8.71 |
SMELTING AND REFINING COSTS | $/Oz. | (0.68) | (3.79) | (3.97) | (2.92) | (0.56) | (3.53) | (2.31) | (2.34) |
DIRECT CASH COSTS | $/Oz. | 6.85 | 3.82 | 6.83 | 5.69 | 11.44 | 6.68 | 3.82 | 6.37 |
Note 1 The table above does not include 68,026 silver equivalent ounces of pre-commercial production from the La Encantada mill expansion project.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 59
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Year to date December 31, 2009 | ||||||
INVENTORY RECONCILIATION (See Note 1): | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Opening stockpile inventory | OZ EQ | 147,932 | 193,165 | 88,555 | - | 429,652 |
Reduction of stockpile | OZ EQ | (140,489) | (76,626) | (48,842) | - | (265,957) |
Ending stockpile inventory | OZ EQ | 7,443 | 116,539 | 39,713 | - | 163,695 |
Opening in process inventory | OZ EQ | 13,992 | 8,524 | - | - | 22,516 |
Inventory adjustments | OZ EQ | 7,249 | 13,997 | 50,077 | - | 71,323 |
Ending in process inventory | OZ EQ | 21,241 | 22,521 | 50,077 | - | 93,839 |
Opening finished goods inventory | OZ EQ | 33,276 | 20,368 | 48,111 | - | 101,755 |
Production - silver equivalent ounces | OZ EQ | 1,247,236 | 1,643,205 | 1,378,640 | - | 4,269,081 |
Shipments - silver equivalent ounces | OZ EQ | (1,229,073) | (1,648,020) | (1,371,337) | - | (4,248,430) |
Inventory adjustments | OZ EQ | (26,190) | (3,513) | (55,414) | - | (85,117) |
Ending finished goods inventory | OZ EQ | 25,249 | 12,040 | - | - | 37,289 |
Total ending inventory before transfers | OZ EQ | 343,581 | 151,100 | 89,790 | - | 584,471 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 42,453 | 42,453 |
Transfers to coins, ingots and bullion inventory | OZ EQ | (289,648) | - | - | 289,648 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (10,385) | (10,385) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (284,836) | (284,836) |
Total inventory, all stages and products | OZ EQ | 53,933 | 151,100 | 89,790 | 36,880 | 331,703 |
Value of ending inventory - (Note 1) | CDN$ | 369,158 | 461,781 | 364,436 | 273,262 | 1,468,637 |
Value of ending inventory - Cdn$ per oz | CDN$ | 6.84 | 3.06 | 4.06 | 7.41 | 4.43 |
Average exchange rate - Q4 2009 | 1.0563 | 1.0563 | 1.0563 | 1.0563 | 1.0563 | |
Value of ending inventory - US$ per oz | US$ | 6.48 | 2.89 | 3.84 | 7.01 | 4.19 |
Three months ended December 31, 2009 | ||||||
INVENTORY RECONCILIATION (See Note 1): | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Opening stockpile inventory | OZ EQ | 12,535 | 88,367 | 33,499 | - | 134,401 |
Increase of stockpile | OZ EQ | (5,092) | 28,172 | 6,214 | - | 29,294 |
Ending stockpile inventory | OZ EQ | 7,443 | 116,539 | 39,713 | - | 163,695 |
Opening in process inventory | OZ EQ | 13,370 | 11,661 | - | - | 25,031 |
Inventory adjustments | OZ EQ | 7,871 | 10,860 | 50,077 | - | 68,808 |
Ending in process inventory | OZ EQ | 21,241 | 22,521 | 50,077 | - | 93,839 |
Opening finished goods inventory | OZ EQ | 6,867 | 36,125 | 44,292 | - | 87,284 |
Production - silver equivalent ounces | OZ EQ | 344,405 | 469,318 | 367,820 | - | 1,181,543 |
Shipments - silver equivalent ounces | OZ EQ | (312,899) | (478,121) | (363,364) | - | (1,154,384) |
Inventory adjustments | OZ EQ | (13,124) | (15,282) | (48,748) | - | (77,154) |
Ending finished goods inventory | OZ EQ | 25,249 | 12,040 | - | - | 37,289 |
Total ending inventory before transfers | OZ EQ | 133,074 | 151,100 | 89,790 | - | 373,964 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 37,785 | 37,785 |
Transfers to coins, ingots and bullion inventory | OZ EQ | (79,141) | - | - | 79,141 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (4,785) | (4,785) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (75,261) | (75,261) |
Total inventory, all stages and products | OZ EQ | 53,933 | 151,100 | 89,790 | 36,880 | 331,703 |
Value of ending inventory - (Note 1) | CDN$ | 369,158 | 461,781 | 364,436 | 273,262 | 1,468,637 |
Value of ending inventory - Cdn$ per oz | CDN$ | 6.84 | 3.06 | 4.06 | 7.41 | 4.43 |
Average exchange rate - Q4 2009 | 1.0563 | 1.0563 | 1.0563 | 1.0563 | 1.0563 | |
Value of ending inventory - US$ per oz | US$ | 6.48 | 2.89 | 3.84 | 7.01 | 4.19 |
Note 1 - The inventory reconciliation above consists of silver coins, bullion, doré, concentrates, ore in process and stockpile but excludes materials and supplies. The tables above do not include 68,026 silver equivalent ounces of pre-commercial production from the La Encantada mill expansion project.
60
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Year to Date December 31, 2009 | ||||||
Cost of Sales Reconciliation | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Cash Cost | US$ | 8,176,176 | 10,728,740 | 12,745,372 | - | 31,650,288 |
Inventory changes | US$ | 676,545 | 160,757 | 89,537 | - | 926,839 |
Byproduct credits | US$ | 1,852,368 | 4,121,098 | 1,499,708 | - | 7,473,174 |
Smelting and refining | US$ | (715,834) | (4,897,387) | (5,126,869) | - | (10,740,090) |
Other | US$ | 125,755 | 489,474 | 90,514 | - | 705,743 |
Cost of sales - Calculated | US$ | 10,115,010 | 10,602,682 | 9,298,262 | - | 30,015,954 |
Average CDN/US Exchange Rate | 0.87256 | 0.88926 | 0.88359 | - | 0.88182 | |
Booked Cost of Sales | CDN$ | 11,592,357 | 11,923,081 | 10,523,284 | - | 34,038,722 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | 313,131 | 313,131 |
Total Cost of Sales as Reported | CDN$ | 11,592,357 | 11,923,081 | 10,523,284 | 313,131 | 34,351,853 |
Three months ended December 31, 2009 | ||||||
Cost of Sales Reconciliation | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Cash Cost | US$ | 2,321,465 | 3,012,558 | 3,586,418 | - | 8,920,441 |
Inventory changes | US$ | (172,909) | 4,217 | 135,669 | - | (33,023) |
Byproduct credits | US$ | 502,223 | 1,313,641 | 371,932 | - | 2,187,796 |
Smelting and refining | US$ | (209,716) | (1,499,186) | (1,319,294) | - | (3,028,196) |
Other | US$ | (54,770) | 42,182 | - | - | (12,588) |
Cost of sales - Calculated | US$ | 2,386,293 | 2,873,412 | 2,774,725 | - | 8,034,430 |
Average CDN/US Exchange Rate | 0.92751 | 0.95452 | 0.94019 | - | 0.94142 | |
Booked Cost of Sales | CDN$ | 2,572,798 | 3,010,309 | 2,951,242 | - | 8,534,349 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | 4,436 | 4,436 |
Total Cost of Sales as Reported | CDN$ | 2,572,798 | 3,010,309 | 2,951,242 | 4,436 | 8,538,785 |
Note 1 - Net of intercompany eliminations of $1,326,953 for the fourth quarter ended December 31, 2009 and $4,547,713 for the year ended December 31, 2009.
REVIEW OF MINING OPERATING RESULTS
The total silver production for the fourth quarter of 2009 consisted of 1,249,568 ounces of silver equivalent representing an increase of 15% compared to 1,089,481 ounces of silver equivalent produced in the third quarter of 2009 and an increase of 18% compared to 1,056,219 ounces of silver equivalent produced in fourth quarter of 2008.
Silver production in the fourth quarter of 2009 was 1,103,840 ounces, representing an increase of 18% compared to the third quarter of 2009 and an increase of 19% compared to 930,120 ounces of silver produced in the fourth quarter of 2008. In the fourth quarter of 2009, 1,574,819 pounds of lead were produced, representing a decrease of 7% compared to the third quarter of 2009 and a decrease of 25% compared to the fourth quarter of 2008. Gold produced in the fourth quarter of 2009 was 701 ounces, representing a decrease of 4% compared to the third quarter of 2009 and an increase of 74% compared to the fourth quarter of 2008.
The ore processed during the fourth quarter of 2009 at the Companys three operating silver mines: the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine; amounted to 251,258 tonnes which is an increase of 17% from the third quarter of 2009 and an increase of 17% compared to the fourth quarter of 2008.
The average silver head grade in the fourth quarter of 2009 for the three mines increased to 235 grams per tonne (g/t) silver compared to 205 g/t silver in the third quarter of 2009 and 207 g/t in the fourth quarter of 2008.
Total combined recoveries of silver at the Companys three mills has remained relatively constant at 65% in the fourth quarter of 2009 compared to 66% in the third quarter of 2009 and 65% in the fourth quarter of 2008.
A total of 5,266 metres of underground development was completed in the fourth quarter of 2009 compared to 6,597 metres completed in the third quarter of 2009. This program is important as it provides access to new areas within the different mines and prepares the mines for continuing growth of silver production.
A total of 1,031 metres of diamond drilling was completed in the fourth quarter of 2009 compared to 1,017 metres drilled in the third quarter of 2009. Total annual drilling was scaled back from 61,440 metres in 2008 to 7,459 metres in 2009 as the Company reduced its exploration expenditures in late 2008 after having achieved a target level of Reserves and Resources in late 2008.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 61
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
MINE UPDATES
La Encantada Silver Mine, Coahuila, Mexico
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest towns, Muzquiz and Boquillas del Cármen, are 225 kilometres away and 45 kilometres away, respectively, via unpaved road. The La Encantada Silver Mine consists of an almost completed 3,500 tpd cyanidation plant, a 1,000 tpd flotation plant, all related facilities and infrastructure, including a mining camp with 180 houses, administrative offices, and a private airstrip. The Company owns 100% of the La Encantada Silver Mine.
During the fourth quarter of 2009, the new 3,500 tonne-per-day (“tpd”) mill was inaugurated and the ramp up process began. Management anticipates by the beginning of the second quarter of 2010, this new plant will achieve commercial production with full capacity anticipated being achieved near the end of Q2 2010. At full capacity, the new La Encantada cyanidation operation is expected to produce an additional four million ounces of silver in doré form annually. The mine is currently producing silver in precipitate form pending the installation of induction furnaces which are anticipated to be delivered in Q2 of 2010. To date, the Company has spent approximately $36.4 million (US$34.6 million) on the new cyanidation plant, or $33.7 million (US$32.0) million after adjusting for pre-operating revenues and expenses.
Also, during the quarter, the flotation circuit at La Encantada was renovated with the installation of new flotation cells. The flota-tion circuit produces two products: a silver rich concentrate and a lead rich concentrate. The lead rich concentrate is presently being sold through an off-take agreement, whereas the silver concentrate is being introduced into the cyanidation circuit to enrich the silver content of the silver precipitates.
Fresh ore from the underground mine is being processed at a rate of 850 tpd, after which the silver concentrate is piped to the cyanidation process where it is mixed, one part fresh ore to three parts tailings from the old tailings pond, at a rate of 2,650 tpd, with an average grade of 146 g/t silver. The anticipated average grade of the mixed fresh ore and old tailings is expected to be 180 g/t.
Tonnes milled in the fourth quarter of 2009 increased to 104,864 tonnes compared to 68,481 tonnes in the third quarter of 2009, an increase of 53%. The average head grade was 305 g/t in the fourth quarter of 2009, representing an increase of 19% when compared to 256 g/t in the third quarter of 2009 and an increase of 9% when compared to the 281 g/t in the fourth quarter of 2008. Silver recovery in the fourth quarter of 2009 was 51% which is comparable with the 48% achieved in the third quarter of 2009 but represents a decrease of 13% when compared to the 59% achieved in the fourth quarter of 2008. The low recoveries resulted from high manganese content in the ore from the Azul y Oro and Buenos Aires areas, combined with old flotation cells which were replaced in early December in an attempt to increase the recoveries. The lower recoveries in 2009 resulted in higher cash costs per ounce in 2009 relative to 2008.
A total of 435,845 equivalent ounces of silver were produced during the fourth quarter of 2009, which represents an increase of 47% compared to 296,690 equivalent ounces of silver produced in third quarter of 2009 but represents a decrease of 10% when compared to the 484,053 equivalent ounces of silver produced in the fourth quarter of 2008. Silver production consisted of 399,810 ounces of silver, representing an increase of 49% compared with the 268,973 ounces produced in the third quarter of 2009 and a decrease of 7% compared with the 427,753 ounces produced in the fourth quarter of 2008. Lead production for the fourth quarter of 2009 was 536,801 pounds which was comparable to the 536,454 pounds produced in the third quarter of 2009 but decreased by 658,756 pounds or 55% compared to the 1,195,557 pounds of lead produced in the fourth quarter of 2008.
Underground mine development consisted of 2,251 metres completed in the fourth quarter of 2009 compared to 3,637 metres of development completed in the third quarter of 2009, representing a decrease of 38%. This program focused on improving haulage and logistics for ore and waste that is transported by trucks out of the mine from several targets including the San Javier/ Milagros Breccias, Azul y Oro including the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. The purpose of the ongoing underground development program is to prepare for increased production levels in 2010, to confirm additional Reserves and Resources, and for exploration and exploitation purposes going forward. No diamond drilling exploration was completed at La Encantada in the fourth quarter of 2009.
La Parrilla Silver Mine, Durango, Mexico
The La Parrilla Silver Mine is a group of producing underground operations consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings including the San Marcos and the Quebradillas mines, located approximately 65 kilometres southeast of the city of Durango, Mexico. La Parrilla includes an 850 tpd mill consisting of two parallel 425 tpd cyanidation and flotation circuits, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company leases 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
62
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Tonnes milled at La Parrilla were 75,475 tonnes in the fourth quarter of 2009, representing an increase of 3% when compared with the 72,988 tonnes milled in the third quarter of 2009 and an increase of 14% when compared with the 66,395 tonnes milled in the fourth quarter of 2008. The average head grade increased slightly to 222 g/t from 218 g/t in the third quarter of 2009 and from 206 g/t in the fourth quarter of 2008. Recoveries of silver remained relatively consistent at 73% in the fourth quarter of 2009, compared to 74% in the third quarter of 2009, but represented a slight increase when compared to the 70% achieved in the fourth quarter of 2008.
Total silver production increased slightly to 469,318 equivalent ounces of silver in the fourth quarter of 2009. This is comparable to the 464,134 ounces of silver equivalent produced in the third quarter of 2009 but represents an increase of 30% when compared to the 359,851 ounces of silver equivalent produced in the fourth quarter of 2008. The composition of the silver equivalent production in the fourth quarter of 2009 included 395,761 ounces of silver, 151 ounces of gold and 1,038,018 pounds of lead. This compares with 378,680 ounces of silver, 123 ounces of gold, 1,153,900 pounds of lead and 8,913 pounds of zinc produced in the third quarter of 2009 and 305,685 ounces of silver, 297 ounces of gold, 897,031 pounds of lead and 24,414 pounds of zinc in the fourth quarter of 2008.
A total of 2,047 metres of underground development was completed in the fourth quarter of 2009, compared to 1,941 metres in the third quarter of 2009. A total of 114 metres of diamond drilling was completed in the fourth quarter of 2009 compared to 530 metres in third quarter of 2009.
During 2009, a significant focus of the development at La Parrilla was reaching the lower levels of the La Rosa/Rosarios vein. During the year, the 8th and 9th levels were developed, allowing the mine to increase the Proven and Probable Reserves and improve the quality of the resources that are located in these areas. At the Quebradillas mine, the development work was focused on reaching a high volume ore body that is being prepared for production in the first half of 2010.
San Martin Silver Mine, Jalisco, Mexico
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 1,000 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine. The mill has historically produced 100% doré bars and continues to do so. In early 2008, a 500 tpd flotation circuit was nearly completed to take advantage of the large sulphide resource at this mine, however, due to low base metal prices and high costs of smelting concentrates, the circuit is currently in care and maintenance pending further capital investment.
During the quarter, additional development was completed in a new area at the San Martin mine, referred to as the San Pedro area, which is located at the footwall of the Zuloaga vein, allowing higher ore grades and additional tonnage to be fed to the mill. Prior to accessing the San Pedro area, the San Martin mine was feeding various backfill areas while the higher grade San Pedro area was being developed.
Tonnes milled at the San Martin mine were 70,919 tonnes in the fourth quarter of 2009, representing a slight decrease of 4% when compared to the 73,990 tonnes milled in the third quarter of 2009 and a slight increase of 2% when compared to the 69,771 tonnes milled in the fourth quarter of 2008. The average head grade was 184 g/t in the fourth quarter of 2009, representing an increase of 27% when compared to the 145 g/t in the third quarter of 2009 and an increase of 48% when compared to the 124 g/t in the fourth quarter of 2008.
Recoveries of silver in the fourth quarter of 2009 decreased to 73%, from 84% achieved in the third quarter of 2009, however this was a slight increase from the 71% achieved in the fourth quarter of 2008. Total production of 344,405 ounces of silver equivalent in the fourth quarter of 2009 was 5% higher than the 328,657 equivalent ounces of silver produced in the third quarter of 2009 and 62% higher than the 212,315 equivalent ounces of silver produced in the fourth quarter of 2008. The equivalent ounces of silver in the fourth quarter of 2009 consisted of 308,269 ounces of silver and 545 ounces of gold. This compares to 288,343 ounces of silver and 609 ounces of gold produced in the third quarter of 2009 and 196,681 ounces of silver, 106 ounces of gold and 1,399 pounds of lead produced in the fourth quarter of 2008.
During the fourth quarter of 2009, a total of 917 metres of diamond drilling was completed. This compares to 486 metres drilled in the third quarter of 2009. In addition, a total of 968 metres of underground development was completed, representing a slight decrease compared to the 1,020 metres completed in the third quarter of 2009.
Del Toro Silver Mine, Zacatecas, Mexico
The Del Toro Silver Mine is located 60 km to the southeast of the Company’s La Parrilla Silver Mine and consists of 392 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately 1 kilometre apart.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 63
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
The Del Toro Silver Mine is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings.
All necessary permits for the construction of a 1,000 tpd flotation mill were granted in Q4 2009 and Q1 2010 by the Mexican authorities. No immediate plans are in place to commence construction, however the Company anticipates a final decision to proceed later in 2010.
Real de Catorce Silver Project, San Luis Potosi, Mexico
The Real de Catorce Silver Project was acquired on November 13, 2009, through the share acquisition of Normabec. The Real de Catorce mine is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares, with historical production of 230 million ounces between 1773 and 1990. As a result of the acquisition of Normabec, the Company owns 100% of the Real de Catorce Silver Project. In 2010, the Company plans to reconfirm the existing geologic information and to start planning its future activities in this very large and promising silver mining district.
EXPLORATION PROPERTY UPDATES
Jalisco Group of Properties, Jalisco, Mexico
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, Mexico. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued as the Company focuses its capital investment on other higher priority projects.
Cuitaboca Silver Project, Sinaloa, Mexico
During the year ended December 31, 2009, and after the acquisition of the Real de Catorce Silver Project, management elected not to proceed with the acquisition of the Cuitaboca Silver Project. Accordingly, the investment totalling $2,589,824 was written off at year end.
SELECTED ANNUAL INFORMATION
Year ended | Year ended | Year ended | ||||
December 31 | December 31 | December 31 | ||||
2009 | 2008 | 2007 | ||||
$ | $ | $ | ||||
Revenue (1) | 59,510,669 | 44,324,887 | 42,924,920 | |||
Mine operating earnings (2) | 18,460,952 | 7,501,632 | 7,007,776 | |||
Net income (loss) (3) | 6,310,225 | (5,144,784 | ) | (7,230,122 | ) | |
Earnings (loss) per share - basic | 0.08 | (0.07 | ) | (0.13 | ) | |
Earnings (loss) per share - diluted | 0.07 | (0.07 | ) | (0.13 | ) | |
Total assets (4) | 251,575,252 | 231,159,649 | 185,002,851 | |||
Total long term liabilities | 37,388,527 | 38,725,621 | 36,591,521 |
(1) |
During the year ended December 31, 2009, revenue increased by $15.2 million or 34% over 2008 due to increased production at all the mines, resulting in an 18% increase in the equivalent ounces of silver sold, reductions in smelting and refining charges and metal deductions that reduced these charges from 21% of gross revenue to 17% of gross revenue and a 7% increase in the average USD/CAD exchange rate. During the year ended December 31, 2008, revenues increased by $1.4 million over 2007 due to the ramping up of production at the La Parrilla and La Encantada Silver Mines. |
|
La Parrilla Silver Mine During the year ended December 31, 2009, a total 277,917 tonnes of ore were processed with an average head grade of 214 g/t of silver resulting in a total of 1,643,207 equivalent ounces of silver produced and 1,648,020 ounces of silver equivalent shipped. During the year ended December 31, 2008, a total of 246,166 tonnes of ore were processed with an average head grade of 234 g/t of silver resulting in a total of 1,584,808 equivalent ounces of silver produced and 1,282,340 ounces of silver equivalent shipped. During the year ended December 31, 2007, a total of 179,411 tonnes of ore were processed with an average head grade of 204 g/t of silver resulting in a total of 1,000,823 equivalent ounces of silver produced. |
|
|
San Martin Silver Mine During the year ended December 31, 2009, a total of 291,339 tonnes of ore were processed with an average head grade of 157 g/t of silver resulting in a total of 1,247,236 equivalent ounces of silver produced and 1,229,073 ounces of silver equivalents shipped. For the year ended December 31, 2008, a total of 254,211 tonnes of ore was processed with an average grade of 141 g/t of silver resulting in 1,008,948 ounces of silver equivalents produced, and 778,561 ounces of silver equivalents shipped. The San Martin mine and mill, over the twelve month period ended December 31, 2007, processed 239,796 tonnes of ore with an average grade of 171 g/t of silver resulting in 1,217,065 equivalent ounces of silver. |
64
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
|
La Encantada Silver Mine During the year ended December 31, 2009, 318,382 tonnes of ore were processed with an average head grade of 276 g/t of silver resulting in a total of 1,446,660 equivalent ounces of silver produced and 1,371,337 ounces of silver equivalents shipped. During the year ended December 31, 2008, 1,636,242 equivalent ounces of silver were produced and 1,529,301 ounces of silver equivalent were shipped, compared to 1,366,377 equivalent ounces of silver produced and 1,272,810 equivalent ounces of silver shipped for the year 2007. |
|
(2) |
Mine operating earnings for the year ended December 31, 2009 increased by $11.0 million or 146% due to an increase of 643,501 equivalent silver ounces sold in 2009 compared to 2008. A $15.2 million increase in net revenue was partially off set by a $3.9 million increase in cost of sales. Mine operating earnings for the year ended December 31, 2008 was $7,501,632, an increase of 7% over the $7,007,776 of mine operating earnings for the year ended December 31, 2007 and is primarily due to the increase of 128,642 equivalent silver ounces sold in 2008 compared to 2007. |
|
(3) |
Net income or losses in these periods included non-cash stock based compensation expenses of $3,302,780 for the year ended December 31, 2009 compared to $3,680,111 for the year ended December 31, 2008 and $3,865,689 for the year ended December 31, 2007. During the year ended December 31, 2009, management elected not to proceed with the acquisition of the Cuitaboca Silver Project and accordingly, the investment totalling $2,589,824 was written off. Also during 2009, included in net income was a write-down of marketable securities in the amount of $390,467. There were no such write-downs during the years ended December 31, 2008 and 2007. |
|
There was a net income tax recovery of $3,230,192 in the year ended December 31, 2009 compared to an income tax recovery of $1,919,454 in the year ended December 31, 2008 and a tax expense of $1,384,647 in the year ended December 31, 2007, attributed primarily to increases in future income tax benefits as well as a reduction of non-allowable tax deductions in 2009 and 2008. |
||
(4) |
During the year ended December 31, 2009, the $20.4 million increase in total assets consisted primarily of approximately $18.3 million increase in plant and equipment and a $13.7 million increase in mining interests, net of depreciation, depletion and translation adjustments, both of which were offset by a $11.5 million reduction of cash. During the year ended December 31, 2008, the $46.2 million increase in total assets consisted primarily of approximately $4.6 million increase in cash and cash equivalents and $38.3 million on mining interests and plant and equipment, net of depletion, depreciation and translation adjustments. |
|
The Company has not paid any dividends since incorporation and it presently has no plans to pay dividends. |
RESULTS OF OPERATIONS
Three Months ended December 31, 2009 compared to Three Months ended December 31, 2008.
For the Quarter Ended | |||||
December 31, 2009 | December 31, 2008 | ||||
$ | $ | ||||
Gross Revenue | 21,436,456 | 11,712,165 | (1) | ||
Net Revenue | 18,374,117 | 9,106,605 | (2) | ||
Cost of sales | 8,538,785 | 8,294,803 | (3) | ||
Amortization and depreciation | 915,157 | 1,049,767 | |||
Depletion | 720,702 | 825,185 | (4) | ||
Accretion of reclamation obligation | 106,480 | 63,547 | |||
Mine operating earnings | 8,092,993 | (1,126,697) | (5) | ||
General and administrative | 2,432,333 | 1,795,305 | (6) | ||
Stock-based compensation | 1,099,386 | 865,417 | (7) | ||
Write-down of mineral properties | 2,589,824 | - | (8) | ||
6,121,543 | 2,660,722 | ||||
Operating income (loss) | 1,971,450 | (3,787,419) | (9) | ||
Interest and other expenses | (999,683) | (583,430) | (10) | ||
Investment and other income | 531,763 | 67,363 | (11) | ||
Write-down of marketable securities | (390,467) | - | (12) | ||
Foreign exchange (loss) gain | 523,141 | (3,750,504) | (13) | ||
Income (loss) before taxes | 1,636,204 | (8,053,990) | |||
Income tax (recovery) - current | (360,124) | 17,742 | |||
Income tax (recovery) - future | (496,160) | (2,532,826) | |||
Income tax (recovery) expense | (856,284) | (2,515,084) | (14) | ||
NET INCOME (LOSS) FOR THE QUARTER | 2,492,488 | (5,538,906) | (15) | ||
EARNINGS (LOSS) PER SHARE - BASIC | 0.03 | (0.08) |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 65
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
1. |
Consolidated gross revenue (prior to smelting and refining and metal deductions) for the quarter ended December 31, 2009 was $21,436,456 or $18.71 (US$17.72) per ounce compared to $11,712,165 or $14.15 (US$11.67) per ounce for the quarter ended December 31, 2008 for an increase of $9,724,291, or 83%. The increase in the fourth quarter of 2009 is attributable to a 38% increase in equivalent silver ounces sold and a 32% increase in the average gross revenue per ounce realized. |
2. |
Net revenue for the three months ended December 31, 2009 increased by $9,267,512 or 102% to $18,374,117, from $9,106,605 in the fourth quarter of 2008, due to the same increases that affected consolidated gross revenue in the fourth quarter of 2009. In addition, lower smelting and refining charges per ounce contributed to the increase in net revenue in the fourth quarter of 2009. |
3. |
Cost of sales increased by $243,982 or 3%, to $8,538,785 in the fourth quarter of 2009 from $8,294,803 in the same quarter of 2008. This modest increase in cost of sales was accomplished while increasing the equivalent silver ounces sold by 38% from the quarter ended December 31, 2008. In the fourth quarter of 2009, the Company processed higher grade ore and achieved operational efficiencies including reductions in production costs per tonne and cash costs per ounce. |
4. |
Depletion decreased by $104,483 or 13%, to $720,702 in the fourth quarter of December 2009 from $825,185 in the same quarter of 2008, due to an increase in production from areas outside of reserves at the San Martin Silver Mine. |
5. |
Mine operating earnings increased by $9,219,690 or 818% to $8,092,993 for the quarter ended December 31, 2009 from a mine operating loss of $1,126,697 for the same quarter in the prior year. This is primarily due to the $9,267,512 increase in net revenue. |
6. |
General and administrative expenses increased by $637,028 or 35% compared to the prior year primarily due to increases in office and other expenses of $205,700, salaries and benefits of $152,636 and legal expenses of $116,199. |
7. |
Stock-based compensation increased by $233,969 or 27% due to a higher number of new option grants in the fourth quarter of 2009. |
8. |
During the quarter ended December 31, 2009, management elected not to proceed with the acquisition of the Cuitaboca Silver Project and accordingly, the investment totalling $2,589,824 was written off. There was no such write-down in the fourth quarter of 2008. |
9. |
Operating income increased by $5,758,869 or 152% to $1,971,450 for the quarter ended December 31, 2009, from an operating loss of $3,787,419 for the quarter ended December 31, 2008, due to the increase in mine operating earnings. |
10. |
During the quarter ended December 31, 2009, interest and other expenses included a one-time expense of $484,487 for legal and professional fees associated with a transaction that did not proceed. There was no such expense in the quarter ended December 31, 2008. |
11. |
During the quarter ended December 31, 2009, investment and other income included $445,920 for realized gains on silver futures while this gain was $81,307 in the quarter ended December 31, 2008. |
12. |
During the quarter ended December 31, 2009, management determined that the value of certain investments in marketable securities were permanently impaired and $390,467 of unrealized losses were written down. There was no such write-down in the fourth quarter of 2008. |
13. |
The Company experienced a foreign exchange gain of $523,141 in the quarter ended December 31, 2009 compared to a foreign exchange loss of $3,750,504 in the quarter ended December 31, 2008 due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar, and a weakening of the Mexican peso relative to the Canadian dollar. |
14. |
During the quarter ended December 31, 2009, the Company recorded an income tax recovery of $856,284 compared to a recovery of $2,515,084 in the quarter ended December 31, 2008, and this is attributed to the recovery of future income taxes arising from the reversal of temporary timing differences and additional tax loss carryforwards compared to 2008. |
15. |
As a result of the foregoing, net income for the quarter ended December 31, 2009 was $2,492,488 or $0.03 per common share compared to a net loss of $5,538,906 or $0.08 per common share in the quarter ended December 31, 2008, for an increase of $8,031,394. |
66
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Year ended December 31, 2009 compared to Year ended December 31, 2008.
For the Year Ended | |||||
December 31, 2009 | December 31, 2008 | ||||
$ | $ | ||||
Gross Revenue | 71,526,075 | 56,102,459 | (1) | ||
Net Revenue | 59,510,669 | 44,324,887 | (2) | ||
Cost of sales | 34,351,853 | 30,419,415 | (3) | ||
Amortization and depreciation | 3,504,065 | 3,169,226 | (4) | ||
Depletion | 2,748,709 | 3,034,137 | (5) | ||
Accretion of reclamation obligation | 445,090 | 200,477 | (6) | ||
Mine operating earnings | 18,460,952 | 7,501,632 | |||
General and administrative | 8,089,087 | 7,549,079 | (7) | ||
Stock-based compensation | 3,302,780 | 3,680,111 | (8) | ||
Write-down mineral properties | 2,589,824 | - | (9) | ||
13,981,691 | 11,229,190 | ||||
Operating income | 4,479,261 | (3,727,558) | (10) | ||
Interest and other expenses | (2,101,862) | (1,372,768) | (11) | ||
Investment and other income | 1,129,527 | 1,180,742 | |||
Write-down marketable securities | (390,467) | - | |||
Foreign exchange loss | (36,426) | (3,144,654) | (12) | ||
Income (loss) before taxes | 3,080,033 | (7,064,238) | |||
Income tax - current | 85,786 | 136,533 | |||
Income tax (recovery) - future | (3,315,978) | (2,055,987) | |||
Income tax (recovery) expense | (3,230,192) | (1,919,454) | (13) | ||
NET INCOME (LOSS) FOR THE YEAR | 6,310,225 | (5,144,784) | (14) | ||
EARNINGS (LOSS) PER SHARE - BASIC | 0.08 | (0.07) |
1. |
Gross revenue (prior to smelting and refining and metal deductions) for the year ended December 31, 2009 was $71,526,075 compared to $56,102,459 for the year ended December 31, 2008 for an increase of $15.4 million or 27%. Contributing to this increase was an 18% increase in silver equivalent ounces sold, and a 8% increase in the average Canadian price per ounce of silver. Total equivalent ounces of silver sold for 2009, was 4,233,703 ounces whereas for 2008, the total equivalent ounces of silver sold was 3,590,202 ounces, for an increase of 643,501 equivalent ounces of silver. The average silver price realized in 2009 was $16.89 (US$14.79) while the average silver price realized in 2008 was $15.63 (US$14.66), due to a 7% increase in the average CAD/USD exchange rate for 2009, compared to 2008. |
2. |
Net revenue for the year ended December 31, 2009 increased by $15.2 million or 34%, from $44,324,887 in the year ended December 31, 2008 to $59,510,669 in the year ended December 31, 2009 due to the same increases that affected consolidated gross revenue in 2009. Net revenue in 2009 also included the incremental revenue of $454,719 from the sales of coins, ingots and bullion to consumers and individual retail investors over the Companys website. |
3. |
Cost of sales increased by $3.9 million or 13% from $30.4 million to $34.4 million for the year ended December 31, 2009 due to the 18% increase in the equivalent ounces of silver sold. |
4. |
Amortization and depreciation increased by $334,839 or 11%, to $3,504,065 for the year ended December 31, 2009 from $3,169,226 for the year ended December 31, 2008, due to the higher amount of depreciable assets in the current year including assets acquired by capital lease in the fourth quarter of 2008 and in 2009. |
5. |
Depletion decreased by $285,428 or 9% to $2,748,709 in the year ended December 31, 2009 compared to $3,034,137 for the year ended December 31, 2008 and is primarily related to the San Martin mine as less tonnage was extracted from re- serves, and more tonnage was extracted from areas outside of reserves. |
6. |
Accretion of reclamation obligations increased by $244,613, from $200,477 in the year ended December 31, 2008 to $445,090 in the year ended December 31, 2009, due to the updated cost estimates for reclamation activities as determined in late 2008. |
7. |
General and administrative expenses increased by $540,008 or 7% primarily due to increases of $315,977 in legal expenses and $230,010 in salaries and benefits. |
8. |
Stock-based compensation decreased by $377,331 or 10% due to fewer new options granted and fewer options vesting in the year ended December 31, 2009. |
9. |
During the year ended December 31, 2009, management elected not to proceed with the acquisition of the Cuitaboca Silver Project and accordingly, the investment totalling $2,589,824 was written off. There was no such write-down in 2008. |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 67
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
10. |
Operating income increased by $8,206,819 or 220%, from an operating loss of $3,727,558 for the year ended December 31, 2008 to operating income of $4,479,261 for the year ended December 31, 2009. This can be directly attributable to the $10,959,320 increase in mine operating earnings. |
11. |
Interest and other expenses increased by $729,094 or 53% to $2,101,862 in the year ended December 31, 2009 compared to $1,372,768 in the year ended December 31, 2008 due to a one-time expense of $484,487 for legal and professional fees associated with a transaction that did not proceed as well as additional interest on capital leases, interest on outstanding property payments relating to the Quebradillas Mine at La Parrilla, interest on debt facilities in place in 2009 and financing cost relating to advance payments on silver shipments. During the year ended December 31, 2009, interest and other expenses included a one-time expense of $484,487 for legal and professional fees associated with a transaction that did not proceed. There was no such expense in 2008. |
12. |
There was a foreign exchange loss of $36,426 for the year ended December 31, 2009, compared to a loss of $3,144,654 for the year ended December 31, 2008, due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar, and a weakening of the Mexican peso relative to the Canadian dollar. |
13. |
During the year ended December 31, 2009, the Company recorded an income tax recovery of $3,230,192 compared to $1,919,454 in the year ended December 31, 2008. This is attributed to the recovery of future income taxes arising from the reversal of temporary timing differences and additional tax loss carryforwards compared to 2008. Included in the current recovery is a Canadian dollar equivalent of $542,906 for the adjusted tax deductibility of energy expenses which has increased the tax loss carryforwards. |
14. |
As a result of the foregoing, net income for the year ended December 31, 2009 was $6,310,225 or $0.08 per common share (basic) compared to net loss of $5,144,784 or ($0.07) per common share for the year ended December 31, 2008, for an increase of $11.5 million. |
SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the last eight quarters.
Net income | Basic and diluted | |||||
Net sales | (loss) after | net income (loss) | Stock based | |||
revenues | taxes | per common share | compensation (1) | |||
Quarter | $ | $ | $ | $ | Note | |
Year ended December 31, 2009 | Q4 | 18,374,117 | 2,492,488 | 0.03 | 1,099,386 | 2 |
Q3 | 13,724,803 | 1,841,623 | 0.02 | 505,847 | 3 | |
Q2 | 13,024,877 | 1,036,416 | 0.01 | 800,808 | 4 | |
Q1 | 14,386,872 | 939,698 | 0.01 | 896,739 | 5 | |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | 6 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 | ||
Q2 | 11,436,889 | (296,956) | 0.00 | 670,616 | 7 | |
Q1 | 12,964,182 | 1,065,323 | 0.02 | 1,108,216 |
Notes:
(1) |
Stock-based Compensation - the net income (losses) are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
(2) |
In the quarter ending December 31, 2009, net sales revenue increased due to increasing silver prices. The average gross revenue per ounce of silver realized increased to US$17.72 in the quarter ended December 31, 2009, compared to US$15.07 in the prior quarter ended September 30, 2009. |
(3) |
In the quarter ending September 30, 2009, net sales revenue increased due to rising prices. The average gross revenue per ounce of silver realized was US$15.07 in the quarter ended September 30, 2009, increasing from US$12.60 in the prior quarter ended June 30, 2009. |
(4) |
In the quarter ended June 30, 2009, net sales revenue decreased due to losses on final settlements for which provisional payments had already been received in the prior quarter. |
(5) |
In the quarter ended March 31, 2009, a stronger U.S. dollar compared to the Canadian dollar accounted for the increase of revenue. Although silver prices were lower in the first quarter of 2009, the average gross revenue per ounce sold was Cdn$17.52 (US$14.07) per ounce on a consolidated basis for the three-month period ended March 31, 2009. Also contributing to an increase in net sales is $1,194,452 from the sale of coins, ingots and bullion in the three months ended March 31, 2009. |
68
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
(6) |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metal settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million relating to net U.S. monetary liabilities in the fourth quarter of 2008. |
(7) |
In the quarter ended June 30, 2008, the Company had a revision to its smelting charges imposed, resulting in an incremental charge and reduction of net sales of $1.9 million (US$1,852,830) in the quarter. Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate. |
Revenues Per Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net sum of invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including metal by-products of gold, lead and zinc, after having deducted refining and smelting charges and metal deductions, and intercompany shipments of coins, ingots and bullion products. The following analysis provides the gross revenues prior to refining and smelting charges and metal deductions, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP. Gross revenues are deducted by shipped ounces of equivalent silver to calculate the average realized price per ounce of silver sold.
Quarter Ended
December 31, |
Year to Date
December 31, |
|||
Revenue
Analysis
|
2009
$ |
2008
$ |
2009
$ |
2008
$ |
MEXICO | ||||
Gross revenues - silver dore bars and concentrates | 21,939,708 | 12,223,817 | 71,464,014 | 56,614,111 |
Less: refining and smelting charges | (2,207,964) | (2,233,050) | (9,389,935) | (9,895,208) |
Less: metal deductions | (942,613) | (372,510) | (2,784,390) | (1,882,364) |
Net revenue from silver dore and concentrates | 18,789,131 | 9,618,257 | 59,289,689 | 44,836,539 |
Equivalent ounces of silver sold | 1,154,384 | 905,929 | 4,248,430 | 3,668,286 |
Average gross revenue per ounce sold ($CDN) | 19.01 | 13.49 | 16.82 | 15.43 |
Average exchange rate in the period ($US/$CDN) | 1.0562 | 1.2123 | 1.1420 | 1.0660 |
Average gross revenue per ounce sold ($US) | 17.99 | 11.13 | 14.73 | 14.48 |
CANADA | ||||
Gross revenues - silver coins, ingots and bullion | 1,473,358 | 380,613 | 5,132,099 | 380,613 |
Equivalent ounces of silver sold, from Mexican production | 74,989 | 24,607 | 284,564 | 24,607 |
Average gross revenue per ounce sold ($CDN) | 19.65 | 15.47 | 18.03 | 15.47 |
Average exchange rate in the period ($US/$CDN) | 1.0562 | 1.2123 | 1.1420 | 1.0660 |
Average gross revenue per ounce sold ($US) | 18.60 | 12.76 | 15.79 | 14.51 |
CONSOLIDATED | ||||
Combined gross revenues - silver dore, concentrates, coins, ingots and bullion | 23,413,066 | 12,604,430 | 76,596,113 | 56,994,724 |
Less: intercompany eliminations | (1,976,610) | (892,265) | (5,070,038) | (892,265) |
Consolidated gross revenues - silver dore, concentrates, coins, ingots and bullion | 21,436,456 | 11,712,165 | 71,526,075 | 56,102,459 |
Less: refining and smelting charges, net of intercompany | (2,163,845) | (2,233,050) | (9,310,475) | (9,895,208) |
Less: metal deductions, net of intercompany | (898,494) | (372,510) | (2,704,931) | (1,882,364) |
Consolidated net revenue from silver dore, concentrates, coins, ingots and bullion | 18,374,117 | 9,106,605 | 59,510,669 | 44,324,887 |
Equivalent ounces of silver sold (after interco. eliminations) | 1,145,562 | 827,845 | 4,233,703 | 3,590,202 |
Average gross revenue per ounce sold ($CDN) | 18.71 | 14.15 | 16.89 | 15.63 |
Average exchange rate in the period ($CDN/$US) | 1.0562 | 1.2123 | 1.1420 | 1.0660 |
Average gross revenue per ounce sold ($US) | 17.72 | 11.67 | 14.79 | 14.66 |
Average market price of per ounce of silver per LBMA.ORG.UK ($US) | 17.57 | 10.21 | 14.67 | 14.99 |
At December 31, 2009, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore sales receipts of $944,468 in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period was not recorded as a sales revenues but instead was recorded as a reduction of capital in the construction in progress account.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 69
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
LIQUIDITY
At December 31, 2009, the Company had working capital of $4.8 million and cash and cash equivalents of $5.9 million compared to a working capital deficiency of $1.0 million and cash and cash equivalents of $17.4 million at December 31, 2008. Working capital increased as a result of $6.7 million from operating activities, a $19.6 million reduction of current liabilities (which includes $2,741,260 settled through the issuance of shares as further described below) offset by a $14.3 million reduction in restricted cash related to the vendor liability.
On July 16, 2009, the Company removed a $14.3 million vendor liability from its balance sheet pursuant to a consent order whereby the vendor liability and interest relating to the acquisition of First Silver were mitigated by the Company providing $14.3 million to the defendant vendor, to be held in trust pending the outcome of litigation by the Company against the defendant vendor. As these funds are retained in a Canadian lawyer’s trust account pending the outcome of actions by First Majestic against the defendant vendor, management believes that these funds would become accessible to the Company in the event of a favourable outcome from the Company’s litigation against the defendant vendor.
In August and September 2009, the Company also settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a deemed value of $2.30 per share.
During the year ended December 31, 2009, the Company raised a total of $35.3 million through a combination of debt and equity. New funds consisted of $29.4 million in equities, $4.3 million in a Mexican government sponsored development loan, as well as $1.6 million from the pre-sale of lead concentrates from the La Parrilla mine. This compares to $41.6 million raised in the year ended December 31, 2008.
In October 2009, the Company entered into an agreement for two loan facilities totaling $53.8 million Mexican pesos (CAD$4.3 million) from the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI). Funds from this loan will be used for the completion of the new 3,500 tpd cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% and is repayable over a 60-month period. The working capital loan, for up to $6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% and is a 90-day revolving loan. The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine.
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, $1.6 million (US$1.5 million) was advanced against the Company’s lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required. Subsequent to December 31, 2009, the debt was fully repaid and this agreement was amended and restated to provide an additional six-month prepayment facility of up to $1.6 million (US$1.5 million).
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011 and 334,239 warrants expire on September 16, 2011. Finder’s fee in the amount of $101,016 and 50,000 warrants were paid in respect to a portion of these private placements. The finder’s warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. The net proceeds of the offering are being used for general working capital purposes.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,689,648, of which $18,840,890 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The Company is using $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine and the remainder for general working capital. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. During the year ended December 31, 2009, the Company also received $68,838 pursuant to the exercise of 36,250 stock options and $165,000 pursuant to the exercise of 50,000 warrants.
During the year ended December 31, 2009, the Company invested $14.0 million (December 31, 2008 - $24.5 million) on the acquisition, exploration and development of its mineral properties and a further $19.4 million (December 31, 2008 - $14.9 million) on plant and equipment. In late 2008, after having achieved 300 million ounces of total Reserves and Resources, the Company took actions to reduce its rate of expenditure on exploration and development.
70
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
The Company has expended approximately US$32 million over the past 18 months on its new processing plant at La Encantada, which is expected to increase capacity to 3,500 tonnes per day and to add approximately 4 million ounces of production per year for the Company.
Funds surplus to the Company’s short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there are no restrictions on the ability of the Company to use these funds to meet its obligations. The Company has no exposure to and has not invested in any asset backed commercial paper securities.
2010 OUTLOOK
This section of the MD&A provides management’s production and costs forecasts for 2010. These are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
Silver production at La Encantada Silver Mine consists of a 1,000 tpd flotation circuit which is currently producing a lead concentrate, as well as a 3,500 tpd cyanidation circuit which is producing a silver precipitate. As the new cyanidation circuit is presently in the pre-production phase, all revenues and operating costs are being treated as capital costs. Though the Company is monitoring the content of silver credited against the capital costs, these ounces of silver are not yet being considered in the calculation of cash costs, silver recoveries and silver grades for production purposes.
The new cyanidation circuit is expected to ramp up gradually during Q1 and into Q2 of 2010 as the La Encantada plant increases production to capacity at 3,500 tpd. Though management expects commercial production to be reached at the beginning of Q2, full production is not anticipated until near the end of Q2. Given the uncertainty in the timing of commercial production and the impact of this uncertainty on the Company’s scale of production, it would be premature to establish detailed expectations of production, cost and operating parameters for the 2010 year. At such time as management has established that commercial production has been achieved and production parameters have stabilized, the topic of detailed expectations will be addressed. In the interim, management is anticipating that production will reach approximately 6 million ounces of silver equivalents in 2010.
Cash costs are expected to remain consistent with past historical results for 2009. Smelting and refining charges are expected to decrease in 2010 due to a shift in the mix of production toward lower cost doré versus concentrates.
Sales of coins, ingots and bullion will continue in 2010 and is expected to reach approximately 10% of all silver sales for the year. These sales result in approximately a 5-10% increase in selling price over normal quoted selling prices in any quarter. Additional information on the Company’s silver coins, ingots and bullion, including how to place an order, may be found on the Company’s website at www.firstmajestic.com.
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2009, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the consolidated financial statements and the related notes.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2009, the Company:
a) |
incurred $281,065 for the year ended December 31, 2009 and $67,784 for the quarter ended December 31, 2009 (year ended December 31, 2008 - $248,025; quarter ended December 31, 2008 - $50,666) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
b) |
incurred $275,214 for the year ended December 31, 2009 and $63,481 for the quarter ended December 31, 2009 (year ended December 31, 2008 - $310,920; quarter ended December 31, 2008 - $95,296) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
c) |
incurred $1,317,437 of service fees during the year ended December 31, 2009 and $47,686 for the quarter ended December 31, 2009 (year ended December 31, 2008 - $8,010,843; quarter ended December 31, 2008 - $1,392,542) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Company’s mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $232,444 was unpaid as at December 31, 2009 (December 31, 2008 - $3,122,130). This relationship was terminated in February 2009. |
d) |
incurred $nil for the year ended December 31, 2009 (year ended December 31, 2008 - $7,365) to a director of the Company as finder’s fees upon the completion of certain option agreements relating to Del Toro. |
e) |
provided a loan of $nil (US$nil) (2008 - $36,450 or US$30,000) to a director of the Company. This loan was fully repaid in the year ended December 31, 2009. |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 71
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
PROPOSED TRANSACTIONS
Other than as disclosed herein, the board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
MANAGEMENT OF CAPITAL RISK
The Company’s objective when managing capital is to maintain its ability to continue as a going concern while at the same time maximizing growth of its business and providing returns on its shareholders’ investments. The Company’s overall strategy with respect to capital risk management remains unchanged from the year ended December 31, 2008.
The Company’s capital structure consists of debt facilities and shareholders’ equity, comprising of issued capital, share capital to be issued, contributed surplus, retained earnings (deficit) and accumulated other comprehensive loss.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Company’s Board of Directors.
The Company’s investment policy is to invest its cash in highly liquid short term interest bearing investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. The Company expects that the capital resources available to it will be sufficient to carry out its development plans and operations for at least the next twelve months, provided there are no materially adverse developments with commodity prices during this period.
FINANCIAL INSTRUMENTS AND RISKS
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business and value added tax and
other receivables. The Company sells and receives payment upon delivery of its silver doré and by-products primarily through one international organization. Additionally, silver concentrates and related base metal by-products are sold
primarily through one international organization with a good credit rating. Payments of receivables are scheduled, routine and received within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the
ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.0 million as at December 31, 2009, a significant portion which is past due. The Company is proceeding through a lengthy and slow review
process with Mexican tax authorities, but the Company expects to fully recover these amounts.
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company’s credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal
operating requirements on an ongoing basis and to support its expansion plans. As at December 31, 2009, the Company had a loan facility with the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (“FIFOMI”) amounting to
$4.3 million repayable over a five-year period. As at December 31, 2009, the Company has outstanding accounts payable and accrued liabilities of $11.3 million which are generally payable in 90 days or less.
Although, the Company does not have a history of operating profits, the Company believes it has sufficient cash on hand to meet operating requirements as they arise for at least the next twelve months.
72
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
The Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 2,807,636 | $ | 2,139,352 | $ | 668,284 | $ | - | $ | - | |||||
FIFOMI Loan Facilities | 4,309,159 | 1,095,672 | 1,676,605 | 1,536,882 | - | ||||||||||
Trafigura Prepayment Facility | 450,940 | 450,940 | - | - | - | ||||||||||
Real de Catorce Payments (1) | 1,261,200 | 1,261,200 | - | - | - | ||||||||||
Purchase Obligations (2) | 2,071,102 | 2,071,102 | - | - | - | ||||||||||
Asset Retirement Obligations | 4,336,088 | - | - | - | 4,336,088 | ||||||||||
Accounts Payable and Accrued Liabilities | 11,304,170 | 11,304,170 | - | - | - | ||||||||||
Total Contractual Obligations | $ | 26,540,295 | $ | 18,322,436 | $ | 2,344,889 | $ | 1,536,882 | $ | 4,336,088 |
(1) |
Contract commitments to acquire surface rights and geological information relating to the Real de Catorce Project. |
(2) |
Contract commitments for construction materials and equipment for the La Encantada mill expansion project. |
Currency Risk
Financial instruments that impact the Companys net earnings or
other comprehensive income due to currency fluctuations include Mexican peso
denominated cash and cash equivalents, accounts receivable, investments in
mining interests, accounts payable and loans payable. The sensitivity of the
Companys net earnings and other comprehensive income due to changes in the
exchange rate between the Mexican peso and the Canadian dollar is included in
the table below.
Commodity Price Risk
Commodity price risk is the risk that movements in the spot
price of silver will have a direct and immediate impact on the Companys income
or the value of its related financial instruments. The Company also derives
by-product revenue from the sale of gold and lead. The Companys sales are
directly dependent on commodity prices that have shown volatility and are beyond
the Companys control.
The Company does not use other derivative instruments to hedge its commodity price risk.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term
investments. The Company monitors its exposure to interest rates and has not
entered into any derivative contracts to manage this risk.
The Companys interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Companys interest bearing financial liabilities comprise a floating rate loan with FIFOMI and a floating rate operating line, plus fixed rate debt instruments and capital leases with terms to maturity ranging up to three years. The FIFOMI loans are floating at 7.51% and 7.31% over the Mexican Interbank Rate which is currently at 4.91%
The sensitivity analyses below have been determined based on the undernoted risks at December 31, 2009.
(1) |
These sensitivities are hypothetical and should be used with caution, favourable hypothetical changes in the assumptions result in an increased amount and unfavourable hypothetical changes in the assumptions result in a decreased amount of net income and/or other comprehensive income. |
Fair Value Estimation
The Companys financial instruments are comprised of cash and
cash equivalents, marketable securities, accounts receivables, other
receivables, derivative financial instruments, accounts payable and accrued
liabilities, capital lease obligations, debt facilities and vendor
liability.
Marketable securities and derivative instruments are carried at fair value. The fair values of accounts receivable, other receivables, accounts payable and accrued liabilities, unearned revenue, capital lease obligations and debt facilities approximate their carrying value due to the short term nature of these items. The fair value of the vendor liability and interest payable is not readily determinable due to the uncertainty with respect to the outcome of the litigation described in Note 10.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 73
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for the year ended December 31, 2009. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
Carrying Values of Property, Plant and Equipment and Other
Mineral Property Interests
The Company reviews and evaluates its mineral properties for
impairment at least annually or when events and changes in circumstances
indicate that the related carrying amounts may not be recoverable. Impairment is
considered to exist if the total estimated future undiscounted cash flows are
less than the carrying amount of the assets. Estimated undiscounted future net
cash flows for properties in which a mineral resource has been identified are
calculated using estimated future production, commodity prices, operating and
capital costs and reclamation and closure costs. Undiscounted future cash flows
for exploration stage mineral properties are estimated by reference to the
timing of exploration and/or development work, work programs proposed, the
exploration results achieved to date and the likely proceeds receivable if the
Company sold specific properties to third parties. If it is determined that the
future net cash flows from a property are less than the carrying value, then an
impairment loss is recorded to write down the property to fair value.
The Company completed an impairment review of its properties at December 31, 2009. The estimates used by management were subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest
components of the Companys assets and, as such, the amortization of these
assets has a significant effect on the Companys financial statements. On the
commencement of commercial production, depletion of each mining property is
provided on the unit-of-production basis using estimated reserves and resources
expected to be converted to reserves as the depletion basis. The mining plant
and equipment and other capital assets are depreciated, following the
commencement of commercial production, over their expected economic lives using
the unit-of-production method. Capital projects in progress are not depreciated
until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets. There were no write-downs or impairment losses recorded at December 31, 2009, as a result of these impairment analyses at the Companys operating mines. The write-down of the investment in the Cuitaboca Project was due to managements determination not to proceed with this project, after the Real de Catorce Project had been acquired.
At December 31, 2009, the Company reallocated the following amounts from the non-depletable to depletable categories as a result of an internal assessment of reserves and resources:
La Encantada Silver Mine | $ | 960,327 | |
La Parrilla Silver Mine | 798,960 | ||
San Martin Silver Mine | 3,002,349 | ||
Total transfer to depletable mineral property interests | $ | 4,761,636 |
74
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and decommissioning related to its mining properties. The Company, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future
obligations from mine closure activities. Since the obligations are dependent on the laws and regulations of the country in which the mines operate, the requirements could change resulting from amendments in those laws and regulations relating to
environmental protection and other legislation affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Company’s estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at December 31, 2009.
Income Taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantially enacted, as applicable,
income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation
allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling it on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Co-incident with the tax consolidation, Mexico introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in Mexico. Management has reviewed its IETU obligations and its consolidated tax position at December 31, 2009, and management assessed whether the Company is “more likely than not” to benefit from these tax losses prior to recording a benefit from the tax losses.
In December 2009, Mexico introduced tax consolidation reform tax rules which, effective January 2010, would require companies to begin the recapture of the benefits of tax consolidation within five years of receiving the benefit, and phased in over a five year period. First Majestic’s first tax deferral benefit from consolidation was realized in 2008, and as such the benefit of tax consolidation would be recaptured from 2013 to 2018. Numerous companies in Mexico are challenging the legality of these regressive tax reforms. It is unlikely that the outcome of these challenges will be determinable for several years.
Other changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
Stock-Based Compensation
The Company uses the
Black-Scholes Option Pricing Model
. Option pricing models require the input of subjective assumptions including the expected price volatility. Changes in the input assumptions can materially affect the fair value
estimate, and therefore the existing models do not necessarily provide an accurate single measure of the actual fair value of the Company’s stock options granted during the year.
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 75
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
FUTURE ACCOUNTING CHANGES
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, “Business Combinations”, Section 1601 “Consolidations” and Section 1602 “Non-controlling Interests” to harmonize with International Financial Reporting Standards
(“IFRS”). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to
measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing
consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has not adopted these new standards for the year
ended December 31, 2009.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)
In February 2008, the CICA announced that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards (“IFRS”) for fiscal years beginning on or after January 1, 2011. The Company will be required to begin reporting under IFRS for the quarter ending March 31, 2011, and will be required to prepare an opening balance sheet and provide information that conforms to IFRS for comparative periods presented.
The Company has developed an IFRS changeover plan which addresses the key areas such as accounting policies, financial reporting, disclosure controls and procedures, information systems, education and training and other business activities.
The Company commenced its IFRS conversion project during the second quarter of 2009 and has established a conversion plan and an IFRS project team. The IFRS conversion project is comprised of three phases: i) project planning, scoping and preliminary impact analysis; ii) detailed diagnostics and evaluation of financial impacts, selection of accounting policies, and design of operational and business processes; and iii) implementation and review.
The Company is in the second phase of its conversion plan and has completed a detailed analysis of the standards, including the evaluation of policy choices for those standards that may have an impact on its financial statements, business processes and systems.
Management is in the process of quantifying the expected material differences between lFRS and the current accounting treatment under Canadian GAAP. Differences with respect to recognition, measurement, presentation and disclosure of financial information are expected in key accounting areas. The Company cannot reasonably determine the full impact that adopting IFRS would have on its financial statements at this time. As a result, it is unable to quantify the impact of adopting IFRS on the financial statements as at December 31, 2009.
The Company is continuing to monitor developments in standards and interpretations of standards and industry practices. Due to anticipated changes to IFRS and International Accounting Standards prior to the adoption of IFRS, management’s plan is subject to change based on new facts and circumstances that arise after the date of this MD&A.
The following list, though not exhaustive, identifies some of the changes in key accounting policies due to the adoption of IFRS:
76
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 77
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Other important considerations during the IFRS transition are the following:
Internal control over financial reporting (ICFR) for all accounting policy changes identified, the Company will assess the impact on the ICFR design and effectiveness implications and will ensure that all changes in accounting policies include the appropriate additional controls and procedures for future IFRS reporting requirements.
Disclosure controls and procedures (DC&P) for all accounting policy changes identified an assessment of DC&P design and effectiveness implication will be analyzed to address any issues with respect to DC&P during IFRS transition.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management has been remediating internal controls during 2009 and in early 2010, and minimizing weaknesses in internal controls related to reconciliation processes and strengthening automated internal controls in accounting systems in Mexico and Canada. The risk of material error is mitigated by extensive management review of financial reports, account reconciliations and analyses in both Mexico and Canada, as well as monthly audit committee review of standards, and financial reports. Management is continuing to automate accounting systems between Mexico and Canada to lessen the reliance on substantive testing and detailed analyses. Significant progress on the remediation plan has been achieved during 2009 and early into 2010, and management expects the substantial remainder of its current plan to be completed by the end of the first quarter of 2010 with only minor remediation objectives continuing until the end of 2010.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in Mexico, however these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at December 31, 2009.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company may be found on or in:
78
CORPORATE INFORMATION
CORPORATE HEADQUARTERS | STOCK TRANSFER AGENT |
Suite 1805 - 925 West Georgia Street | Computershare Trust Company of Canada |
Vancouver, B.C. Canada V6C 3L2 | 510 Burrard Street, 3rd Floor |
Telephone 604.688.3033 | Vancouver, B.C. Canada V6C 3B9 |
Fax 604.639.8873 | Telephone 604-661-9400 |
Toll Free 1.866.529.2807 | Fax 604-661-9401 |
info@firstmajestic.com | |
www.firstmajestic.com | LEGAL ADVISORS |
BOARD OF DIRECTORS AND OFFICERS | McCullough OConnor Irwin LLP |
Suite 2610, Oceanic Plaza | |
Robert McCallum , B.Sc., P.Eng. 1,3 | 1066 West Hastings St. |
Chairman & Director | Vancouver, B.C. Canada V6E 3X1 |
Keith Neumeyer | |
President, Chief Executive Officer and Director | INDEPENDENT AUDITORS |
Ramon Davila , Ing., M.Sc. Eng. | |
Chief Operating Officer and Director | Deloitte & Touche LLP |
Raymond Polman , B.Sc. (Econ), CA | P.O. Box 49279, Four Bentall Centre |
Chief Financial Officer | 2800 1055 Dunsmuir Street |
Connie Lillico , B.A. | Vancouver, B.C. Canada V7X 1P4 |
Corporate Secretary | |
Douglas Penrose , CA 1,3 | ANNUAL GENERAL MEETING |
Director | |
Tony Pezzotti 1,2 | Date: Thursday, May 27, 2010 |
Director | Time: 10:00 am |
David A. Shaw , Ph.D 2,3 | Terminal City Club |
Director | 837 West Hastings St. |
Robert (Bob) Young , P.Eng. 2 | Vancouver, B.C. Canada V6C 1B6 |
Director | |
MARKET INFORMATION | |
INVESTOR RELATIONS CONTACT | |
Trading Symbol: FR | |
Investor relations | Stock Exchange: TSX |
info@firstmajestic.com | Frankfurt/Berlin: FMV, WKN: A0LHKJ |
OTCQX: FRMSF | |
Jill Anne Arias | |
Executive Assistant & Corporate Relations | |
Telephone 604.688.3033 | |
Toll Free 1.866.529.2807 (North America only) |
1 |
Audit committee |
2 |
Human resources, compensation and nominating committee |
3 |
Corporate governance committee |
FIRST MAJESTIC SILVER CORP. 2009 ANNUAL REPORT | 79
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www.firstmajestic.com | |
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ANNUAL INFORMATION FORM
For the year ended December 31, 2009
Date: March 29, 2010
2
TABLE OF CONTENTS
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PRELIMINARY NOTES
Date of Information
Unless otherwise indicated, all information contained in this Annual Information Form (AIF) of First Majestic Silver Corp. (First Majestic or the Company) is as of March 29, 2010.
Financial Information
All financial information in this AIF is prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP).
Forward-looking Information
Certain statements contained in this AIF, and in certain documents incorporated by reference herein, constitute forward-looking statements. These statements relate to future events or the Companys future performance, business prospects or opportunities. Forward-looking statements include, but are not limited to, statements with respect to commercial mining operations, anticipated mineral recoveries, protected quantities of future mineral production, interpretation of drill results, anticipated production rates and mine life, operating efficiencies, capital budgets, costs and expenditures and conversion of mineral resources to proven and probable mineral reserves, analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
All statements other than statements of historical fact may be forward-looking statements. Statements concerning proven and probable mineral reserves and mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed, and in the case of mineral resources or proven and probable mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as seek, anticipate, plan, continue, estimate, expect, forecast, may, will, project, predict, potential, targeting, intend, could, might, should, believe, outlook and similar expressions) are not statements of historical fact and may be forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, this AIF should not be unduly relied upon. These statements speak only as of the date of this AIF or as of the date specified in the documents incorporated by reference into this AIF, as the case may be. The Company does not intend, and does not assume any obligation, to update these forward-looking statements. These forward-looking statements involve risks and uncertainties relating to, among other things, results of exploration and development activities, the Companys historical experience with development-stage mining operations, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government approvals, changes in commodity prices and, particularly, silver prices, actual operating and financial performance of facilities, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, risk factors incorporated by reference herein. See Risk Factors.
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Cautionary Notes to U.S. Investors Concerning Reserve and Resource Estimates
The definitions of Proven and Probable Reserves used in National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) differ from the definitions in the United States Securities and Exchange Commission (“SEC”) Industry Guide 7. Under SEC Guide 7 standards, a “Final” or “Bankable” feasibility study is required to report reserves, the three year history average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.
In addition, the terms “Mineral Resource”, “Measured Mineral Resource”, “Indicated Mineral Resource” and “Inferred Mineral Resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into Reserves. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.
Accordingly, information contained in this AIF and the documents incorporated by reference herein containing descriptions of the Company’s mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
Currency
All dollar amounts in this AIF are expressed in Canadian dollars unless otherwise indicated.
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CORPORATE STRUCTURE
Name, Address and Incorporation
First Majestic was incorporated under the Company Act (British Columbia) (the “Company Act”) on September 26, 1979 by registration of its Memorandum and Articles, under the name Brandy Resources Inc.
On September 5, 1984, the Company changed its name to Vital Pacific Resources Ltd. and consolidated its share capital on a two for one basis.
On May 26, 1987 the Company continued out of British Columbia and was continued as a federal company pursuant to the Canada Business Corporations Act .
On August 27, 1987, the Company was extra provincially registered under the Company Act .
On August 21, 1998, the Company continued out of Canada and was continued into the jurisdiction of the Commonwealth of the Bahamas under the Companies Act (Bahamas).
On January 2, 2002, the Company continued out of the Commonwealth of the Bahamas under the Companies Act (Bahamas) and was continued to the Yukon Territory pursuant to the Business Corporations Act (Yukon) . On January 3, 2002, the Company completed a consolidation of its share capital on a 1 new for 10 old basis and changed its name to First Majestic Resource Corp.
On January 17, 2005, the Company continued out of the Yukon Territory and was continued to British Columbia pursuant to the Business Corporations Act (British Columbia).
On November 22, 2006, the Company changed its name to First Majestic Silver Corp.
The Company’s head office is located at Suite 1805 – 925 W. Georgia Street, Vancouver, British Columbia, Canada, V6C 3L2 and its registered office is located at #2610 – 1066 West Hastings Street, Vancouver, British Columbia, V6E 3X1.
The Company is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Quebec.
Intercorporate Relationships
The chart set out below illustrates the corporate structure of the Company and its material subsidiaries, the jurisdictions of incorporation, the percentage of voting securities held and their respective interests in various mineral projects and mining properties.
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GENERAL DEVELOPMENT OF THE BUSINESS
History
Since inception, First Majestic has been in the business of acquisition, development and exploration of mineral properties. During the fiscal year ended June 30, 2004, the Company became focused on the acquisition, development and exploration of mineral properties in México with an emphasis on silver projects.
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On January 12, 2004, the Company entered into an agreement to purchase the La Parrilla Silver Mine located approximately 65 kilometres south-east of the city of Durango, México. The purchase price of US$3 million (paid) included all properties, assets and equipment and all mining concessions consisting of 280 hectares. See “Mineral Projects – La Parrilla Silver Mine, México”. The La Parrilla Silver Mine was operated from 1956 to 1999 by the previous owners when it was put on a care and maintenance program in 1999 due to low silver prices. Total tonnage mined during that period is estimated at approximately 700,000 tonnes with an average grade of 300 grams per tonne (“g/t”) silver, 1.5% lead and 1.5% zinc.
Between March 2004 and August 2005, the Company entered into a number of agreements to acquire mining concessions located in Chalchihuites, Zacatecas, México which are located approximately 45 kilometres southeast of the La Parrilla Silver Mine. During the period ended December 31, 2006 and the year ended June 30, 2006, the Company relinquished its options relating to certain of the Chalchihuites Group Properties and wrote off acquisition and exploration costs relating to those options totalling $688,766 and $384,930, respectively. The remaining properties are now referred to as the Del Toro Silver Mine. The Company paid an aggregate of US$5,825,000 over a four-year period to complete the remaining options.
In December 2004, the Company entered into agreements for the purchase of the Candameña Mining District properties located in the Western Sierra Madre Mountain range between Hermosillo and Chihuahua in east central Sonora, México. On August 14, 2007, the Company entered into an agreement with Prospector Consolidated Resources Inc. (“Prospector”) whereby Prospector had the right to acquire 100% interest in the Company’s option to the Candameña Mining District property by paying $50,000 and issuing two million of its common shares to the Company. The Company received $50,000 in August 2007 and Prospector assumed all option commitments to the underlying property vendors effective August 2007. Prospector received regulatory approval and the Company received two million shares of Prospector in March 2008. See “Past Three Years” below.
In September 2005, the Company acquired a 100% interest in the La Encarnación and San Ignacio Dos mining claims consisting of 16 hectares adjacent to the Company’s La Parrilla Silver Mine for consideration of $40,000 and 200,000 common shares of the Company.
First Majestic entered into an irrevocable share purchase agreement dated for reference April 3, 2006 to purchase approximately 63% of the issued and outstanding shares of First Silver Reserve Inc. (“First Silver”) from the major shareholder of First Silver (the “Shareholder”). First Silver’s primary business was silver mining and the acquisition, exploration and development of mineral claims with a primary focus on silver properties in México. First Silver’s wholly owned subsidiary, El Pilon, is the sole owner of the San Martín Silver Mine in Jalisco State, México.
First Majestic purchased 24,649,200 common shares of First Silver (the “Acquisition”) at a price of $2.165 per share for an aggregate purchase price of $53,365,519 payable to the Shareholder in three instalments.
The first instalment of $26,682,759 represented 50% of the purchase price and was paid on closing of the Acquisition on May 30, 2006. A second instalment of $13,341,380, representing 25% of the purchase price, was paid on May 30, 2007. A final instalment of $13,341,380 was payable on May 30, 2008. An interest amount of 6% per annum was payable quarterly on the outstanding payment. Pending the outcome of the litigation referred to in the section entitled “Legal Proceedings” of this Annual Information Form, the Company has withheld payment of quarterly instalments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008. The Company was withholding payment of the final instalment of $13,341,380 due May 30, 2008 and the above interest payments, an amount totalling $13,940,237.
On July 16, 2009, an Order was granted by the Court, with the consent of all parties, under which the Defendant obtained a judgment in the amount of $14,881,912. The Company agreed to pay out $14,258,332 to the Defendant’s lawyers trust account (the “Trust Funds”) in partial payment of the judgment. The consent order requires that the Trust Funds be held in trust pending the outcome of the litigation. If the trial has not commenced by June 30, 2011, the Trust Funds can be released on that date to the Defendant, unless otherwise ordered by the Court. At present time, the trial is scheduled to commence in the Supreme Court of British Columbia, Vancouver, British Columbia in February, 2011. The Consent Order does not affect the standing of the Company’s claims for relief against the Defendant in the Action.
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On June 5, 2006, First Majestic and First Silver entered into a letter agreement whereby the parties agreed to enter into a business combination such that First Majestic would acquire all of the outstanding securities of First Silver and First Silver would become a wholly owned subsidiary of First Majestic. The business combination was structured as a plan of arrangement (the “Arrangement”) which was formalized in a combination agreement with the parties dated August 9, 2006. On September 14, 2006, First Majestic acquired all of the issued and outstanding First Silver shares which it did not already own for an aggregate of 6,712,159 common shares of First Majestic and an aggregate cash payment of $777,672 paid at closing and $388,836 due on each of September 14, 2007 (which was paid) and September 14, 2008 (which was paid), with interest payable quarterly and compounded annually at 6.0% per annum on the unpaid balances from the closing of the Arrangement.
In addition, upon closing of the Arrangement, 12,500 stock options exercisable at a price of $3.28 per share expiring on June 13, 2009 and 550,000 stock options exercisable at a price of $4.30 per share expiring on June 19, 2011 were granted by the Company in exchange for 25,000 stock options of First Silver exercisable at a price of $1.64 per share expiring on June 13, 2009 and 1,100,000 stock options of First Silver exercisable at a price of $2.15 per share expiring on June 19, 2011. The common shares of First Silver were delisted from the Toronto Stock Exchange at the close of business on September 18, 2006.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by a former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
In August 2006, the Company entered into three agreements to acquire the Quebradillas and Viboras Silver mines and a contiguous land package of 3,126 hectares of mining concessions located in the La Parrilla Mining District in Durango State, México, which now forms part of the Company’s La Parrilla Silver Mine. The Company acquired the right to purchase all the mining concessions, the mines, the data of past diamond drill programs and the assets located within the mine areas for a total purchase price of US$3,000,000 payable over a period of two years of which an aggregate of US$2,251,000 had been paid as of December 31, 2008. During the year ended December 31, 2008, the Company amended payment terms to the optionor regarding the outstanding payments as at December 31, 2008. The Company paid the balance of US$749,000 for concession payments in monthly instalments during 2009. As of December 31, 2009, no further payments were due. There is a net smelter royalty of 1.5% (“NSR”) of sales revenue to a maximum of US$2,500,000 and the Company has the option to purchase the NSR at any time for US$2,000,000. For the year ended December 31, 2009, the Company paid US$135,363 (December 31, 2008 – US$69,000) relating to royalties.
In August 2006, the Company entered into a letter agreement pursuant to which the Company acquired 100% of the issued and outstanding shares of Desmin S.A. de C. V. (“Desmin”), a privately held Mexican mining company for the purchase price of US$1.5 million (the final payment having been made on April 30, 2007), resulting in Desmin becoming a wholly owned subsidiary of the Company. Desmin’s primary asset was an exploitation contract which entitled Desmin to operate the La Encantada Silver Mine located in Coahuila State in Northern México. The exploitation contract provided Desmin an option to acquire all properties within the 697 hectare land package, including the operations of the mine and mill and all the auxiliary installations and associated equipment. The Company purchased the operations of Desmin effective November 1, 2006 and took over the operations of the La Encantada Silver Mine. In addition, Desmin had an option agreement to acquire the La Encantada Silver Mine, including the mill and surrounding mining claims.
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In December 2006, the Company signed a letter of agreement to acquire 100% of the issued and outstanding shares of Minera La Encantada S.A. de C.V. (“La Encantada”), a Mexican mining company owned by Minas Peñoles S.A. de C.V. and Industrias Peñoles S.A de C.V. for the purchase price of US$3,250,000 and a 4% NSR. La Encantada’s primary asset is the La Encantada Silver Mine in Coahuila State, Mexico. A non-refundable deposit of US$1,000,000 was made on the date of the agreement and the balance was paid upon closing the acquisition on March 20, 2007. Pursuant to the terms of the agreement, the Company exercised its option to acquire the 4% NSR in exchange for 382,582 common shares at a value of $5.32 per share and 191,291 warrants exercisable at a price of $6.81 per share for a two-year period.
The Company changed its financial year from June 30 to December 31, effective for the financial period July 1, 2006 to December 31, 2006. The decision to change the Company’s fiscal year end was made so that the Company would have the same fiscal year end as its operating subsidiaries in México. To facilitate the change, the Company reported a one-time, six-month transition year covering the period from July 1, 2006 to December 31, 2006. Subsequent to the transition year, the first full financial year covered the period January 1, 2007 to December 31, 2007.
Past Three Years
In January 2007, the Company completed the acquisition of the San Juan silver mine which forms part of the Del Toro Silver Mine (formerly referred to as the Chalchihuites Group of Properties) by making the final payments of US$500,000 and US$150,000 due January 7, 2007 and July 7, 2007, respectively, pursuant to the agreement. In connection therewith, a finder’s fee in the amount of $77,808 (US$68,422) was paid to a director of the Company.
In March 2007, the Company acquired all of the issued and outstanding shares of Minera La Encantada S.A. de C.V. (“Minera La Encantada”), a Mexican mining company owned by Industrias Peñoles, S.A. de C.V. (“Peñoles”) for a total purchase price of US$3,250,000 and an NSR of 4%. The Company also acquired the underlying 4% NSR through the issuance of 382,582 shares and 191,291 warrants, each warrant entitling Peñoles to purchase one additional share at a price of $6.81 which expired on March 20, 2009. Desmin paid a sliding-scale royalty to Peñoles pursuant to the terms of its exploitation contract. As a result of the Company’s purchase of Minera La Encantada, all royalties were cancelled at closing on March 20, 2007. On January 1, 2008, Desmin amalgamated with Minera La Encantada S.A. de C.V.
On May 10, 2007, the Company completed a private placement of special warrants for gross proceeds of $34,415,000. A total of 6,883,000 special warrants were sold at a price of $5.00 per special warrant through Cormark Securities Inc. and CIBC World Markets Inc., as co-lead underwriters, and Blackmont Capital Inc. Each special warrant was automatically exercised for one common share of the Company and one half of a common share purchase warrant on July 25, 2007 (the date the Company obtained a final receipt for a prospectus qualifying the underlying securities). Each whole share purchase warrant was exercisable at a price of $6.50. The warrants expired on November 10, 2008, none of which were exercised prior to expiry. The underwriters received a commission of 5.5% of the gross proceeds of the offering at closing.
On July 31, 2007, the Company incorporated a new wholly owned Mexican subsidiary, Corporación First Majestic, S.A. de C.V., (“CFM”) and effected a corporate restructuring of Desmin, La Encantada and First Majestic Plata, on August 14, 2007, such that Desmin and La Encantada were amalgamated and the Company now holds the shares of FM Plata, Minera El Pilon and La Encantada, through CFM, which became a Mexican holding company for Mexican tax consolidation purposes.
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In August 2007, the Company entered into an agreement with Prospector whereby Prospector had the right to acquire a 100% interest in the Company’s option to acquire the Candameña Mining District Property by paying $50,000 within five business days following the execution of the agreement (paid) and issuing 2,000,000 of its shares to the Company within five business days of regulatory approval or September 7, 2007, whichever is earlier. As Prospector had not received regulatory approval by September 7, 2007, it paid an additional US$150,000 to the Company on October 19, 2007 to satisfy an option commitment to the underlying vendor. In March 2008, the Company received 2,000,000 common shares from Prospector. In August 2008, the Company after having made numerous unsuccessful attempts to assist Prospector in the transfer of the rights to the Candameña property, and having advised Prospector that the underlying agreements with the Candameña property owners were in breach the Company was required to return the mining rights to their respective underlying property owners.
The Company’s common shares and warrants were listed and commenced trading on the Toronto Stock Exchange effective January 15, 2008.
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters led by CIBC World Markets Inc. and including Blackmont Capital Inc., Cormark Securities Inc. and GMP Securities L.P., who purchased 8,500,000 units of the Company at a price of $5.35 per unit. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitled the holder to acquire one additional common share at a price of $7.00 for a period of 24 months from the closing of the offering. The underwriters also received an over-allotment option, exercisable up until 30 days following the closing of the offering to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 share purchase warrants at a price of $0.56 per warrant. On April 4, 2008, the Company completed the issuance of an aggregate of 637,500 warrants pursuant to the exercise of the over-allotment option.
On July 6, 2008, the Company entered into an agreement to acquire the Fatima mining concession consisting of 46 hectares of mining concessions located in the Zacatecas State, México which forms part of the Del Toro Silver Mine. The Company has the right to purchase all the mining concessions, for a total purchase price of US$387,500 payable over a period of 30 months, of which an aggregate of US$162,500 had been paid as of December 31, 2009.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters led by CIBC World Markets Inc. and including Blackmont Capital Inc., GMP Securities L.P. and Thomas Weisel Partners, who purchased 8,487,576 units of the Company at a price of $2.50 per unit for gross proceeds to the Company of $21,218,940. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 for a period of 24 months from the closing of the offering. The underwriters also received an over-allotment option, exercisable up until 30 days following the closing of the offering to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 share purchase warrants at a price of $0.20 per warrant.
On August 20, 2009, the Company completed the first tranche of a non-brokered private placement consisting of 3,499,000 units at a price of $2.30 per unit for gross proceeds of $8,047,700. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per warrant share for a period of two years after the closing of the offering. A finder’s fee in the amount of $101,016 cash and 50,000 finder’s warrants were paid in respect to a portion of this private placement. The finder’s warrants are subject to the same terms and conditions as those issued to the subscribers.
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On August 20, 2009, the Company also settled certain current liabilities amounting to $822,053 by the issuance of 357,414 common shares of the Company at a deemed price of $2.30 per common share.
On September 16, 2009, the Company completed the second and final tranche of the non-brokered private placement consisting of 668,478 units at a price of $2.30 per unit for gross proceeds of $1,537,500. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per warrant share for a period of two years after the closing of the offering.
On September 18, 2009, the Company settled certain current liabilities amounting to $1,919,209 by the issuance of 834,438 common shares of the Company at a deemed price of $2.30 per common share.
On November 13, 2009, the Company announced the closing of a plan of arrangement (the “Normabec Arrangement”) to acquire all of the issued and outstanding shares of Normabec Mining Resources Ltd. (“Normabec”) a publicly traded mining company listed on the TSX Venture Exchange in exchange for the issuance of 4,652,778 common shares of the Company. In addition, the Company issued warrants to purchase an aggregate of 260,965 common shares of the Company in exchange for all outstanding share purchase warrants of Normabec, all of which expired by January 2, 2010. Normabec’s primary asset is the Real de Catorce Silver Project located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares. Real de Catorce is an historic mining region, with estimated historical production of 230 million ounces between the years 1773 and 1990.
Concurrent with the completion of the Normabec Arrangement, the non-Mexican assets of Normabec were divested to a newly formed entity named Brionor Resources Inc. (“Brionor”) Holders of Normabec shares also received 0.25 Brionor shares for each Normabec common share. The Company also purchased, via private placement, 2,115,195 common shares of Brionor for an aggregate purchase price of $300,000, representing a price per share of approximately $0.1418. These shares represented 9.9% of the total issued and outstanding shares of Brionor upon completion of the transaction at November 13, 2009. Brionor is a public company listed on the TSX Venture Exchange.
Through the acquisition of Normabec and its wholly owned subsidiary, Mineral Real de Bonanza SA de CV, the Company owns 100% of the Real de Catorce Silver Project. Upon commencement of commercial production on the property, the Company has agreed to pay an amount of US$200,000. The property is subject to a 3% net smelter return royalty, of which 1.75% may be acquired in increments of 0.25% for a price of US$250,000 per increment for the first five years from the date of the first payment and at a price of US$300,000 per increment for the following five years.
In addition, the Company has agreed to acquire the surface rights forming part of the property, including the buildings located thereon and covering the location of the previous mining operations, in consideration for a single payment of US$1,000,000 to be made in December 2010. The Company has also agreed to make a payment of US$200,000 on December 10, 2010 for all technical and geological information collected over the area. Such payment is not related to the acquisition of the mining concessions or the surface rights and buildings agreement.
The Company had an option dated November 25, 2004 with Consorcio Minero Latinamericano, SA de CV, a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims referred to as the Cuitaboca Silver Project covering 3,718 hectares located in the State of Sinaloa, México. To purchase the claims, the Company was required to pay a total of US$2,500,000 in staged cash payments through November 25, 2010. Subsequent to acquiring Normabec and during the year ended December 31, 2009, the Company elected not to proceed with the acquisition of the Cuitaboca Silver Project. Accordingly, the historical investment including exploration totalling $2,589,824 was written off during the year ended December 31, 2009.
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DESCRIPTION OF BUSINESS
General
The Company is in the business of the production, development, exploration and acquisition of mineral properties focusing on silver in México. The common shares and certain warrants of the Company trade on the Toronto Stock Exchange under the symbols “FR” and “FR.WT.B”. The common shares are also quoted on the OTCQX in the U.S. under the symbol “FRMSF” and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol “FMV”.
The Company has ownership of three producing properties in México: the La Encantada Silver Mine in Coahuila State, the La Parrilla Silver Mine in Durango State, and the San Martin Silver Mine in Jalisco State. The Company also owns two advanced stage development silver project, the Del Toro Silver Mine, formerly referred to as the Chalchihuites Group Properties in Zacatecas State, and the Real de Catorce Silver Project in San Luis Potosi State, and has an interest in several exploration properties in various states in México.
The Company’s business is not materially affected by intangibles such as licences, patents and trademarks, nor is it affected by seasonal changes. The Company is not aware of any aspect of its business which may be affected in the current financial year by renegotiation or termination of contracts.
At December 31, 2009, the Company had 13 employees based in its Vancouver corporate office, one employee in the United Kingdom and approximately 1,449 employees, contractors and other personnel in México. Additional consultants are also retained from time to time for specific corporate activities, development and exploration programs.
Risk Factors
The Company, and thus the securities of the Company, should be considered a speculative investment and investors should carefully consider all of the information disclosed in this AIF prior to making an investment in the Company. In addition to the other information presented in this AIF, the following risk factors should be given special consideration when evaluating an investment in the Company’s securities.
Operating Hazards and Risks
The operation and development of a mine or mineral property involves many risks which a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include:
These occurrences could result in environmental damage and liabilities, work stoppages and delayed production, increased production costs, damage to, or destruction of, mineral properties or production facilities, personal injury or death, asset write downs, monetary losses and other liabilities. Liabilities that First Majestic incurs may exceed the policy limits of its insurance coverage or may not be insurable, in which event First Majestic could incur significant costs that could adversely impact its business, operations or profitability.
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Uncertainty in the Calculation of Mineral Reserves, Resources and Silver Recovery
There is a degree of uncertainty attributable to the calculation of mineral Reserves and mineral Resources and corresponding grades being mined or dedicated to future production. Until mineral Reserves or mineral Resources are actually mined and processed, the quantity of minerals and grades must be considered estimates only. In addition, the quantity of mineral Reserves and mineral Resources may vary depending on, among other things, metal prices. Any material change in the quantity of mineral Reserves, mineral Resources, grade or minimum mining widths may affect the economic viability of First Majestic’s properties. In addition, there can be no assurance that silver recoveries or other metal recoveries in small scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production, or that the existing known and experienced recoveries will continue.
Substantial Decommissioning and Reclamation Costs
During the year ended December 31, 2009, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Company’s estimated obligations is $6.1 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $1.65 million of the reclamation obligation relates to the La Parrilla Silver Mine, $1.99 million of the obligation relates to the San Martin Silver Mine, and $2.49 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on management’s current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
The costs of performing the decommissioning and reclamation must be funded by the Company’s operations. These costs can be significant and are subject to change. The Company cannot predict what level of decommissioning and reclamation may be required in the future by regulators. If the Company is required to comply with significant additional regulations or if the actual cost of future decommissioning and reclamation is significantly higher than current estimates, this could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition.
Obtaining Future Financing
The further development and exploration of mineral properties in which the Company holds interests or which the Company acquires may depend upon its ability to obtain financing through joint ventures, debt financing, equity financing or other means. There is no assurance that the Company will be successful in obtaining required financing as and when needed. Volatile precious metals markets may make it difficult or impossible for the Company to obtain debt financing or equity financing on favourable terms or at all.
The Company currently has $5.9 million of cash in treasury. As a result of the Company’s ability to earn cash flow from its ongoing operations, the Company considers that it has sufficient capital to support its current operating requirements provided it can continue to generate cash from its operations and that its capital projects are not materially over their projected costs. There is a risk that commodity prices decline and that the Company is unable to continue generating sufficient cash flow from operations or that the Company requires significant additional cash to fund expansions and potential acquisitions. Failure to obtain additional financing on a timely basis may cause the Company to postpone acquisitions, major expansion and development plans.
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Key Personnel
Recruiting and retaining qualified personnel is critical to First Majestic’s success. The number of persons skilled in mining, exploration and development of mining properties is limited and competition for such persons is intense. As First Majestic’s business activity grows, First Majestic will require additional key financial, administrative and mining personnel as well as additional operations staff. Although the Company believes it will be successful in attracting, training and retaining qualified personnel, there can be no assurance of such success. If the Company is not successful in attracting and training qualified personnel, the efficiency of First Majestic’s operations could be affected, which could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition.
Factors Beyond the Company’s Control
There are also a number of factors beyond the Company’s control. These factors include government regulation, high levels of volatility in market prices, availability of markets, availability of adequate transportation and smelting facilities and the imposition of new or amendments to existing taxes and royalties. The effects of these factors cannot be accurately predicted.
Uninsured Risks
First Majestic’s mineral properties are subject to the risks normally inherent in mineral properties, including but not limited to environmental hazards, industrial accidents, flooding, periodic or seasonal interruptions due to climate and hazardous weather conditions and unusual or unexpected geological formations. Such risks could result in damages, delays and possible legal liability. The Company may become subject to liability for pollution and other hazards against which it cannot insure or against which it may elect not to insure due to high premium costs or other reasons. The payments for any such liabilities would reduce the funds available for exploration and development activities and may have a material impact on First Majestic’s financial position.
Foreign Operations
The Company’s mining, exploration and development projects are located in México. Such projects could be adversely affected by exchange controls, currency fluctuations, changes in taxation and corporate laws or policies of México or Canada affecting foreign trade, investment or repatriation of financial assets.
Changes in mining or investment policies or shifts in political attitude in México may adversely affect the Company’s business. Operations may be affected by governmental regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. The effect, if any, of these factors cannot be accurately predicted.
Foreign Currency
The Company carries on its primary business activity outside of Canada. Accordingly, it is subject to the risks associated with fluctuation of the rate of exchange of other foreign currencies, in particular the Mexican peso, the currency of México, and the United States dollar, the currency for calculating the Company’s sales of silver based on the world’s commodity markets. Financial instruments that impact the Company’s net earnings or other comprehensive income due to currency fluctuations include: Mexican peso denominated cash and cash equivalents, accounts receivable, accounts payable, and investments in mining interests. Such currency fluctuations may materially affect the Company’s financial position and results of operations.
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Title to Properties
Although the Company has obtained title opinions with respect to certain of its properties and has taken reasonable measures to ensure proper title to its properties, there is no guarantee that title to any of its properties will not be challenged or impugned. Third parties may have valid claims underlying portions of the Company’s interest.
Property Interests
The option agreement relating to the Del Toro Silver Mine pursuant to which the Company holds its rights in certain of the properties provide that the Company must make a series of cash payments over certain time periods. If the Company fails to make such payments in a timely manner, the Company may lose some or all of its interest in the Fatima mining concession portion of this property which covers 46 hectares of a total of 393 hectares. The payments consist of US$62,500 due June 10, 2010 and US$162,500 due October 10, 2010.
Permits and Licenses
The operations of the Company may require licenses and permits from various governmental authorities. There can be no assurance that the Company will be able to obtain or maintain all necessary licenses and permits that may be required to carry out exploration, development and mining operations at its projects.
Metal Prices
There are global economic factors beyond the control of the Company that may affect the marketability of minerals already discovered and any future minerals to be discovered. Metal prices have historically fluctuated widely and are affected by numerous factors beyond the Company’s control, including international, economic and political trends, expectations for inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities and worldwide production levels. Movements in the spot price of silver have a direct and immediate impact on the Company’s income. The Company does not use derivative instruments to hedge its silver commodity price risk, but the Company forward sells its lead production between one and six months ahead. The effect of these price variation factors cannot accurately be predicted.
Price Volatility of Other Commodities
The Company’s profitability is also affected by the market prices of commodities which are consumed or otherwise used in connection with the Company’s operations, such as diesel fuel, natural gas, electricity and cement. Prices of such commodities are also subject to volatile price movements over short periods of time and are affected by factors that are beyond the Company’s control.
Competition
The mining industry is highly competitive in all its phases. The Company competes with a number of companies which are more mature or in later stages of production. These companies may possess greater financial resources, more significant investments in capital equipment and mining infrastructure for the ongoing development, exploration and acquisition of mineral interests, as well as for the recruitment and retention of qualified employees.
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Environmental Regulations
The Company’s operations are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation provides for restrictions and prohibition of spills, release or emission of various substances related to mining industry operations, which could result in environmental pollution. A breach of such legislation may result in imposition of fines and penalties. In addition, certain types of operations require submissions to and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards and enforcement, and fines and penalties for non-compliance are becoming more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations. The Company intends to fully comply with all environmental regulations. On February 25, 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a CLEAN INDUSTRY CERTIFICATE to one of the Company's wholly owned subsidiaries, First Majestic Plata, SA de CV., regarding its activities at the La Parrilla Silver Mine.
Conflicts of Interest
Certain directors of the Company are also directors or officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required by law and the Company’s policies to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest, which they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict is required to disclose his interest and abstain from voting on such matter. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.
History of Losses
The Company has a history of losses including a net loss of $5,144,784 for the year ended December 31, 2008; however, for the year ended December 31, 2009, the Company had net income of $6,205,822. At December 31, 2009, the Company had an accumulated deficit (net loss) of $33,271,061.
Shares Reserved for Future Issuance
There are stock options and share purchase warrants of the Company outstanding pursuant to which common shares may be issued in the future. Pursuant to the Arrangement between First Majestic and First Silver, there are also shares of First Silver that may be tendered for shares of First Majestic until September 14, 2012. As of the date of this AIF, there are 114,254 shares of First Silver outstanding that may be tendered for 57,127 shares of First Majestic. Options and share purchase warrants are likely to be exercised when the market price of the Company’s common shares exceeds the exercise price of such options or warrants. The exercise of such options or warrants and the subsequent resale of such common shares in the public market could adversely affect the prevailing market price and the Company’s ability to raise equity capital in the future at a time and price which it deems appropriate. The Company may also enter into commitments in the future which would require the issuance of additional common shares and the Company may grant additional share purchase warrants and stock options. Any share issuances from the Company’s treasury will result in immediate dilution to existing shareholders.
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Volatility of Share Price
The price of the shares of resource companies tends to be volatile. Fluctuations in the world price of precious metals and many other elements beyond the control of the Company could materially affect the market price of the Company’s common shares.
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business and value added tax refunds and other receivables. The Company sells and receives payment upon delivery of its silver doré and byproducts primarily through one international organization. Additionally, silver concentrates and related base metal by-products are sold primarily through one international organization with a good credit rating, payments receivables are scheduled, routine and received within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.0 million as at December 31, 2009, a significant portion of which is past due. The Company is proceeding through a lengthy and slow review process with Mexican tax authorities, but the Company expects to fully recover these amounts. The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its expansion plans. As at December 31, 2009, the Company had a loan facility with the Mexican Mining Development Trust – Fideicomiso de Fomento Minero (“FIFOMI”) amounting to $4.3 million repayable over a five-year period. As at December 31, 2009, the Company has outstanding accounts payable and accrued liabilities of $11.3 million which are generally payable in 90 days or less.
Although the Company does not have a long-term history of operating profits, the Company believes it has sufficient cash on hand to meet operating requirements as they arise for at least the next twelve months.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
The Company’s interest-bearing financial assets comprise cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Company’s interest-bearing financial liabilities comprise a floating rate loan with FIFOMI and a floating rate operating line, plus fixed rate debt instruments and capital leases with terms to maturity ranging up to three years. The FIFOMI loans are floating at 7.51% and 7.31% over the Mexican Interbank Rate which is currently at 4.91% .
Future Exploration and Development Activities
Exploration and development of mineral properties involve significant financial risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish reserves by drilling, constructing mining and processing facilities at a site, developing metallurgical processes and extracting precious metals from ore. The Company cannot ensure that its current exploration and development programs will result in profitable commercial mining operations. Also, substantial expenses may be incurred on exploration projects which are subsequently abandoned due to poor exploration results or the inability to define reserves which can be mined economically.
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The economic feasibility of development projects is based upon many factors, including the accuracy of reserve estimates, metal recoveries; capital and operating costs; government regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting and environmental protection; and precious metal prices, which are highly volatile. Development projects are also subject to the successful completion of economic evaluations or feasibility studies, issuance of necessary governmental permits and availability of adequate financing.
Development projects have no operating history upon which to base estimates of future cash flow. Estimates of Proven and Probable Reserves and Measured, Indicated and Inferred Resources are, to a large extent, based upon detailed geological and engineering analysis.
Mineral Projects
Pursuant to National Instrument 51-102 - Continuous Disclosure Obligations ( NI 51-102 ), the following properties and projects have been identified by First Majestic as being material: the La Parrilla Silver Mine, the San Martin Silver Mine, the La Encantada Silver Mine and the Del Toro Silver Mine.
The following table shows the total tonnage mined from each of the Companys three producing properties during 2009, including total ounces of silver and silver equivalent ounces produced from each property and the tonnage mined from delineated reserves and resources at each such property.
La Parrilla Silver Mine, México
Certain of the information on the La Parrilla Silver Mine is based on the technical report prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of Pincock Allen & Holt ( PAH ) entitled, Technical Report for the La Parrilla Silver Mine, Durango State, Mexico dated February 16, 2009, as amended and restated on February 26, 2009 (in this section, the Current Technical Report ) and has been updated as necessary. Mr. Addison and Mr. Lopez are independent Qualified Persons for the purposes of NI 43-101. The Current Technical Report has been filed with securities regulatory authorities in each province of Canada. Portions of the following information are based in assumptions, qualifications and procedures which are not fully described herein. Reference should be made to the full text of the Current Technical Report which is available for review on SEDAR located at www.sedar.com.
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Property Description and Location
La Parrilla Silver Mine is a producing underground silver mine and processing facility in Durango State, Mexico. The mine is wholly owned and operated by First Majestic Plata, S.A. de C.V. (“ FM Plata ”) a wholly-owned indirect subsidiary of the Company through its Mexican holding company, Corporación First Majestic, S.A. de C.V.
La Parrilla consists of 38 contiguous mining concessions in the La Parrilla mining district of Durango State which provide mineral rights which cover an area of 53,249.21 hectares (131,581.20 acres). All of these mining concessions convey exploitation rights for 50 years from the date of registration.
Certain of the La Parrilla claims were purchased from Grupo México and include a net smelter return of 1.5% payable to Grupo México. This net smelter return may be acquired by FM Plata for a total payment of US$2,000,000. In the event that FM Plata does not acquire the net smelter royalty, the royalties payable thereunder will be capped at US$2,500,000. To date a total of US$229,233 had been paid by the Company under the net smelter royalty. There are no other encumbrances on La Parrilla mining concessions.
The La Parrilla area is located partly within Ejido San José de la Parrilla and partly within private property. The Comisión de Fomento Minero (the “ CFM ”) executed a lease agreement on the surface rights from Ejido San José de la Parrilla to permit the use of surface rights for development of projects that are of general economic interest, including mining operations. In 1990 the Gamiz Family acquired the surface rights and mill from CFM and reconfirmed the lease agreement with the Ejido. Subsequently, First Majestic acquired the surface rights and the mill from the Gamiz Family. First Majestic updated the lease agreement with the Ejido and negotiated a lease to extend the surface rights to a total of 100 hectares where the second tailings dam has been built and is now operating; this includes a yearly payment to the Ejido San José de La Parrilla. First Majestic also has a lease agreement for 100 hectares with a private land owner where the Quebradillas, and San Marcos mines are located. First Majestic also owns surface land of 38 hectares which was acquired from Grupo México where the Vacas mine is located.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The La Parrilla Silver Mine is located in the south-eastern part of the state of Durango, about 60 kilometres from the capital city of Durango. The La Parrilla mine is connected to various communities within distances of 10 kilometres to 20 kilometres, such as Nombre de Dios and Vicente Guerrero. Most of La Parrilla’s workers are transported from these towns to work at the mine. To access more specialized resources such as universities and private and public hospitals the cities of Durango and Zacatecas are within easy driving distances from La Parrilla. International flights by commercial airlines to cities in the United States and to most major cities in Mexico are available from Durango and/or Zacatecas.
Access to the La Parrilla mine is by Federal Highway No. 45 from Durango to Zacatecas. A four kilometre detour at the 75 kilometre marker leads to La Parrilla and the mine and plant through the village of San José de la Parrilla. La Parrilla is connected to the San José de la Parrilla village by a one kilometre dirt road.
Power supply to the camp is provided by the national power grid. Potable water supply is provided from a water well, and from the Quebradillas shaft. Telephone communications at the mine are integrated into the national telecommunications grid. Satellite and ISDN copper connections provide internet communications capabilities to the La Parrilla. Hand held radios are carried by all supervisors, managers and all vehicle operators for local ground communications. Most of the suppliers and labourers required for the operation are brought in from the cities of Vicente Guerrero, Durango and Zacatecas.
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The climate at La Parrilla is semi-dry with annual average temperatures that vary from 12º Celsius to 26º Celsius, with an annual average of about 18º Celsius. The annual average rainfall is about 580 millimetres with most of the rain occurring during the summer months, with only occasional rains during the winter months. Occasional rain storms may partially interrupt the La Parrilla operations.
Vegetation in the area consists of desert bush and shrub, including small mesquite, cacti, and grasses. At higher elevations there are pine, cedar and oak trees. Farming is mostly developed in the areas neighbouring the population centers in the Mesa Central flatlands, and the principal crops are corn, beans and some wheat. Apple and peach trees are also grown in the region.
The La Parrilla area is located within the physiographic sub-province of Sierras y Llanuras de Durango, which borders between the Sierra Madre Occidental and the Mesa Central in north-western México. This physiographic sub-province presents elevations of about 1,600 metres above sea level in the Mesa Central and up to 3,000 metres above sea level in the mountain peaks of the Sierra Madre Occidental. Topography in the La Parrilla area is dominated by either isolated mountains or north-west oriented mountain chains, all surrounded by the plateaus and flat lands of the Mesa Central. The La Parrilla (San José) mine portal is located at an elevation of 2,100 metres above sea level.
History
Mining activity in La Parrilla mining district began during colonial times. La Parrilla consists of underground silver-gold-lead mines with a processing facility that was originally constructed in 1956. In 1960, the mining claims were acquired by Minera Los Rosarios, S.A. de C.V. (“ Minera Los Rosarios ”) who operated the mine until 1999 when operations were shut down due to low silver prices. The CFM, a Mexican federal entity responsible for promoting and supporting mining, constructed a 180 tonnes per day flotation plant at La Parrilla, which operated as a custom mill, processing ores from nearby areas, such as Chalchihuites, Sombrerete and Zacatecas. This plant was purchased in 1990 by Minera Los Rosarios from CFM.
In 2004, First Majestic acquired the mining rights and the plant from Minera Los Rosarios and, in 2006, successfully negotiated the acquisition of the mineral rights held by Grupo México which surrounded the original La Parrilla mine. Today First Majestic has consolidated ownership of the plant and all the mining rights of the land surrounding La Parrilla, where numerous mineral occurrences and mineral deposits are being investigated.
Geological Setting
La Parrilla mining district is located in the border zone between the physiographic provinces of the Sierra Madre Occidental and the Mesa Central, within the sub-province of Sierras y Llanuras de Durango. La Parrilla is located in the northern side of a contact zone between a dioritic intrusive stock and a sequence of Cretaceous sedimentary rocks.
La Parrilla’s mineral deposits are associated to geologic structures, which appear related to the intrusive stock, dikes and sills. Structural intersections have also originated breccia zones that caused favorable conditions for mineralization emplacement as stockwork zones. The contact zone between the intrusive stock and sedimentary rocks has also originated metasomatic deposits.
The most important known deposits at La Parrilla occur as vein deposits that pinch and swell along strike as well as downdip. These are enclosed by three main systems within the mining district. The first structural system may be related in orientation to the regional intrusive stock. Its general strike is north east 60º south west, dipping nearly vertical. It cuts through all regional rock units and it does not appear to represent economic significance.
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The second structural system occurs with a general orientation of north 45º - 75º west dipping approximately 50º to 85º to the north east. It cuts through limestone, diorite and skarn zones. It encloses several mineral deposits in the area including Los Rosarios, El Cármen, San Cayetano and San José.
The third regional structural system is oriented north-south and dips to the east from 45º top vertical. It is generally concordant with the stratification and it encloses mineral concentrations, such as San Marcos, Quebradillas and San Nicolas.
Exploration
La Parrilla was discovered in colonial times and developed from outcroppings by following mineralization along the structures until high grade ore shoots were discovered and depleted. Common practice in these districts’ development was to mine out high grade ores, for the most part, without exploration efforts.
The Company carried out geophysical investigations during the period of April to June, 2007 to confirm previous studies within the areas of Quebradillas, Sacramento, Las Vacas, and Santa Paula (formerly Los Perros). These investigations have confirmed the presence of Induced Polarization (“ IP ”) and Resistivity anomalies which may be further investigated by direct methods, such as drilling and underground access where possible.
This survey consisting of measuring electric resistivity and induced polarization was completed in the following areas:
The geophysical survey resulted in prospective anomalous zones showing high resistivity and high chargeability. Drill sites were recommended to further investigate the most outstanding anomalies.
Drilling
Drilling programs at La Parrilla have been limited by past operations, since the best exploration results have been obtained through underground development. However, FM Plata has obtained positive results by increasing drilling to define and evaluate new mineralized zones as well as to investigate continuity of ore shoots for development. The Company initiated a drilling program to explore the various areas of interest within La Parrilla in 2005. The drill program covered by the Current Technical Report, covering the entire period up to September 30, 2008, consisted of 310 diamond drill holes completed by the Company for a total drilled depth of 72,084 meters at an average depth of 233 meter per drill hole. The FM Plata drilling program was developed to investigate 13 areas within the mining district. In addition to this drill program an extensive underground development program commenced in 2004 and to September 30, 2008 consisted of 9,157 meters of which approximately 50% was mining exploration and 50% mine development to access and connect the different mines of La Rosa, Rosarios, San Marcos and Quebradillas.
Since the Current Technical Report, mining activities have continued and have required the continuation of ongoing drilling and development programs. Since September 30, 2008, an additional 1,905 metres have been drilled from underground. Furthermore, an additional 8,891 metres of underground development was completed to the end of December 31, 2009 .
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FM Plata’s drill hole database is compiled in electronic format, which contains collar, assay intervals, lithology, and assay information with gold/silver/lead/zinc values. Most of the holes are drilled at an angle to intersect vein or mineralized structures that generally dip at near vertical angles. Based on geologic interpretations, no apparent deviation has been detected in drill holes. FM Plata has established a surveying procedure which is performed during the drilling due to the fact that most of the holes are now longer than 150 meters. Deviation is defined with one survey reading at the bottom for holes of 150 meters in depth and two survey readings for holes longer than 150 meters; one reading at the middle and one reading at the bottom of the hole.
Logging is performed by the project geologist in each of the areas being investigated. The project geologist also determines the sample intervals. Trained assistants are in charge of core splitting and sampling as per the project geologist’s indications.
Mineralization
Mineralization at La Parrilla Silver Mine is a typical assemblage of metasomatic deposit and hydrothermal vein deposits with a high content of silver. These mineral assemblages have been affected by processes of oxidation and secondary enrichment. They mainly consist of pyrite, sphalerite, galena, some chalcopyrite, argentite and other silver sulfosalts associated with calcite and quartz as gangue minerals. Oxidation and secondary enrichment of these sulfides makes up the mineral concentrations in the upper parts of the deposits, which consist of sulfosalts (ceragyrite, pyrargyrite, stephanite) carbonates (cerussite, hydrozincite, hemimorphite), sulfates (anglesite, willemite), and iron oxides, hematite, limonite, etc. Silver mineralization occurs as argentite and native silver. Lead mineralization is present as carbonates (cerussite) and sulfates (anglesite) and other oxides.
The La Parrilla Silver Mine mineralization occurs along a vertical range of about 600 meters in vertical extension (2,300 meters to 1,700 meters above sea level). This extension is known through underground development and drill holes and it is still open to depth. Known longitudinal extensions vary from about 1,200 meters at the Los Rosarios system, 500 meters at the San Marcos vein system, and about 400 meters at the Quebradillas area; however, some of these systems may be continuous, such as Los Rosarios System and San Marcos.
First Majestic has delineated an area of approximately 200 meters by 200 meters for possible open pit mining. Preliminary estimates based on 33 drill holes with a total depth of 2,905 meters has indicated 3.3 metric tonnes at an average grade of 100 gram per tonne Ag in oxides mineralization.
Sampling and Analysis
(a) Sample Preparation
Exploration, mine development, production, and plant samples are sent to First Majestic’s on-site laboratory for chemical analysis of silver/gold/lead/zinc and copper. Silver and gold assays are carried out by fire assaying methods, while the rest of the elements are assayed by atomic absorption.
A typical channel sample received by the laboratory, weighing approximately four kilograms, is passed through a jaw crusher to reduce it to a 1.3 -centimeter (1/2”) size. A 500 gram split is taken and passed through gyratory or disk crushers to reduce it to a 10-mesh (1/8”) size. A 200 to 300 gram split is taken and placed in a drying oven at 120 degrees Celsius. After drying, the material is put into two pulverizers, one disk pulverizer and one ring pulverizer, to grind the rock to minus 100 mesh. The resulting pulp is homogenized and ten grams taken for fire assay analysis of silver and gold for geology samples and for concentrates; 20 grams are taken for head samples; and one gram is required for precipitate samples.
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The ten gram pulps are placed in fusion crucibles and placed into an electric furnace for fusion into lead buttons. The lead buttons are placed in cupellation cupels and placed into an electric furnace for cupellation into a silver-gold bead. The bead is weighed and then put into nitric acid to dissolve away the silver and then the remaining gold bead is weighed again. The microbalance used has a sensitivity of + 1 per 10,000 (equivalent to an actual grade of +0.1 gram per tonne), while the gold beads commonly range in weight from 100 milligrams down to less than 1 milligram. As a result, the determination of the smaller bead weight is at or below the detection limits of the microbalance.
(b) Check Assaying
To evaluate sample quality control, First Majestic performs periodic check analyses on samples. For the period to September 30, 2008, First Majestic sent 119 samples to BSI Inspectorate Laboratories, an independent commercial laboratory in Reno, Nevada for duplicate analysis. All core samples are sent to the BSI Inspectorate lab for assaying; therefore, the assay check was also performed by the same lab.
No gold assays are performed at First Majestic’s lab. The correlation for silver assays of core samples is excellent at 99 percent while the pulp duplicates correlation is acceptable at 91 percent. The correlation for assays of lead is 97 percent and 81 percent respectively. The correlation for zinc assays is 97 percent for duplicate samples and 40 percent for pulp sample duplicates. The poor correlation for zinc pulp samples is probably due to presence of oxidizes within the mineralization. The range of silver values is from 0 to 1,137 grams per tonne, with an average grade of 119 gram per tonne, while the range for lead is 0 to 22 percent with an average of 2.44 percent and for zinc is 0 to 19 percent with an average grade of 4.12 percent.
Channel sample checks are performed by analyzing random sample pulps at the La Parrilla lab with assay checking by the SGS de México lab at Durango. The assays include silver, lead and zinc.
(c) Security of Samples and Data Verification
The Company’s quality control procedure consists of sending mine samples and/or pulps to an outside laboratory, usually BSI-Inspectorate Labs in Reno, Nevada. Samples of concentrates are regularly sent to Peñoles for check assays. The laboratory duplicates pulp assays at one sample for every 20. Drill samples are duplicated as one sample for every twenty regular samples. The standard samples are analyzed at the SGS Laboratory located in Durango, Mexico.
Mineral Resource and Mineral Reserve Estimate
The La Parrilla mine has estimated mineable reserves for the following deposits:
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The total “in situ” diluted proven and probable reserves at a minimum mining width of two meters, is 0.50 million tonnes of oxides and sulfides averaging 295 grams per tonne silver, 1.40 percent lead and 1.01 percent zinc, for a total of 4.8 million contained ounces of silver only; or 5.2 million ounces of silver equivalent with gold and lead credits.
The proven ore category has been projected up to 20 meters from the drift sample data, while the probable ore category is projected another 20 meters beyond the proven ore. Resource calculations at La Parrilla are based on projections of the mineralized zones in the underground mine workings 20 meters beyond the areas of reserves for the measured resources, and another 20 meters beyond the boundaries of the measured resources for the blocks of indicated resources. Inferred resources are estimated by projecting up to 50 meters beyond the indicated resource block boundaries along mineralized structures, and another 20 meters beyond the blocks’ width. La Parrilla mineral resource estimates were applied mostly to diamond drilling intercepts, as well as to some adjacent blocks from the estimated reserves. The grade for these blocks is determined from the grade estimated for the drill hole intercepted grade and from the adjacent reserve blocks, and sampling in mine workings and drill holes located within the block area.
Table 1 presents a summary of the La Parrilla Proven and Probable Reserves and Measured and Indicated Resources, as at September 30, 2008 in addition to Inferred Resources at the bottom of the table, all as reported in the Current Technical Report. No further external Resource or Reserve estimates have been conducted since such date. It should be noted that since the cutoff date of September 30, 2008, 344,313 tonnes grading 214 grams per tonne Ag have been mined from the La Parrilla’s various deposits of which 246,106 tonnes where mined from the Reserves and 98,207 tonnes where mined from areas that were not included in any previous NI 43-101 estimates.
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TABLE 1
La Parrilla Silver Mine
Mineral Reserves and Resources as of September 30, 2008
(1) |
Estimates based on Minimum Mining Width >2.00m. No mine recovery included. |
(2) |
Silver equivalent based on sales. Prices used for evaluation: Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb. |
(3) |
Oxides Ag equivalent includes gold credit based on FMPlata sales. Au Credit = 6 g/tonne Ag. |
(4) |
Sulfides Ag equivalent includes Pb credit = 47 g/tonne Ag. Zinc is considered at 70% met. recovery = 30 g/tonne Ag. |
(5) |
Cut-Off Grade estimated as 184 g/tonne Ag net of Au credit in oxide ores; and 246 g/tonne Ag net of Pb credit in sulfide ores. Zinc not considered in COG estimates. |
(6) |
Preliminary Quebradillas Block Model estimate at COG>50 g/tonne Ag. |
(7) |
Reserves and resources in this report are exclusive of each other. |
(8) |
Rounded figures. |
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Since the date of the mineral Reserve and Resource estimate contained in Table 1, approximately 2,003,057 ounces of silver equivalent have been extracted from the La Parrilla Silver Mine of which 473,562 came out of the current delineated Reserves/Resources.
Mining Operations
The Company operates three mines in La Parrilla area: the La Rosa/Rosario/La Blanca, the San Marcos, and Quebradillas operations. All are separate mines within an area of about 10 square kilometres. The production from the mines during 2009 was approximately 277,917 tonnes at an average grade of 214 grams per tonne silver. This production includes about 46,797 tonnes of ore extracted from development workings. Oxide ore mined was about 146,979 tonnes, while sulphide ore mined was about 130,938 tonnes. Silver production for 2009 was 1,643,206 equivalent ounces of silver. The Company’s five year plan requires improvements in production rates, ore head grades and mill recoveries to achieve up to 1.94 million ounces of silver equivalent annually. Production for the period of October 1 st 2008 to December 31, 2009 was 2,003,057 ounces of silver equivalents.
Mining is semi-mechanized with trackless loading and hauling. Some drilling is done with a two boom and one boom electro-hydraulic drill jumbo, but most development and production drilling is accomplished with hand-held jackleg drills. The principal stoping method for the near-vertical veins of La Parrilla is overhand cut and fill, with backfill mainly obtained from development waste. However, the operators are currently experimenting with long-hole open stoping. Drifting and ramping is all trackless, and at times old drifts and other workings that are used in the modern La Parrilla operations are slashed out to accommodate the trackless equipment. Raising is mainly done conventionally as “bald-headed raises,” but some major raises, ventilation, ore-passes, etc, are done with contracted raise boring equipment.
The mines are dry and very little water handling is required. Ventilation is primarily by natural flow, and the operators are in the process of boring exhaust ventilation raises for the mines. Compressed air is provided from surface compressor stations in all three operations.
The ore processing plant at La Parrilla was extensively expanded and modified in 2006 and now processes both oxide and sulphide ores in two separate parallel circuits. In addition to the plant, power and water supply systems that were upgraded, a new tailing containment area with 10 years of life was built in 2006. Since September 30, 2008 additional improvements were made at the La Parrilla mill which consisted of the addition of new filter presses at the Merrill Crow circuit, also an additional leaching tank was added in the cyanidation circuit resulting in a 2- 3 % increase in silver recoveries. In the Flotation circuit a change in the flow sheet was executed which resulted in increasing the recoveries in the lead concentrate for both silver and lead to the 80% range. As a result of these improvements the total capacity of the mill is now 850 tonnes per day. The oxide circuit has a process capacity of 425 tonnes per day of which during 2009 an average of 445 tonnes per day were processed containing 196 grams per tonne of silver. The oxide circuit recoveries for 2009 were 65% of the contained silver. The sulphide circuit has a 425 tonnes per day capacity of which during 2009 an average of 397 tonnes per day were processed containing 235 grams per tonne silver and 1.9 percent lead. The recoveries were 77.5% for the silver and 75% for the lead which resulted in a concentrate containing an average of 4.51 kilograms per tonne silver and 34.74% lead.
The mine operations are contracted to outside contractors, and surface ore and waste haulage is also contracted. The administration, beneficiation plant and ancillary functions are all conducted by Company personnel. The total personnel on site at the end of December, 2009 totalled 413 people of which 290 were contractors. The overall efficiencies achieved to date in 2009 were about .9 tonnes per man-shift.
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San Martín Silver Mine, México
Certain of the information in this section is based on the technical report entitled “Technical Report for the San Martín Silver Mine, State of Jalisco, México” prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of PAH dated January 15, 2009, as amended and restated on February 26, 2009 (in this section, the “ Current Technical Report ”) and has been updated as necessary. The Current Technical Report has been filed with securities regulatory authorities in each province of Canada. Portions of the following information are based on assumptions, qualifications and procedures which are not fully described herein. Reference should be made to the full text of the Current Technical Report which is available for review on SEDAR located at www.sedar.com.
Project Description and Location
The San Martín Silver Mine consists of a predominantly silver mine and processing plant located near the town of San Martin de Bolaños in Jalisco State, Mexico. The mine is wholly owned operated by First Majestic through Minera El Pilón, S.A. de C.V. (“ El Pilón ”), a wholly-owned indirect subsidiary of the Company through its Mexican holding company, Corporación First Majestic, S.A. de C.V.
El Pilón holds 31 contiguous mining concessions in the San Martín mining district that cover mineral rights for 7,840.6 hectares. These include 31 mining concessions with exploitation rights. Mineral rights for the earliest titled concessions are due in the year 2035, and most other claims have expiration dates in the 2050s; these however, may be renewed for another 50 years. No royalties or any other encumbrances are due on any of the San Martin mining concessions.
The surface rights to the San Martín Silver Mine are mostly owned by El Pilón. A portion of the access roads to the mine are located on land owned by private owners. El Pilón has negotiated surface rights agreements with some individual owners for parts of the access road.
Accessibility, Climate, Local Resources and Physiography
The San Martín mine is located at the coordinates 21° 45’ north latitude, and 103° 45’ west longitude, in the Bolaños river valley. Climate in this area is generally warm and semi-wet with rain in the summer season. Annual freezing temperatures in the region are recorded mostly during the month of February, from 0 to 20 days, while hail occurs during the rainy season for less than five days per year.
Climate and topographical conditions in the San Martín de Bolaños area support farming and cattle by the river valley; however, in the surrounding areas, only sparse to moderately dense desert vegetation of bushes and shrubs cover the hill slopes. The mine area is within a transition zone that changes from desert grasses in the lower elevations to evergreens, pines and oaks and other types of trees at higher elevations.
The San Martín operation is 150 kilometres by air or 250 kilometres by paved road north from Guadalajara. Driving time is four to five hours and flying time is about 45 minutes by charter plane. The town of San Martín de Bolaños constitutes the commercial center for the immediately surrounding region. Major facilities, including international airports, are located in the cities of Guadalajara, Zacatecas and Aguascalientes.
The municipality of San Martín de Bolaños has approximately 3,000 people. The town is connected to the national power grid and it has standard telephone lines and satellite communications. Water for the town inhabitants’ consumption is pumped from wells. Most of the people living in the area depend on small scale farming, raising livestock, and growing fruit.
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The San Martín mine is connected to the national power grid through a substation located about 20 kilometres to the north at the Bolaños mine. Power is supplied by the grid at 33 kva and 60 cycle. Two 1,000-volt transformers supply power to the plant. Diesel generators are located at the plant for emergency and stand-by power in case of power interruptions. Air compressors are located at the plant to supply low-pressure air to the leach tanks. The water source for the processing plant is the Bolaños River, which supplies a permanent flow. Mine and plant installations, including camp facilities, tailings storage and waste disposal areas required for the mining and milling operation of San Martín, are located on land owned by El Pilón.
The infrastructure on-site includes the support facilities for the operations, which are located near the plant and include the main administrative offices, warehouse, assay laboratory, tailings facilities, maintenance buildings, cafeteria and other employee housing.
History
In 1981, Mr. Héctor Dávila Santos purchased the San Martín property, developed the mine, constructed the process plant, and then began production in 1983. In 1997 First Silver Reserve, Inc. (“ FSR ”) by way of reverse takeover, acquired all the shares of El Pilón, owner and operator of the San Martín Silver Mine.
In April 2006 the Company entered into an irrevocable share purchase agreement to acquire a majority share interest of FSR from Mr. Dávila Santos. The Company took control of FSR and the San Martin mine in June 2006 and subsequently acquired the remaining shares of FSR pursuant to a business combination which closed on September 14, 2006. Please see the section entitled “General Development of the Business” for further information.
Geology and Mineralization
The project area lies in the southern part of the Sierra Madre Occidental, an extensive volcanic terrain starting near the United States-Mexican border and trending southeast into the states of Zacatecas and Jalisco. The terrain is characterized by Tertiary age volcanic rocks that have been divided into a lower andesitic sequence of early Tertiary age (40 to 70 million years) and an upper rhyolitic sequence of middle Tertiary age (20 to 40 million years). In the project region, the stratigraphy is represented by a thick sequence of upper volcanics consisting of approximately 1,000 meters of alternating ash-flow tuffs and lava flows. The composition of these rocks is predominantly rhyolitic with lesser amounts of andesite and rare occurrences of basalts. Volcanism, structural development and mineralization in the San Martín area occurred during late Miocene, resulting in a complex geologic framework. Two distinct features have been recognized by different authors, the pre and post mineralization rock formations, and the indicator Guásima Formation.
Exploration
At San Martin, exploration programs have been primarily based on direct development workings and complemented with limited drilling. This allows for mine preparation at the same time as the exploration advances along the mineralized structures. Topographic characteristics in the mine area do not permit easy drilling from surface access due to the vein’s strike and dip into the mountain range. However, in recent years, and particularly since 2002, a more extensive program has been carried out consisting of exploration based on diamond drilling, both from underground accesses and surface sites.
As at the cut-off date of the Current Technical Report, being September 30, 2008, drilling totalled 570 diamond drill holes for a total depth of 61,132 meters, at an average depth per hole of about 107.3 meters. All of the drill core has been kept after logging and sampling. Since the cut-off date and up to December 31, 2009, drilling has continued to assist in ongoing mining activities and has included a total of 3,799 metres over 80 holes, all of which were drilled from underground.
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For 2007 and 2008, a program of exploration based on direct underground exploration/development and diamond drilling was executed at an estimated cost of about $5,000,000. This program is an on-going effort, and included approximately 19,600 meters of diamond drilling, and 3,900 meters of crosscuts and drifts. The results of the program upgraded resources to reserves and opened other areas for further exploration and development, such as the Cymoid zone of the Zuloaga vein at the La Escondida mine Level 5900, at the Ballenas mine Level 5550, at the La Blanca vein Stope 5735 and at the San Pablo Stope 5920, where sampling and development works have shown high grade silver mineralization. First Majestic’s geological staff at San Martin includes 4 active and experienced geologists and other Company geologists active throughout First Majestic’s other operations within Mexico with full support from management, to carry out and supervise the exploration efforts in addition to 19 samplers and contractors for field work. A total of 25,224 metres of underground development has occurred at San Martin between the acquisition completion date of September 14, 2006 and December 31, 2009. This ongoing development program has been focused on the Cangrejos, San Pedro, Ballenas and Escondida levels on the Zuloaga and Rosarios/Condesa veins
Drilling
The San Martin drill program from January 1, 2007 to September 30, 2008 (the period covered by the Current Technical Report) included 127 drill holes with a total depth of 19,619 meters of core, in addition, about 3,906 meters of underground development for drill sites and access preparations. Estimated cost for this program was $4.9 million. Since this cut-off date 80 holes covering a total of 3,799 metres were drilled with the intent of defining new economic mining areas and new adjacent mineralized zones in the Zuloaga vein.
Even though exploration activities at San Martin were reduced due to the present market environment, an underground drilling program continued in 2009. This program consisted of 69 drill holes with 2,380 metres being drilled, which were focused on investigating deep targets and parallel veins to the Zuloaga vein. The total estimated cost for the exploration program was about $2.50 million. This program has detected parallel veins to the Zuloaga vein (San Pedro Type) which may warrant further investigation.
The current underground drilling at San Martín is carried out with Company owned equipment. This includes electric powered drilling machines for underground operations, such as a Diamec 232, a CP 55, and a LY 38. Long Year 38 and 44 are utilized to core drill from surface access. Deep drilling is normally assigned to independent contractors.
Core drilling is incorporated in the regular mining operations to test the vertical vein projections and both walls for mine planning as well as for geologic investigations. First Majestic’s geology staff reports core recoveries of about 90 percent with exceptions in brecciated rock where it may drop to 50 percent. Core diameter used at San Martín is generally BQ (36 mm) for underground drill holes and NQ diameter for surface drilling. The core is then logged by the geology staff and sampled.
Sampling and Analysis
San Martin’s current sampling team consists of four sampling crews with three employees each. Channel samples are taken with chisel and hammer, collected in a canvas tarp and deposited in numbered bags for transportation to the laboratory. Core samples are taken at the camp facilities after the core logging has been completed.
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Exploration sampling for reserve delineation in the San Martín mine is conducted by drifting along the mineralized zone so that channel samples can be taken and diamond drilling can be conducted. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structure, across the back of the drift. Sampling crews take channel samples at irregular intervals, typically with one sample every 2 to 3.5 meters along new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles.
Channel samples consist of shallow chips broken off the back of the drift. A channel “line” typically consists of two or more individual samples taken to reflect changes in geology and/or mineralogy across the structural zone. Each sample weighs approximately 4 kilograms. Locally, the drift is completely enclosed by the structural zone and the full thickness of the vein is not sampled.
Core drilling is conducted locally to test the upward and downward projections of the structural zone at a distance from the drifts. Core samples are BQ size, 36 millimetres in diameter, and holes are of generally good recovery (90 percent), with the remaining ground having modest recovery (50 to 60 percent). Drill-hole data are locally included in the reserve calculations, but given the relatively small size of the core sample, it is conservatively applied. Drilling results are applied in the grade calculations giving more weight to the larger-size channel sample data.
Channel, exploration, mine development and production, and plant samples are sent to San Martin’s onsite laboratory for chemical analysis of silver and gold. In more recent years additional analyses by atomic absorption for lead and zinc in geology samples have become routine. A typical channel sample received by the laboratory, weighing approximately 4 kilograms, is passed through a jaw crusher to reduce it to a 1.3 -centimetre (1/2”) size. A 500-gram split is taken and passed through a gyratory crusher to reduce it to a 10-mesh (1/8”) size. A 200 to 300 gram split is taken and placed in a drying oven at 150°C. After drying, the material is put into two pulverizers, one disk pulverizer and one ring pulverizer, to control the metallic minerals, and to ground the rock to minus 100 mesh. The resulting pulp is homogenized and 10 grams taken for fire assay analysis of silver and gold for geology samples and concentrates; 20 grams for head samples and 1 gram for precipitate samples.
The 10-gram pulps are placed in fusion crucibles and placed into a diesel-fired furnace for fusion into a lead button. The diesel furnace does not have any temperature control and as a result temperatures fluctuate to a certain extent. The lead buttons are placed in cupellation cupels and placed into an electric furnace for cupellation into a silver-gold bead. The bead is weighed and then put into nitric acid to dissolve away the silver and then the remaining gold bead is weighed again. The final gold bead weight is the gold content, while the difference in weight is the silver content for the samples. The microbalance used has a sensitivity of +1 milligram (equivalent to an actual grade of +1 gram per tonne), while the gold beads commonly range in weight from 100 milligrams down to less than 1 milligram. As a result, the determination of the smaller bead weight is at or below the detection limits of the microbalance.
To evaluate sample quality control, First Majestic performs periodic check analyses on samples. Since 2004, 10 to 30 samples have been sent each month to Chemex Laboratories, to SGS Laboratory, to Met Mex Peñoles laboratory, and to Laboratorio Industrial Metalúrgica Herrera, for duplicate samples and duplicate pulp samples analysis.
PAH reviewed assays of duplicated samples from 2007 and 2008 sent to SGS Laboratory and Chemex Laboratories in connection with the preparation of the Current Technical Report. The samples mineral content range includes assays that vary from 3 to 3,870 grams per tonne Ag. Average correlation of the results is 92 percent for the duplicate samples silver assays within a broad range, while the pulp duplicates show results close to 100 percent. High discrepancies occur in the gold assays. PAH reported that the reproducibility of silver grades is acceptable and somewhat conservative, considering that the reported values from the San Martin laboratory tend to be lower, but within acceptable industry practices. Gold assays present high variations. Because the gold beads are so small, the assayer is forced to estimate the bead weight in the measurement gold grades in the tenths of a gram per tonne range. PAH reported that that the reproducibility of gold grades is reasonable, with some of the variability between sample pairs due to the relatively small quantity of pulp (10 grams) used for the assays. Since the gold values are not used in the determination of the reserve block delineation and stope layouts, PAH concluded this was not a significant issue.
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Mineral Resource and Mineral Reserve Estimates
First Majestic uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineable reserves.
Table 2 shows a summary of mineral reserves and resources for the San Martín Silver Mine to September 30, 2008. No further external resource estimates have been conducted since this cut-off date. It should be noted that since the cutoff date, 361,110 tonnes have been mined from the San Martin of which 77,915 tonnes were mined from the Reserves and 283,195 tonnes where mined from areas that were not included in any previous NI 43-101 estimates.
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TABLE 2 - San Martín Silver Mine
Mineral Reserves and Resources as of September 30, 2008
CATEGORY | Mineralization | Metric | Width | Ag | Pb | Zn | METAL CONTAINED | |
Proven Reserves | Type | Tonnes | m | g/tonne | % | % | Silver (Only) oz. | Siver eq. oz. |
SUBTOTAL - 1 | Oxides | 527,373 | 2.72 | 273 | 4,636,211 | 4,805,765 | ||
Probable Reserves | ||||||||
SUBTOTAL - 2 | Oxides | 243,091 | 2.56 | 276 | 2,154,571 | 2,232,727 | ||
Proven and Probable Reserves | 6,790,782 | |||||||
TOTAL | Oxides | 770,464 | 2.67 | 274 | 6,790,782 | 7,038,492 | ||
Mineral Resources | ||||||||
Measured Resources | ||||||||
SUBTOTAL - 3 | Oxides | 122,404 | 4.95 | 233 | 915,774 | 955,128 | ||
SUBTOTAL - 4 | Sulfides | 415,771 | 3.23 | 97 | 0.87 | 2.07 | 1,292,213 | 1,292,213 |
Indicated Resources | ||||||||
SUBTOTAL - 5 | Oxides | 294,361 | 4.49 | 288 | 2,729,201 | 2,823,840 | ||
SUBTOTAL - 6 | Sulfides | 670,684 | 4.95 | 116 | 0.94 | 1.64 | 2,498,639 | 2,498,639 |
Measured and Indicated Resources | ||||||||
TOTAL | Oxides plus Sulfides | 1,503,220 | 4.38 | 154 | 0.91 | 1.80 | 7,435,827 | 7,569,820 |
Proven and Probable Reserves plus Measured and Indicated Resources. | ||||||||
TOTAL RESERVES AND RESOURCES | Oxides plus Sulfides | 2,273,684 | 3.80 | 195 | 0.91 | 1.80 | 14,226,609 | 14,608,312 |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Cut-Off estimates as 146 g/tonne Ag for mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits = 10g/tonne Ag. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
Inferred Resources | ||||||||
Inferred Resources | ||||||||
TOTAL (6) | Oxides plus Sulfides | 8,200,000 | 5.34 | 185 | 1.40 | 1.60 | 48,900,000 | 50,000,000 |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Inferred Resources are speculative in nature and may not become Reserves. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
(6) |
Rounded figures. |
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The resource calculations contained in Table 2 are based on projections of the mineralized zones of 50 metres beyond the areas of the reserves for the measured resources, and another 50 metres beyond the boundaries of the measured resources for the blocks of indicated resources. The grade for these blocks is determined from the grade estimated for the adjacent reserve blocks, and sampling in mine workings and drill holes located within the block area.
The Company’s estimated resource blocks do not include the estimated reserve blocks since these have been projected at distances that are adjacent and beyond the reserve blocks boundaries. Mineral resources do not include development details for underground mine accessibility and mine planning.
Since the date of the mineral Reserve and Resource estimate contained in Table 2 to December 31, 2009, approximately 1,459,551 ounces of silver equivalent (including gold & lead) have been extracted from the San Martin Silver Mine of which 297,326 was depleted from the Reserves/Resources set in Table 2.
Mining Operations
The San Martín Silver Mine includes underground operations that have opened six main drifts with levels at an approximate 35-meter vertical separation. Each one of the drifts has been developed to a maximum extension of approximately 3,000 meters, with interconnecting ramps between levels, and all have surface access to the Cerro Colorado hillside. Since 1983, when El Pilón initiated operations in the area, to September 2008, over 4.3 million tonnes of silver ore have been extracted and processed, for sales of approximately 33.6 million ounces of silver, including some gold and lead. Since this cut-off date, to December 31 st , 2009, an additional 361,110 tonnes of ore have been mined with an average grade of 151 grams per tonne Ag, 0.19 grams per tonne Au and 0.08 % Pb, resulting in 1,311,736 ounces of silver being produced, 2,126 ounces of gold and 4,463 pounds of lead.
The mine has been developed on the Zuloaga vein, which has by far been the most extensively developed vein in the district, having accounted for about one-half of the silver production in the district. The mining operation on the Zuloaga vein consists of six main levels and partial development in another three levels (Pinolea, San Carlos, La Escondida) spanning a vertical interval of approximately 350 meters. Main access levels are San José, Santa María, Ballenas, Cangrejos, San Pablo, San Juan and San Carlos, all with access from surface adits and various interconnecting ramps, from elevations of 1080 to 1600 meters above sea level. Production also occurs from the La Blanca vein, a vertical split off the Zuloaga vein. The Zuloaga vein occurs along an east-west trending normal fault zone that dips an average 75 degrees to the north, with the hanging wall of the fault down-dropped 100 to 200 meters relative to the footwall.
Mine production has come from stopes located on La Escondida, San José, Ballenas, Congrejos, San Pablo, San Juan, Santa Elena, and San Carlos levels. Underground drilling is performed using jackleg drills, and blasting is accomplished with ANFO explosives. Opening sizes are driven at 4.0 metres by 3.5 metres. Ramp inclinations are generally limited to about 12 percent. Typically, the total advance for drifting, ramping and raising is about 550 metres per month. The average productivity in headings is 0.7 metres per man shift, which is in the normal range for this type of development
Mechanized, cut and fill stopes account for 100 percent of production, and these are developed either directly on the vein or by first driving a drift on the vein and then driving a parallel drift about 8 metres away, leaving a pillar between the drifts. Crosscuts are then driven about every 10 metres from the parallel drift through the pillar to the vein for ore extraction. Raises are driven as needed to provide access, services and ventilation. During the last two quarters of 2009 a long hole drill was operating to recover some ore that was left in pillars and is expected to become a main producing tool with the objective to increase productivity. A test stope has been operating with good results on productivity and dilution during that period.
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Underground loading and haulage is performed with 2 cy, 3 cy and 5 cy Load-Haul-Dump machines (scooptrams) and 10 to 13 tonne-capacity trucks. Ore is trammed to the surface and stockpiled at surface dump sites. On the surface, the ore is loaded from stockpiles into 22-tonne trucks and transported to the mill some 13 kilometres away over a gravel road. The ore haulage from the mine to the mill is performed by a contractor.
The San Martín processing plant has been in operation since 1983 at an increasing capacity that reached 750 tonnes per day in 2008. Since September 30, 2008, several improvements have been made at the mill in order to improve efficiencies, costs and throughput. These changes included; rebuilding of leaching tanks, replacing electric motors, rehabilitating crushers, and the installation of a new thickener. These changes have resulted in increasing the current mill throughput to 950 tonnes per day. Silver ore is processed by conventional cyanidation, using agitation in tanks, counter-current decantation (CCD) thickening, and precipitation of the dissolved silver and gold by cementation with zinc dust in the Merrill-Crow process. The precipitate is then smelted to produce silver doré for shipment to commercial refineries. In addition to the cyanidation system, the plant can produce a gravity concentrate; however this flotation circuit is presently in care and maintenance pending further capital investment and improved and sustained prices of lead and zinc. The average daily throughput in 2009 was 885 tonnes per day all of which was through the cyanidation circuit for the production of silver doré.
Production for 2009 amounted to 291,339 tonnes grading 157 grams per tonne Ag and 0.23 grams per tonne Au resulting in total silver production of 1,112,698 ounces plus 2,020 ounces of gold production. 64,514 tonnes of ore came out of the current delineated Reserve/Resource while 226,715 tonnes where mined from areas that were not included in any previous delineated estimates.
Since September 30, 2008, the average grades have improved from 151 grams per tonne Ag to the current 180 grams per tonne Ag. The average head grade at the mill for 2009 was 157 grams per tonne while the average grade for the entire period of October 1, 2008 to December 31, 2009 was 151 grams per tonne Ag. Gold values had been uniform in the range of 0.2 grams per tonne.
La Encantada Silver Mine, Mexico
Unless otherwise stated, the information on the La Encantada Silver Mine is based on the technical report entitled “Technical Report for the Encantada Silver Mine, Coahuila State, México” prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of PAH and dated January 12, 2009, as amended and restated on February 26, 2009 (in this section, the “ Current Technical Report ”) and has been updated as necessary. Mr. Addison and Mr. Lopez are independent Qualified Persons for the purposes of NI 43-101. The Current Technical Report has been filed with securities regulatory authorities in each province of Canada. Portions of the following information are based in assumptions, qualifications and procedures which are not fully described herein. Reference should be made to the full text of the Current Technical Report which is available for review on SEDAR located at www.sedar.com.
Project Description and Location
La Encantada Silver Mine is an underground producing silver mine and processing facility located in the state of Coahuila, Mexico. The mine is wholly owned and operated by Minera La Encantada, S.A. de C.V. (“ Minera La Encantada ”), a wholly-owned indirect subsidiary of the Company through its Mexican holding company, Corporación First Majestic, S.A. de C.V.. La Encantada Mine consists of two main silver / lead underground mines, the La Encantada and the El Plomo mines which have been consolidated into one operation and an industrial complex that includes a flotation ore processing plant, water wells and pipeline, air strip, and housing facilities in the municipality of Ocampo, Coahuila State, México.
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La Encantada consists of 22 mining concessions, which provide mineral rights over an area of 4,026 hectares (9,950 acres). Mineral rights expire for the earliest titled concessions in the year 2015 (Encantada claim), and most other claims have expiration dates to the year 2050; these however, may be renewed for another 50 years. First Majestic has purchased the land surface rights under expropriation procedures from Ejido Tenochtitlán, where the camp, water wells, mine and plant installations are located to better manage the property.
Accessibility, Climate, Local Resources and Physiography
La Encantada Silver Mine is located within an isolated mining district in the north western portion of the State of Coahuila. It is located in the municipality of Ocampo, approximately 120 kilometres from the city of Múzquiz and approximately 120 kilometres from the city of Ocampo, Coahuila.
Access to the mine is primarily by charter airplane from the city of Durango (about 2:15 hours flying time), or from city of Torreón (about 1:15 hours flying time). The Company operates a private airstrip at the Encantada mine. The airstrip is paved, 1,200 meters long by 17 meters wide and located at 1,300 meters above sea level.
Driving time from the city of Múzquiz is approximately 2.5 hours and about four to five hours from the city of Ocampo. A new highway is under construction which is expected to provide easier access to La Encantada from major population centers.
La Encantada’s remote location has required the construction of substantial infrastructure, which has been developed during a long period of active operation by the mine’s previous owners, Peñoles and Minera Los Angeles. La Encantada housing consists of 180 houses for employees, and an office, warehouses, club, restaurants, guest house, church, hospital, an airstrip and other community facilities.
Power supply to the camp is diesel generated and provided by First Majestic. Potable water supply is also provided by First Majestic. First Majestic has installed a satellite system with internet communications that include two telephone lines. Hand held radios are carried by all supervisors, managers and all vehicle operators for ground level communications. Most of the supplies and labour required for the operation are brought in from the city of Múzquiz, Coahuila.
La Encantada is located in the northern part of the Sierra Madre Oriental, within the Bravo-Conchos region. This physiographic province presents elevations that vary, in the lower parts from 1,000 meters to 1,800 meters above sea level, while mountain ranges in the area present elevations that may reach over 3,500 meters above sea level. These are generally oriented in a north-west direction. Surface rains are estimated to be only 10 millimetres to 20 millimetres per year.
History
Exploration activities in La Encantada area were initiated in 1956 by the Mexican company Compañía Minera Los Angeles, S.A. de C.V. The San José, Guadalupe, La Escondida and San Francisco deposits located to the north of the La Escondida breccia pipe deposit were discovered and developed from the period of 1956 to 1963. In 1963 the La Prieta deposit was discovered within the area. In 1967 Peñoles and Tormex established a joint venture partnership (Minera La Encantada) to acquire and develop La Encantada project. In July 2004 Peñoles awarded a contract to operate La Encantada mine, processing plant, and all included installed facilities to a junior company, Desmín, S.A. de C.V (“Desmin”). Desmín operated the mine and processing plant at a 25 percent capacity until November 1, 2006 when First Majestic purchased all of the outstanding shares of Desmín. Subsequently First Majestic reached an agreement to acquire all of the outstanding shares of Minera La Encantada from Peñoles. The terms of the agreement between First Majestic and Peñoles had included royalty payments to Peñoles of up to 11 percent on the net smelter return, except for production from the concessions of San Javier and Las Rositas. In 2007, First Majestic purchased these royalty rights from Peñoles. First Majestic is now the sole owner of La Encantada Silver Mine and all its assets, including mineral rights, surface rights position, water rights, processing plant and ancillary facilities.
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Geological Setting
La Encantada mining district consists of skarn deposits with concentrations of silver, lead, iron and zinc in oxidized mineralization enclosed by calcareous sedimentary formations of Cretaceous age. These mineral concentrations present variable morphology from vein and bedded deposits, that generally occur in the upper part of the sedimentary sequence, to breccia pipe deposits (mineralized chimneys), bedded and stockwork areas in the intermediate zone, and metasomatic deposits with hornfels and skarn in bedded and stockwork zones in the lower portion of the sequence near granodiorite to diorite composition intrusive stocks.
(a) Regional Geology
La Encantada mining district is located within the Sierra Madre Oriental. It is located in the eastern flank on a regional anticline. This consists of a complex, folded and predominantly NW-SE faulted sequence of Mezozoic calcareous rocks. The sedimentary rocks comprise limestone, dolomites and argillaceous rocks that range in age from the upper part of Lower Cretaceous to the upper part of Upper Cretaceous age. These rocks are enclosed by the sedimentary formations of Cupido (oldest), La Peña, Aurora, Cuesta del Cura, Georgetown, Del Río and Buda.
This sedimentary sequence was affected by intrusive stocks of dioritic to granodioritic composition, which branched out into the calcareous formations as dikes, sills and stocks. Metamorphic rocks were then created by the associated alteration, such as marble, skarn and hornfels.
Cupido Formation (Hauterivian to Barremian, Lower Cretaceous age) has been identified in the lower parts of La Encantada mine, at the underground level 535, as well as in some drill hole intercepts adjoining the La Morena deposit. Its upper contact is gradational into the La Peña Formation. The Cupido Formation hosts sulfide mineralization in other regions in Coahuila State, such as Lampazos and Ocampo, as appears to be the case in the lower parts of La Encantada mine.
La Peña Formation (Aptian – Lower Albian, Lower to Middle Cretaceous age) consists of a 60 meters thick sequence of calcareous shales intercalated with thin bedded limestones and dolomites. At La Encantada it occurs as a thin bedded sequence of black and carbonaceous shales which appear to have been deposited in a reducing environment. La Peña formation appears to have acted as a seal for mineralizing fluids.
Aurora Formation (Lower to Middle Albian, Lower Cretaceous age) hosts most of the mineral concentrations at La Encantada. It consists of a sequence of thick to massive beds of intercalated limestones and dolomites. Thickness of this formation at the mine is estimated to be about 500 meters.
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(b) Deposit Geology
The Aurora Formation appears to represent favourable physical - chemical characteristics for deposition of mineral concentrations. These are indicated by intercalated limestones and dolomites with intense fracturing in areas of fault intersections or in brecciated zones that appear to be related to deep-seated intrusive stocks, sills or dikes.
At La Encantada mine workings, rocks of the Cupido, La Peña and Aurora formations have been identified, as well as some aphanitic dikes of apparent basic composition, and coarse-grained dikes and stocks of dioritic to granodioritic composition. No outcroppings of the intrusive stocks have been identified in La Encantada area.
The most important mineral concentrations developed at La Encantada consist of mineralized breccia zones that appear to be related to and originated by deep-seated intrusive stocks. A halo of metasomatic rocks occur associated with the intrusive stocks, from marble in the outer parts to skarn with garnets (grossularite and andradite) as well as hornfels facies in proximity to the intrusive.
The La Encantada mine is located on a mountain range that corresponds to a symmetrical anticline. The La Encantada mountain range presents an extension in a NW-SE direction of about 45 kilometres, with elevations that vary from about 1,500 meters to over 2,400 meters. This mountain range is affected by a regional fault zone (La Encantada – Norias fault) that puts in contact the Aurora (Albian) and the Georgetown (Upper Albian) Formations. The anticline is affected by a series of normal secondary faults, as well as by a system of faults and fractures of regional behaviour that generally occur in a NE-SW direction.
Exploration
La Encantada Silver Mine has been subjected to exploration programs from its discovery in the 1950s, by prospectors in the early stages and by Peñoles from the late 1960s to 2003.
First Majestic’s exploration programs carried out during the second half of 2007 through 2008 were primarily focused on proving and developing additional reserves and resources for La Encantada mine. These resulted in a significant increment of both resources and reserves. Major efforts were developed in the areas of Breccia Milagros, Bonanza, San Francisco, Intrusivo Milagros, Azul y Oro, and Cuerpo de Zinc at mine level N-1535 and in the sampling of the old dumps. A long term exploration program was initiated to investigate the promising target at the La Escalera breccia zone. A new exploration target was identified during the course of explorations to define the Azul y Oro mineralized zone. The newly discovered zone, denominated Buenos Aires, is located between the Azul y Oro and the La Escalera breccia zones.
Sampling of old dumps was also advanced and about 150,000 tonnes of screened material was measured, sampled and indicated during the period, in addition to screening and processing about 42,000 tonnes. Screening recovery of the dumps is about 40 percent in tonnage and grade enrichment from about 120 grams per tonne Ag to about 160 grams per tonne Ag.
First Majestic’s program of underground exploration was designed to investigate the Milagros and San Javier breccia zones, as well as the San Francisco bedded deposits and the Bonanza area where numerous veins occur associated with the Bonanza dike. The La Escalera breccia zone appears to be a significant target for exploration.
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During the period of September 2007, to September 30, 2008, a total of 6,660 meters of core drilling was completed. During the period of January to June, 2008 underground workings for exploration purposes were developed at the La Encantada mine, including 1,490 meters of access ramps, drifts, and crosscuts, and about 850 meters of exploration tunnelling for drill sites access. This development resulted in a significant increment of resources and reserves at the various mine levels of the La Encantada Silver Mine, within the Stope 141, Stope 325, Breccia Milagros, Bonanza, Dique San Francisco, San Francisco, Jorobada, San Javier Extensión and Alto del Dique La Escondida areas. Since this cut-off date an additional 4,635 metres have been drilled from underground sites, which has assisted the geological team on-site to focus on additional areas for future resource definitions in possible future technical reports and for mining activities. Also, this drilling detected potential economic mineralization in Buenos Aires, Azul y Oro, and Ojuelas ore bodies.
First Majestic designed an extensive 2008 geophysical program of to investigate the various identified anomaly areas, and to confirm other indicated potential zones. This program was completed during the period of January to October, 2008, and included about 50 kilometres of lines measured by Natural Source Audio-frequency Magneto Telluric methods (NSAMT). Readings were carried out along lines at 100 meters and 50 meters spacing according to geologic conditions, at 25 meters and 50 meters stations along the lines. This geophysical method takes reading of resistivity and conductivity parameters. The survey was conducted by Zonge Engineering and Research Organization from Tucson, Arizona. The Report identified and confirmed several exploration targets for future drilling. First Majestic has defined, based on potential and size, that the priority targets to explore are the Plomo area, Anomaly A and Anomaly B.
Mineralization
Mineralization at La Encantada is a typical assemblage of metasomatic deposits with a high content of silver and lead. This mineral assemblage has been affected by a long process of oxidation and secondary enrichment. Most mining activity at La Encantada has been developed within these oxidized mineral deposits and only some drilling and limited underground access has occurred in the primary sulphides mineral concentrations (La Morena deposit).
The mineralization consists of unconsolidated massive concentrations of oxides including hematite, limonite and other iron oxides as well as carbonates and sulfates, including the minor presence of zinc oxides. Silver and lead represent the main economic minerals within the oxidized deposits at La Encantada. Silver mineralization occurs as argentite and native silver. Lead mineralization is present as carbonates (cerrussite) and sulfates (anglesite) and other oxides. The La Encantada mineral assemblage occurs within a range of about 435 meters in vertical extension (2035 meters to 1600 meters above sea level). Below the 1600 meter elevation, at the La Morena deposit in the south west portion of La Encantada area, primary sulphide mineralization has been identified. This mineralization includes primarily sphalerite, galena and pyrite.
According to historical records from Peñoles, the typical mineralization in the oxidized deposits contains about 400 grams per tonne Ag, 5 percent Pb, and 20 percent Fe. In some parts of La Encantada area, within oxide concentrations and in some bedded replacement zones, the economic minerals may reach grades of about 1,150 grams per tonne Ag, 20 percent Pb and 30 percent Fe (Mantos at underground levels 710 and 720).
Primary sulphides at the Milagros stockwork zone show typical grades of 4.5 percent Zn, 1.0 percent Pb and 50 grams per tonne Ag.
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Drilling
Drilling programs at La Encantada have been limited since the best exploration results may have been obtained through underground development. Additionally, topographic conditions at the mine and irregular morphology of mineral concentrations make it difficult to plan for drilling. Therefore, drilling from underground sites and mine workings has proven to be the most effective combination for exploration at La Encantada.
During the period from September, 2007 to September 30, 2008 (the period covered the current NI 43-101), the drilling completed from underground sites totalled 6,660 meters to investigate continuity and depth of the Azul y Oro, Breccia San Javier, and La Escalera mineralized structures. These drill holes resulted in discovery of the Buenos Aires mineralized zone, extension and confirmation of some of San Francisco and Azul y Oro mineralized zones. Since this time an extensive development program was launched in order to gain access to Buenos Aires area to have it ready for future production
Additional drilling was developed at the old Peñoles tailings dams to determine volume and grade of the two tailings dams. Metallurgical test work was carried out in some of the drilled tailings. Grade, tonnage and metallurgical recovery estimates have resulted in additional resources for the La Encantada Silver Mine, since some of the silver contained by the tailings may be suitable for economic recovery by cyanide leaching processing methods. The tailings drilling program included 15 drill holes totalling 168 meters at the Tailings Dam No. 1, and 34 drill holes for a total drilled depth of 576 meters in Tailings Dam No. 2. Trenches and surveying delimited additional tailings volume at the Tailings Dam No. 3.
Drilling in 2009 (which was all drilled from underground drill sites) consisted of 10 holes totalling 2,528 metres. The drill program from the cut-off date of September 30, 2008 to December 31, 2009 amounted to 4,635 metres over 17 holes.
Underground development from the purchase date of November 1, 2006 to the cut-off date of September 30, 2008 amounted to 11,685 metres and development from cut-off to December 31, 2009 amounted to 11,619 metres. This development program is part of the ongoing mining activities and is required in maintaining current production levels.
Sampling Analysis and Security
La Encantada’s current sampling team consists of two sampling crews with three employees each. Channel samples are taken with chisel and hammer, collected in a canvas tarp and deposited in numbered bags for transportation to the laboratory. No core samples are taken at this time at La Encantada.
Exploration sampling for reserve delineation at La Encantada mine is conducted by drifting along the mineralized zones so that channel samples can be taken. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structures, across the back of the drift and across the drifts and workings in breccia zones. Sampling crews take channel samples at regular intervals of 2 meters to 3 meters, typically with one or several samples along every sampling channel on new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles. Channel samples are taken in consecutive lengths of 1 meter or less, along the channel, depending on geologic features.
A channel “line” typically consists of two or more individual samples taken to reflect changes in geology and/or mineralogy across the structural zone. Each sample weighs approximately 4 kilograms. Locally, the drift is completely enclosed by the structural zone, and the full thickness of the vein is not sampled. All channels for sampling are painted by the geologist and numbered on the drift’s walls for proper orientation and identification.
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Historical drill hole data provided by Peñoles is locally included in the resource/reserve calculations, and is conservatively applied by First Majestic. Drilling results are applied in the grade calculations giving more weight to the larger-size channel sample data.
The samples are brought into the La Encantada laboratory for preparation and assaying. To evaluate sample quality control La Encantada personnel perform periodic check analyses on samples. The pulp samples mineral content range includes assays that vary from 432 to 1,492 grams per tonne Ag. Average correlation coefficient of the silver grades is excellent for the set of samples, at 97%. The channel samples reproducibility for silver assays is at a correlation coefficient of 87%, with high variable differences of the silver grade. Most sample checks resulted in conservative assays for La Encantada lab.
First Majestic is in the process of establishing a systematic procedure to verify data and quality control. Assay data and information generated by the operation is transmitted manually; however, the entire paper trail is accessible and available for inspection.
Mineral Resources and Reserves
First Majestic uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineral resources and reserves at La Encantada. First Majestic has initiated the compilation of all data to incorporate it into a database and created a geologic model in SURPAC GIS software. First Majestic has reviewed and calculated resources and reserves for La Encantada to assess the current status of the property and to use it as a basis for future updated estimates.
The reserve blocks estimated by La Encantada are exclusive of the resource blocks. Estimated proven and probable reserves and measured and indicated resources for La Encantada, as of September 30, 2008, are presented in Table 5. No further external resource or reserve calculations have been conducted since such date. It should be noted that since the cut-off date, to December 31, 2009, 397,862 tonnes have been mined from the La Encantada of which 271,826 tonnes where mined from the delineated Reserves and 126,036 tonnes where mined from areas that were not included in any previous estimates.
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TABLE 5
Mineral Reserves and Resources as of
September 30, 2008 (1)
CATEGORY | METRIC TONNES | WIDTH | GRADE | METAL CONTAINED (2) | |||
Tonnes | Meters | Silver g/tonne | Lead, % | Zinc, % (4) | Silver (Only) oz. | Silver (Eq) oz. | |
Total Reserves Proven plus Probable (3) | |||||||
Proven | 683,992 | Over 2.00 | 354 | 2.23 | 0.92 | 7,777,602 | 8,261,401 |
Probable | 4,511,686 | Over 2.00 | 186 | 2.45 | 2.54 | 26,936,651 | 27,287,462 |
Total Reserves Proven + Probable (3) | 5,195,677 | Over 2.00 | 208 | 2.42 | 2.33 | 34,714,253 | 35,548,863 |
Total Resources Measured plus Indicated (3) | |||||||
Measured | 445,650 | Over 2.00 | 399 | 4.15 | 0.65 | 5,710,055 | 6,025,271 |
Indicated (5)(6)(7) | 4,931,103 | Over 2.00 | 156 | 1.15 | 0.87 | 24,774,263 | 27,082,017 |
Total Resources Measured + Indicated (3) | 5,376,753 | Over 2.00 | 176 | 1.40 | 0.85 | 30,484,318 | 33,107,288 |
TOTAL PROVEN AND PROBABLE RESERVES PLUS MEASURED AND INDICATED RESOURCES (8) | |||||||
10,572,000 | Over 2.00 | 192 | 1.90 | 1.58 | 65,199,000 | 68,700,000 | |
Total Inferred Resources (1)(2)(3) | |||||||
Inferred (8) | 2,557,000 | Over 2.00 | 220 | 1.00 | 1.00 | 18,226,765 | 20,034,145 |
(1) |
Cut-Off Grade estimated as 250 g/tonne Ag eq net of Pb credit. Estimated Reserves are exclusive of Resources. |
(2) |
Silver equivalent includes Pb credit, at prices US$12.00/oz-AG, $0.75/lb Pb. Pb credit + 22 g/tonne AG. |
(3) |
Mining dilution is not included at over 2.00 m width. Estimates do not include mining recovery. |
(4) |
Zinc is not recovered. |
(5) |
Dump stockpile is considered as a measured resources because the average grade is below COG- 203 g/tonne Ag only and 186 g/tonne Ag eq., however with pre-screening may be processed. It requires additional testing. |
(6) |
La Morena sulphide deposit requires additional metallurgical testwork to prove its economic recovery. La Encantada mill does not have an operating zinc circuit at this time. |
(7) |
Tailings are included within Indicated Resources due to required additional testwork and grade below Cutoff Grade 111 g/tonne Ag. |
(8) |
Rounded figures. |
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Since the date of the mineral reserve and resource estimate contained in Table 5, approximately 1,930,713ounces of silver equivalent have been extracted from the La Encantada Silver Mine.
Mining Operations
From the period of October, 2007 to September, 2008, First Majestic mined and processed 178,480 tonnes of ore from La Encantada Silver mine at an average recovered grade of 297 grams per tonne (9.5 ounces per tonne) Ag, for a total of 1,704,300 contained ounces. Several recent improvements to the plant have been made enabling the plant to be operated at a capacity of 1,000 tonnes per day for the flotation mill. Production in 2009 amounted to 318,382 tonnes of ore processed at an average grade of 259.3 grams per tonne Ag and 2.3% Pb which resulted in 1,249,377 silver ounces being produced and 2,545,311 pounds of lead. Average recoveries in 2009 for silver were was 49.6 %.
In July 2008, construction commenced on a new 3,500 tonnes per day cyanidation mill. This mill was inaugurated on November 18, 2009. Commissioning of this new facility began at that time and at the date hereof the mill was operating at approximately 2000 tonnes per day. It is anticipated that commercial levels of production will be achieved by March 31, 2010, and that full production capacity will be reached in the second quarter of 2010.
La Encantada mine has largely been developed below ore zones indicated from surface exploration work within a block about four kilometers long, 700 meters wide and 500 meters in height. The mine was initially developed from shafts as a conventional operation with rail haulage levels, and utilizing standard rail-bound loading and hauling equipment. Subsequently, La Encantada was converted to a mainly trackless operation, although rail haulage is still used on a few levels of the mine. The mine has been developed to the northeast of the shafts over a vertical range of about 400 meters from the surface (2,035 meters above sea level) to about the 1525 level (1,525 meters above sea level), where the water table has been encountered. The mine has not been developed into the large prospective area to the southwest of the developed mine area.
The principal mining method employed at La Encantada is overhand mechanized cut-and-fill utilizing development waste for fill. Ramps are driven in the ore bodies and stopes are developed from sill drifts driven in the ore zones and slashed out the full width of the ore. Stopes are drilled with jacklegs, and the main blasting agent is a commercial ammonium nitrate product, which is initiated with sausages of water-gel explosive primed with cap and fuse. Rounds are fired with Ignitacord (B-cord) as the fuse initiator. Stopes are mucked with rubber-tired 1.0 - to 3.5 yd3 Load-Haul-Dump (“ LHD ”) machines, which also tram the broken ore to ore passes or remuck stations. Completed stope cuts are backfilled with development waste, which is passed through raises into the stope or trammed into the stope with the LHD units.
A modification of overhand cut and fill stoping that has been adopted for extraction of some breccia pipes and chimney ore bodies is post pillar stoping, which is essentially a room and pillar method, but on multiple horizons. Post-pillar stopes in La Encantada mine are backfilled with waste, and are mined overhand progressing from the sill level to the next level above. Most development ramps for post pillar stoping are developed in waste outside the ore body. All other parameters for stoping the post pillar areas are the same as for a standard mechanized overhand cut and fill stope.
The old flotation plant was constructed in 1973 and at that time incorporated magnetic separation. In 1977 the plant was modified to convert it to flotation separation. Ore is from two sources: from the underground mine and from old mine dumps. The dump rock is screened ahead of the plant which results in upgrading the rock to about twice the grade of unscreened material. Mine and dump ore are not mixed; they are campaign processed through the plant.
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As a result of the addition of the new 3500 tonnes per day cyanidation plant, the old flotation plant is now step one in the process while the cyanidation plant is step two for the throughput of mine ore. The flotation plant is a single-line arrangement. Crushing is accomplished using two stages of crushing closed on the second stage, and the ore is milled in a single ball mill closed with a cyclone. The mill is rubber lined and is charged with 2-1/2-inch diameter grinding balls. Sulfide minerals and oxide minerals are floated sequentially and both circuits incorporate just one stage of cleaning.
Concentrates from both the sulfide and oxide circuits are separated; the lead-rich concentrates with low silver values are sent to a concentrate thickener. Thickened concentrates are filtered on a pressure filter press and the filtered concentrate, which contains about 20 percent moisture, is sun dried on a concrete patio to about 10 percent moisture, then trucked to the port of Manzanillo for their shipment to the smelter.
The silver-rich concentrates are then sent by pipe to the new 3500 tonnes per day cyanidation plant for processing in order to obtain silver precipitates and eventually when the new furnaces are installed a silver doré will be produced. These furnaces are expected to be installed in the second quarter of 2010.
Tailings are thickened and then pumped to a nearby tailings containment and from there are sent to the cyanidation process where additional recovery of silver is achieved. Tailings thickener overflow and the decant water from the tailings containment are pumped to a recycle-water tank and reused in the process plant
The average head grade at the mill for 2009 was 259 grams per tonne Ag and recoveries in the flotation plant were 49.6%, while the average grade for the entire period of October 1, 2008 to December 31, 2009 was 263grams per tonne with recoveries averaging 51.5% .
Capital Expenditures
The total capital expenditures for the completion of the La Encantada construction project were US$32.5 million. This includes a revised tailings pond design to a filtered tailings design, which will produce a tailings paste allowing the new cyanidation plant to significant save on power and water consumption and with the additional benefit of being an environmentally cleaner operation. Also, an induction furnace section was added to the design to enable the plant to produce a silver doré, thereby reducing the third party freight and treatment charges.
Del Toro Silver Mine, México
Certain of the information on the Del Toro Silver Mine is based on the technical report titled “Technical n Report for the Del Toro Silver Mine, Zacatecas State, México” (in this section, the “ Current Technical Report ”) prepared by Leonel Lopez, C.P.G. of PAH and dated October 9, 2008 and has been updated as necessary. Mr. Lopez is an independent Qualified Person for the purposes of NI 43-101. The Current Technical Report has been filed with securities regulatory authorities in each province of Canada. Portions of the following information are based in assumptions, qualifications and procedures which are not fully described herein. Reference should be made to the full text of the Current Technical Report which is available for review on SEDAR located at www.sedar.com.
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Property Description and Location
The Del Toro Silver Mine, formerly referred to as the Chalchihuites Group of Properties is a development project located near the municipality of Chalchihuites, in the northwestern part of the State of Zacatecas, México. The property is wholly owned and operated by FMPlata, a wholly-owned indirect subsidiary of the Company through its Mexican holding company, Corporación First Majestic, S.A. de C.V.
The project’s area is located at elevations from 2,300 to 2,900 meters above sea level. The Del Toro Silver Mine consists of 21 contiguous mining concessions in the Chalchihuites mining district that cover mineral rights for 393 hectares (971 acres). All these mining concessions include exploitation rights. Mexican mining concessions include mineral rights for a renewable period of 50 years from the date of the title. The earliest date of renewal of the Del Toro concessions is for the La Encarnación concession which has a January 16, 2019 renewal date. FMPlata owns all mineral rights within those concessions. There are no other encumbrances on the Del Toro mining concessions.
Surface rights in México are either owned by communities (“Ejidos”) or by private owners. Chalchihuites mining district land is mainly owned by private owners and by “ejidatarios”. In either case the mining concessions include “right of way” rights, although in many cases it is necessary to negotiate access to the land. At Del Toro the access to San Juan, Perseverancia and most other mining prospects is opened due to historical works and developments. The Mexican mining laws include provisions to facilitate purchasing the land required for mining activities, installations and development. FMPlata has recently acquired 100 hectares (247 acres) around the San Juan area and has made a lease agreement for 25 hectares (61.75 acres) at the Perseverancia area from private owners for future installations and project requirements.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The Del Toro Silver Mine is located in the northwestern part of the state of Zacatecas, about 40 kilometers to the southeast of First Majestic’s La Parrilla Silver Mine and approximately 120 kilometers to the southeast of the capital city of Durango. It is situated within the municipality of Chalchihuites, about 1 kilometer to the east of the village of Chalchihuites.
The Chalchihuites mining district is situated in the bordering zone between the Sierra Madre Occidental and Mesa Central provinces. The Del Toro Silver Mine is located at elevations of 2,300 meters to 2,900 meters above sea level, while the Sierra Negra and Sierra Chalchihuites reach elevations of 3,000 meters above sea level.
The Chalchihuites climate is moderate with an average annual temperature of 16° Celsius to 18° Celsius and total rainfall of 600 millimeters to 700 millimeters. Most of the annual precipitation in the Chalchihuites area occurs during the rainy season months of July to October.
Vegetation in the area consists of xerophile plants in the lower elevations, including cactuses and grasslands, while in the higher elevations the predominant vegetation consists of coniferous or evergreen oak forests (pine and oak trees). Most farming (corn, beans, chiles, wheat and some fruit trees) in the area takes place in the valleys and lower elevation zones.
The Del Toro area is accessible by paved highways from the cities of Zacatecas and Durango. Driving time to Chalchihuites from Zacatecas is about three hours and from Durango is about 2.5 hours. Local roads connect the mining district to various population centers within the region. The project is located about one kilometer to the east of the village of Chalchihuites by all weather dirt roads. Labor force, including miners, is available from these population centers.
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Electric power is provided by the national grid. Potable water is available to all the towns from water wells. The Walterio railroad station is located 5 kilometers from Chalchihuites with connections throughout the country. All basic facilities are available in most major population centers within the region. Airports with service for international flights are available in the cities of Durango and Zacatecas.
History
The Del Toro Silver Mine is located within the Chalchihuites mining district and contains mineral deposits which have been exploited by underground silver/gold/lead/copper mines. The Company commenced exploration in the area in late 2004 under option agreements. The Company subsequently exercised options to acquire Perseverancia and the San Juan groups of claims in 2006 and 2007 respectively . The Del Toro Silver Mine comprises numerous small mine developments located around a regional granodioritic intrusive within metasomatic rocks at the contact with Cretaceous limestones. These are enclosed by mineralized structures, vein-type, manto replacement and breccia pipe deposits. Most mine workings are superficial developments with the exception of the San Juan area where a 90 meter deep shaft was developed to extract some of the high grade silver minerals, and at the Perseverancia area where two shafts were developed following two adjacent breccia pipe deposits to a depth of about 200 meters. No official records exist of mineral production from these Del Toro mines however; estimates by volume suggest that approximately 100,000 tonnes of ores were extracted from each of the San Juan and Perseverancia mines. The Perseverancia silver mine was operated by Mr. Raúl Mazatán for a period of 23 years until 1997, shipping 150 to 300 hand-sorted ore tonnes per month to Peñoles smelter in the city of Torreón. The ore was reported to contain 1,500 to 3,000 grams per tonne silver and 20 to 40 percent lead in sulfides.
Geological Setting
The project is located in the border zone between the physiographic provinces of the Sierra Madre Occidental and the Mesa Central, in the northwestern part of México, within the sub province of Sierras y Llanuras de Durango. It is located on the western side of a regional contact zone between a granodioritic intrusive stock and a sequence of Cretaceous sedimentary rocks.
The exploration area is located on the northwestern flank of the Chalchihuites anticline, while Panamerican Silver Corp.’s La Colorada mine is located on the southeastern flank of the same regional structure. The Del Toro mineral deposits geology consists of mineralized structures enclosed by skarn and granodiorite within the contact zone between the intrusive stock and sedimentary rocks of the Indidura and Cuesta del Cura formations.
Exploration
The Chalchihuites mining district was discovered in colonial times and only developed from outcroppings by following mineralization along the structures, until high grade ore shoots were discovered and depleted. Common practice was to mine out high grade ores, in particular mineralization in oxides that required simple processing.
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First Majestic developed an exploration program at the Del Toro Silver Mine that included geologic mapping, geochemical and geophysical investigations, channel sampling and mapping of underground workings, diamond drilling and underground development such as access ramps, drifting and cross-cutting into the working areas of the old San Juan and Perseverancia silver mines.
First Majestic focused its exploration efforts on large volume targets such as the San Juan area, while test mining small to medium size volume of high grade mineral concentrations that were left within blocks and accessible areas along the workings such as within the Perseverancia area.
First Majestic also carried out geophysical investigations to confirm previous studies within the Del Toro area. These investigations confirmed the presence of IP, Resistivity and Magnetic anomalies and were then followed up with geochemical investigations. This program consisted of a total of 254 rock chip samples to confirm or evaluate some of the areas of interest. The anomalous areas were further investigated by geophysical methods. This preliminary exploration program was completed in 2005 and was later followed up with a drilling program.
The geochemical program included 7 lines at 250-meter intervals with samples at 50 meters along these lines. The lengths of the lines were from 2,500 meters to 1,200 meters for a total sampled length of 13,000 meters. Each sampling site was located by GPS and UTM coordinates. Each sample was collected from an area of 2 meters by 2 meters, and consisted of 3 kilograms to 5 kilograms of rock chips. The samples were shipped to GM LACME Labs in Guadalajara for pulp preparation and sent to ACME Analytical Laboratories Ltd. in Vancouver, BC. All geochemical samples were analyzed by ICP, including determination of 22 elements in addition to gold/silver by fire assay. The Company did not include duplicate samples.
The most significant geochemical anomalies resulting from this survey were defined for lead, zinc, copper and silver.
The lead anomalies cover the San Juan, Huitrón, Mina de la Paz, Perseverancia, San Nicolás and part of Las Cotorras areas. Anomalous values were determined by statistical analysis and resulted in up to 220 parts per million for threshold range and low anomalies above 220 parts per million. The highest lead value reported was 29,300 parts per million, equivalent to 2.93 percent.
The zinc anomalies are more localized around the known area of interest. The zinc anomalies appear to outline closer areas near the known mineral deposits of Perseverancia, San Nicolás and Las Cotorras, and in the southern part of the lines in the Perseverancia area. Zinc values included assays from 50 parts per million to 11,300 parts per million with threshold defined at 999 parts per million. Low anomalies were determined from above 999 parts per million.
Localized copper anomalies were defined in the San Juan and Perseverancia areas. A widespread copper anomaly was determined along the northern part of the survey area. The geochemical copper threshold was defined at 160 parts per million. The geochemical copper assays range in values from 5 parts per million to 3,160 parts per million.
The silver geochemical survey shows limited and localized anomalies within the San Nicolás to Las Cotorras and San Juan areas with small showings around the El Huitrón and Mina de la Paz areas. Silver values are low from 0 to 28 parts per million. Threshold value was defined at about 10 parts per million.
The geochemical and geophysical anomalies are coincident and show particular strength within the Perseverancia area. These anomalies also appear to show a NE-SW trend at the middle section of the district, in the areas of San Nicolás to Las Cotorras. The geochemical anomalies are strong at the San Juan area, while the geophysical anomaly appears to be deep-seated in this area. The anomalies appear to be related to previously known mineral outcroppings, to old workings or to known mineral deposits. The Company is proposing to follow up its investigations with direct methods to determine the significance of these anomalies.
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Up to July 31, 2008, 1,212 metres of development was completed to access underground areas of old workings and to develop and test mine areas for preparation for future mining activities by the Company. Since July 31, 2008, an additional 1,142 metres of underground development has been completed in order to gain access to lower levels, as this development is going to be required for any potential future operations.
Mineralization
Mineralization at the Del Toro Silver Mine is a typical assemblage of metasomatic deposits and hydrothermal vein deposits with a high content of silver. These mineral assemblages have been affected by processes of oxidation and secondary enrichment. The assemblages mainly consist of pyrite, sphalerite, galena, some chalcopyrite, argentite and other silver sulfosalts associated with calcite and quartz as gangue minerals. Oxidation and secondary enrichment of these sulfides make up the mineral concentrations in the upper parts of the deposits, such as the Cuerpo Uno at San Juan, which consists of sulfosalts (ceragyrite, pyrargyrite, stephanite) carbonates (cerussite, hydrozincite, hemimorphite, malachite, azurite), sulfates (anglesite, willemite), and iron oxides, hematite, limonite, etc. See “Geological Setting” for further information.
Drilling
First Majestic began drilling at Del Toro Silver Mine in November 2005. The Company’s exploration drilling program at Del Toro to July 31, 2008 included a total of 56 holes completed for a total depth of 11,716 meters distributed for exploration within the following areas: San Juan surface, San Juan underground, Perseverancia surface and Perseverancia underground. Since July 31, 2008, the Company has drilled 5,951 metres in 11 holes, to further reconfirm the extent of the mineralization.
The Company’s drill hole database is compiled in electronic format, which contains collar, assay intervals, lithology, and assay information with gold, silver, lead and zinc values. Most of the holes are drilled at an angle to intersect vein or mineralized structures that generally dip at near vertical angles. Based on geologic interpretations, no apparent deviation has been detected in drill holes. Because most of the holes are now longer than 150 meters, deviation is defined with one survey reading at the bottom for holes of up to 150 meters in depth and 2 survey readings for holes longer than 150 meters; one reading at the middle and one reading at the bottom of the hole.
Logging is performed by the project geologist in each of the areas being investigated. The project geologist also determines the sample intervals. Trained assistants are in charge of core splitting and sampling as per the project geologist’s indications.
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Sampling and Analysis and Security of Samples
Del Toro’s current sampling team consists of three sampling crews with three employees each for underground and channel sampling, one sampler for drill core, and one sampling supervisor. This process is managed by the two project geologists.
Exploration sampling for resource delineation at Del Toro is conducted by drifting, crosscutting and access ramp construction to the mineralized zones so that channel samples can be taken. Channel samples are the primary means of sampling in the old mine workings and are taken perpendicular to the vein structures, across the backs of drifts, generally from the footwall towards the hanging wall of the mineralized structure. Sampling crews take channel samples at regular intervals of 2 meters to 3 meters, typically with several samples along every sampling channel on new openings (drifts, crosscuts, ramps, stopes, etc.). Channel samples are taken in consecutive lengths of less than 1.5 meters along the channel, depending on geologic features. Channel samples are taken with chisel and hammer, collected in a canvas tarp and deposited in numbered bags for transportation to the laboratory.
A channel “line” typically consists of two or more individual samples taken to reflect changes in geology and/or mineralogy across a structural zone. Each sample weighs approximately 4 kilograms. All channels for sampling are painted by the geologist and numbered on the drift walls for proper orientation and identification.
The Del Toro sampling quality control program consists of checking the assays of one duplicate sample for about every 20 regular samples, including pulp samples.
All samples are assayed at the Company’s La Parrilla lab, while duplicate samples are sent to BSI-Inspectorate laboratory, a US lab located in Reno, Nevada with representation and sampling preparation facilities in Durango, México.
Drill Core Samples
Exploration drilling was performed by the contractors based in the city of Gómez Palacio, Durango State, and in the city of Fresnillo, Zacatecas State.
Sampling of the drill core is made after the core has been logged by the project geologists. The geologist marks the core on the basis of geologic and mineralization features. Then the sampling crew splits the core with a diamond saw, as indicated by the geologist and one half of the core is placed in a numbered bag and sent to Inspectorate lab in Durango. Generally the samples represent core lengths of less than 1.5 meters. All the core samples are sent for assaying by Inspectorate. The core samples are crushed and pulverized at BSI-Inspectorate in Durango and 250 gram pulp samples are sent to Reno, Nevada for assaying.
Sample Preparation
Exploration and underground channel samples are sent to the Company’s on-site laboratory at La Parrilla Silver Mine for chemical analysis of silver, gold, lead, zinc and copper. Silver and gold assays are carried out by fire assaying methods, while the rest of the elements are assayed by atomic absorption (AA). First Majestic’s sample preparation techniques and procedures are similar in all its mining and exploration properties.
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QA/QC procedure consists of sending exploration and mine samples and/or pulps to an outside laboratory, usually BSI-Inspectorate Labs in Reno, Nevada. Samples of concentrates are regularly sent to Peñoles for check assays. The laboratory duplicates pulp assays at one sample for every twenty. First Majestic has established a QA/QC procedure by checking assays. Drill samples are duplicated as one sample for every twenty regular samples. Standard samples and blank samples also be included in the duplicate sampling. The standard sample was analyzed in the SGS Laboratory in Durango, Mexico.
Channel sample checks are performed by analyzing random sample pulps at La Parrilla lab with assay checking by the BSI Inspectorate Lab in Reno, Nevada. The assays include silver, lead and zinc.
The Company has established a systematic procedure of data verification and quality control, which has proven effective and accurate in other Company operations and exploration properties. Assay data and information generated by the operation is transmitted manually; however, the entire paper trail is accessible and available for inspection.
Mineral Resources and Reserves
Only mineral resources have been determined for Del Toro as of July 31, 2008. The results from the Del Toro exploration and development project are not yet extensive enough to estimate reserves. The measured and indicated silver resources, including oxides and sulfides mineralization, consist of 1.4 million tonnes averaging 269 grams per tonne silver, 4.7 percent lead and 4.8 percent zinc for a total content of 21 million ounces of silver equivalent including silver only for oxides and credit for lead and zinc for sulfides. The resource grade has been estimated in silver equivalent content based on the following prices: Ag - $12.70 per ounce, Pb - $0.90 per pound and Zn - $0.85 per pound. To report equivalent ounces of silver an estimated metallurgical recovery for lead and zonc in sulfides was estimated as follows: Pb – 85 percent and Zn – 80 percent, while silver recovery in oxides is estimated at 65 percent.
The Company has estimated additional silver inferred resources at a distance beyond the measured and indicated resources. These inferred resources are estimated at 1.8 million tonnes at an average grade of 306 grams per tonne Ag, representing a content of about 36 million ounces of silver contained as silver equivalent including Pb and Zn recoveries from sulfides mineralization. These additional resources are based on projections of presumed vein continuity ahead, above, and below current mining or are based on widely-spaced drill holes, surface sampling or old surface workings.
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TABLE 6
Del Toro Silver Mine
Summary of
Resources, San Juan and Perseverancia Mines
Mineral Resource Estimates Prepared by FMS , Reviewed by PAH . As of July 31, 2008 (1)(2)(3)(4) | ||||||||||
Mine | Mineralization | Resource | Metric | Width | Ag (g/t) | Pb (%) | Zn (%) | Silver Only | Silver Equivalent | Silver (oz) |
Category | Tonnes | (m) | (oz) (5) | (oz) (Pb-Zn) (5) | (oz) (5) | |||||
San Juan | Oxides | Measured | 269,739 | 20.92 | 166 | 1.50 | 1.53 | 937,000 | 937,000 | |
San Juan | Oxides | Indicated | 458,705 | 210 | 3.01 | 3.40 | 2,010,000 | 2,010,000 | ||
SUB-TOTAL | Oxides | Measured+Indicated | 728,444 | 194 | 2.45 | 2.71 | 2,947,000 | 0 | 2,947,000 | |
Perseverancia | Sulfides | Measured | 18,928 | >2.5 | 381 | 10.01 | 4.74 | 197,000 | 359,000 | 556,000 |
Perseverancia | Sulfides | Indicated | 45,982 | 2.00 | 350 | 9.00 | 3.58 | 439,000 | 746,000 | 1,185,000 |
San Juan | Sulfides | Indicated | 584,618 | 69.66 | 353 | 6.97 | 7.50 | 5,633,000 | 10,622,000 | 16,255,000 |
SUB-TOTAL | Sulfides | Measured+Indicated | 649,528 | 353 | 7.20 | 7.14 | 6,269,000 | 11,727,000 | 17,996,000 | |
TOTAL SJ + P | Sulf. + Oxid. | Measured+Indicated | 1,377,972 | 269 | 4.69 | 4.80 | 9,216,000 | 11,727,000 | 20,943,000 | |
San Juan | Oxides | Inferred | 656,778 | 11.56 | 214 | 3.35 | 3.20 | 2,935,000 | 2,935,000 | |
San Juan | Sulfides | Inferred | 1,141,210 | 71.33 | 359 | 7.07 | 7.59 | 11,193,000 | 21,011,000 | 32,204,000 |
Perseverancia | Sulfides | Inferred | 33,750 | 332 | 8.66 | 3.40 | 306,000 | 525,000 | 831,000 | |
TOTAL SJ + P | Sulfides | Inferred | 1,831,738 | 306 | 5.77 | 5.94 | 14,434,000 | 21,536,000 | 35,970,000 |
(1) |
Resource estimated "in situ". |
(2) |
Price considerations $12.70/tr.oz-Ag, $0.90/lb-Pb, $0.85/lb-Zn. |
(3) |
Mill recovey estimates: Oxides - Ag-65%; Sulfides - Ag-85%, Pb-85% and Zn-80%. |
(4) |
Minimum mining width - 2.00m. |
(5) |
Rounded figures. |
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Mining Operations
The Company has conducted a test-stoping program at the old San Juan mine, which was done concurrently with the surface and underground exploration and development programs. The Company also conducted an underground mine development and exploration program at the Perseverancia mine, but no test-stoping had been undertaken at this mine to date. Some recovery of direct-shipping ore from the old Perseverancia mine and old dumps have been done by the Company.
Both areas have been explored and developed through trackless declines to explore the mantos and chimneys of the San Juan ore deposit and the chimneys of the Perseverancia deposit. Any ore extracted in the development programs and San Juan test stoping was trucked to the Company’s La Parrilla plant for milling, metallurgical studies and processing testworks. If results justify its construction, First Majestic will plan to establish a mill complex for the Del Toro Silver Mine.
Since Del Toro is largely a development project, no detailed capital nor operating cost estimates are available. No manpower or equipment requirements for possible future operations have been developed, and likewise, no long-range production planning is available for public dissemination. These items will be addressed when all economic factors are better defined.
In preparation for a definitive investment decision, the Company commenced a permitting process for the construction of a 1,000 tonnes per day flotation plant. At the time of this report, all permits including: environmental, change of land use and explosives use had been received. No immediate plans exist for the construction of this new mill at Del Toro.
Product Marketing and Sales
First Majestic’s senior management in Vancouver and Mexico negotiate sales contracts for First Majestic operations. Contracts with the smelting and refining companies as well as metals traders are entered into and re-negotiated as required. The Company’s lead concentrates are sold to Trafigura, BV and are shipped into Asia, while approximately one third of the Company’s silver doré production goes to Johnson Matthey in Salt Lake City and the remaining two thirds of the doré goes to MET-MEX Peñoles located in Torreón, Coahuila State, México. Presently, silver precipitates are being shipped from La Encantada mine, solely to MET-MEX Peñoles in Torreón, Coahuila, México, until the Company is able to produce silver doré from this new plant.
First Majestic is continually reviewing its cost structures and relationships with smelting and refining companies and metal traders in order to maintain the most competitive pricing possible while not remaining completely dependent on any single smelter or refiner.
In addition to these commercial sales; First Majestic also markets a portion of its silver production to retail purchasers directly over its corporate e-commerce web site. Approximately 8% of the Company’s production was sold in retail transactions during 2009. Products sold included 1 ounce rounds, 5 ounce ingots, 10 ounce ingots and 1 kilo bars. In early 2010, a new 50 ounce bar was released and is presently being sold on the Company’s e-commerce site.
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Taxation
Taxation in Mexico is often complex and covers overlapping layers of taxation on a number of various tax bases, with some crediting between the various tax liabilities. This is not intended to be a detailed and conclusive description of the many forms of Mexican taxes. This is a current summary of the most relevant and material forms of taxes impacting mining companies operating in Mexico. Taxes are all levied in the normal course of business and are levied as i) Income taxes (ISR), ii) Alternative Minimum Tax on Cashflow (IETU), iii) Value Added Taxes (IVA), iv) Profit sharing taxes (PTU), v) and Mining Rights Taxes, there are presently no mining royalties taxes or capital taxes applicable in Mexico. All of these taxes are administered at the federal level by Hacienda, and the proceeds are shared with the states of Mexico.
The various rates of taxes and related tax bases are as follows:
i) |
Income taxes (ISR) 30% on a corporations taxable income in 2010, reducing to 29% in 2013, and 28% in 2014, |
ii) |
Alternative Minimum Tax on Cashflow (IETU), 17.5% on Cashflow, creditable against income taxes on an annual basis, |
iii) |
Value Added Taxes (IVA) 16% on taxable receipts from the sales of goods and services in Mexico and zero % on exports, creditable against the IVA paid on deductible services, expenses and imports. |
iv) |
Profit sharing taxes (PTU) 10% on a corporations taxable income, creditable against corporate taxes payable and payable to the workers in the corporation, and |
v) |
Mining Rights Taxes a nominal rate on a corporations Hectares of mining rights, |
In the past, Mexico allowed corporations to consolidate tax filings, effectively enabling the profits of taxable entities to be offset by tax losses in other companies within the consolidated group. Effective January 2010, Mexico introduced tax reforms, which allows consolidation to continue, but requires consolidated corporations to recapture historical tax benefits of consolidation after a period of five years subsequent to receiving the benefit. Effectively, corporations will receive a six year deferral and then will be required to recapture 25% of the benefit in the sixth year, followed by 25%, 20%, 15% and 15% in each subsequent year. For example, First Majestics first benefit from tax consolidation was realized in 2008, and as such the benefit of tax consolidation will be recaptured from 2014 to 2018. Numerous companies in Mexico are challenging the legality of these regressive tax reforms. It is unlikely that the outcome of these challenges will be determinable for several years.
DIVIDENDS
The Company has not paid any dividends since incorporation and it has no plans to pay dividends for the foreseeable future. The directors of the Company will determine if and when dividends should be declared and paid in the future based on the Companys financial position at the relevant time. All of the common shares of the Company are entitled to an equal share of any dividends declared and paid.
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CAPITAL STRUCTURE
General Description of Capital Structure
The Companys authorized capital consists of an unlimited number of common shares without par value. A total of 92,713,744 common shares of the Company were issued and outstanding as at the date of this AIF.
Each common share of the Company ranks equally with all other common shares of the Company with respect to dissolution, liquidation or winding-up of the Company and payment of dividends. The holders of common shares of the Company are entitled to one vote for each share of record on all matters to be voted on by such holders and are entitled to receive pro rata such dividends as may be declared by the board of directors of the Company out of funds legally available therefore and to receive pro rata the remaining property of the Company on dissolution. The holders of common shares of the Company have no pre-emptive or conversion rights. The rights attaching to the common shares of the Company can only be modified by the affirmative vote of at least two-thirds of the votes cast at a meeting of shareholders called for that purpose.
MARKET FOR SECURITIES
Trading Price and Volume
The common shares of the Company are listed and posted for trading on the Toronto Stock Exchange under the trading symbol FR. The following table sets forth the high and low trading prices and trading volume of the common shares of the Company as reported by the Toronto Stock Exchange for the periods indicated:
Period |
High
$ |
Low
$ |
Volume
|
February 2010 | 3.73 | 3.09 | 4,243,497 |
January 2010 | 4.52 | 3.27 | 6,237,937 |
December 2009 | 4.49 | 3.32 | 10,257,689 |
November 2009 | 3.92 | 3.06 | 11,588,777 |
October 2009 | 3.53 | 2.43 | 12,681,347 |
September 2009 | 3.07 | 2.19 | 9,549,884 |
August 2009 | 2.59 | 2.12 | 4,763,143 |
July 2009 | 2.66 | 2.06 | 4,535,231 |
June 2009 | 2.89 | 2.12 | 7,883,744 |
May 2009 | 2.79 | 1.77 | 8,106,581 |
April 2009 | 2.20 | 1.70 | 5,405,762 |
March 2009 | 2.24 | 1.65 | 8,576,328 |
February 2009 | 3.15 | 1.88 | 8,937,335 |
January 2009 | 2.75 | 2.05 | 4,720,903 |
The common shares of the Company are also quoted on the OTCQX in the U.S. under the symbol FRMSF and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol FMV.
- 52 -
The warrants of the Company which were issued pursuant to the offering which closed on March 5, 2009 were listed and posted for trading on the Toronto Stock Exchange under the trading symbol FR.WT.B. These warrants are exercisable at $3.50 per share and expire on March 5, 2011. The following table sets forth the high and low trading prices and trading volume of these warrants as reported by the Toronto Stock Exchange for the periods indicated:
Period |
High
$ |
Low
$ |
Volume
|
February 2010 | 1.30 | 0.99 | 159,000 |
January 2010 | 1.74 | 1.02 | 317,050 |
December 2009 | 1.40 | 0.94 | 706,075 |
November 2009 | 1.40 | 0.85 | 777,648 |
October 2009 | 1.34 | 0.77 | 570,315 |
September 2009 | 1.00 | 0.61 | 224,780 |
August 2009 | 0.89 | 0.61 | 58,900 |
July 2009 | 0.94 | 0.73 | 82,697 |
June 2009 | 1.00 | 0.70 | 138,562 |
May 2009 | 0.98 | 0.62 | 188,250 |
April 2009 | 0.67 | 0.45 | 706,751 |
March 2009 | 0.65 | 0.30 | 878,501 |
DIRECTORS AND OFFICERS
Name, Occupation and Security Holding
The following table sets out the names of the current directors and officers of the Company, provinces or states and countries of residence, positions with the Company, principal occupations within the five preceding years, periods during which each director has served as a director and the number of each class of securities of the Company and percentage of such class beneficially owned, directly or indirectly, or subject to control or direction by that person.
The term of each of the current directors of the Company will expire at the next Annual General Meeting unless his office is earlier vacated in accordance with the Articles of the Company or he becomes disqualified to act as a Director. The Company is not required to have an executive committee but it has an Audit Committee, a Human Resources, Compensation and Nominating Committee and a Corporate Governance Committee as indicated below.
Name, Position and City, Province and Country of Residence | Principal Occupation or Employment for Past 5 Years (1) | Period as a Director of the Company | No. and Class of Securities | Percentage of Class (2) |
ROBERT A. McCALLUM, B.Sc., P.Eng (3) (5) Chairman and Director North Vancouver, British Columbia, Canada |
Professional consulting engineer and President of Robert A. McCallum Inc. from 1999 to present; President and CEO of Kensington Resources Ltd. from June 1, 2004 to October 28, 2005; Director of Shore Gold Inc. from October 28, 2005 to present. |
December 15, 2005 to present. |
Common 100,000
Stock Options
|
Less than 1.0% |
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Name, Position and City, Province and Country of Residence | Principal Occupation or Employment for Past 5 Years (1) | Period as a Director of the Company | No. and Class of Securities | Percentage of Class (2) |
KEITH NEUMEYER
CEO, President and Director London, England |
President of the Company from November 3, 2001 to present; Director of the Company since December 5, 1998. | December 5, 1998 to present. |
Common
Stock Options
|
2.94% |
RAMON DAVILA, Ing.
Chief Operating Officer and Director Durango, México |
Chief Operating Officer of the Company from December 14, 2004 to present; Chairman of Minas La Colorada SA de CV from January 1994 to present; Chairman of Minera Lince SA de CV from September 2003 to present; Chairman of Mineral Real Victoria SA de CV from October 2003 to present; Member of the Board for Immobiliaria Aurum SA de CV from June 2005 to present. | April 15, 2004 to present. |
Common
Stock Options
|
Less than 1.0% |
RAYMOND L. POLMAN, CA
Chief Financial Officer Vancouver, British Columbia, Canada |
Chief Financial Officer of the Company from February 1, 2007 to present; Chief Financial Officer of Ikona Gear International, Inc. from December 2003 to November 2006. | N/A |
Common
Stock options
|
0.0% |
TONY PEZZOTTI
(3)
(4)
Director Burnaby, British Columbia, Canada |
Retired. Director of Pan Terra Industries Inc. from July 2007 to present. | November 30, 2001 to present. |
Common
Stock options
|
Less than 1.0% |
DAVID SHAW, Ph.D.
(4)
(5)
Director Vancouver, British Columbia, Canada |
President of Duckmanton Partners Ltd. from June 12, 2000 to present; President and Director of Albion Petroleum Ltd. from October 2006 to present; Director of Reef Resources Ltd. from September 2007 to April 2008; Director of Pan Pacific Aggregates plc from October 2008 to present; CEO of Columbia Gold plc from May 2007 to March 2009. Director of Salares Lithium Inc. from December 2009 to present. | January 12, 2005 to present. |
Common
Stock options
|
Less than 1.0% |
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Name, Position and City, Province and Country of Residence | Principal Occupation or Employment for Past 5 Years (1) | Period as a Director of the Company | No. and Class of Securities | Percentage of Class (2) |
DOUGLAS PENROSE, CA
(3)
(5)
Director Kamloops, British Columbia, Canada |
Vice President, Finance and Corporate Services of British Columbia Lottery Corporation from 2000 to April 2008. | September 7, 2006 to present. |
Common
Stock options
|
Less than 1.0% |
ROBERT YOUNG
(4)
Director Richmond, British Columbia, Canada |
Independent geological consultant from 1999 to present; Director of Goldrush Resources Ltd. from December 2004 to present; Advisor to Copper Mountain Mining Corporation from April 2007 to present. | September 7, 2006 to present. | Common 10,000 Stock options 412,500 | Less than 1.0% |
CONNIE LILLICO
Corporate Secretary Coquitlam, British Columbia, Canada |
Corporate Secretary of the Company from August 2007 to present; Corporate Secretary of several TSX Venture Exchange issuers from July 2004 to July 2007. | N/A | Common Nil Stock options 400,000 | 0.0% |
(1) |
The information as to principal occupation and shares beneficially owned has been furnished by the respective individuals. |
(2) |
Based upon the 92,713,744 common shares of the Company issued and outstanding as of the date of this AIF. |
(3) |
Member of the Audit Committee. |
(4) |
Member of the Human Resources, Compensation and Nominating Committee. |
(5) |
Member of the Corporate Governance Committee. |
The aggregate number of common shares of the Company which the directors and senior officers of the Company beneficially own, directly or indirectly, or over which control or direction is exercised, is 3,809,940 common shares of the Company or approximately 4.1% of the common shares of the Company issued and outstanding as of the date of this AIF.
Audit Committee Information
Pursuant to the provisions of National Instrument 52-110 Audit Committees (NI 52-110) the Company is required to provide the following disclosure with respect to its Audit Committee.
Audit Committee Mandate
The text of the Audit Committees Mandate is attached as Appendix A to this AIF.
Composition of the Audit Committee
Members of the Audit Committee are Douglas Penrose, Tony Pezzotti and Robert McCallum. All three members are independent and all three members are considered financially literate.
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Relevant Education and Experience
Douglas Penrose received his Bachelor of Commerce degree from the University of Toronto. He has been a member of the Institute of Chartered Accountants of Ontario since 1974 and the Institute of Chartered Accountants of British Columbia since 1978. He brings over 20 years experience in leadership positions in corporate finance, including the position of Chief Financial Officer and was most recently the Vice President of Finance and Corporate Services at the British Columbia Lottery Corporation.
Tony Pezzotti, currently retired, is a seasoned board member who has served on several public company boards, including OSI Geospatial Inc., First Quantum Minerals Ltd., and Kensington Resources Ltd. He also served as a member of the Audit Committees of those companies and was General Manager and co-owner of a privately held steel fabrication company. Mr. Pezzotti also currently serves on the board of Pan Terra Industries Inc.
Robert McCallum graduated in 1959 from the University of Witwatersrand, South Africa with a Bachelor of Science (Mining) followed in 1971 by a PMD in the Executive Management Program at Harvard Graduate School of Business, Boston, Massachusetts. He was most recently President and C.E.O. of Kensington Resources Ltd. prior to its merger with Shore Gold Inc. in 2005 and now sits on the board of Shore Gold.
Reliance on Certain Exemptions
Since the commencement of the Companys most recently completed financial year, the Company has not relied on:
a) |
the exemption in section 2.4 ( De Minimis Non-Audit Services ) of NI 52-110; |
|
b) |
the exemption is section 3.2 ( Initial Public Offerings ) of NI 52-110 |
|
c) |
the exemption is section 3.4 ( Events Outside the Control of the Member ) of NI 52-110; |
|
d) |
the exemption in section 3.5 ( Death, Disability or Resignation of Audit Committee Member ) of NI 52-110; or |
|
e) |
an exemption from the Instrument in whole or in part, granted under Part 8 of NI 52-110. |
Audit Committee Oversight
The Companys Board of Directors adopted all recommendations by the Audit Committee with respect to the nomination and compensation of the external auditor.
Pre-Approval Policy
The Audit Committee has adopted specific policies for the engagement of non-audit services to be provided to the Company by the external auditor which require the auditors to submit to the Audit Committee a proposal for services to be provided and cost estimates for approval.
- 56 -
External Auditor Service Fees
The following table sets out the fees billed to the Company by Deloitte & Touche LLP, Chartered Accountants, and its affiliates for professional services in each of the years ended December 31, 2009 and December 31, 2008, respectively.
Category |
Year ended
December 31, 2009 |
Year ended December 31,
2008 |
Audit Fees | $255,000 | $283,500 |
Audit-Related Fees | $162,895 | $268,844 |
Tax Fees | $145,910 | $70,403 |
All Other Fees | - | - |
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
To the knowledge of the Company, no director or executive officer of the Company nor a shareholder holding a sufficient number of common shares of the Company to materially affect the control of the Company, nor a personal holding company of any of them,
(a) |
is, at the date of this AIF or has been within the 10 years before the date of the AIF, a director or executive officer of the company (including the Company), that while that person was acting in that capacity, |
|
(i) |
was the subject of a cease trade order or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; |
|
(ii) |
was subject to an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities registration, for a period of more than 30 consecutive days; or |
|
(iii) |
within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement, or compromise with creditors, or had a receiver, receiver manager, or trustee appointed to hold its assets; or |
|
(b) |
has, within the 10 years before the date of this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or comprise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, officer or shareholder. |
To the knowledge of the Company, no director or executive officer of the Company, nor a shareholder holding a sufficient number of common shares of the Company to affect materially the control of the Company, nor a personal holding company of any of them, has been subject to,
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(a) |
any penalties or sanctions imposed by the court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or |
(b) |
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision. |
Conflicts of Interest
Certain directors of the Company are also directors or officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting mineral properties. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required by law and by the Company’s policies to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest, which they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict is required to disclose his interest and abstain from voting on such matter. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time. See “Interest of Management and Others in Material Transactions”.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
Legal Proceedings
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the amount received from the bank but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $753,657.
In February 2004, an action was commenced against the Company by the optionors of the Wekusko Property in Manitoba whereby the optionors are seeking an amount of $43,500 cash, 30,000 common shares of the Company and an entitlement to exercise an option to purchase 100,000 shares of the Company at a price of $0.35 per share. Management believes that there are substantial defences to the claim; however, the outcome of this litigation is not presently determinable.
In November 2007, an action was commenced by the Company and First Silver against Hector Davila Santos and Minera Arroyo Del Agua, S.A. de C.V. in British Columbia whereby the Company and First Silver allege that while holding the positions of director, President and Chief Executive Officer and Chairman of the Board of First Silver, Mr. Davila Santos engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in First Silver not acquiring the Bolaños Mine from Grupo México. Management believes that there are substantial grounds to this claim; however, the outcome of this litigation is not presently determinable.
As disclosed above under “General Development of the Business – History”, pursuant to a share purchase agreement dated April 3, 2006, the Company purchased 24,649,200 common shares of First Silver from Hector Davila Santos at a price of $2.165 per share for an aggregate purchase price of $53,365,519 payable in cash to Mr. Davila Santos in three installments. The first installment of $26,682,757 represented 50% of the purchase price and was paid on May 30, 2006. An additional installment of $13,341,380, representing 25% of the purchase price was paid on May 30, 2007. A final installment of $13,341,380 was payable on May 30, 2008. Simple interest at 6% per annum was payable quarterly on the outstanding installment.
- 58 -
On March 14, 2008, the Defendant filed a Counterclaim in the Action against the Company in which he claimed for unpaid amounts and interest arising out of the agreement between the Company and the Defendant under which the Company acquired the Defendant’s shares (approximately 24,649,200 shares) in First Silver. As of July 16, 2009, the claimed unpaid amount together with the contractual interest rate of 6% amounted to $14,881,912. This amount was partly secured by a Letter of Credit posted in Court by First Majestic in the sum of $14,485,760.
On July 16, 2009, an Order was granted by the Court, with the consent of all parties, under which the Defendant obtained a judgment in the amount of $14,881,912. The Company agreed to pay out $14,258,332 from the Letter of Credit to the Defendant’s lawyer’s trust account (the “Trust Funds”) in partial payment of the Judgment. The remaining $227,420 from the Letter of Credit was paid out to the Company. The Consent Order requires that the Trust Funds be held pending the outcome of the Action. If the trial has not commenced by June 30, 2011, the Trust Funds can be released on that date to the Defendant, unless otherwise ordered by the court. At the present time, the trial is scheduled to commence in the Supreme Court of British Columbia, Vancouver, British Columbia on February 21, 2011. The Consent Order does not affect the standing of the Company’s claims for relief against the Defendant in the Action.
Regulatory Actions
No penalties or sanctions were imposed against the Company by a court relating to securities legislation or by a securities regulatory authority during the year ended December 31, 2009.
No penalties or sanctions were imposed by a court or regulatory body against the Company that would likely be considered important to a reasonable investor in making an investment decision.
The Company did not enter into any settlement agreements with a court relating to securities legislation or with a securities regulatory authority during the year ended December 31, 2009.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
No director, senior officer, principal holder of securities or any associate or affiliate thereof of the Company has any interest, directly or indirectly, in material transactions with the Company within the three most recently completed financial years or during the current financial year that has materially affected or will materially affect the Company, other than the following transactions, each of which were in the normal course of business:
1. During the fiscal year ending December 31, 2007, finder’s fees totalling $254,742 were paid to Ramon Davila for the completion of options on portions of the Del Toro Silver Mine known as the San Juan silver mine and the Perseverancia silver mine.
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2. During the fiscal year ending December 31, 2008, a finder’s fee of $7,367 was paid to Ramon Davila in connection with the completion of certain option agreements relating to the Del Toro Silver Mine.
3. During the fiscal year ending December 31, 2008, a loan of US$30,000 was provided to a director of the Company. The loan was fully repaid during the year ending December 31, 2009.
TRANSFER AGENT AND REGISTRARS
The Company’s transfer agent and registrar is Computershare Trust Company of Canada (“Computershare”). Computershare’s register of transfers for the common shares of the Company is located at 510 Burrard Street, Second Floor, Vancouver, British Columbia, Canada, V6C 3B9.
MATERIAL CONTRACTS
The following material contracts were entered into by the Company or by its wholly owned subsidiaries since the beginning of the Company’s fiscal year ended December 31, 2009 or were entered into prior to such fiscal year, and are still in effect as of the date of this AIF:
1. |
Option Agreement dated July 6, 2008 with Juan Fernando Lopez Chavez and Guillermo Lopez Chavez to purchase the Fatima mining concession relating to the Del Toro Silver Mine. |
2. |
Underwriting Agreement dated February 19, 2009 between CIBC World Markets Inc., Blackmont Capital Inc., GMP Securities LP, Thomas Weisel Partners and the Company pursuant to which the Underwriters offered to purchase from the Company and the Company offered to sell to the underwriters 6,800,000 units of the Company and the Company granted an option to the underwriters to acquire up to an additional 3,200,000 units of the Company (exercisable prior to closing of the Offering) at a price of $2.50 per unit. |
3. |
Warrant Indenture dated March 5, 2009 with Computershare Trust Company of Canada governing the issue of up to 5,750,000 warrants by the Company. |
INTERESTS OF EXPERTS
Deloitte & Touche LLP is the auditor of the Company and is independent within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of British Columbia.
Richard Addison, P.E. and Leonel Lopez, C.P.G. of Pincock Allen & Holt prepared technical reports on the Company’s mining properties. To management’s knowledge, Mr. Addison and Mr. Lopez do not have any registered or beneficial interests, direct or indirect, in any securities or other property of the Company (or of any of its associates or affiliates).
ADDITIONAL INFORMATION
Additional information relating to the Company may be found on SEDAR at www.sedar.com.
Additional information including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans, as applicable, is contained in the Company’s information circular for its most recent annual general meeting.
- 60 -
Additional financial information is provided in the Company’s audited financial statements and MD&A for the year ended December 31, 2009 which may be obtained upon request from First Majestic’s head office, or may be viewed on the Company’s website (www.firstmajestic.com) or on the SEDAR website (www.sedar.com).
APPENDIX A TO THE ANNUAL INFORMATION FORM OF
FIRST MAJESTIC SILVER CORP.
(the Company)
AUDIT COMMITTEE MANDATE
1. MANDATE
The primary mandate of the audit committee (the Audit Committee) of the Board of Directors (the Board) of the Company is to assist the Board in overseeing the Companys financial reporting and disclosure. This oversight includes:
a. |
reviewing the financial statements and financial disclosure that is provided to shareholders and disseminated to the public; |
|
b. |
ascertaining that management has implemented the systems of internal controls to ensure integrity in the financial reporting of the Company; and |
|
c. |
monitoring the independence and performance of the Companys external auditors and reporting directly to the Board on the work of the external auditors. |
2. COMPOSITION AND ORGANIZATION OF THE COMMITTEE
a. |
The Audit Committee must have at least three directors. |
|
b. |
The majority of the Audit Committee members must be independent. A member of the Audit Committee is independent if the member has no direct or indirect material relationship with an issuer. A material relationship means a relationship which could, in the view of the issuers board of directors, reasonably interfere with the exercise of a members independent judgment. |
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c. |
Every Audit Committee member must be financially literate. Financial literacy is the ability to read and understand a set of financial statements that present a breath and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the issuers financial statements. |
|
d. |
The Board will appoint from themselves the members of the Audit Committee on an annual basis for one year terms. Members may serve for consecutive terms. |
|
e. |
The Board will also appoint a chair of the Audit Committee (the Chair of the Audit Committee) for a one year term. The Chair of the Audit Committee may serve as the chair of the committee for any number of consecutive terms. |
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f. |
A member of the Audit Committee may be removed or replaced at any time by the Board. The Board will fill any vacancies in the Audit Committee by appointment from among members of the Board. |
3. MEETINGS
a. |
The Audit Committee will meet at least four (4) times per year. Special meetings may be called by the Chair of the Audit Committee as required. |
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b. |
Quorum for a meeting of the Audit Committee will be two (2) members in attendance. |
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c. |
Members may attend meetings of the Audit Committee by teleconference, videoconference, or by similar communication equipment by means of which all persons participating in the meeting can communicate with each other. |
d. |
The Audit Committee Chair will set the agenda for each meeting, after consulting with management and the external auditor. Agenda materials such as draft financial statements must be circulated to Audit Committee members for members to have a reasonable time to review the materials prior to the meeting. |
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e. |
Minutes of the Audit Committee meetings will be accurately recorded, with such minutes recording the decisions reached by the committee. Minutes of each meeting must be distributed to members of the Board, the Chief Executive Officer, the Chief Financial Officer and the external auditor. |
4. RESPONSIBILITIES OF THE COMMITTEE
The Audit Committee will perform the following duties:
External Auditor
i. |
select, evaluate and recommend to the Board, for shareholder approval, the external auditor to examine the Companys accounts, controls and financial statements; |
|
ii. |
evaluate, prior to the annual audit by external auditors, the scope and general extent of their review, including their engagement letter, and the compensation to be paid to the external auditors and recommend such payment to the Board; |
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iii. |
obtain written confirmation from the external auditor that it is objective and independent within the meaning of the Rules of Professional Conduct/Code of Ethics adopted by the provincial institute or order of Chartered Accountants to which it belongs; |
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iv. |
recommend to the Board, if necessary, the replacement of the external auditor; |
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v. |
meet at least annually with the external auditors, independent of management, and report to the Board on such meetings; |
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vi. |
pre-approve any non-audit services to be provided to the Company by the external auditor and the fees for those services; |
Financial Statements and Financial Information
vii. |
review and discuss with management and the external auditor the annual audited financial statements of the Company and recommend their approval by the Board; |
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viii. |
review and discuss with management, the quarterly financial statements and recommend their approval by the Board; |
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ix. |
review and recommend to the Board for approval the financial content of the annual report; |
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x. |
review the process for the certification of financial statements by the Chief Executive Officer and Chief Financial Officer; review the Companys management discussion and analysis, annual and interim earnings or financial disclosure press releases, and audit committee reports before the Company publicly discloses this information; |
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xi. |
review annually with external auditors, the Companys accounting principles and the reasonableness of managements judgments and estimates as applied in its financial reporting; |
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xii. |
review and consider any significant reports and recommendations issued by the external auditor, together with managements response, and the extent to which recommendations made by the external auditors have been implemented; |
Risk Management, Internal Controls and Information Systems
xiii. |
review with the external auditors and with management, the general policies and procedures used by the Company with respect to internal accounting and financial controls; |
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xiv. |
review adequacy of security of information, information systems and recovery plans (this should include reference to the backups in place for the computers, locks on cabinets, etc.); |
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xv. |
review management plans regarding any changes in accounting practices or policies and the financial impact thereof; |
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xvi. |
review with the external auditors and, if necessary, legal counsel, any litigation, claim or contingency, including tax assessments, that could have a material effect upon the financial position of the Company and the manner in which these matters are being disclosed in the financial statements; |
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xvii. |
discuss with management and the external auditor correspondence with regulators, employee complaints, or published reports that raise material issues regarding the Companys financial statements or disclosure; |
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xviii. |
assisting management to identify the Companys principal business risks; |
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xix. |
review the Companys insurance, including directors and officers coverage, and provide recommendations to the Board; |
Other
xx. |
conduct special reviews and/or other assignments from time to time as requested by the Board or the Chief Executive Officer. |
5. PROCESS FOR HANDLING COMPLAINTS REGARDING FINANCIAL MATTERS
The Audit Committee shall establish a procedure for the receipt, retention and follow-up of complaints received by the Company regarding accounting, internal controls, financial reporting, or auditing matters.
The Audit Committee shall ensure that any procedure for receiving complaints regarding accounting, internal controls, financial reporting, or auditing matters will allow the confidential and anonymous submission of concerns by employees, consultants and/or contractors.
6. REPORTING
The Audit Committee will report to the Board on:
i. |
the external auditors independence; |
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ii. |
the performance of the external auditor and the Audit Committees recommendations; |
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iii. |
regarding the reappointment or termination of the external auditor; |
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iv. |
the adequacy of the Companys internal controls and disclosure controls; |
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v. |
the Audit Committees review of the annual and interim financial statements; |
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vi. |
the Audit Committees review of the annual and interim management discussion and analysis; |
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vii. |
the Companys compliance with legal and regulatory matters to the extent they affect the financial statements of the Company; and |
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viii. |
all other material matters dealt with by the Audit Committee. |
7. AUTHORITY OF THE COMMITTEE
a. |
The Audit Committee will have the resources and authority appropriate to discharge its duties and responsibilities. The Audit Committee may at any time retain outside financial, legal or other advisors at the expense of the Company without approval of management. |
|
b. |
The external auditor will report directly to the Audit Committee. |
EFFECTIVE DATE
This Mandate was implemented by the Board on December 21, 2006
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “forecast”, “project”, ”intend”, ”believe”, ”anticipate”, “outlook” and other similar words, or statements that certain events or conditions “may” or “will” occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Company’s Annual Information Form under the heading “Risk Factors”. The Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (“First Majestic” or “the Company”) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in Mexico. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively. The common shares are also quoted on the OTCQX in the U.S. under the symbol “FRMSF” and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol “FMV”. Silver producing operations of the Company are carried out through three operating mines: the La Encantada, La Parrilla, and San Martin Silver Mines.
The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2009. Additional information on the Company, including the Company’s Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”), First Silver Reserve Inc. (“First Silver”) and Normabec Mining Resources Ltd. (“Normabec”) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (“First Majestic Plata”), Minera El Pilon, S.A. de C.V. (“El Pilon”), Minera La Encantada, S.A. de C.V. (“La Encantada”), Majestic Services S.A. de C.V. (“Majestic Services”), Minera Real Bonanza, S.A. de C.V. (“MRB”) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (“Servicios”). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation which it is involved as the plaintiff, described herein in the Liquidity section.
QUALIFIED PERSONS
Unless otherwise indicated, Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the Qualified Person for the Company and has reviewed the technical information herein. National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine can be found on the Company’s website at www.firstmajestic.com or on SEDAR at www.sedar.com.
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of March 19, 2010, unless otherwise stated.
1
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
2009 ANNUAL AND Q4 FINANCIAL PERFORMANCE AND HIGHLIGHTS
|
Consolidated gross revenue (prior to smelting, refining and metal deductions) for the year ended 2009 was $71.5 million compared to $56.1 million in 2008, an increase of $15.4 million or 27.5%. |
|
Consolidated gross revenue (prior to smelting, refining and metal deductions) for the quarter ended December 31, 2009 (Q4) was $21,436,456 or $18.71 (US$17.72) per ounce compared to $11,712,165 or $14.15 (US$11.67) per ounce for the quarter ended December 31, 2008 for an increase of $9,724,291, or 83%. The improvement in revenues in the fourth quarter of 2009 is attributable to a 38% increase in equivalent silver ounces sold and a 32% increase in the average gross revenue per ounce realized. These improvements resulted in net revenue for the fourth quarter increasing from $9,106,605 in 2008 to $18,374,117 in 2009, an increase of 102%. |
|
In 2009 the Company shipped (sold) 4,233,703 ounces of silver equivalent at an average price of $16.89 per ounce (US$14.79) compared to 3,590,202 ounces in 2008 at an average price of $15.63 per ounce (US$14.66), representing an increase of 18% in shipments. |
|
Total production for 2009 was 4,337,103 ounces of silver equivalents consisting of 3,797,520 ounces of silver, 2,670 ounces of gold, 6,587,074 pounds of lead and 8,913 pounds of zinc. This compares to the 4,229,998 ounces of silver equivalents produced in 2008, which consisted of 3,654,698 ounces of silver, 1,661 ounces of gold, 7,457,707 pounds of lead and 425,710 pounds of zinc. |
|
Net sales revenue (after smelting and refining charges and metals deductions) for 2009 was $59.5 million, an increase of 34.3% compared to $44.3 million for 2008. Smelting and refining charges and metal deductions decreased to 17% of gross revenue in 2009 compared to 21% of gross revenue in 2008. Average smelting charges for doré in 2009 were US$0.48 per equivalent silver ounce whereas for concentrates they were US$3.96 per equivalent silver ounce. |
|
The Company generated net income for 2009 of $6.3 million, or earnings per common share (EPS) of $0.08 compared to a net loss in 2008 of $5.1 million or a loss per common share of $(0.07). Net income for 2009 was after deducting non-cash stock-based compensation expense of $3.3 million, a write-down of mineral properties of $2.6 million, a write-down of marketable securities totalling $0.4 million and an income tax recovery of $3.2 million. Neglecting the effect of write-downs, earnings per share in 2009 would have been $0.11 per share (this is a non-GAAP measure). |
|
Net income for the quarter ended December 31, 2009 was $2,492,488 or $0.03 per common share compared to a net loss of $5,538,906 or $(0.08) per common share in the quarter ended December 31, 2008, for an increase of $8,031,394. |
|
|
|
Direct cash costs per ounce of silver for 2009 decreased to US$5.61 per ounce of silver, compared to US$5.87 per ounce of silver for 2008. During 2009, the Companys operations achieved operational efficiencies resulting in reductions in production costs per tonne and cash costs per ounce. |
|
Direct cash costs per ounce of silver for Q4 of 2009 decreased to US$5.69 per ounce of silver, compared to US$6.37 per ounce of silver for Q4 of 2008. |
|
Mine operating earnings for 2009 increased by 146% to $18.5 million, an increase of $11.0 million, compared to mine operating earnings of $7.5 million for 2008, due to an increase in sales volume from 3.6 million ounces of silver equivalent in 2008 to 4.2 million ounces in 2009, combined with an increase in sales revenue per ounce from $15.63 (US$14.66) in 2008 to $16.89 (US$14.79) in 2009. |
|
Mine operating earnings increased by 818% to $8,092,993 for the quarter ended December 31, 2009 from a mine operating loss of $1,126,697 for the same quarter in the prior year. This was primarily due to the increase in net revenue. |
|
The Company had operating income of $4.5 million for 2009 compared to an operating loss of $3.7 million for 2008, an increase of $8.2 million or 220%. |
|
Operating income increased by $5,758,869 or 152% to $1,971,450 for the quarter ended December 31, 2009, from an operating loss of $3,787,419 for the quarter ended December 31, 2008, due to the increase in mine operating earnings. |
|
During the fourth quarter of 2009, the new cyanidation process plant at the La Encantada Silver Mine was commissioned and the ramp up process commenced. By the beginning of the second quarter of 2010, this new plant is expected to achieve commercial production levels, reaching full capacity of 3,500 tonnes-per-day and producing at an annualized rate of over four million ounces by Q2 of 2010. Total capitalized construction in progress at La Encantada at December 31, 2009 consisted of $31.3 million (US$29.8 million) with a further $2.9 million (US$2.7 million) advanced to contractors for equipment. |
2
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
|
During the year ended December 31, 2009, the Company raised a total of $35.3 million through a combination of debt and equity. New funds consisted of $29.4 million from equity issuances, $4.3 million from a Mexican government sponsored development loan, as well as $1.6 million from the pre-sale of lead concentrates from the La Parrilla mine. This compares to $41.6 million raised in the year ended December 31, 2008. |
|
During the year ended December 31, 2009, the Company invested $14.0 million in its mineral properties and a further $19.4 million in additions to plant and equipment on a cash basis. This compares to $24.5 million invested in its mineral properties and a further $14.9 million in additions to plant and equipment in the year ended December 31, 2008. |
|
During 2009, the Company reduced current liabilities by $19.6 million. This was achieved by (i) placing $14.3 million in a lawyers trust pending the outcome of the Companys action against a previous majority owner of First Silver, (ii) settling certain other current liabilities amounting to $2.7 million by the issuance of 1,191,852 common shares, and (iii) through additional reductions of accounts payable and accrued liabilities by $2.6 million. |
|
In November 2009, First Majestic acquired Normabec Mining Resources Ltd. (Normabec) in an all-share transaction by way of plan of arrangement (the Arrangement). First Majestic acquired Normabec in exchange for the issuance directly to Normabecs shareholders of 0.060425 First Majestic shares and 0.25 shares of Brionor Resources Inc., a newly formed entity, for each Normabec common share outstanding. Normabecs primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí State, Mexico. The results of operations of Normabec were consolidated into the operations of the Company effective November 14, 2009. |
The subsidiaries, mines, mills and properties in Mexico are as follows:
Subsidiaries | Mine and Mill | Exploration Properties |
First Majestic Plata, S.A. de C.V. |
La Parrilla Silver Mine
Del Toro Silver Mine |
La Parrilla properties
Del Toro properties |
Minera El Pilón, S.A. de C.V. | San Martin Silver Mine |
San Martin property
Jalisco Group of Properties |
Minera La Encantada, S.A. de C.V. | La Encantada Silver Mine | La Encantada property |
Minera Real Bonanza, S.A. de C.V. | Real de Catorce Silver Project | Real de Catorce property |
Majestic Services, S.A. de C.V. (a labour services company) | (services for all of the above) | (services for all of the above) |
Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. | (inactive services company) | (inactive services company) |
Corporación First Majestic, S.A. de C.V. (holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) | (holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) | (holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) |
Certain financial results in this MD&A, regarding operations and cash costs are presented in the Mine Operating Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars. U.S. dollar results are translated using the U.S. dollar rates on the dates which the transactions occurred.
3
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
MINING OPERATING RESULTS
Quarter Ended December 31, |
CONSOLIDATED FIRST MAJESTIC
RESULTS |
Year to Date December 31, | ||
2009 | 2008 | 2009 | 2008 | |
251,258 | 215,646 | Ore processed/tonnes milled (4) | 887,638 | 758,338 |
235 | 207 | Average silver grade (g/tonne) | 215 | 219 |
65% | 65% | Recovery (%) | 64% | 68% |
1,103,840 | 930,120 | Silver ounces produced (4) | 3,797,520 | 3,654,698 |
701 | 403 | Gold ounces produced (4) | 2,670 | 1,661 |
48,576 | 31,650 | Equivalent ounces from gold (4) | 189,419 | 100,496 |
1,574,819 | 2,093,988 | Pounds of lead produced (4) | 6,587,074 | 7,457,707 |
97,152 | 93,239 | Equivalent ounces from lead (4) | 349,294 | 450,423 |
- | 24,413 | Pounds of zinc produced (4) | 8,913 | 425,710 |
- | 1,403 | Equivalent ounces from zinc (4) | 870 | 24,381 |
1,249,568 | 1,056,219 | Total production - ounces silver equivalent (4) | 4,337,103 | 4,229,998 |
1,145,562 | 827,845 | Ounces of silver equivalents sold (1) (4) | 4,233,703 | 3,590,202 |
$8.61 | $8.71 | US cash cost per ounce (2) (3) | $8.49 | $8.94 |
$5.69 | $6.37 | Direct US cash cost per ounce (2) (3) | $5.61 | $5.87 |
5,266 | 5,845 | Underground development (m) | 21,390 | 27,890 |
1,031 | 4,194 | Diamond drilling (m) | 7,459 | 61,440 |
$42.01 | $37.57 | Total US production cost per tonne (3) | $37.29 | $43.08 |
Quarter Ended December 31, |
LA ENCANTADA
RESULTS |
Year to Date December 31, | ||
2009 | 2008 | 2009 | 2008 | |
104,864 | 79,480 | Ore processed/tonnes milled (4) | 318,382 | 257,960 |
305 | 281 | Average silver grade (g/tonne) | 276 | 283 |
51% | 59% | Recovery (%) | 50% | 62% |
399,810 | 427,753 | Silver ounces produced (4) | 1,317,080 | 1,442,566 |
5 | - | Gold ounces produced (4) | 5 | - |
321 | - | Equivalent ounces from gold (4) | 321 | - |
536,801 | 1,195,557 | Pounds of lead produced (4) | 2,545,339 | 3,312,869 |
35,714 | 56,299 | Equivalent ounces from lead (4) | 129,259 | 193,675 |
435,845 | 484,053 | Total production - ounces of silver equivalent (4) | 1,446,660 | 1,636,242 |
363,364 | 450,063 | Ounces of silver equivalents sold (4) | 1,371,337 | 1,529,301 |
$10.80 | $6.13 | US cash cost per ounce (2) (3) | $10.20 | $8.21 |
$6.83 | $3.82 | Direct US cash cost per ounce (2) (3) | $6.10 | $3.59 |
2,251 | 3,075 | Underground development (m) | 10,214 | 8,463 |
- | 2,107 | Diamond drilling (m) | 2,397 | 8,048 |
$54.32 | $32.98 | Total US production cost per tonne (3) | $45.59 | $45.93 |
(1) |
Includes (8,822) ounces in the fourth quarter ended December 31, 2009 and (14,727) ounces in the year ended December 31, 2009 (after adjustments for intercompany eliminations) sold as coins, ingots and bullion from Canadian operations and minesite transfers. |
(2) |
The Company reports non-GAAP measures which include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver (prior to smelting charge), and smelting charges per ounce of silver in order to manage and evaluate operating performance at each of the Companys mines. These measures are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP on page 9. |
(3) |
Direct Cash Costs do not include smelting; production costs per tonne include smelter charges. |
(4) |
At December 31, 2009, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore the net margin of $496,371 in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period was recorded as a reduction of construction in progress during the year. The tables above include the production from the mill expansion , however average silver grade, recovery, US cash cost per ounce, direct cash cost per ounce and total US production cost per tonne are based on production excluding pre-commercial stage production of 68,026 silver equivalent ounces. |
4
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
MINING OPERATING RESULTS
Quarter Ended December 31, |
LA PARRILLA
RESULTS |
Year to Date December 31, | ||
2009 | 2008 | 2009 | 2008 | |
75,475 | 66,395 | Ore processed/tonnes milled | 277,917 | 246,166 |
222 | 206 | Average silver grade (g/tonne) | 214 | 234 |
73% | 70% | Recovery (%) | 71% | 70% |
395,761 | 305,685 | Silver ounces produced | 1,367,742 | 1,291,210 |
151 | 297 | Gold ounces produced | 645 | 864 |
12,119 | 15,899 | Equivalent ounces from gold | 54,560 | 47,139 |
1,038,018 | 897,031 | Pounds of lead produced | 4,041,735 | 3,979,046 |
61,438 | 36,864 | Equivalent ounces from lead | 220,035 | 245,056 |
- | 24,414 | Pounds of zinc produced | 8,913 | 24,414 |
- | 1,403 | Equivalent ounces from zinc | 870 | 1,403 |
469,318 | 359,851 | Total production - ounces of silver equivalent | 1,643,207 | 1,584,808 |
478,121 | 228,661 | Ounces of silver equivalents sold | 1,648,020 | 1,282,340 |
$7.61 | $10.21 | US cash cost per ounce (2) (3) | $7.84 | $8.47 |
$3.82 | $6.68 | Direct US cash cost per ounce (1) (2) | $4.26 | $5.39 |
2,047 | 1,557 | Underground development (m) | 7,774 | 10,457 |
114 | 668 | Diamond drilling (m) | 2,682 | 37,944 |
$39.91 | $47.01 | Total US production cost per tonne (2) | $38.60 | $44.42 |
Quarter Ended December 31, |
SAN MARTIN
RESULTS |
Year to Date December 31, | ||
2009 | 2008 | 2009 | 2008 | |
70,919 | 69,771 | Ore processed/tonnes milled | 291,339 | 254,211 |
184 | 124 | Average silver grade (g/tonne) | 157 | 141 |
73% | 71% | Recovery (%) | 76% | 80% |
308,269 | 196,681 | Silver ounces produced | 1,112,698 | 920,921 |
545 | 106 | Gold ounces produced | 2,020 | 797 |
36,136 | 15,751 | Equivalent ounces from gold | 134,538 | 53,357 |
- | 1,399 | Pounds of lead produced | - | 165,792 |
- | 75 | Equivalent ounces from lead | - | 11,691 |
- | - | Pounds of zinc produced | - | 401,297 |
- | - | Equivalent ounces from zinc | - | 22,979 |
344,405 | 212,315 | Total production - ounces of silver equivalent | 1,247,236 | 1,008,948 |
312,899 | 149,121 | Ounces of silver equivalents sold | 1,229,073 | 778,561 |
$7.53 | $12.00 | US cash cost per ounce (1) (2) | $7.35 | $10.74 |
$6.85 | $11.44 | Direct US cash cost per ounce (1) (2) | $6.71 | $10.12 |
968 | 1,214 | Underground development (m) | 3,402 | 8,971 |
917 | 1,419 | Diamond drilling (m) | 2,380 | 15,448 |
$32.73 | $33.81 | Total US production cost per tonne (2) | $28.06 | $38.90 |
(1) |
The Company reports non-GAAP measures which include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver (prior to smelting charge) and smelting charges per ounce of silver in order to manage and evaluate operating performance at each of the Companys mines. These measures are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP on page 9. |
(2) |
Direct Cash Costs do not include smelting; production costs per tonne include smelter charges. |
5
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
RECONCILIATION OF COST OF SALES TO CASH COSTS
FOR THE YEARS
ENDED DECEMBER 31, 2009 AND 2008
|
For the Years Ended | ||||||||
December 31, 2009 | December 31, 2008 | ||||||||
San Martin | La Parrilla | La Encantada | Total | San Martin | La Parrilla | La Encantada | Total | ||
COST OF SALES | US$ | 10,115,010 | 10,602,682 | 9,298,262 | 30,015,954 | 9,517,664 | 10,550,960 | 8,087,833 | 28,156,457 |
ADD: THIRD PARTY SMELTING & REFINING | US$ | 715,834 | 4,897,387 | 5,126,869 | 10,740,090 | 571,209 | 3,977,917 | 6,667,136 | 11,216,262 |
DEDUCT: BYPRODUCT CREDITS | US$ | (1,852,368) | (4,121,098) | (1,499,708) | (7,473,174) | (1,094,506) | (4,339,639) | (2,613,425) | (8,047,570) |
ADD (DEDUCT): ROYALTIES | US$ | - | (127,483) | - | (127,483) | - | (49,157) | - | (49,157) |
ADD (DEDUCT): PROFIT SHARING | US$ | - | - | (59,120) | (59,120) | - | - | - | - |
INVENTORY CHANGES | US$ | (676,545) | (160,757) | (89,537) | (926,839) | 893,499 | 466,693 | (293,719) | 1,066,473 |
OTHER | US$ | (125,755) | (361,991) | (31,393) | (519,139) | - | 328,123 | - | 328,123 |
TOTAL CASH COSTS (A) | US$ | 8,176,176 | 10,728,740 | 12,745,373 | 31,650,289 | 9,887,866 | 10,934,897 | 11,847,825 | 32,670,588 |
DEDUCT: THIRD PARTY SMELTING | US$ | (715,834) | (4,897,387) | (5,126,869) | (10,740,090) | (571,209) | (3,977,917) | (6,667,136) | (11,216,262) |
DIRECT MINING EXPENSES CASH COST (B) | US$ | 7,460,342 | 5,831,353 | 7,618,504 | 20,910,199 | 9,316,657 | 6,956,980 | 5,180,689 | 21,454,326 |
TONNES PRODUCED (Note 1) | TONNES | 291,339 | 277,917 | 279,536 | 848,792 | 254,211 | 246,167 | 257,960 | 758,338 |
OUNCES OF SILVER PRODUCED (C) (Note 1) | OZ | 1,112,698 | 1,367,742 | 1,249,377 | 3,729,817 | 920,921 | 1,291,211 | 1,442,566 | 3,654,699 |
OUNCES OF SILVER EQ PRODUCED (Note 1) | OZ EQ | 134,538 | 275,465 | 129,257 | 539,260 | 88,027 | 302,203 | 199,626 | 589,856 |
TOTAL OZ OF SILVER EQ PRODUCED (Note 1) | OZ EQ | 1,247,236 | 1,643,207 | 1,378,634 | 4,269,077 | 1,008,948 | 1,593,414 | 1,642,192 | 4,244,555 |
CASH COST PER OUNCE PRODUCED (A/C) | US$/OZ | 7.35 | 7.84 | 10.20 | 8.49 | 10.74 | 8.47 | 8.21 | 8.94 |
SMELTING/REFINING/TRANSPORTATION COST PER OUNCE | US$/OZ | (0.64) | (3.58) | (4.10) | (2.88) | (0.62) | (3.08) | (4.62) | (3.07) |
DIRECT MINING EXPENSES CASH COST (B/C) | US$/OZ | 6.71 | 4.26 | 6.10 | 5.61 | 10.12 | 5.39 | 3.59 | 5.87 |
MINING | $/Tonne | 11.62 | 13.88 | 14.08 | 13.17 | 17.88 | 18.20 | 11.03 | 15.65 |
MILLING | $/Tonne | 13.22 | 15.67 | 9.98 | 12.96 | 12.93 | 21.30 | 7.16 | 13.69 |
INDIRECT | $/Tonne | 5.82 | 4.76 | 6.95 | 5.84 | 9.88 | 5.43 | 11.14 | 8.86 |
DIRECT CASH COST | $/Tonne | 30.66 | 34.31 | 31.01 | 31.97 | 40.69 | 44.93 | 29.33 | 38.20 |
SELLING AND TRANSPORT COSTS | $/Tonne | 1.30 | 1.50 | 1.61 | 1.47 | 0.31 | 1.01 | 0.91 | 0.74 |
SMELTING AND REFINING COSTS | $/Tonne | 2.46 | 17.62 | 18.34 | 12.65 | 2.25 | 16.16 | 25.85 | 14.79 |
BY PRODUCT CREDITS | $/Tonne | (6.36) | (14.83) | (5.37) | (8.80) | (4.31) | (17.63) | (10.13) | (10.61) |
DIRECT COST PER TONNE | $/Tonne | 28.06 | 38.60 | 45.59 | 37.29 | 38.90 | 44.42 | 45.93 | 43.08 |
MINING | $/Oz. | 3.04 | 2.82 | 3.15 | 3.00 | 4.94 | 3.47 | 1.97 | 3.25 |
MILLING | $/Oz. | 3.46 | 3.19 | 2.23 | 2.95 | 3.57 | 4.06 | 1.28 | 2.84 |
INDIRECT | $/Oz. | 1.52 | 0.97 | 1.55 | 1.33 | 2.73 | 1.04 | 1.99 | 1.84 |
SELLING AND TRANSPORT COSTS | $/Oz. | 0.34 | 0.31 | 0.36 | 0.33 | 0.09 | 0.19 | 0.16 | 0.15 |
SMELTING AND REFINING COSTS | $/Oz. | 0.64 | 3.58 | 4.10 | 2.88 | 0.62 | 3.08 | 4.62 | 3.07 |
BY PRODUCT CREDITS | $/Oz. | (1.66) | (3.01) | (1.20) | (2.00) | (1.19) | (3.36) | (1.81) | (2.20) |
CASH COST PER OUNCE | $/Oz. | 7.35 | 7.84 | 10.20 | 8.49 | 10.74 | 8.47 | 8.21 | 8.94 |
SMELTING AND REFINING COSTS | $/Oz. | (0.64) | (3.58) | (4.10) | (2.88) | (0.62) | (3.08) | (4.62) | (3.07) |
DIRECT CASH COST | $/Oz. | 6.71 | 4.26 | 6.10 | 5.61 | 10.12 | 5.39 | 3.59 | 5.87 |
Note 1 The table above does not include 68,026 silver equivalent ounces of pre-commercial production from the La Encantada mill expansion project.
6
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
RECONCILIATION OF COST OF SALES TO CASH COSTS
FOR THE QUARTER ENDED DECEMBER 31, 2009 AND 2008
|
For the Three Months Ended | ||||||||
December 31, 2009 | December 31, 2008 | ||||||||
San Martin | La Parrilla | La Encantada | Total | San Martin | La Parrilla | La Encantada | Total | ||
COST OF SALES | US$ | 2,386,293 | 2,873,412 | 2,774,725 | 8,034,430 | 2,130,065 | 2,408,276 | 2,046,037 | 6,584,377 |
ADD: THIRD PARTY SMELTING & REFINING | US$ | 209,716 | 1,499,186 | 1,319,294 | 3,028,196 | 110,772 | 1,080,074 | 988,885 | 2,179,732 |
DEDUCT: BYPRODUCT CREDITS | US$ | (502,223) | (1,313,641) | (371,932) | (2,187,796) | (187,427) | (673,849) | (589,497) | (1,450,773) |
ADD (DEDUCT): ROYALTIES | US$ | - | (41,893) | - | (41,893) | - | - | - | - |
ADD (DEDUCT): PROFIT SHARING | US$ | 53,874 | - | - | 53,874 | - | - | - | - |
INVENTORY CHANGES | US$ | 172,909 | (4,217) | (135,669) | 33,023 | 305,899 | (196,454) | 176,063 | 285,508 |
OTHER | US$ | 896 | (288) | - | 608 | - | 503,377 | - | 503,377 |
TOTAL CASH COSTS (A) | US$ | 2,321,465 | 3,012,559 | 3,586,418 | 8,920,442 | 2,359,309 | 3,121,425 | 2,621,488 | 8,102,221 |
DEDUCT: THIRD PARTY SMELTING | US$ | (209,716) | (1,499,186) | (1,319,294) | (3,028,196) | (110,772) | (1,080,074) | (988,885) | (2,179,732) |
DIRECT MINING CASH COSTS (B) | US$ | 2,111,749 | 1,513,373 | 2,267,124 | 5,892,246 | 2,248,537 | 2,041,351 | 1,632,603 | 5,922,489 |
TONNES PRODUCED (Note 1) | TONNES | 70,919 | 75,475 | 66,018 | 212,412 | 69,771 | 66,396 | 79,479 | 215,646 |
OUNCES OF SILVER PRODUCED (C) (Note1) | OZ | 308,269 | 395,761 | 332,107 | 1,036,137 | 196,682 | 305,685 | 427,753 | 930,121 |
OUNCES OF SILVER EQ PRODUCED (Note 1) | OZ EQ | 36,136 | 73,557 | 35,712 | 145,405 | 15,633 | 62,771 | 62,250 | 140,654 |
TOTAL OZ OF SILVER EQ PRODUCED (Note 1) | OZ EQ | 344,405 | 469,318 | 367,819 | 1,181,542 | 212,315 | 368,456 | 490,003 | 1,070,774 |
CASH COST PER OUNCE PRODUCED (A/C) | US$/OZ | 7.53 | 7.61 | 10.80 | 8.61 | 12.00 | 10.21 | 6.13 | 8.71 |
SMELTING/REFINING/TRANSPORTATION COST PER OUNCE | US$/OZ | (0.68) | (3.79) | (3.97) | (2.92) | (0.56) | (3.53) | (2.31) | (2.34) |
DIRECT MINING EXPENSES CASH COST (B/C) | US$/OZ | 6.85 | 3.82 | 6.83 | 5.69 | 11.44 | 6.68 | 3.82 | 6.37 |
MINING | $/Tonne | 14.32 | 15.22 | 18.15 | 15.83 | 13.18 | 17.96 | 11.69 | 14.10 |
MILLING | $/Tonne | 14.38 | 15.75 | 10.20 | 13.57 | 13.84 | 18.50 | 9.77 | 13.78 |
INDIRECT | $/Tonne | 7.17 | 5.01 | 9.94 | 7.27 | 7.91 | 3.34 | 5.91 | 5.77 |
DIRECT CASH COST | $/Tonne | 35.87 | 35.98 | 38.29 | 36.67 | 34.93 | 39.80 | 27.37 | 33.65 |
SELLING AND TRANSPORT COSTS | $/Tonne | 0.98 | 1.47 | 1.68 | 1.38 | (0.02) | 1.09 | 0.58 | 0.54 |
SMELTING AND REFINING COSTS | $/Tonne | 2.96 | 19.86 | 19.98 | 14.26 | 1.59 | 16.27 | 12.44 | 10.11 |
BY PRODUCT CREDITS | $/Tonne | (7.08) | (17.40) | (5.63) | (10.30) | (2.69) | (10.15) | (7.42) | (6.73) |
DIRECT COST PER TONNE | $/Tonne | 32.73 | 39.91 | 54.32 | 42.01 | 33.81 | 47.01 | 32.98 | 37.57 |
MINING | $/Oz. | 3.30 | 2.90 | 3.61 | 3.25 | 4.68 | 3.90 | 2.17 | 3.27 |
MILLING | $/Oz. | 3.31 | 3.00 | 2.03 | 2.78 | 4.91 | 4.02 | 1.82 | 3.19 |
INDIRECT | $/Oz. | 1.65 | 0.96 | 1.98 | 1.49 | 2.81 | 0.73 | 1.10 | 1.34 |
SELLING AND TRANSPORT COSTS | $/Oz. | 0.23 | 0.28 | 0.33 | 0.28 | (0.01) | 0.24 | 0.11 | 0.13 |
SMELTING AND REFINING COSTS | $/Oz. | 0.68 | 3.79 | 3.97 | 2.92 | 0.56 | 3.53 | 2.31 | 2.34 |
BY PRODUCT CREDITS | $/Oz. | (1.63) | (3.32) | (1.12) | (2.11) | (0.95) | (2.20) | (1.38) | (1.56) |
CASH COST PER OUNCE | $/Oz. | 7.53 | 7.61 | 10.80 | 8.61 | 12.00 | 10.21 | 6.13 | 8.71 |
SMELTING AND REFINING COSTS | $/Oz. | (0.68) | (3.79) | (3.97) | (2.92) | (0.56) | (3.53) | (2.31) | (2.34) |
DIRECT CASH COSTS | $/Oz. | 6.85 | 3.82 | 6.83 | 5.69 | 11.44 | 6.68 | 3.82 | 6.37 |
Note 1 The table above does not include 68,026 silver equivalent ounces of pre-commercial production from the La Encantada mill expansion project.
7
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Year to date December 31, 2009 | ||||||
INVENTORY RECONCILIATION (See Note 1): | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Opening stockpile inventory | OZ EQ | 147,932 | 193,165 | 88,555 | - | 429,652 |
Reduction of stockpile | OZ EQ | (140,489) | (76,626) | (48,842) | - | (265,957) |
Ending stockpile inventory | OZ EQ | 7,443 | 116,539 | 39,713 | - | 163,695 |
Opening in process inventory | OZ EQ | 13,992 | 8,524 | - | - | 22,516 |
Inventory adjustments | OZ EQ | 7,249 | 13,997 | 50,077 | - | 71,323 |
Ending in process inventory | OZ EQ | 21,241 | 22,521 | 50,077 | - | 93,839 |
Opening finished goods inventory | OZ EQ | 33,276 | 20,368 | 48,111 | - | 101,755 |
Production - silver equivalent ounces | OZ EQ | 1,247,236 | 1,643,205 | 1,378,640 | - | 4,269,081 |
Shipments - silver equivalent ounces | OZ EQ | (1,229,073) | (1,648,020) | (1,371,337) | - | (4,248,430) |
Inventory adjustments | OZ EQ | (26,190) | (3,513) | (55,414) | - | (85,117) |
Ending finished goods inventory | OZ EQ | 25,249 | 12,040 | - | - | 37,289 |
Total ending inventory before transfers | OZ EQ | 343,581 | 151,100 | 89,790 | - | 584,471 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 42,453 | 42,453 |
Transfers to coins, ingots and bullion inventory | OZ EQ | (289,648) | - | - | 289,648 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (10,385) | (10,385) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (284,836) | (284,836) |
Total inventory, all stages and products | OZ EQ | 53,933 | 151,100 | 89,790 | 36,880 | 331,703 |
Value of ending inventory - (Note 1) | CDN$ | 369,158 | 461,781 | 364,436 | 273,262 | 1,468,637 |
Value of ending inventory - Cdn$ per oz | CDN$ | 6.84 | 3.06 | 4.06 | 7.41 | 4.43 |
Average exchange rate - Q4 2009 | 1.0563 | 1.0563 | 1.0563 | 1.0563 | 1.0563 | |
Value of ending inventory - US$ per oz | US$ | 6.48 | 2.89 | 3.84 | 7.01 | 4.19 |
Three months ended December 31, 2009 | ||||||
INVENTORY RECONCILIATION (See Note 1): | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Opening stockpile inventory | OZ EQ | 12,535 | 88,367 | 33,499 | - | 134,401 |
Increase of stockpile | OZ EQ | (5,092) | 28,172 | 6,214 | - | 29,294 |
Ending stockpile inventory | OZ EQ | 7,443 | 116,539 | 39,713 | - | 163,695 |
Opening in process inventory | OZ EQ | 13,370 | 11,661 | - | - | 25,031 |
Inventory adjustments | OZ EQ | 7,871 | 10,860 | 50,077 | - | 68,808 |
Ending in process inventory | OZ EQ | 21,241 | 22,521 | 50,077 | - | 93,839 |
Opening finished goods inventory | OZ EQ | 6,867 | 36,125 | 44,292 | - | 87,284 |
Production - silver equivalent ounces | OZ EQ | 344,405 | 469,318 | 367,820 | - | 1,181,543 |
Shipments - silver equivalent ounces | OZ EQ | (312,899) | (478,121) | (363,364) | - | (1,154,384) |
Inventory adjustments | OZ EQ | (13,124) | (15,282) | (48,748) | - | (77,154) |
Ending finished goods inventory | OZ EQ | 25,249 | 12,040 | - | - | 37,289 |
Total ending inventory before transfers | OZ EQ | 133,074 | 151,100 | 89,790 | - | 373,964 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 37,785 | 37,785 |
Transfers to coins, ingots and bullion inventory | OZ EQ | (79,141) | - | - | 79,141 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (4,785) | (4,785) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (75,261) | (75,261) |
Total inventory, all stages and products | OZ EQ | 53,933 | 151,100 | 89,790 | 36,880 | 331,703 |
Value of ending inventory - (Note 1) | CDN$ | 369,158 | 461,781 | 364,436 | 273,262 | 1,468,637 |
Value of ending inventory - Cdn$ per oz | CDN$ | 6.84 | 3.06 | 4.06 | 7.41 | 4.43 |
Average exchange rate - Q4 2009 | 1.0563 | 1.0563 | 1.0563 | 1.0563 | 1.0563 | |
Value of ending inventory - US$ per oz | US$ | 6.48 | 2.89 | 3.84 | 7.01 | 4.19 |
Note 1 - The inventory reconciliation above consists of silver coins, bullion, doré, concentrates, ore in process and stockpile but excludes materials and supplies. The tables above do not include 68,026 silver equivalent ounces of pre-commercial production from the La Encantada mill expansion project.
8
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Year to Date December 31, 2009 | ||||||
Cost of Sales Reconciliation | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Cash Cost | US$ | 8,176,176 | 10,728,740 | 12,745,372 | - | 31,650,288 |
Inventory changes | US$ | 676,545 | 160,757 | 89,537 | - | 926,839 |
Byproduct credits | US$ | 1,852,368 | 4,121,098 | 1,499,708 | - | 7,473,174 |
Smelting and refining | US$ | (715,834) | (4,897,387) | (5,126,869) | - | (10,740,090) |
Other | US$ | 125,755 | 489,474 | 90,514 | - | 705,743 |
Cost of sales - Calculated | US$ | 10,115,010 | 10,602,682 | 9,298,262 | - | 30,015,954 |
Average CDN/US Exchange Rate | 0.87256 | 0.88926 | 0.88359 | - | 0.88182 | |
Booked Cost of Sales | CDN$ | 11,592,357 | 11,923,081 | 10,523,284 | - | 34,038,722 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | 313,131 | 313,131 |
Total Cost of Sales as Reported | CDN$ | 11,592,357 | 11,923,081 | 10,523,284 | 313,131 | 34,351,853 |
Three months ended December 31, 2009 | ||||||
Cost of Sales Reconciliation | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Cash Cost | US$ | 2,321,465 | 3,012,558 | 3,586,418 | - | 8,920,441 |
Inventory changes | US$ | (172,909) | 4,217 | 135,669 | - | (33,023) |
Byproduct credits | US$ | 502,223 | 1,313,641 | 371,932 | - | 2,187,796 |
Smelting and refining | US$ | (209,716) | (1,499,186) | (1,319,294) | - | (3,028,196) |
Other | US$ | (54,770) | 42,182 | - | - | (12,588) |
Cost of sales - Calculated | US$ | 2,386,293 | 2,873,412 | 2,774,725 | - | 8,034,430 |
Average CDN/US Exchange Rate | 0.92751 | 0.95452 | 0.94019 | - | 0.94142 | |
Booked Cost of Sales | CDN$ | 2,572,798 | 3,010,309 | 2,951,242 | - | 8,534,349 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | 4,436 | 4,436 |
Total Cost of Sales as Reported | CDN$ | 2,572,798 | 3,010,309 | 2,951,242 | 4,436 | 8,538,785 |
Note 1 - Net of intercompany eliminations of $1,326,953 for the fourth quarter ended December 31, 2009 and $4,547,713 for the year ended December 31, 2009.
REVIEW OF MINING OPERATING RESULTS
The total silver production for the fourth quarter of 2009 consisted of 1,249,568 ounces of silver equivalent representing an increase of 15% compared to 1,089,481 ounces of silver equivalent produced in the third quarter of 2009 and an increase of 18% compared to 1,056,219 ounces of silver equivalent produced in fourth quarter of 2008.
Silver production in the fourth quarter of 2009 was 1,103,840 ounces, representing an increase of 18% compared to the third quarter of 2009 and an increase of 19% compared to 930,120 ounces of silver produced in the fourth quarter of 2008. In the fourth quarter of 2009, 1,574,819 pounds of lead were produced, representing a decrease of 7% compared to the third quarter of 2009 and a decrease of 25% compared to the fourth quarter of 2008. Gold produced in the fourth quarter of 2009 was 701 ounces, representing a decrease of 4% compared to the third quarter of 2009 and an increase of 74% compared to the fourth quarter of 2008.
The ore processed during the fourth quarter of 2009 at the Companys three operating silver mines: the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine; amounted to 251,258 tonnes which is an increase of 17% from the third quarter of 2009 and an increase of 17% compared to the fourth quarter of 2008.
The average silver head grade in the fourth quarter of 2009 for the three mines increased to 235 grams per tonne (g/t) silver compared to 205 g/t silver in the third quarter of 2009 and 207 g/t in the fourth quarter of 2008.
Total combined recoveries of silver at the Companys three mills has remained relatively constant at 65% in the fourth quarter of 2009 compared to 66% in the third quarter of 2009 and 65% in the fourth quarter of 2008.
A total of 5,266 metres of underground development was completed in the fourth quarter of 2009 compared to 6,597 metres completed in the third quarter of 2009. This program is important as it provides access to new areas within the different mines and prepares the mines for continuing growth of silver production.
A total of 1,031 metres of diamond drilling was completed in the fourth quarter of 2009 compared to 1,017 metres drilled in the third quarter of 2009. Total annual drilling was scaled back from 61,440 metres in 2008 to 7,459 metres in 2009 as the Company reduced its exploration expenditures in late 2008 after having achieved a target level of Reserves and Resources in late 2008.
9
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
MINE UPDATES
La Encantada Silver Mine, Coahuila, Mexico
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest towns, Muzquiz and Boquillas del Cármen, are 225 kilometres away and 45 kilometres away, respectively, via unpaved road. The La Encantada Silver Mine consists of an almost completed 3,500 tpd cyanidation plant, a 1,000 tpd flotation plant, all related facilities and infrastructure, including a mining camp with 180 houses, administrative offices, and a private airstrip. The Company owns 100% of the La Encantada Silver Mine.
During the fourth quarter of 2009, the new 3,500 tonne-per-day (“tpd”) mill was inaugurated and the ramp up process began. Management anticipates by the beginning of the second quarter of 2010, this new plant will achieve commercial production with full capacity anticipated being achieved near the end of Q2 2010. At full capacity, the new La Encantada cyanidation operation is expected to produce an additional four million ounces of silver in doré form annually. The mine is currently producing silver in precipitate form pending the installation of induction furnaces which are anticipated to be delivered in Q2 of 2010. To date, the Company has spent approximately $36.4 million (US$34.6 million) on the new cyanidation plant, or $33.7 million (US$32.0) million after adjusting for pre-operating revenues and expenses.
Also, during the quarter, the flotation circuit at La Encantada was renovated with the installation of new flotation cells. The flota-tion circuit produces two products: a silver rich concentrate and a lead rich concentrate. The lead rich concentrate is presently being sold through an off-take agreement, whereas the silver concentrate is being introduced into the cyanidation circuit to enrich the silver content of the silver precipitates.
Fresh ore from the underground mine is being processed at a rate of 850 tpd, after which the silver concentrate is piped to the cyanidation process where it is mixed, one part fresh ore to three parts tailings from the old tailings pond, at a rate of 2,650 tpd, with an average grade of 146 g/t silver. The anticipated average grade of the mixed fresh ore and old tailings is expected to be 180 g/t.
Tonnes milled in the fourth quarter of 2009 increased to 104,864 tonnes compared to 68,481 tonnes in the third quarter of 2009, an increase of 53%. The average head grade was 305 g/t in the fourth quarter of 2009, representing an increase of 19% when compared to 256 g/t in the third quarter of 2009 and an increase of 9% when compared to the 281 g/t in the fourth quarter of 2008. Silver recovery in the fourth quarter of 2009 was 51% which is comparable with the 48% achieved in the third quarter of 2009 but represents a decrease of 13% when compared to the 59% achieved in the fourth quarter of 2008. The low recoveries resulted from high manganese content in the ore from the Azul y Oro and Buenos Aires areas, combined with old flotation cells which were replaced in early December in an attempt to increase the recoveries. The lower recoveries in 2009 resulted in higher cash costs per ounce in 2009 relative to 2008.
A total of 435,845 equivalent ounces of silver were produced during the fourth quarter of 2009, which represents an increase of 47% compared to 296,690 equivalent ounces of silver produced in third quarter of 2009 but represents a decrease of 10% when compared to the 484,053 equivalent ounces of silver produced in the fourth quarter of 2008. Silver production consisted of 399,810 ounces of silver, representing an increase of 49% compared with the 268,973 ounces produced in the third quarter of 2009 and a decrease of 7% compared with the 427,753 ounces produced in the fourth quarter of 2008. Lead production for the fourth quarter of 2009 was 536,801 pounds which was comparable to the 536,454 pounds produced in the third quarter of 2009 but decreased by 658,756 pounds or 55% compared to the 1,195,557 pounds of lead produced in the fourth quarter of 2008.
Underground mine development consisted of 2,251 metres completed in the fourth quarter of 2009 compared to 3,637 metres of development completed in the third quarter of 2009, representing a decrease of 38%. This program focused on improving haulage and logistics for ore and waste that is transported by trucks out of the mine from several targets including the San Javier/ Milagros Breccias, Azul y Oro including the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. The purpose of the ongoing underground development program is to prepare for increased production levels in 2010, to confirm additional Reserves and Resources, and for exploration and exploitation purposes going forward. No diamond drilling exploration was completed at La Encantada in the fourth quarter of 2009.
La Parrilla Silver Mine, Durango, Mexico
The La Parrilla Silver Mine is a group of producing underground operations consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings including the San Marcos and the Quebradillas mines, located approximately 65 kilometres southeast of the city of Durango, Mexico. La Parrilla includes an 850 tpd mill consisting of two parallel 425 tpd cyanidation and flotation circuits, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company leases 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
10
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Tonnes milled at La Parrilla were 75,475 tonnes in the fourth quarter of 2009, representing an increase of 3% when compared with the 72,988 tonnes milled in the third quarter of 2009 and an increase of 14% when compared with the 66,395 tonnes milled in the fourth quarter of 2008. The average head grade increased slightly to 222 g/t from 218 g/t in the third quarter of 2009 and from 206 g/t in the fourth quarter of 2008. Recoveries of silver remained relatively consistent at 73% in the fourth quarter of 2009, compared to 74% in the third quarter of 2009, but represented a slight increase when compared to the 70% achieved in the fourth quarter of 2008.
Total silver production increased slightly to 469,318 equivalent ounces of silver in the fourth quarter of 2009. This is comparable to the 464,134 ounces of silver equivalent produced in the third quarter of 2009 but represents an increase of 30% when compared to the 359,851 ounces of silver equivalent produced in the fourth quarter of 2008. The composition of the silver equivalent production in the fourth quarter of 2009 included 395,761 ounces of silver, 151 ounces of gold and 1,038,018 pounds of lead. This compares with 378,680 ounces of silver, 123 ounces of gold, 1,153,900 pounds of lead and 8,913 pounds of zinc produced in the third quarter of 2009 and 305,685 ounces of silver, 297 ounces of gold, 897,031 pounds of lead and 24,414 pounds of zinc in the fourth quarter of 2008.
A total of 2,047 metres of underground development was completed in the fourth quarter of 2009, compared to 1,941 metres in the third quarter of 2009. A total of 114 metres of diamond drilling was completed in the fourth quarter of 2009 compared to 530 metres in third quarter of 2009.
During 2009, a significant focus of the development at La Parrilla was reaching the lower levels of the La Rosa/Rosarios vein. During the year, the 8th and 9th levels were developed, allowing the mine to increase the Proven and Probable Reserves and improve the quality of the resources that are located in these areas. At the Quebradillas mine, the development work was focused on reaching a high volume ore body that is being prepared for production in the first half of 2010.
San Martin Silver Mine, Jalisco, Mexico
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 1,000 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine. The mill has historically produced 100% doré bars and continues to do so. In early 2008, a 500 tpd flotation circuit was nearly completed to take advantage of the large sulphide resource at this mine, however, due to low base metal prices and high costs of smelting concentrates, the circuit is currently in care and maintenance pending further capital investment.
During the quarter, additional development was completed in a new area at the San Martin mine, referred to as the San Pedro area, which is located at the footwall of the Zuloaga vein, allowing higher ore grades and additional tonnage to be fed to the mill. Prior to accessing the San Pedro area, the San Martin mine was feeding various backfill areas while the higher grade San Pedro area was being developed.
Tonnes milled at the San Martin mine were 70,919 tonnes in the fourth quarter of 2009, representing a slight decrease of 4% when compared to the 73,990 tonnes milled in the third quarter of 2009 and a slight increase of 2% when compared to the 69,771 tonnes milled in the fourth quarter of 2008. The average head grade was 184 g/t in the fourth quarter of 2009, representing an increase of 27% when compared to the 145 g/t in the third quarter of 2009 and an increase of 48% when compared to the 124 g/t in the fourth quarter of 2008.
Recoveries of silver in the fourth quarter of 2009 decreased to 73%, from 84% achieved in the third quarter of 2009, however this was a slight increase from the 71% achieved in the fourth quarter of 2008. Total production of 344,405 ounces of silver equivalent in the fourth quarter of 2009 was 5% higher than the 328,657 equivalent ounces of silver produced in the third quarter of 2009 and 62% higher than the 212,315 equivalent ounces of silver produced in the fourth quarter of 2008. The equivalent ounces of silver in the fourth quarter of 2009 consisted of 308,269 ounces of silver and 545 ounces of gold. This compares to 288,343 ounces of silver and 609 ounces of gold produced in the third quarter of 2009 and 196,681 ounces of silver, 106 ounces of gold and 1,399 pounds of lead produced in the fourth quarter of 2008.
During the fourth quarter of 2009, a total of 917 metres of diamond drilling was completed. This compares to 486 metres drilled in the third quarter of 2009. In addition, a total of 968 metres of underground development was completed, representing a slight decrease compared to the 1,020 metres completed in the third quarter of 2009.
Del Toro Silver Mine, Zacatecas, Mexico
The Del Toro Silver Mine is located 60 km to the southeast of the Company’s La Parrilla Silver Mine and consists of 392 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately 1 kilometre apart.
11
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
The Del Toro Silver Mine is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings.
All necessary permits for the construction of a 1,000 tpd flotation mill were granted in Q4 2009 and Q1 2010 by the Mexican authorities. No immediate plans are in place to commence construction, however the Company anticipates a final decision to proceed later in 2010.
Real de Catorce Silver Project, San Luis Potosi, Mexico
The Real de Catorce Silver Project was acquired on November 13, 2009, through the share acquisition of Normabec. The Real de Catorce mine is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares, with historical production of 230 million ounces between 1773 and 1990. As a result of the acquisition of Normabec, the Company owns 100% of the Real de Catorce Silver Project. In 2010, the Company plans to reconfirm the existing geologic information and to start planning its future activities in this very large and promising silver mining district.
EXPLORATION PROPERTY UPDATES
Jalisco Group of Properties, Jalisco, Mexico
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, Mexico. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued as the Company focuses its capital investment on other higher priority projects.
Cuitaboca Silver Project, Sinaloa, Mexico
During the year ended December 31, 2009, and after the acquisition of the Real de Catorce Silver Project, management elected not to proceed with the acquisition of the Cuitaboca Silver Project. Accordingly, the investment totalling $2,589,824 was written off at year end.
SELECTED ANNUAL INFORMATION
Year ended | Year ended | Year ended | ||||
December 31 | December 31 | December 31 | ||||
2009 | 2008 | 2007 | ||||
$ | $ | $ | ||||
Revenue (1) | 59,510,669 | 44,324,887 | 42,924,920 | |||
Mine operating earnings (2) | 18,460,952 | 7,501,632 | 7,007,776 | |||
Net income (loss) (3) | 6,310,225 | (5,144,784 | ) | (7,230,122 | ) | |
Earnings (loss) per share - basic | 0.08 | (0.07 | ) | (0.13 | ) | |
Earnings (loss) per share - diluted | 0.07 | (0.07 | ) | (0.13 | ) | |
Total assets (4) | 251,575,252 | 231,159,649 | 185,002,851 | |||
Total long term liabilities | 37,388,527 | 38,725,621 | 36,591,521 |
(1) |
During the year ended December 31, 2009, revenue increased by $15.2 million or 34% over 2008 due to increased production at all the mines, resulting in an 18% increase in the equivalent ounces of silver sold, reductions in smelting and refining charges and metal deductions that reduced these charges from 21% of gross revenue to 17% of gross revenue and a 7% increase in the average USD/CAD exchange rate. During the year ended December 31, 2008, revenues increased by $1.4 million over 2007 due to the ramping up of production at the La Parrilla and La Encantada Silver Mines. |
|
La Parrilla Silver Mine During the year ended December 31, 2009, a total 277,917 tonnes of ore were processed with an average head grade of 214 g/t of silver resulting in a total of 1,643,207 equivalent ounces of silver produced and 1,648,020 ounces of silver equivalent shipped. During the year ended December 31, 2008, a total of 246,166 tonnes of ore were processed with an average head grade of 234 g/t of silver resulting in a total of 1,584,808 equivalent ounces of silver produced and 1,282,340 ounces of silver equivalent shipped. During the year ended December 31, 2007, a total of 179,411 tonnes of ore were processed with an average head grade of 204 g/t of silver resulting in a total of 1,000,823 equivalent ounces of silver produced. |
|
|
San Martin Silver Mine During the year ended December 31, 2009, a total of 291,339 tonnes of ore were processed with an average head grade of 157 g/t of silver resulting in a total of 1,247,236 equivalent ounces of silver produced and 1,229,073 ounces of silver equivalents shipped. For the year ended December 31, 2008, a total of 254,211 tonnes of ore was processed with an average grade of 141 g/t of silver resulting in 1,008,948 ounces of silver equivalents produced, and 778,561 ounces of silver equivalents shipped. The San Martin mine and mill, over the twelve month period ended December 31, 2007, processed 239,796 tonnes of ore with an average grade of 171 g/t of silver resulting in 1,217,065 equivalent ounces of silver. |
12
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
|
La Encantada Silver Mine During the year ended December 31, 2009, 318,382 tonnes of ore were processed with an average head grade of 276 g/t of silver resulting in a total of 1,446,660 equivalent ounces of silver produced and 1,371,337 ounces of silver equivalents shipped. During the year ended December 31, 2008, 1,636,242 equivalent ounces of silver were produced and 1,529,301 ounces of silver equivalent were shipped, compared to 1,366,377 equivalent ounces of silver produced and 1,272,810 equivalent ounces of silver shipped for the year 2007. |
|
(2) |
Mine operating earnings for the year ended December 31, 2009 increased by $11.0 million or 146% due to an increase of 643,501 equivalent silver ounces sold in 2009 compared to 2008. A $15.2 million increase in net revenue was partially off set by a $3.9 million increase in cost of sales. Mine operating earnings for the year ended December 31, 2008 was $7,501,632, an increase of 7% over the $7,007,776 of mine operating earnings for the year ended December 31, 2007 and is primarily due to the increase of 128,642 equivalent silver ounces sold in 2008 compared to 2007. |
|
(3) |
Net income or losses in these periods included non-cash stock based compensation expenses of $3,302,780 for the year ended December 31, 2009 compared to $3,680,111 for the year ended December 31, 2008 and $3,865,689 for the year ended December 31, 2007. During the year ended December 31, 2009, management elected not to proceed with the acquisition of the Cuitaboca Silver Project and accordingly, the investment totalling $2,589,824 was written off. Also during 2009, included in net income was a write-down of marketable securities in the amount of $390,467. There were no such write-downs during the years ended December 31, 2008 and 2007. |
|
There was a net income tax recovery of $3,230,192 in the year ended December 31, 2009 compared to an income tax recovery of $1,919,454 in the year ended December 31, 2008 and a tax expense of $1,384,647 in the year ended December 31, 2007, attributed primarily to increases in future income tax benefits as well as a reduction of non-allowable tax deductions in 2009 and 2008. |
||
(4) |
During the year ended December 31, 2009, the $20.4 million increase in total assets consisted primarily of approximately $18.3 million increase in plant and equipment and a $13.7 million increase in mining interests, net of depreciation, depletion and translation adjustments, both of which were offset by a $11.5 million reduction of cash. During the year ended December 31, 2008, the $46.2 million increase in total assets consisted primarily of approximately $4.6 million increase in cash and cash equivalents and $38.3 million on mining interests and plant and equipment, net of depletion, depreciation and translation adjustments. |
|
The Company has not paid any dividends since incorporation and it presently has no plans to pay dividends. |
RESULTS OF OPERATIONS
Three Months ended December 31, 2009 compared to Three Months ended December 31, 2008.
For the Quarter Ended | |||||
December 31, 2009 | December 31, 2008 | ||||
$ | $ | ||||
Gross Revenue | 21,436,456 | 11,712,165 | (1) | ||
Net Revenue | 18,374,117 | 9,106,605 | (2) | ||
Cost of sales | 8,538,785 | 8,294,803 | (3) | ||
Amortization and depreciation | 915,157 | 1,049,767 | |||
Depletion | 720,702 | 825,185 | (4) | ||
Accretion of reclamation obligation | 106,480 | 63,547 | |||
Mine operating earnings | 8,092,993 | (1,126,697) | (5) | ||
General and administrative | 2,432,333 | 1,795,305 | (6) | ||
Stock-based compensation | 1,099,386 | 865,417 | (7) | ||
Write-down of mineral properties | 2,589,824 | - | (8) | ||
6,121,543 | 2,660,722 | ||||
Operating income (loss) | 1,971,450 | (3,787,419) | (9) | ||
Interest and other expenses | (999,683) | (583,430) | (10) | ||
Investment and other income | 531,763 | 67,363 | (11) | ||
Write-down of marketable securities | (390,467) | - | (12) | ||
Foreign exchange (loss) gain | 523,141 | (3,750,504) | (13) | ||
Income (loss) before taxes | 1,636,204 | (8,053,990) | |||
Income tax (recovery) - current | (360,124) | 17,742 | |||
Income tax (recovery) - future | (496,160) | (2,532,826) | |||
Income tax (recovery) expense | (856,284) | (2,515,084) | (14) | ||
NET INCOME (LOSS) FOR THE QUARTER | 2,492,488 | (5,538,906) | (15) | ||
EARNINGS (LOSS) PER SHARE - BASIC | 0.03 | (0.08) |
13
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
1. |
Consolidated gross revenue (prior to smelting and refining and metal deductions) for the quarter ended December 31, 2009 was $21,436,456 or $18.71 (US$17.72) per ounce compared to $11,712,165 or $14.15 (US$11.67) per ounce for the quarter ended December 31, 2008 for an increase of $9,724,291, or 83%. The increase in the fourth quarter of 2009 is attributable to a 38% increase in equivalent silver ounces sold and a 32% increase in the average gross revenue per ounce realized. |
2. |
Net revenue for the three months ended December 31, 2009 increased by $9,267,512 or 102% to $18,374,117, from $9,106,605 in the fourth quarter of 2008, due to the same increases that affected consolidated gross revenue in the fourth quarter of 2009. In addition, lower smelting and refining charges per ounce contributed to the increase in net revenue in the fourth quarter of 2009. |
3. |
Cost of sales increased by $243,982 or 3%, to $8,538,785 in the fourth quarter of 2009 from $8,294,803 in the same quarter of 2008. This modest increase in cost of sales was accomplished while increasing the equivalent silver ounces sold by 38% from the quarter ended December 31, 2008. In the fourth quarter of 2009, the Company processed higher grade ore and achieved operational efficiencies including reductions in production costs per tonne and cash costs per ounce. |
4. |
Depletion decreased by $104,483 or 13%, to $720,702 in the fourth quarter of December 2009 from $825,185 in the same quarter of 2008, due to an increase in production from areas outside of reserves at the San Martin Silver Mine. |
5. |
Mine operating earnings increased by $9,219,690 or 818% to $8,092,993 for the quarter ended December 31, 2009 from a mine operating loss of $1,126,697 for the same quarter in the prior year. This is primarily due to the $9,267,512 increase in net revenue. |
6. |
General and administrative expenses increased by $637,028 or 35% compared to the prior year primarily due to increases in office and other expenses of $205,700, salaries and benefits of $152,636 and legal expenses of $116,199. |
7. |
Stock-based compensation increased by $233,969 or 27% due to a higher number of new option grants in the fourth quarter of 2009. |
8. |
During the quarter ended December 31, 2009, management elected not to proceed with the acquisition of the Cuitaboca Silver Project and accordingly, the investment totalling $2,589,824 was written off. There was no such write-down in the fourth quarter of 2008. |
9. |
Operating income increased by $5,758,869 or 152% to $1,971,450 for the quarter ended December 31, 2009, from an operating loss of $3,787,419 for the quarter ended December 31, 2008, due to the increase in mine operating earnings. |
10. |
During the quarter ended December 31, 2009, interest and other expenses included a one-time expense of $484,487 for legal and professional fees associated with a transaction that did not proceed. There was no such expense in the quarter ended December 31, 2008. |
11. |
During the quarter ended December 31, 2009, investment and other income included $445,920 for realized gains on silver futures while this gain was $81,307 in the quarter ended December 31, 2008. |
12. |
During the quarter ended December 31, 2009, management determined that the value of certain investments in marketable securities were permanently impaired and $390,467 of unrealized losses were written down. There was no such write-down in the fourth quarter of 2008. |
13. |
The Company experienced a foreign exchange gain of $523,141 in the quarter ended December 31, 2009 compared to a foreign exchange loss of $3,750,504 in the quarter ended December 31, 2008 due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar, and a weakening of the Mexican peso relative to the Canadian dollar. |
14. |
During the quarter ended December 31, 2009, the Company recorded an income tax recovery of $856,284 compared to a recovery of $2,515,084 in the quarter ended December 31, 2008, and this is attributed to the recovery of future income taxes arising from the reversal of temporary timing differences and additional tax loss carryforwards compared to 2008. |
15. |
As a result of the foregoing, net income for the quarter ended December 31, 2009 was $2,492,488 or $0.03 per common share compared to a net loss of $5,538,906 or $0.08 per common share in the quarter ended December 31, 2008, for an increase of $8,031,394. |
14
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Year ended December 31, 2009 compared to Year ended December 31, 2008.
For the Year Ended | |||||
December 31, 2009 | December 31, 2008 | ||||
$ | $ | ||||
Gross Revenue | 71,526,075 | 56,102,459 | (1) | ||
Net Revenue | 59,510,669 | 44,324,887 | (2) | ||
Cost of sales | 34,351,853 | 30,419,415 | (3) | ||
Amortization and depreciation | 3,504,065 | 3,169,226 | (4) | ||
Depletion | 2,748,709 | 3,034,137 | (5) | ||
Accretion of reclamation obligation | 445,090 | 200,477 | (6) | ||
Mine operating earnings | 18,460,952 | 7,501,632 | |||
General and administrative | 8,089,087 | 7,549,079 | (7) | ||
Stock-based compensation | 3,302,780 | 3,680,111 | (8) | ||
Write-down mineral properties | 2,589,824 | - | (9) | ||
13,981,691 | 11,229,190 | ||||
Operating income | 4,479,261 | (3,727,558) | (10) | ||
Interest and other expenses | (2,101,862) | (1,372,768) | (11) | ||
Investment and other income | 1,129,527 | 1,180,742 | |||
Write-down marketable securities | (390,467) | - | |||
Foreign exchange loss | (36,426) | (3,144,654) | (12) | ||
Income (loss) before taxes | 3,080,033 | (7,064,238) | |||
Income tax - current | 85,786 | 136,533 | |||
Income tax (recovery) - future | (3,315,978) | (2,055,987) | |||
Income tax (recovery) expense | (3,230,192) | (1,919,454) | (13) | ||
NET INCOME (LOSS) FOR THE YEAR | 6,310,225 | (5,144,784) | (14) | ||
EARNINGS (LOSS) PER SHARE - BASIC | 0.08 | (0.07) |
1. |
Gross revenue (prior to smelting and refining and metal deductions) for the year ended December 31, 2009 was $71,526,075 compared to $56,102,459 for the year ended December 31, 2008 for an increase of $15.4 million or 27%. Contributing to this increase was an 18% increase in silver equivalent ounces sold, and a 8% increase in the average Canadian price per ounce of silver. Total equivalent ounces of silver sold for 2009, was 4,233,703 ounces whereas for 2008, the total equivalent ounces of silver sold was 3,590,202 ounces, for an increase of 643,501 equivalent ounces of silver. The average silver price realized in 2009 was $16.89 (US$14.79) while the average silver price realized in 2008 was $15.63 (US$14.66), due to a 7% increase in the average CAD/USD exchange rate for 2009, compared to 2008. |
2. |
Net revenue for the year ended December 31, 2009 increased by $15.2 million or 34%, from $44,324,887 in the year ended December 31, 2008 to $59,510,669 in the year ended December 31, 2009 due to the same increases that affected consolidated gross revenue in 2009. Net revenue in 2009 also included the incremental revenue of $454,719 from the sales of coins, ingots and bullion to consumers and individual retail investors over the Companys website. |
3. |
Cost of sales increased by $3.9 million or 13% from $30.4 million to $34.4 million for the year ended December 31, 2009 due to the 18% increase in the equivalent ounces of silver sold. |
4. |
Amortization and depreciation increased by $334,839 or 11%, to $3,504,065 for the year ended December 31, 2009 from $3,169,226 for the year ended December 31, 2008, due to the higher amount of depreciable assets in the current year including assets acquired by capital lease in the fourth quarter of 2008 and in 2009. |
5. |
Depletion decreased by $285,428 or 9% to $2,748,709 in the year ended December 31, 2009 compared to $3,034,137 for the year ended December 31, 2008 and is primarily related to the San Martin mine as less tonnage was extracted from re- serves, and more tonnage was extracted from areas outside of reserves. |
6. |
Accretion of reclamation obligations increased by $244,613, from $200,477 in the year ended December 31, 2008 to $445,090 in the year ended December 31, 2009, due to the updated cost estimates for reclamation activities as determined in late 2008. |
7. |
General and administrative expenses increased by $540,008 or 7% primarily due to increases of $315,977 in legal expenses and $230,010 in salaries and benefits. |
8. |
Stock-based compensation decreased by $377,331 or 10% due to fewer new options granted and fewer options vesting in the year ended December 31, 2009. |
9. |
During the year ended December 31, 2009, management elected not to proceed with the acquisition of the Cuitaboca Silver Project and accordingly, the investment totalling $2,589,824 was written off. There was no such write-down in 2008. |
15
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
10. |
Operating income increased by $8,206,819 or 220%, from an operating loss of $3,727,558 for the year ended December 31, 2008 to operating income of $4,479,261 for the year ended December 31, 2009. This can be directly attributable to the $10,959,320 increase in mine operating earnings. |
11. |
Interest and other expenses increased by $729,094 or 53% to $2,101,862 in the year ended December 31, 2009 compared to $1,372,768 in the year ended December 31, 2008 due to a one-time expense of $484,487 for legal and professional fees associated with a transaction that did not proceed as well as additional interest on capital leases, interest on outstanding property payments relating to the Quebradillas Mine at La Parrilla, interest on debt facilities in place in 2009 and financing cost relating to advance payments on silver shipments. During the year ended December 31, 2009, interest and other expenses included a one-time expense of $484,487 for legal and professional fees associated with a transaction that did not proceed. There was no such expense in 2008. |
12. |
There was a foreign exchange loss of $36,426 for the year ended December 31, 2009, compared to a loss of $3,144,654 for the year ended December 31, 2008, due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar, and a weakening of the Mexican peso relative to the Canadian dollar. |
13. |
During the year ended December 31, 2009, the Company recorded an income tax recovery of $3,230,192 compared to $1,919,454 in the year ended December 31, 2008. This is attributed to the recovery of future income taxes arising from the reversal of temporary timing differences and additional tax loss carryforwards compared to 2008. Included in the current recovery is a Canadian dollar equivalent of $542,906 for the adjusted tax deductibility of energy expenses which has increased the tax loss carryforwards. |
14. |
As a result of the foregoing, net income for the year ended December 31, 2009 was $6,310,225 or $0.08 per common share (basic) compared to net loss of $5,144,784 or ($0.07) per common share for the year ended December 31, 2008, for an increase of $11.5 million. |
SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the last eight quarters.
Net income | Basic and diluted | |||||
Net sales | (loss) after | net income (loss) | Stock based | |||
revenues | taxes | per common share | compensation (1) | |||
Quarter | $ | $ | $ | $ | Note | |
Year ended December 31, 2009 | Q4 | 18,374,117 | 2,492,488 | 0.03 | 1,099,386 | 2 |
Q3 | 13,724,803 | 1,841,623 | 0.02 | 505,847 | 3 | |
Q2 | 13,024,877 | 1,036,416 | 0.01 | 800,808 | 4 | |
Q1 | 14,386,872 | 939,698 | 0.01 | 896,739 | 5 | |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | 6 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 | ||
Q2 | 11,436,889 | (296,956) | 0.00 | 670,616 | 7 | |
Q1 | 12,964,182 | 1,065,323 | 0.02 | 1,108,216 |
Notes:
(1) |
Stock-based Compensation - the net income (losses) are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
(2) |
In the quarter ending December 31, 2009, net sales revenue increased due to increasing silver prices. The average gross revenue per ounce of silver realized increased to US$17.72 in the quarter ended December 31, 2009, compared to US$15.07 in the prior quarter ended September 30, 2009. |
(3) |
In the quarter ending September 30, 2009, net sales revenue increased due to rising prices. The average gross revenue per ounce of silver realized was US$15.07 in the quarter ended September 30, 2009, increasing from US$12.60 in the prior quarter ended June 30, 2009. |
(4) |
In the quarter ended June 30, 2009, net sales revenue decreased due to losses on final settlements for which provisional payments had already been received in the prior quarter. |
(5) |
In the quarter ended March 31, 2009, a stronger U.S. dollar compared to the Canadian dollar accounted for the increase of revenue. Although silver prices were lower in the first quarter of 2009, the average gross revenue per ounce sold was Cdn$17.52 (US$14.07) per ounce on a consolidated basis for the three-month period ended March 31, 2009. Also contributing to an increase in net sales is $1,194,452 from the sale of coins, ingots and bullion in the three months ended March 31, 2009. |
16
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
(6) |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metal settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million relating to net U.S. monetary liabilities in the fourth quarter of 2008. |
(7) |
In the quarter ended June 30, 2008, the Company had a revision to its smelting charges imposed, resulting in an incremental charge and reduction of net sales of $1.9 million (US$1,852,830) in the quarter. Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate. |
Revenues Per Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net sum of invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including metal by-products of gold, lead and zinc, after having deducted refining and smelting charges and metal deductions, and intercompany shipments of coins, ingots and bullion products. The following analysis provides the gross revenues prior to refining and smelting charges and metal deductions, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP. Gross revenues are deducted by shipped ounces of equivalent silver to calculate the average realized price per ounce of silver sold.
Quarter Ended
December 31, |
Year to Date
December 31, |
|||
Revenue
Analysis
|
2009
$ |
2008
$ |
2009
$ |
2008
$ |
MEXICO | ||||
Gross revenues - silver dore bars and concentrates | 21,939,708 | 12,223,817 | 71,464,014 | 56,614,111 |
Less: refining and smelting charges | (2,207,964) | (2,233,050) | (9,389,935) | (9,895,208) |
Less: metal deductions | (942,613) | (372,510) | (2,784,390) | (1,882,364) |
Net revenue from silver dore and concentrates | 18,789,131 | 9,618,257 | 59,289,689 | 44,836,539 |
Equivalent ounces of silver sold | 1,154,384 | 905,929 | 4,248,430 | 3,668,286 |
Average gross revenue per ounce sold ($CDN) | 19.01 | 13.49 | 16.82 | 15.43 |
Average exchange rate in the period ($US/$CDN) | 1.0562 | 1.2123 | 1.1420 | 1.0660 |
Average gross revenue per ounce sold ($US) | 17.99 | 11.13 | 14.73 | 14.48 |
CANADA | ||||
Gross revenues - silver coins, ingots and bullion | 1,473,358 | 380,613 | 5,132,099 | 380,613 |
Equivalent ounces of silver sold, from Mexican production | 74,989 | 24,607 | 284,564 | 24,607 |
Average gross revenue per ounce sold ($CDN) | 19.65 | 15.47 | 18.03 | 15.47 |
Average exchange rate in the period ($US/$CDN) | 1.0562 | 1.2123 | 1.1420 | 1.0660 |
Average gross revenue per ounce sold ($US) | 18.60 | 12.76 | 15.79 | 14.51 |
CONSOLIDATED | ||||
Combined gross revenues - silver dore, concentrates, coins, ingots and bullion | 23,413,066 | 12,604,430 | 76,596,113 | 56,994,724 |
Less: intercompany eliminations | (1,976,610) | (892,265) | (5,070,038) | (892,265) |
Consolidated gross revenues - silver dore, concentrates, coins, ingots and bullion | 21,436,456 | 11,712,165 | 71,526,075 | 56,102,459 |
Less: refining and smelting charges, net of intercompany | (2,163,845) | (2,233,050) | (9,310,475) | (9,895,208) |
Less: metal deductions, net of intercompany | (898,494) | (372,510) | (2,704,931) | (1,882,364) |
Consolidated net revenue from silver dore, concentrates, coins, ingots and bullion | 18,374,117 | 9,106,605 | 59,510,669 | 44,324,887 |
Equivalent ounces of silver sold (after interco. eliminations) | 1,145,562 | 827,845 | 4,233,703 | 3,590,202 |
Average gross revenue per ounce sold ($CDN) | 18.71 | 14.15 | 16.89 | 15.63 |
Average exchange rate in the period ($CDN/$US) | 1.0562 | 1.2123 | 1.1420 | 1.0660 |
Average gross revenue per ounce sold ($US) | 17.72 | 11.67 | 14.79 | 14.66 |
Average market price of per ounce of silver per LBMA.ORG.UK ($US) | 17.57 | 10.21 | 14.67 | 14.99 |
At December 31, 2009, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore sales receipts of $944,468 in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period was not recorded as a sales revenues but instead was recorded as a reduction of capital in the construction in progress account.
17
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
LIQUIDITY
At December 31, 2009, the Company had working capital of $4.8 million and cash and cash equivalents of $5.9 million compared to a working capital deficiency of $1.0 million and cash and cash equivalents of $17.4 million at December 31, 2008. Working capital increased as a result of $6.7 million from operating activities, a $19.6 million reduction of current liabilities (which includes $2,741,260 settled through the issuance of shares as further described below) offset by a $14.3 million reduction in restricted cash related to the vendor liability.
On July 16, 2009, the Company removed a $14.3 million vendor liability from its balance sheet pursuant to a consent order whereby the vendor liability and interest relating to the acquisition of First Silver were mitigated by the Company providing $14.3 million to the defendant vendor, to be held in trust pending the outcome of litigation by the Company against the defendant vendor. As these funds are retained in a Canadian lawyer’s trust account pending the outcome of actions by First Majestic against the defendant vendor, management believes that these funds would become accessible to the Company in the event of a favourable outcome from the Company’s litigation against the defendant vendor.
In August and September 2009, the Company also settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a deemed value of $2.30 per share.
During the year ended December 31, 2009, the Company raised a total of $35.3 million through a combination of debt and equity. New funds consisted of $29.4 million in equities, $4.3 million in a Mexican government sponsored development loan, as well as $1.6 million from the pre-sale of lead concentrates from the La Parrilla mine. This compares to $41.6 million raised in the year ended December 31, 2008.
In October 2009, the Company entered into an agreement for two loan facilities totaling $53.8 million Mexican pesos (CAD$4.3 million) from the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI). Funds from this loan will be used for the completion of the new 3,500 tpd cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% and is repayable over a 60-month period. The working capital loan, for up to $6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% and is a 90-day revolving loan. The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine.
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, $1.6 million (US$1.5 million) was advanced against the Company’s lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required. Subsequent to December 31, 2009, the debt was fully repaid and this agreement was amended and restated to provide an additional six-month prepayment facility of up to $1.6 million (US$1.5 million).
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011 and 334,239 warrants expire on September 16, 2011. Finder’s fee in the amount of $101,016 and 50,000 warrants were paid in respect to a portion of these private placements. The finder’s warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. The net proceeds of the offering are being used for general working capital purposes.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,689,648, of which $18,840,890 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The Company is using $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine and the remainder for general working capital. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. During the year ended December 31, 2009, the Company also received $68,838 pursuant to the exercise of 36,250 stock options and $165,000 pursuant to the exercise of 50,000 warrants.
During the year ended December 31, 2009, the Company invested $14.0 million (December 31, 2008 - $24.5 million) on the acquisition, exploration and development of its mineral properties and a further $19.4 million (December 31, 2008 - $14.9 million) on plant and equipment. In late 2008, after having achieved 300 million ounces of total Reserves and Resources, the Company took actions to reduce its rate of expenditure on exploration and development.
18
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
The Company has expended approximately US$32 million over the past 18 months on its new processing plant at La Encantada, which is expected to increase capacity to 3,500 tonnes per day and to add approximately 4 million ounces of production per year for the Company.
Funds surplus to the Company’s short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there are no restrictions on the ability of the Company to use these funds to meet its obligations. The Company has no exposure to and has not invested in any asset backed commercial paper securities.
2010 OUTLOOK
This section of the MD&A provides management’s production and costs forecasts for 2010. These are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
Silver production at La Encantada Silver Mine consists of a 1,000 tpd flotation circuit which is currently producing a lead concentrate, as well as a 3,500 tpd cyanidation circuit which is producing a silver precipitate. As the new cyanidation circuit is presently in the pre-production phase, all revenues and operating costs are being treated as capital costs. Though the Company is monitoring the content of silver credited against the capital costs, these ounces of silver are not yet being considered in the calculation of cash costs, silver recoveries and silver grades for production purposes.
The new cyanidation circuit is expected to ramp up gradually during Q1 and into Q2 of 2010 as the La Encantada plant increases production to capacity at 3,500 tpd. Though management expects commercial production to be reached at the beginning of Q2, full production is not anticipated until near the end of Q2. Given the uncertainty in the timing of commercial production and the impact of this uncertainty on the Company’s scale of production, it would be premature to establish detailed expectations of production, cost and operating parameters for the 2010 year. At such time as management has established that commercial production has been achieved and production parameters have stabilized, the topic of detailed expectations will be addressed. In the interim, management is anticipating that production will reach approximately 6 million ounces of silver equivalents in 2010.
Cash costs are expected to remain consistent with past historical results for 2009. Smelting and refining charges are expected to decrease in 2010 due to a shift in the mix of production toward lower cost doré versus concentrates.
Sales of coins, ingots and bullion will continue in 2010 and is expected to reach approximately 10% of all silver sales for the year. These sales result in approximately a 5-10% increase in selling price over normal quoted selling prices in any quarter. Additional information on the Company’s silver coins, ingots and bullion, including how to place an order, may be found on the Company’s website at www.firstmajestic.com.
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2009, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the consolidated financial statements and the related notes.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2009, the Company:
a) |
incurred $281,065 for the year ended December 31, 2009 and $67,784 for the quarter ended December 31, 2009 (year ended December 31, 2008 - $248,025; quarter ended December 31, 2008 - $50,666) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
b) |
incurred $275,214 for the year ended December 31, 2009 and $63,481 for the quarter ended December 31, 2009 (year ended December 31, 2008 - $310,920; quarter ended December 31, 2008 - $95,296) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
c) |
incurred $1,317,437 of service fees during the year ended December 31, 2009 and $47,686 for the quarter ended December 31, 2009 (year ended December 31, 2008 - $8,010,843; quarter ended December 31, 2008 - $1,392,542) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Company’s mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $232,444 was unpaid as at December 31, 2009 (December 31, 2008 - $3,122,130). This relationship was terminated in February 2009. |
d) |
incurred $nil for the year ended December 31, 2009 (year ended December 31, 2008 - $7,365) to a director of the Company as finder’s fees upon the completion of certain option agreements relating to Del Toro. |
e) |
provided a loan of $nil (US$nil) (2008 - $36,450 or US$30,000) to a director of the Company. This loan was fully repaid in the year ended December 31, 2009. |
19
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
PROPOSED TRANSACTIONS
Other than as disclosed herein, the board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
MANAGEMENT OF CAPITAL RISK
The Company’s objective when managing capital is to maintain its ability to continue as a going concern while at the same time maximizing growth of its business and providing returns on its shareholders’ investments. The Company’s overall strategy with respect to capital risk management remains unchanged from the year ended December 31, 2008.
The Company’s capital structure consists of debt facilities and shareholders’ equity, comprising of issued capital, share capital to be issued, contributed surplus, retained earnings (deficit) and accumulated other comprehensive loss.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Company’s Board of Directors.
The Company’s investment policy is to invest its cash in highly liquid short term interest bearing investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. The Company expects that the capital resources available to it will be sufficient to carry out its development plans and operations for at least the next twelve months, provided there are no materially adverse developments with commodity prices during this period.
FINANCIAL INSTRUMENTS AND RISKS
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business and value added tax and
other receivables. The Company sells and receives payment upon delivery of its silver doré and by-products primarily through one international organization. Additionally, silver concentrates and related base metal by-products are sold
primarily through one international organization with a good credit rating. Payments of receivables are scheduled, routine and received within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the
ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.0 million as at December 31, 2009, a significant portion which is past due. The Company is proceeding through a lengthy and slow review
process with Mexican tax authorities, but the Company expects to fully recover these amounts.
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company’s credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal
operating requirements on an ongoing basis and to support its expansion plans. As at December 31, 2009, the Company had a loan facility with the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (“FIFOMI”) amounting to
$4.3 million repayable over a five-year period. As at December 31, 2009, the Company has outstanding accounts payable and accrued liabilities of $11.3 million which are generally payable in 90 days or less.
Although, the Company does not have a history of operating profits, the Company believes it has sufficient cash on hand to meet operating requirements as they arise for at least the next twelve months.
20
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
The Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 2,807,636 | $ | 2,139,352 | $ | 668,284 | $ | - | $ | - | |||||
FIFOMI Loan Facilities | 4,309,159 | 1,095,672 | 1,676,605 | 1,536,882 | - | ||||||||||
Trafigura Prepayment Facility | 450,940 | 450,940 | - | - | - | ||||||||||
Real de Catorce Payments (1) | 1,261,200 | 1,261,200 | - | - | - | ||||||||||
Purchase Obligations (2) | 2,071,102 | 2,071,102 | - | - | - | ||||||||||
Asset Retirement Obligations | 4,336,088 | - | - | - | 4,336,088 | ||||||||||
Accounts Payable and Accrued Liabilities | 11,304,170 | 11,304,170 | - | - | - | ||||||||||
Total Contractual Obligations | $ | 26,540,295 | $ | 18,322,436 | $ | 2,344,889 | $ | 1,536,882 | $ | 4,336,088 |
(1) |
Contract commitments to acquire surface rights and geological information relating to the Real de Catorce Project. |
(2) |
Contract commitments for construction materials and equipment for the La Encantada mill expansion project. |
Currency Risk
Financial instruments that impact the Companys net earnings or
other comprehensive income due to currency fluctuations include Mexican peso
denominated cash and cash equivalents, accounts receivable, investments in
mining interests, accounts payable and loans payable. The sensitivity of the
Companys net earnings and other comprehensive income due to changes in the
exchange rate between the Mexican peso and the Canadian dollar is included in
the table below.
Commodity Price Risk
Commodity price risk is the risk that movements in the spot
price of silver will have a direct and immediate impact on the Companys income
or the value of its related financial instruments. The Company also derives
by-product revenue from the sale of gold and lead. The Companys sales are
directly dependent on commodity prices that have shown volatility and are beyond
the Companys control.
The Company does not use other derivative instruments to hedge its commodity price risk.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term
investments. The Company monitors its exposure to interest rates and has not
entered into any derivative contracts to manage this risk.
The Companys interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Companys interest bearing financial liabilities comprise a floating rate loan with FIFOMI and a floating rate operating line, plus fixed rate debt instruments and capital leases with terms to maturity ranging up to three years. The FIFOMI loans are floating at 7.51% and 7.31% over the Mexican Interbank Rate which is currently at 4.91%
The sensitivity analyses below have been determined based on the undernoted risks at December 31, 2009.
(1) |
These sensitivities are hypothetical and should be used with caution, favourable hypothetical changes in the assumptions result in an increased amount and unfavourable hypothetical changes in the assumptions result in a decreased amount of net income and/or other comprehensive income. |
Fair Value Estimation
The Companys financial instruments are comprised of cash and
cash equivalents, marketable securities, accounts receivables, other
receivables, derivative financial instruments, accounts payable and accrued
liabilities, capital lease obligations, debt facilities and vendor
liability.
Marketable securities and derivative instruments are carried at fair value. The fair values of accounts receivable, other receivables, accounts payable and accrued liabilities, unearned revenue, capital lease obligations and debt facilities approximate their carrying value due to the short term nature of these items. The fair value of the vendor liability and interest payable is not readily determinable due to the uncertainty with respect to the outcome of the litigation described in Note 10.
21
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for the year ended December 31, 2009. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
Carrying Values of Property, Plant and Equipment and Other
Mineral Property Interests
The Company reviews and evaluates its mineral properties for
impairment at least annually or when events and changes in circumstances
indicate that the related carrying amounts may not be recoverable. Impairment is
considered to exist if the total estimated future undiscounted cash flows are
less than the carrying amount of the assets. Estimated undiscounted future net
cash flows for properties in which a mineral resource has been identified are
calculated using estimated future production, commodity prices, operating and
capital costs and reclamation and closure costs. Undiscounted future cash flows
for exploration stage mineral properties are estimated by reference to the
timing of exploration and/or development work, work programs proposed, the
exploration results achieved to date and the likely proceeds receivable if the
Company sold specific properties to third parties. If it is determined that the
future net cash flows from a property are less than the carrying value, then an
impairment loss is recorded to write down the property to fair value.
The Company completed an impairment review of its properties at December 31, 2009. The estimates used by management were subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest
components of the Companys assets and, as such, the amortization of these
assets has a significant effect on the Companys financial statements. On the
commencement of commercial production, depletion of each mining property is
provided on the unit-of-production basis using estimated reserves and resources
expected to be converted to reserves as the depletion basis. The mining plant
and equipment and other capital assets are depreciated, following the
commencement of commercial production, over their expected economic lives using
the unit-of-production method. Capital projects in progress are not depreciated
until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets. There were no write-downs or impairment losses recorded at December 31, 2009, as a result of these impairment analyses at the Companys operating mines. The write-down of the investment in the Cuitaboca Project was due to managements determination not to proceed with this project, after the Real de Catorce Project had been acquired.
At December 31, 2009, the Company reallocated the following amounts from the non-depletable to depletable categories as a result of an internal assessment of reserves and resources:
La Encantada Silver Mine | $ | 960,327 | |
La Parrilla Silver Mine | 798,960 | ||
San Martin Silver Mine | 3,002,349 | ||
Total transfer to depletable mineral property interests | $ | 4,761,636 |
22
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and decommissioning related to its mining properties. The Company, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future
obligations from mine closure activities. Since the obligations are dependent on the laws and regulations of the country in which the mines operate, the requirements could change resulting from amendments in those laws and regulations relating to
environmental protection and other legislation affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Company’s estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at December 31, 2009.
Income Taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantially enacted, as applicable,
income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation
allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling it on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Co-incident with the tax consolidation, Mexico introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in Mexico. Management has reviewed its IETU obligations and its consolidated tax position at December 31, 2009, and management assessed whether the Company is “more likely than not” to benefit from these tax losses prior to recording a benefit from the tax losses.
In December 2009, Mexico introduced tax consolidation reform tax rules which, effective January 2010, would require companies to begin the recapture of the benefits of tax consolidation within five years of receiving the benefit, and phased in over a five year period. First Majestic’s first tax deferral benefit from consolidation was realized in 2008, and as such the benefit of tax consolidation would be recaptured from 2013 to 2018. Numerous companies in Mexico are challenging the legality of these regressive tax reforms. It is unlikely that the outcome of these challenges will be determinable for several years.
Other changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
Stock-Based Compensation
The Company uses the
Black-Scholes Option Pricing Model
. Option pricing models require the input of subjective assumptions including the expected price volatility. Changes in the input assumptions can materially affect the fair value
estimate, and therefore the existing models do not necessarily provide an accurate single measure of the actual fair value of the Company’s stock options granted during the year.
23
FIRST MAJESTIC SILVER CORP. |
MANAGEMENT’S DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
FUTURE ACCOUNTING CHANGES
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, “Business Combinations”, Section 1601 “Consolidations” and Section 1602 “Non-controlling Interests” to harmonize with International Financial Reporting Standards
(“IFRS”). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to
measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing
consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has not adopted these new standards for the year
ended December 31, 2009.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)
In February 2008, the CICA announced that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards (“IFRS”) for fiscal years beginning on or after January 1, 2011. The Company will be required to begin reporting under IFRS for the quarter ending March 31, 2011, and will be required to prepare an opening balance sheet and provide information that conforms to IFRS for comparative periods presented.
The Company has developed an IFRS changeover plan which addresses the key areas such as accounting policies, financial reporting, disclosure controls and procedures, information systems, education and training and other business activities.
The Company commenced its IFRS conversion project during the second quarter of 2009 and has established a conversion plan and an IFRS project team. The IFRS conversion project is comprised of three phases: i) project planning, scoping and preliminary impact analysis; ii) detailed diagnostics and evaluation of financial impacts, selection of accounting policies, and design of operational and business processes; and iii) implementation and review.
The Company is in the second phase of its conversion plan and has completed a detailed analysis of the standards, including the evaluation of policy choices for those standards that may have an impact on its financial statements, business processes and systems.
Management is in the process of quantifying the expected material differences between lFRS and the current accounting treatment under Canadian GAAP. Differences with respect to recognition, measurement, presentation and disclosure of financial information are expected in key accounting areas. The Company cannot reasonably determine the full impact that adopting IFRS would have on its financial statements at this time. As a result, it is unable to quantify the impact of adopting IFRS on the financial statements as at December 31, 2009.
The Company is continuing to monitor developments in standards and interpretations of standards and industry practices. Due to anticipated changes to IFRS and International Accounting Standards prior to the adoption of IFRS, management’s plan is subject to change based on new facts and circumstances that arise after the date of this MD&A.
The following list, though not exhaustive, identifies some of the changes in key accounting policies due to the adoption of IFRS:
24
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
25
FIRST MAJESTIC SILVER CORP. |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2009 |
Other important considerations during the IFRS transition are the following:
Internal control over financial reporting (ICFR) for all accounting policy changes identified, the Company will assess the impact on the ICFR design and effectiveness implications and will ensure that all changes in accounting policies include the appropriate additional controls and procedures for future IFRS reporting requirements.
Disclosure controls and procedures (DC&P) for all accounting policy changes identified an assessment of DC&P design and effectiveness implication will be analyzed to address any issues with respect to DC&P during IFRS transition.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management has been remediating internal controls during 2009 and in early 2010, and minimizing weaknesses in internal controls related to reconciliation processes and strengthening automated internal controls in accounting systems in Mexico and Canada. The risk of material error is mitigated by extensive management review of financial reports, account reconciliations and analyses in both Mexico and Canada, as well as monthly audit committee review of standards, and financial reports. Management is continuing to automate accounting systems between Mexico and Canada to lessen the reliance on substantive testing and detailed analyses. Significant progress on the remediation plan has been achieved during 2009 and early into 2010, and management expects the substantial remainder of its current plan to be completed by the end of the first quarter of 2010 with only minor remediation objectives continuing until the end of 2010.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in Mexico, however these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at December 31, 2009.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company may be found on or in:
26
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2009
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com
www.firstmajestic.com
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of First Majestic Silver Corp. (the Company) are the responsibility of the Companys management. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada and reflect managements best estimates and judgment based on information currently available.
Management has developed and maintains a system of internal controls to ensure that the Companys assets are safeguarded, transactions are authorized and properly recorded, and financial information is reliable.
The Board of Directors is responsible for ensuring management fulfills its responsibilities. The Audit Committee reviews the results of the audit and the annual consolidated financial statements prior to their submission to the Board of Directors for approval.
The consolidated financial statements have been audited by Deloitte & Touche LLP and their report outlines the scope of their examination and gives their opinion on the financial statements.
Keith Neumeyer | Raymond Polman |
Keith Neumeyer | Raymond Polman, CA |
President & CEO | Chief Financial Officer |
March 19, 2010 | March 19, 2010 |
Auditors’ report
To the Shareholders of
First Majestic Silver Corp.
We have audited the consolidated balance sheets of First Majestic Silver Corp. as at December 31, 2009 and 2008, and the consolidated statements of income (loss), shareholders’ equity and comprehensive income (loss), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
(Signed) Deloitte & Touche LLP
Chartered Accountants
Vancouver, Canada
March 19, 2010
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED BALANCE SHEETS |
AS AT DECEMBER 31, 2009 AND 2008 |
(Expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
CONTINGENT LIABILITIES (Note
22)
COMMITMENTS (Note 23)
(Signed) Keith Neumeyer | Director | (Signed) Douglas Penrose | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF INCOME (LOSS) |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Expressed in Canadian dollars, except share amounts) |
2009 | 2008 | |||||
$ | $ | |||||
Revenues (Note 15) | 59,510,669 | 44,324,887 | ||||
Cost of sales | 34,351,853 | 30,419,415 | ||||
Amortization and depreciation | 3,504,065 | 3,169,226 | ||||
Depletion | 2,748,709 | 3,034,137 | ||||
Accretion of reclamation obligation (Note 21) | 445,090 | 200,477 | ||||
Mine operating earnings | 18,460,952 | 7,501,632 | ||||
General and administrative | 8,089,087 | 7,549,079 | ||||
Stock-based compensation | 3,302,780 | 3,680,111 | ||||
Write-down of mineral properties (Note 9 (f)) | 2,589,824 | - | ||||
13,981,691 | 11,229,190 | |||||
Operating income (loss) | 4,479,261 | (3,727,558 | ) | |||
Interest and other expenses | (2,101,862 | ) | (1,372,768 | ) | ||
Investment and other income | 1,129,527 | 1,180,742 | ||||
Impairment of marketable securities | (390,467 | ) | - | |||
Foreign exchange loss | (36,426 | ) | (3,144,654 | ) | ||
Income (loss) before taxes | 3,080,033 | (7,064,238 | ) | |||
Income tax expense - current | 85,786 | 136,533 | ||||
Income tax (recovery) - future | (3,315,978 | ) | (2,055,987 | ) | ||
Income tax recovery (Note 18) | (3,230,192 | ) | (1,919,454 | ) | ||
NET INCOME (LOSS) FOR THE YEAR | 6,310,225 | (5,144,784 | ) | |||
EARNINGS (LOSS) PER COMMON SHARE | ||||||
BASIC | $ | 0.08 | $ | (0.07 | ) | |
DILUTED | $ | 0.07 | $ | (0.07 | ) | |
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||
BASIC | 83,389,253 | 71,395,164 | ||||
DILUTED | 85,913,487 | 71,395,164 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS) |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Expressed in Canadian dollars, except share amounts) |
Accumulated | |||||||||||||||||
Other | |||||||||||||||||
Comprehensive | Total | ||||||||||||||||
Share capital | Contributed | Income (Loss) | AOCI | ||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and deficit | Total | ||||||||||
$ | $ | $ | $ | $ | $ | $ | |||||||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | ||||||
Net loss | - | - | - | - | - | (5,144,784 | ) | (5,144,784 | ) | (5,144,784 | ) | ||||||
Other comprehensive loss: | |||||||||||||||||
Translation adjustment | - | - | - | - | (7,616,671 | ) | - | (7,616,671 | ) | (7,616,671 | ) | ||||||
Unrealized loss on marketable securities | - | - | - | - | (413,512 | ) | - | (413,512 | ) | (413,512 | ) | ||||||
Total comprehensive loss | (13,174,967 | ) | (13,174,967 | ) | |||||||||||||
Shares issued for: | |||||||||||||||||
Exercise of options | 436,650 | 1,398,566 | - | - | - | - | - | 1,398,566 | |||||||||
Exercise of warrants | 7,500 | 31,875 | - | - | - | - | - | 31,875 | |||||||||
First Silver arrangement | 1,861,500 | 9,009,660 | (9,009,660 | ) | - | - | - | - | - | ||||||||
Public offering, net of issue costs (Note 14(a)(iv)) | 8,500,000 | 40,144,471 | - | - | - | - | - | 40,144,471 | |||||||||
Stock option expense, net of deferred compensation | - | - | - | 3,609,247 | - | - | - | 3,609,247 | |||||||||
Warrants issued during the year | - | - | - | 2,737,000 | - | - | - | 2,737,000 | |||||||||
Transfer of contributed surplus upon exercise of stock options | - | 363,990 | - | (363,990 | ) | - | - | - | - | ||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | ||||||
Net income | - | - | - | - | - | 6,310,225 | 6,310,225 | 6,310,225 | |||||||||
Other comprehensive loss: | |||||||||||||||||
Translation adjustment | - | - | - | - | (17,411,904 | ) | - | (17,411,904 | ) | (17,411,904 | ) | ||||||
Impairment of marketable securities | - | - | - | - | 390,467 | - | 390,467 | 390,467 | |||||||||
Unrealized loss on marketable securities | - | - | - | - | (1,087 | ) | - | (1,087 | ) | (1,087 | ) | ||||||
Total comprehensive loss | (10,712,299 | ) | (10,712,299 | ) | |||||||||||||
Shares issued for: | |||||||||||||||||
Exercise of options | 36,250 | 97,963 | - | (29,125 | ) | - | - | - | 68,838 | ||||||||
Exercise of warrants | 50,000 | 165,000 | - | - | - | - | - | 165,000 | |||||||||
Public offering, net of issue costs (Note 14(a)(i)) | 8,487,576 | 18,840,890 | - | 848,758 | - | - | - | 19,689,648 | |||||||||
Private placements, net of issue costs (Note 14(a )(i i)) | 4,167,478 | 9,051,069 | - | 389,000 | - | - | - | 9,440,069 | |||||||||
Debt settlements (Note 14(a )(iii)) | 1,191,852 | 2,741,260 | - | - | - | - | - | 2,741,260 | |||||||||
Acquisition of Normabec (Note 13) | 4,867,778 | 16,696,479 | - | - | - | - | - | 16,696,479 | |||||||||
Stock option expense during the year | - | - | - | 3,302,780 | - | - | - | 3,302,780 | |||||||||
Balance at December 31, 2009 | 92,648,744 | 244,241,006 | 276,495 | 27,808,671 | (40,238,914 | ) | (33,166,658 | ) | (73,405,572 | ) | 198,920,600 |
(1) AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries which primarily affects the mining interests, except for the unrealized loss of $1,087 (2008 - unrealized loss of $391,000) on marketable securities classified as "available for sale".
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
(Expressed in Canadian dollars) |
2009 | 2008 | |||
$ | $ | |||
OPERATING ACTIVITIES | ||||
Net income (loss) for the year | 6,310,225 | (5,144,784 | ) | |
Adjustment for items not affecting cash | ||||
Depletion | 2,748,709 | 3,034,137 | ||
Depreciation | 3,504,065 | 3,169,226 | ||
Stock-based compensation | 3,302,780 | 3,680,111 | ||
Accretion of reclamation obligation | 445,090 | 200,477 | ||
Write-down of other assets | - | 240,000 | ||
Write-down of mineral property interests | 2,589,824 | - | ||
Write-down of marketable securities | 390,467 | - | ||
Future income taxes | (3,315,978 | ) | (2,055,987 | ) |
Other income from derivative financial instruments | (1,002,780 | ) | - | |
Unrealized foreign exchange loss and other | 566,553 | 1,510,431 | ||
15,538,955 | 4,633,611 | |||
Net change in non-cash working capital items | ||||
(Decrease) Increase in accounts receivable and other receivables | (960,183 | ) | 1,517,537 | |
Decrease (Increase) in inventories | 365,964 | (1,571,118 | ) | |
Increase in prepaid expenses and other | (1,144,849 | ) | (588,697 | ) |
(Decrease) Increase in accounts payable and accrued liabilities | (5,813,014 | ) | 1,055,694 | |
Increase in unearned revenue | 47,889 | 110,258 | ||
Decrease in taxes receivable and payable | (89,190 | ) | (369,312 | ) |
Increase in vendor liability and interest | - | 399,112 | ||
(Decrease) Increase in vendor liability on mineral property | (1,242,543 | ) | 1,372,973 | |
6,703,029 | 6,560,058 | |||
INVESTING ACTIVITIES | ||||
Expenditures on mineral property interests (net of accruals) | (14,025,158 | ) | (24,485,036 | ) |
Additions to plant and equipment (net of accruals) | (19,365,209 | ) | (14,921,672 | ) |
Increase in derivative financial instruments | - | (127,153 | ) | |
Decrease (increase) in silver futures contract deposits | 1,355,163 | (363,278 | ) | |
Investment in marketable securities | (300,000 | ) | - | |
Increase in deposits on long term assets and other | (2,508,617 | ) | (704,487 | ) |
Acquisition of Normabec, less cash acquired | (531,419 | ) | - | |
(35,375,240 | ) | (40,601,626 | ) | |
FINANCING ACTIVITIES | ||||
Issuance of common shares and warrants, net of issue costs | 29,363,555 | 41,574,912 | ||
Payment of capital lease obligations | (2,708,513 | ) | (2,551,752 | ) |
Prepayment facility, net of repayments | 415,632 | - | ||
Payment of restricted cash into trust account | (14,258,332 | ) | - | |
Payment of short-term Arrangement liability | - | (388,836 | ) | |
Proceeds from FIFOMI debt facility | 4,309,159 | - | ||
17,121,501 | 38,634,324 | |||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (11,550,710 | ) | 4,592,756 | |
EFFECT OF EXCHANGE RATE ON CASH HELD IN FOREIGN CURRENCY | 16,380 | (3,816 | ) | |
CASH AND CASH EQUIVALENTS - BEGINNING OF THE YEAR | 17,424,123 | 12,835,183 | ||
CASH AND CASH EQUIVALENTS - END OF THE YEAR | 5,889,793 | 17,424,123 | ||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | - | |||
Cash | 5,296,059 | 495,168 | ||
Short-term deposits | 593,734 | 2,988,718 | ||
Restricted cash (Notes 5 and 10) | - | 13,940,237 | ||
5,889,793 | 17,424,123 | |||
Interest paid | 636,950 | 883,307 | ||
Income taxes paid | - | 135,847 | ||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 24) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
1. DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS
First Majestic Silver Corp. (the “Company” or “First Majestic”) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent on the price of silver in global commodity markets, and on maintaining profitable operations or obtaining sufficient funds from alternative sources as required to augment operations and for ongoing capital developments. If the Company were unable to continue as a going concern, material adjustments may be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”).
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”), First Silver Reserve Inc. (“First Silver”) and Normabec Mining Resources Ltd. (“Normabec”) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (“First Majestic Plata”), Minera El Pilon, S.A. de C.V. (“El Pilon”), Minera La Encantada, S.A. de C.V. (“La Encantada”), Majestic Services S.A. de C.V. (“Majestic Services”), Minera Real Bonanza, S.A. de C.V. (“MRB”) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (“Servicios”). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 10. Intercompany balances and transactions are eliminated on consolidation.
Variable Interest Entities (“VIEs”) as defined by the Accounting Standards Board in Accounting Guideline 15 “Consolidation of Variable Interest Entities” are entities in which equity investors do not have the characteristics of a “controlling financial interest” or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIEs are subject to consolidation by the primary beneficiary who will absorb the majority of the entities expected losses and/or expected residual returns. The Company has determined that it has no VIEs.
Measurement Uncertainties
The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Significant areas where management judgment is applied include, among others, the expected economic lives and the future operating results and net cash flows expected to result from exploitation of resource properties and related assets, the amount of proven and probable mineral reserves, accounting for income tax provisions, stock-based compensation, the determination of the fair value of assets acquired in business combinations and the amount of future site reclamation costs and asset retirement obligations. Actual results could differ from those reported.
Notes Page 1
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market instruments with terms to maturity not exceeding 90 days at date of issue. The Company does not believe it is exposed to significant credit or interest rate risk although cash and cash equivalents are held in excess of federally insured limits with major financial institutions. In 2008, cash and cash equivalents included restricted cash of $13.9 million as described in Note 5.
Inventories
Silver coins and bullion, finished products of silver doré and silver concentrates, ore in process and stockpile (unprocessed ore) are valued at the lower of cost and net realizable value. Cost is determined as the average production cost of saleable silver and metal by-product. Materials and supplies are valued at the lower of cost and net replacement cost.
Mineral Property Interests
Mineral property costs and exploration, development and field support costs directly relating to mineral properties are deferred until the property to which they directly relate is placed into production, sold, abandoned or subject to a condition of impairment. The deferred costs are amortized over the useful life of the ore body following commencement of production, or written off if the property is sold or abandoned. Administration costs and other exploration costs that do not relate to any specific property are expensed as incurred.
The acquisition, development and deferred exploration costs are depleted on a units-of-production basis over the estimated economic life of the ore body following commencement of production.
The Company reviews and evaluates its mining properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The carrying value of exploration stage mineral property interests represent costs incurred to date. The Company is in the process of exploring its other mineral property interests and has not yet determined whether they contain ore reserves that are economically recoverable. Accordingly, the recoverability of these capitalized costs is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete their exploration and development, and upon future profitable production.
Although the Company has taken steps to verify ownership and legal title to mineral properties in which it has an interest, according to the usual industry standards for the stage of mining, development and exploration of such properties, these procedures do not guarantee the Companys title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects. Management is not aware of any such agreements, transfers or defects.
From time to time, the Company acquires or disposes of properties pursuant to the terms of option agreements. Options are exercisable entirely at the discretion of the optionee and, accordingly, are recorded as mineral property costs or recoveries when the payments are made or received.
Notes Page 2
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of Long-Lived Assets
Long-lived assets are assessed for impairment at least annually, and when events and circumstances warrant. The carrying value of a long-lived asset is impaired when the carrying amount exceeds the estimated undiscounted net cash flow from use or disposal. In the event that a long-lived asset is determined to be impaired, the amount by which the carrying value exceeds its fair value is charged to earnings.
Asset Retirement Obligations and Reclamation Costs
Future costs to retire an asset including dismantling, remediation and ongoing treatment and monitoring of the site are recognized and recorded as a liability at fair value at the date the liability is incurred. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. Future site restoration costs are capitalized as part of the carrying value of the related mineral property at their initial value and amortized over the mineral property’s useful life based on a units-of-production method.
Translation of Foreign Currencies
(i) Foreign Currency Transactions
The currency of measurement for the Company’s Mexican operating subsidiaries is the Mexican peso. Transaction amounts denominated in foreign currencies (currencies other than the Mexican peso) are translated into Mexican pesos at exchange rates prevailing on the transaction dates. Carrying values of foreign currency denominated monetary assets and liabilities are translated into the currency of measurement at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities are translated at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at the historical exchange rates in effect at the time of the transactions. Exchange gains and losses arising from the translation of these foreign currency denominated monetary assets and liabilities are included in operations.
(ii) Subsidiary Financial Statements
The financial statements of Mexican self-sustaining subsidiaries that are measured in Mexican pesos are translated into Canadian dollars using the current rate method. Translation gains and losses related to current rate translation of non-monetary items as at the reporting date are included as an element of the exchange gains and losses and included as a separate component of accumulated other comprehensive income.
The financial statements of the Company’s integrated Mexican subsidiaries, MRB and Servicios, are translated into Canadian dollars using the temporal method. Under this method, monetary assets and liabilities in foreign currency of the subsidiary are translated at the exchange rate in effect at the balance sheet date, whereas other assets and liabilities are translated at the exchange rate in effect at the transaction date. Revenue and expenses in foreign currency are translated at the average rate in effect during the year, with the exception of revenue and expenses relating to non-monetary assets and liabilities, which are translated at the historical rate. Gains and losses are included in the earnings for the year.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the financial statements and their respective tax bases (temporary differences), using substantively enacted income tax rates. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.
Notes Page 3
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation applied from the commencement of operations, calculated using the straight line method over the following useful lives not to exceed the life of mine:
Computer equipment | 3 years straight-line |
Automobile | 5 years straight-line |
Office equipment | 5 years straight-line |
Machinery and equipment | 10 years straight-line |
Buildings | 20 years straight-line |
Leasehold improvements | 56 months straight-line |
Construction in progress costs are not amortized until the related asset is complete, ready for use, and utilized in commercial production.
Revenue Recognition
Revenue from the sale of silver is recorded in the Companys accounts when title transfers to the customer (which generally occurs on the date the shipment is delivered) when collection is reasonably assured, and when the price is reasonably determinable. Revenue is recorded in the statement of operations net of relevant smelting and refining treatment costs, and transportation costs paid to counterparties. Revenue from the sale of silver is subject to adjustment upon final settlement of estimated weights and assays. Silver metal prices are established upon delivery and do not require settlement changes. By-product revenues are included as a component of net sales revenues.
Unearned Revenue
Unearned revenue is recorded when cash has been received from customers prior to shipping of the related silver coins, ingots and bullion products.
Earnings or Loss Per Share
Basic earnings (loss) per share is computed by dividing the earnings (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the if converted method. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method.
Stock-based Compensation
The Company uses the fair value method for recording compensation for all awards made to directors, employees and non-employees including stock appreciation rights, direct awards of stock and stock-based awards that call for settlement in cash or other assets. The compensation expense is determined as the fair value of the option at the date of grant and is calculated using the Black-Scholes Option Pricing Model . The contributed surplus balance is reduced as the options are exercised and the amount initially recorded is transferred to share capital. The effect of forfeitures of stock-based compensation is recorded as an adjustment to stock-based compensation expense in the period the option is forfeited.
Notes Page 4
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (OCI). OCI represents changes in shareholders equity during a period arising from transactions other than changes related to transactions with owners. OCI includes unrealized gains and losses on financial assets classified as available-for-sale, changes in the fair value of the effective portion of derivative instruments included in cash flow hedges and currency translation adjustments on the Companys net investment in self-sustaining foreign operations.
Cumulative changes in OCI are included in accumulated other comprehensive income (AOCI).
Financial Instruments Recognition and Measurement and Hedges
Financial assets and liabilities, including derivatives, are recognized on the consolidated balance sheet when the Company becomes a party to the contractual provisions of the financial instrument. All financial instruments are required to be measured at fair value on initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities. Transaction costs are expensed as incurred for financial instruments classified as held-for-trading. For financial instruments classified as other than held-for-trading, transaction costs are added to the carrying amount of the financial asset or liability on initial recognition and amortized using the effective interest method.
Financial assets and financial liabilities held-for-trading are measured at fair value with changes in those fair values recognized in the consolidated statements of income (loss). Loans and receivables and other financial liabilities are measured at amortized cost using the effective interest method. Available-for-sale financial assets are presented in prepaid expenses and other assets in the Companys consolidated balance sheet and measured at fair value with unrealized gains and losses, including changes in foreign exchange rates, recognized in OCI. Other than temporary unrealized losses on available-for-sale, financial assets are recognized in the consolidated statements of income (loss). Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market are measured at cost.
The Company may periodically use foreign exchange and commodity contracts to manage exposure to fluctuations in foreign exchange rates and commodity prices. Derivative financial instruments are recorded on the Companys balance sheet at their fair values with changes in fair values recorded in the results of operations during the period in which the change occurred.
Derivative instruments are recorded on the consolidated balance sheet at fair value, including those derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts. Changes in the fair values of derivative instruments are recognized in net income.
The Company has designated its financial assets and liabilities as follows:
Notes Page 5
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Comparative Figures
Certain comparative figures have been reclassified to conform to the classifications used in 2009.
Changes in Accounting Policies
Goodwill and Intangible Assets
The CICA issued Handbook Section 3064, “Goodwill and Intangible Assets”, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of internally developed intangible assets, including certain preproduction and start-up costs that do not meet the definition of an asset, and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009 and did not have a material impact on the Company. In regards to the start-up costs related to the ramp-up of the La Encantada mill expansion, Section 3061 “Property, Plant and Equipment” provides guidance for the capitalization of start-up costs which will be deferred until “commercial stage” production has been achieved.
Credit Risk and the Fair Value of Financial Assets and Liabilities
The Company adopted EIC-173, “Credit Risk and the Fair Value of Financial Assets and Liabilities”, which provides guidance on how to take into account an entity’s own credit risk and that of the counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. Upon adoption of this EIC, there were no resulting material changes to the Company’s financial position or results of operations.
Mining Exploration Costs
The Company adopted EIC-174, “Mining Exploration Costs”, which provides guidance on how to account for mineral exploration costs as well as when and how to assess for impairment when such exploration costs are capitalized. Upon adoption of this EIC, there were no resulting material changes to the Company’s financial position or results of operations.
Financial Instruments – Disclosures
In June 2009, the CICA amended Handbook Section 3862, “Financial Instruments – Disclosures” to include additional disclosure requirements about fair value measurements of financial instruments and to enhance liquidity risk disclosure requirements for publicly accountable enterprises. The amendments are applicable for the Company’s annual consolidated financial statements for the year ended December 31, 2009. The Company has only one financial instrument to which this amendment applies and it considers its marketable securities to be “Level 1” of the fair value hierarchy. Level 1 uses unadjusted quoted prices in active markets.
Financial Instruments – Recognition and Measurement
In July 2009, the Company adopted the amendments made by the CICA to Handbook Section 3855, “Financial Instruments – Recognition and Measurement” to provide additional guidance concerning the assessment of embedded derivatives upon reclassification of a financial asset out of the held-for-trading category, amend the definition of loans and receivables, amend the categories of financial assets into which debt instruments are required or permitted to be classified, amend the impairment guidance for held-to-maturity debt instruments and require reversal of impairment losses on available-for-sale debt instruments when conditions have changed. The additional guidance on assessment of embedded derivatives is applicable for reclassifications made on or after July 1, 2009. All other amendments are applicable as of January 1, 2009. The adoption of these amendments did not result in a material impact on the Company’s consolidated financial statements for the year ended December 31, 2009.
Notes Page 6
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Future Accounting Pronouncements
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, “Business Combinations”, Section 1601 “Consolidations” and Section 1602 “Non-controlling Interests” to harmonize with International Financial Reporting Standards (“IFRS”). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has not adopted these new standards for the year ended December 31, 2009.
International Financial Reporting Standards (“IFRS”)
In 2006, the Canadian Accounting Standards Board (“AcSB”) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five-year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canada’s own GAAP. The transition date is January 1, 2011, and relates to interim and annual financial statements on or after January 1, 2011. The transition will require the restatement for comparative purposes of amounts reported by the Company for all reporting periods beginning after January 1, 2010.
The Company has commenced planning its transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is continuing its diagnosis and impact assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. The Company will continue to monitor changes in IFRS during implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting.
3. MANAGEMENT OF CAPITAL RISK
The Company’s objective when managing capital is to maintain its ability to continue as a going concern while at the same time maximizing growth of its business and providing returns on its shareholders’ investments. The Company’s overall strategy with respect to capital risk management remains unchanged from the prior year ended December 31, 2008.
The Company’s capital structure consists of debt facilities and shareholders’ equity, comprising issued capital, share capital to be issued, contributed surplus, deficit and accumulated other comprehensive loss.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Company’s Board of Directors.
The Company’s investment policy is to invest its cash in highly liquid short term interest bearing investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. The Company expects that the capital resources available to it will be sufficient to carry out its development plans and operations for at least the next twelve months, provided there are no materially adverse developments with commodity prices during this period.
Notes Page 7
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
4. FINANCIAL INSTRUMENTS AND RISKS
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Companys credit risk relates primarily to trade receivables in the ordinary course of business and value added tax and other receivables. The Company sells and receives payment upon delivery of its silver doré and by-products primarily through one international organization. Additionally, silver concentrates and related base metal byproducts are sold primarily through one international organization with a good credit rating. Payments of receivables are scheduled, routine and received within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.0 million as at December 31, 2009, a significant portion which is past due. The Company is proceeding through a lengthy and slow review process with Mexican tax authorities, but the Company expects to fully recover these amounts.
The carrying amount of financial assets recorded in the financial statements represents the Companys maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Companys credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Companys normal operating requirements on an ongoing basis and to support its expansion plans. As at December 31, 2009, the Company had a loan facility with the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI) amounting to $4.3 million repayable over a five-year period. As at December 31, 2009, the Company has outstanding accounts payable and accrued liabilities of $11.3 million which are generally payable in 90 days or less.
Although, the Company does not have a history of operating profits, the Company believes it has sufficient cash on hand to meet operating requirements as they arise for at least the next twelve months.
The Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 2,807,636 | $ | 2,139,352 | $ | 668,284 | $ | - | $ | - | |||||
FIFOMI Loan Facilities | 4,309,159 | 1,095,672 | 1,676,605 | 1,536,882 | - | ||||||||||
Trafigura Prepayment Facility | 450,940 | 450,940 | - | - | - | ||||||||||
Real de Catorce Payments (1) | 1,261,200 | 1,261,200 | - | - | - | ||||||||||
Purchase Obligations (2) | 2,071,102 | 2,071,102 | - | - | - | ||||||||||
Asset Retirement Obligations | 4,336,088 | - | - | - | 4,336,088 | ||||||||||
Accounts Payable and Accrued Liabilities | 11,304,170 | 11,304,170 | - | - | - | ||||||||||
$ | 26,540,295 | $ | 18,322,436 | $ | 2,344,889 | $ | 1,536,882 | $ | 4,336,088 |
(1) |
Contract commitments to acquire surface rights and geological i nformation relating to the Real de Catorce Project. |
(2) |
Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project. |
Notes Page 8
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
4. FINANCIAL INSTRUMENTS AND RISKS (continued)
Currency Risk
Financial instruments that impact the Companys net earnings or other comprehensive income due to currency fluctuations include Mexican peso denominated cash and cash equivalents, accounts receivable, investments in mining interests, accounts payable and loans payable. The sensitivity of the Companys net earnings and other comprehensive income due to changes in the exchange rate between the Mexican peso and the Canadian dollar is included in the table below.
Commodity Price Risk
Commodity price risk is the risk that movements in the spot price of silver have a direct and immediate impact on the Companys income or the value of its related financial instruments. The Company also derives by-product revenue from the sale of gold and lead. The Companys sales are directly dependent on commodity prices that have shown volatility and are beyond the Companys control.
The Company does not use derivative instruments to hedge its commodity price risk.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
The Companys interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Companys interest bearing financial liabilities comprise a floating rate loan with FIFOMI and a floating rate operating line, plus fixed rate debt instruments and capital leases with terms to maturity ranging up to three years. The FIFOMI loans are floating at 7.51% and 7.31% over the Mexican Interbank Rate which is currently at 4.91%
The sensitivity analyses below have been determined based on the undernoted risks at December 31, 2009.
(1) |
These sensitivities are hypothetical and should be used with caution, favourable hypothetical changes in the assumptions result in an increased amount and unfavourable hypothetical changes in the assumptions result in a decreased amount of net income and/or other comprehensive income. |
Notes Page 9
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
4. FINANCIAL INSTRUMENTS AND RISKS (continued)
Fair Value Estimation
The Companys financial instruments are comprised of cash and cash equivalents, marketable securities, accounts receivables, other receivables, derivative financial instruments, accounts payable, capital lease obligations and debt facilities.
Marketable securities and derivative instruments are carried at fair value. The fair values of accounts receivable, other receivables, accounts payable and accrued liabilities and unearned revenue approximate their carrying value due to the short term nature of these items. The fair values of capital lease obligations and debt facilities approximate their carrying value due to the floating interest rate on these items. The fair value of the vendor liability and interest payable is not readily determinable due to the uncertainty with respect to the outcome of the litigation described in Note 10.
5. RESTRICTED CASH
On July 22, 2008, the Company secured its outstanding vendor liability (Note 10) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. In addition, a further $545,522 was paid into the Supreme Court of British Columbia in January 2009 and the Letter of Credit increased to a total Restricted Cash balance of $14,485,759. On July 16, 2009, the Company agreed to a consent order whereby $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the previous Majority Shareholder of First Silver. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust by legal counsel to the vendor pending the outcome of the litigation. These funds would only become accessible to the Company in the event of a favourable outcome to the litigation.
6. OTHER RECEIVABLES
Details of the components of other receivables are as follows:
2009 | 2008 | |||
$ | $ | |||
Value a dded taxes recoverable | 6,030,775 | 6,109,943 | ||
Other taxes recoverable | 107,741 | 406,536 | ||
Interest receivable | 6,860 | 188,111 | ||
Loans receivable from employees | 101,789 | 67,240 | ||
Loan receivable from s upplier | 478,824 | 440,863 | ||
6,725,989 | 7,212,693 |
7. INVENTORIES
Inventories consist of the following:
2009 | 2008 | |||
$ | $ | |||
Silver coins and bullion including in process shipments | 273,262 | 247,368 | ||
Finished product - doré and concentrates | 343,990 | 1,342,550 | ||
Ore in process | 463,549 | 196,169 | ||
Stockpile | 387,836 | 1,631,625 | ||
Materials and s upplies | 2,343,823 | 1,523,628 | ||
3,812,460 | 4,941,340 |
Notes Page 10
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
8. PREPAID EXPENSES AND OTHER
Details of prepaid expenses and other are as follows:
2009 | 2008 | |||
$ | $ | |||
Prepayments to suppliers and contractors | 832,880 | 1,380,509 | ||
Deposits | 215,036 | 252,941 | ||
Marketable s ecurities | 387,425 | 50,375 | ||
Derivative financial instruments | - | 490,431 | ||
Prepaid mineral rights | 32,418 | - | ||
1,467,759 | 2,174,256 |
9. MINING INTERESTS AND PLANT AND EQUIPMENT
Mining interests and plant and equipment, net of accumulated depreciation and depletion, are as follows:
2009 | 2008 | |||||||||||
Accumulated | Accumulated | |||||||||||
depreciation | depreciation | |||||||||||
and | Net Book | and | Net Book | |||||||||
Cost | depletion | Value | Cost | depletion | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Mining properties | 183,585,673 | 17,185,500 | 166,400,173 | 167,130,756 | 14,436,791 | 152,693,965 | ||||||
Plant and equipment | 69,026,387 | 8,637,857 | 60,388,530 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||
252,612,060 | 25,823,357 | 226,788,703 | 215,402,188 | 20,580,843 | 194,821,345 |
A summary of the net book value of mining properties is as follows:
2009 | 2008 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depletion | Value | Cost | Depletion | Value | |||||||
MEXICO | ||||||||||||
Producing properties | ||||||||||||
La Encantada (a) | 13,055,900 | 2,886,830 | 10,169,070 | 8,922,466 | 2,276,963 | 6,645,503 | ||||||
La Parrilla (b) | 22,371,850 | 3,009,041 | 19,362,809 | 18,644,777 | 2,038,223 | 16,606,554 | ||||||
San Martin (c) | 38,902,227 | 11,289,629 | 27,612,598 | 36,803,283 | 10,121,605 | 26,681,678 | ||||||
74,329,977 | 17,185,500 | 57,144,477 | 64,370,526 | 14,436,791 | 49,933,735 | |||||||
Exploration properties | ||||||||||||
La Encantada (a) | 2,467,451 | - | 2,467,451 | 2,858,043 | - | 2,858,043 | ||||||
La Parrilla (b) | 7,625,168 | - | 7,625,168 | 8,722,897 | - | 8,722,897 | ||||||
San Martin (c) (1) | 65,931,244 | - | 65,931,244 | 77,582,247 | - | 77,582,247 | ||||||
Del Toro (d) | 11,855,627 | - | 11,855,627 | 11,881,557 | - | 11,881,557 | ||||||
Real de Catorce (e) | 21,376,206 | - | 21,376,206 | - | - | - | ||||||
Cuitaboca (f) | - | - | - | 1,715,486 | - | 1,715,486 | ||||||
109,255,696 | - | 109,255,696 | 102,760,230 | - | 102,760,230 | |||||||
183,585,673 | 17,185,500 | 166,400,173 | 167,130,756 | 14,436,791 | 152,693,965 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
Notes Page 11
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
9. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
A summary of plant and equipment is as follows:
2009 | 2008 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
La Encantada Silver Mine | 42,001,694 | 1,954,699 | 40,046,995 | 19,541,421 | 1,221,301 | 18,320,120 | ||||||
La Parrilla Silver Mine | 17,228,300 | 3,792,818 | 13,435,482 | 18,590,746 | 2,568,373 | 16,022,373 | ||||||
San Martin Silver Mine | 9,751,407 | 2,889,290 | 6,862,117 | 10,139,265 | 2,354,378 | 7,784,887 | ||||||
Real de Catorce Silver Project | 44,986 | 1,050 | 43,936 | - | - | - | ||||||
Used in Mining Operations | 69,026,387 | 8,637,857 | 60,388,530 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||
Corporate office equipment | 767,782 | 358,501 | 409,281 | 712,525 | 229,475 | 483,050 | ||||||
69,794,169 | 8,996,358 | 60,797,811 | 48,983,957 | 6,373,527 | 42,610,430 |
Details of plant and equipment and corporate office equipment by specific assets are as follows:
2009 | 2008 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Land | 2,279,494 | - | 2,279,494 | 2,302,273 | - | 2,302,273 | ||||||
Automobile | 401,056 | 204,920 | 196,136 | 427,817 | 140,703 | 287,114 | ||||||
Buildings | 5,918,355 | 578,177 | 5,340,178 | 6,250,748 | 399,982 | 5,850,766 | ||||||
Machinery and equipment | 26,154,678 | 7,311,470 | 18,843,208 | 27,744,171 | 5,053,326 | 22,690,845 | ||||||
Computer equipment | 560,018 | 279,783 | 280,235 | 566,511 | 239,162 | 327,349 | ||||||
Office equipment | 577,215 | 460,070 | 117,145 | 600,413 | 447,405 | 153,008 | ||||||
Leasehold improvements | 320,304 | 161,938 | 158,366 | 320,304 | 92,949 | 227,355 | ||||||
Construction in progress (1)(2) | 33,583,049 | - | 33,583,049 | 10,771,720 | - | 10,771,720 | ||||||
69,794,169 | 8,996,358 | 60,797,811 | 48,983,957 | 6,373,527 | 42,610,430 |
(1) |
Construction in progress includes $31,283,949 relating to La Encantada, $535,604 relating to La Parrilla and $1,763,496 relating to San Martin (2008 - $8,537,075 relating to La Encantada, $422,247 relating to La Parrilla and $1,812,398 relating to San Martin). |
(2) |
At December 31, 2009, the La Encantada Mill Expansion Project had not achieved a commercial stage of production, therefore the net amount of revenues less production costs of $496,371 in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period were offset to construction in progress |
Notes Page 12
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
9. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
Mineral property options paid and future option payments in U.S. dollars are due as follows:
Del Toro | |||
Note 9(d) | |||
(US$) | |||
Paid as at December 31, 2009 | 5,987,500 | ||
Payable in 2010 | 225,000 | ||
Total Current and Future Option Payments | 6,212,500 |
(a) La Encantada Silver Mine, Coahuila State
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest towns, Muzquiz and Boquillas del Cármen, are 225 kilometres away and 45 kilometres away, respectively, via unpaved road. The La Encantada Silver Mine consists of a 3,500 tonne per day cyanidation plant, a 1,000 tonnes-per-day flotation plant, an airstrip, and a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine. During the year ended December 31, 2009, $22.7 million in expenditures were incurred at La Encantada and classified as construction in progress at December 31, 2009 as the plant has not yet achieved commercial production levels.
(b) La Parrilla Silver Mine, Durango State
The La Parrilla Silver Mine is a system of connecting underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 kilometres southeast of the city of Durango, in Durango State Mexico. Located at the mine are: mining equipment, a 425 tonne-per-day cyanidation plant, a 425 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
There is a net smelter royalty agreement (NSR) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. For the year ended December 31, 2009, the Company paid US$135,363 (December 31, 2008 US$69,000) relating to royalties.
(c) San Martin Silver Mine, Jalisco State
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface rights where the 950 tonne-per-day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.
Notes Page 13
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
9. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
(d) Del Toro Silver Mine, Zacatecas State
The Del Toro Silver Mine is located 60 km to the southeast of the Companys La Parrilla Silver Mine and consists of 392 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart. The Company owns 100% of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package. The US$225,000 option payments due in 2010 relate to a new land acquisition of 50 hectares. All other option payments have been made.
(e) Real de Catorce Silver Project, San Luis Potosi State
The Real de Catorce Silver Project is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares. The Company owns 100% of the Real de Catorce Silver Project. Upon commencement of commercial production on the property, the Company has agreed to pay an amount of US$200,000 to a previous owner. The property is subject to a 3% net smelter return royalty, of which 1.75% may be acquired in increments of 0.25% for a price of US$250,000 per increment for the first five years from the date of the first payment and at a price of US$300,000 per increment for the following five years.
In addition, the Company has agreed to acquire the surface rights forming part of the property, including the buildings located thereon and covering the location of the previous mining operations, in consideration for a single payment of US$1,000,000 to be made in December 2010.
The Company has also agreed to make a payment of US$200,000 on December 10, 2010 for all technical and geological information collected over the area. Such payment is not related to the acquisition of the mining concessions or the surface rights and buildings agreement.
(f) Cuitaboca Silver Project, Sinaloa State
During the year ended December 31, 2009, management elected not to proceed with the acquisition of the Cuitaboca Silver Project. Accordingly, the historical investment totalling $2,589,824 was written off during the year.
10. VENDOR LIABILITY AND INTEREST
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53,365,519. The purchase price was payable to the shareholder of First Silver (the Majority Shareholder) in three instalments. The first instalment of $26,682,759, for 50% of the purchase price, was paid upon closing on May 30, 2006. An additional 25% instalment of $13,341,380 was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum was payable quarterly on the outstanding vendor balance.
Notes Page 14
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
In November 2007, an action was commenced by the Company and First Silver against the Majority Shareholder (the Defendant) who was previously a director, President & Chief Executive Officer of First Silver. The Company and First Silver allege that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
Notes Page 15
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
10. VENDOR LIABILITY AND INTEREST (continued)
On March 14, 2008, the Defendant filed a Counterclaim in the Action against the Company in which he claimed for unpaid amounts and interest arising out of the agreement between the Company and the Defendant under which the Company acquired the Defendant’s shares (approximately 24,649,200 shares) in First Silver. As of July 16, 2009, the claimed unpaid amount, together with interest calculated at the contractual interest rate of 6% amounted to $14,881,912. This amount was partly secured by a Letter of Credit posted in Court by First Majestic in the sum of $14,485,760.
On July 16, 2009, an Order was granted by the Court, with the consent of all parties, under which the Defendant obtained a judgment in the amount of $14,881,912. The Company agreed to pay out $14,258,332 from the Letter of Credit to the Defendant’s lawyer’s trust account (the “Trust Funds”) in partial payment of the Judgment. The remaining $227,420 from the Letter of Credit was paid out to the Company. The Consent Order requires, that the Trust Funds be held pending the outcome of the Action. If the trial has not commenced by June 30, 2011, the Trust Funds can be released on that date to the Defendant, unless otherwise ordered by the court. At the present time, the trial is scheduled to commence in the Supreme Court of British Columbia, Vancouver, British Columbia on February 21, 2011. The Consent Order does not affect the standing of the Company’s claims for relief against the Defendant in the Action. These funds would only become accessible to the Company in the event of a favourable outcome to the litigation.
11. DEBT FACILITIES
(a) Pre-Payment Facility
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, $1.6 million (US$1.5 million) was advanced against the Company’s lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required. The repayment of the credit facility is guaranteed by the parent company. Subsequent to the year end, this agreement was amended and restated to provide an additional six-month prepayment facility of up to $1.6 million (US$1.5 million).
A total of $1.6 million (US$1.5 million) was drawn on this pre-payment facility and as at December 31, 2009, after supplying monthly quotas of lead concentrates, the Company had a remaining balance payable of $450,940 (US$431,497) after by-product shipments and interest charges of $7,553 (US$7,228).
(b) FIFOMI Loan Facilities
In October 2009, the Company entered into an agreement for two loan facilities totaling $53.8 million Mexican pesos (CAD$4.3 million) from the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI). Funds from these loans will be used for the completion of the 3,500 tonne-per-day cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% per annum and is repayable over a 60-month period. The working capital loan, for up to $6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% per annum and is a 90-day revolving loan. The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine.
A total of $53.8 million Mexican pesos was drawn down during 2009 and at December 31, 2009, the balance was $53.8 Mexican pesos (CAD$4.3 million) of which $1.1 million was classified as current.
Notes Page 16
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
Payments Due By Period | |||||||||||||||
Total | Less than | 1-3 | 4-5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
FIFOMI Loan Facilities | $ | 4,309,159 | $ | 1,095,672 | $ | 1,676,605 | $ | 1,536,882 | $ | - |
12. DEPOSITS ON LONG-TERM ASSETS
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
2009 | 2008 | |||
$ | $ | |||
Deposit on equipment at La Encantada | 2,876,717 | 1,986,517 | ||
Deposit on equipment at La Parrilla | 1,429,702 | - | ||
4,306,419 | 1,986,517 |
13. ACQUISITION OF NORMABEC MINING RESOURCES LTD.
On November 13, 2009, the Company completed a plan of arrangement (the Arrangement) to acquire all of the issued and outstanding shares of Normabec Mining Resources Ltd. (Normabec). Normabecs primary asset is the Real de Catorce Project located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico.
Concurrent with the completion of the Arrangement, the non-Mexican assets of Normabec were divested to a newly formed entity Brionor Resources Inc. (Brionor). Holders of Normabec shares received 0.060425 First Majestic shares and 0.25 Brionor shares for each Normabec common share.
The Company also purchased, via private placement, 2,115,195 common shares of Brionor for an aggregate purchase price of $300,000, representing a price per share of approximately $0.1418. These shares represented 9.9% of the total issued and outstanding shares of Brionor upon completion of the transaction at November 13, 2009. Brionor is a public company listed on the TSX Venture Exchange.
The acquisition of Normabec has been accounted for as an asset acquisition, with First Majestic identified as the acquirer, and with First Majestic recording the acquisition at its estimated fair value at the date of acquisition.
The allocation of the purchase price to the assets acquired and liabilities assumed is as follows:
Consideration: | |||
Arrangement shares (4,652,778 at $3.43) | $ | 15,959,029 | |
Settlement of liabilities with cash and shares ($196,762 in cash and 215,000 shares at $3.43) | 934,212 | ||
Other costs incurred relating to the acquisition of Norma bec | 504,297 | ||
$ | 17,397,538 | ||
Allocation of purchase price: | |||
Net working capital | $ | 154,914 | |
Investments (First Gold Inc - 225,000 shares at $0.185 per s hare) | 38,513 | ||
Property, plant and equipment | 44,986 | ||
Mining rights | 21,215,673 | ||
Future income taxes | (4,056,548 | ) | |
$ | 17,397,538 |
Notes Page 17
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL
(a) Authorized unlimited number of common shares without par value
Issued | Year ended December 31, 2009 | Year ended December 31, 2008 | |||||||||||
Shares | $ | Shares | $ | ||||||||||
Balance - beginning of the year | 73,847,810 | 196,648,345 | 63,042,160 | 145,699,783 | |||||||||
Issued during the year | |||||||||||||
For cash: | |||||||||||||
Exercise of options | 36,250 | 68,838 | 436,650 | 1,398,566 | |||||||||
Exercise of warrants | 50,000 | 165,000 | 7,500 | 31,875 | |||||||||
Public offering of units (i) (v) | 8,487,576 | 18,840,890 | 8,500,000 | 40,144,471 | |||||||||
Private placements (ii) | 4,167,478 | 9,051,069 | - | - | |||||||||
For debt settlements (iii) | 1,191,852 | 2,741,260 | - | - | |||||||||
For Normabec acquisition (iv) | 4,867,778 | 16,696,479 | - | - | |||||||||
For First Silver Arrangement | - | - | 1,861,500 | 9,009,660 | |||||||||
Transfer of contributed surplus for stock options exercised | - | 29,125 | - | 363,990 | |||||||||
Balance - end of the year | 92,648,744 | 244,241,006 | 73,847,810 | 196,648,345 |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,689,648, of which $18,840,890 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one common share at a price of $3.50 expiring on March 5, 2011. |
(ii) |
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011, and 334,239 warrants expire on September 16, 2011. Finders fees in the amount of $101,016 and 50,000 warrants were paid regarding a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. |
(iii) |
In August and September 2009, the Company settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a value of $2.30 per share. |
Notes Page 18
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL (continued)
(iv) |
On November 13, 2009, the Company issued 4,867,778 common shares at a value of $3.43 per share in connection with the acquisition of Normabec (see Note 13). |
(v) |
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 units at an issue price of $5.35 per unit for net proceeds to the Company of $42,881,471, of which $40,144,471 was allocated to the common shares, $2,380,000 was allocated to the warrants and $357,000 was allocated to the underwriters warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 warrants at a price of $0.56 per warrant. The underwriters did not exercise their option to purchase any option shares, but did acquire the 637,500 warrants (see Note 14(c)). |
(b) Stock Options
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the years ended December 31, 2009 and 2008 are as follows:
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |||||||||||||
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |||||||||||||
Balance, beginning of the year | 6,862,500 | 3.84 | 2.78 years | 5,892,500 | 4.04 | 2.75 years | ||||||||||||
Granted | 2,842,500 | 2.88 | 3.58 years | 2,672,500 | 2.93 | 3.67 years | ||||||||||||
Exercised | (36,250 | ) | 1.90 | 2.47 years | (436,650 | ) | 3.20 | 0.51 years | ||||||||||
Forfeited or expired | (1,065,000 | ) | 4.11 | 0.73 years | (1,265,850 | ) | 3.05 | 0.45 years | ||||||||||
Balance, end of the year | 8,603,750 | 3.50 | 2.42 years | 6,862,500 | 3.84 | 2.78 years |
Notes Page 19
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL (continued)
(b) Stock Options (continued)
The following table summarizes both the stock options outstanding and those that are exercisable at December 31, 2009:
Price | Options | Options | |||||||
$ | Outstanding | Exercisable | Expiry Dates | ||||||
5.50 | 200,000 | 200,000 | February 1, 2010 | ||||||
4.64 | 75,000 | 75,000 | June 1, 2010 | ||||||
4.17 | 100,000 | 100,000 | August 8, 2010 | ||||||
3.72 | 30,000 | 30,000 | September 24, 2010 | ||||||
3.98 | 20,000 | 20,000 | October 17, 2010 | ||||||
4.45 | 530,000 | 530,000 | October 30, 2010 | ||||||
4.34 | 25,000 | 25,000 | November 1, 2010 | ||||||
4.34 | 200,000 | 200,000 | December 5, 2010 | ||||||
4.42 | 50,000 | 50,000 | February 20, 2011 | ||||||
4.65 | 100,000 | 100,000 | March 25, 2011 | ||||||
4.19 | 20,000 | 20,000 | April 26, 2011 | ||||||
4.02 | 100,000 | 100,000 | May 15, 2011 | ||||||
4.30 | 450,000 | 450,000 | June 19, 2011 | ||||||
4.67 | 120,000 | 90,000 | July 4, 2011 | ||||||
4.15 | 300,000 | 225,000 | July 28, 2011 | ||||||
3.62 | 565,000 | 423,750 | August 28, 2011 | ||||||
1.60 | 200,000 | 150,000 | October 8, 2011 | ||||||
1.27 | 118,750 | 87,500 | October 17, 2011 | ||||||
4.32 | 245,000 | 245,000 | December 6, 2011 | ||||||
4.41 | 400,000 | 400,000 | December 22, 2011 | ||||||
5.00 | 155,000 | 155,000 | February 7, 2012 | ||||||
2.03 | 730,000 | 365,000 | May 7, 2012 | ||||||
4.65 | 25,000 | 25,000 | June 20, 2012 | ||||||
2.62 | 60,000 | 15,000 | September 16, 2012 | ||||||
2.96 | 25,000 | 6,250 | October 28, 2012 | ||||||
3.38 | 25,000 | 6,250 | November 5, 2012 | ||||||
4.34 | 925,000 | 925,000 | December 5, 2012 | ||||||
3.52 | 560,000 | 140,000 | December 7, 2012 | ||||||
3.70 | 535,000 | 133,750 | December 15, 2012 | ||||||
3.62 | 100,000 | 75,000 | August 28, 2013 | ||||||
1.44 | 240,000 | 180,000 | November 10, 2013 | ||||||
1.56 | 550,000 | 412,500 | December 17, 2013 | ||||||
2.03 | 462,500 | 231,250 | May 7, 2014 | ||||||
2.32 | 12,500 | 6,250 | June 15, 2014 | ||||||
3.70 | 350,000 | 87,500 | December 15, 2014 | ||||||
8,603,750 | 6,285,000 |
During the year ended December 31, 2009, the Company granted stock options to directors, officers and employees to purchase 2,842,500 shares of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, the fair value of stock options granted in 2009 was $3,991,000, of which $1,455,279 was expensed in the current year, $39,175 was exercised in the current year, and $2,496,546 will be deferred over the remaining vesting period of the stock options.
Notes Page 20
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL (continued)
(b) Stock Options (continued)
The weighted average fair value of each stock options granted during the year was $1.41 (2008 - $1.05) . Fair value of stock options is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
Year ended | Year ended | |
December 31, 2009 | December 31, 2008 | |
Risk-free interest rate | 1.1% | 2.4% |
Es timated volatility | 83.7% | 64.9% |
Expected life | 2.2 years | 2.35 years |
Expected dividend yield | 0% | 0% |
Option pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide an accurate measure of the actual fair value of the Companys stock options.
(c) Share Purchase Warrants
The changes in share purchase warrants for the years ended December 31, 2009 and 2008 are as follows:
Year ended December 31, 2009 | Year ended December 31, 2008 | |||||||||||
Weighted | Weighted | |||||||||||
Average | Weighted | Average | Weighted | |||||||||
Number of | Exercise Price | Average Term to | Number of | Exercise Price | Average Term to | |||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||
Balance, beginning of the year | 5,078,791 | 6.99 | 1.19 years | 5,845,240 | 5.66 | 0.89 years | ||||||
Issued (i) (ii) (iii) (iv) (v) (vi) | 6,638,492 | 3.66 | 2.12 years | 4,887,500 | 7.00 | 2.00 years | ||||||
Exercised | (50,000 | ) | 3.30 | 1.65 years | (7,500 | ) | 4.25 | 0.86 years | ||||
Cancelled or expired | (309,818 | ) | 7.69 | 0.00 years | (5,646,449 | ) | 5.62 | 0.00 years | ||||
Balance, end of the year | 11,357,465 | 5.04 | 0.84 years | 5,078,791 | 6.99 | 1.19 years |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35.0%, expected life of 2 years and expected dividend yield of 0%) and $848,758 was credited to contributed surplus. |
(ii) |
On August 20, 2009, the Company issued 1,799,500 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 3,499,000 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years and expected dividend yield of 0%) and $328,047 was credited to contributed surplus. |
(iii) |
On September 16, 2009, the Company issued 334,239 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 668,478 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years and expected dividend yield of 0%) and $60,953 was credited to contributed surplus. |
Notes Page 21
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
14. SHARE CAPITAL (continued)
(c) Share Purchase Warrants (continued)
(iv) |
On November 13, 2009, the Company issued 118,527 warrants exercisable at a price of $9.11 per share expiring on December 13, 2009 and 142,438 warrants exercisable at a price of $9.11 per share expiring on January 2, 2010 in connection with the acquisition of Normabec (see Note 13). The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.26%, volatility of 67%, expected life of 0.1 years and expected dividend yield of 0%). No value was credited to contributed surplus. |
(v) |
On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2,380,000 was credited to contributed surplus. |
(vi) |
On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus. |
The following table summarizes the share purchase warrants outstanding at December 31, 2009:
Exercise Price | Warrants | |||||
$ | Outstanding | Expiry Dates | ||||
9.11 | 142,438 | January 2, 2010 | ||||
7.00 | 4,887,500 | March 25, 2010 | ||||
3.50 | 4,243,788 | March 5, 2011 | ||||
3.30 | 1,749,500 | August 20, 2011 | ||||
3.30 | 334,239 | September 16, 2011 | ||||
11,357,465 |
(d) Share Capital to be Issued
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc. and the San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic.
At December 31, 2009, the prior shareholders of First Silver had yet to exchange the remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic resulting in a remaining value of shares to be issued of $276,495.
Notes Page 22
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
Notes Page 23
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
15. REVENUE
Details of the components of revenue are as follows:
Years Ended December 31, | ||||
2009 | 2008 | |||
$ | $ | |||
Combined revenue - silver doré bars, concentrates, coins and ingots | 76,596,113 | 56,994,724 | ||
Less: intercompany eliminations | (5,070,039 | ) | (892,265 | ) |
Consolidated gross revenue | 71,526,074 | 56,102,459 | ||
Less: refining a nd s melting charges, net of intercompany eliminations | (9,310,475 | ) | (9,895,208 | ) |
Less: metal deductions, net of i ntercompany eliminations | (2,704,930 | ) | (1,882,364 | ) |
Net revenue | 59,510,669 | 44,324,887 |
At December 31, 2009, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore cash receipts of $944,468 in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period was not recorded as sales revenues and instead was recorded as a reduction of capital costs in construction in progress (Note 9).
16. RELATED PARTY TRANSACTIONS
During the period ended December 31, 2009, the Company:
a) |
incurred $281,065 (2008 - $248,025) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
b) |
incurred $275,214 (2008 - $310,920) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
c) |
incurred $1,317,437 (2008 - $8,010,843) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $232,444 was unpaid as at December 31, 2009 (2008 - $3,122,130). This relationship was terminated in February 2009. |
d) |
incurred $nil (2008 - $7,365) to a director of the Company as finders fees upon the completion of certain option agreements relating to Del Toro. |
e) |
provided a loan of $nil (US$nil) (2008 $36,540 or US$30,000) to a director of the Company. This loan was fully repaid in the year ended December 31, 2009. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
Notes Page 24
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
17. SEGMENTED INFORMATION
The Company considers that it has three operating segments located in Mexico, one retail market segment in Canada and one corporate segment with locations in Canada and Mexico. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Year ended December 31, 2009 | ||||||||||||
First Majestic | Corporate | |||||||||||
El Pilon | Plata | La Encantada | and Other | |||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Revenue | 20,122,274 | 22,377,951 | 16,789,464 | 5,132,099 | (4,911,119 | ) | 59,510,669 | |||||
Cost of sales | 11,592,357 | 11,923,081 | 10,523,284 | 4,860,844 | (4,547,713 | ) | 34,351,853 | |||||
Amortiza tion, depreciation and accretion | 925,383 | 1,957,005 | 1,066,767 | - | - | 3,949,155 | ||||||
Depletion | 1,168,024 | 970,818 | 609,867 | - | - | 2,748,709 | ||||||
Mine operating earnings (loss) | 6,436,510 | 7,527,047 | 4,589,546 | 271,255 | (363,406 | ) | 18,460,952 | |||||
General and administrative | - | - | - | - | 8,089,087 | 8,089,087 | ||||||
Stock-based compensation | - | - | - | - | 3,302,780 | 3,302,780 | ||||||
Write-down of mineral properties | 2,589,824 | - | - | - | - | 2,589,824 | ||||||
Write-down of marketable securities | - | - | - | - | (390,467 | ) | (390,467 | ) | ||||
Net interest, other income (expense) and foreign exchange | (3,036,124 | ) | (2,392,401 | ) | (2,764,988 | ) | - | 7,184,752 | (1,008,761 | ) | ||
Income tax expense (recovery) | - | - | - | - | (3,230,192 | ) | (3,230,192 | ) | ||||
Net income (loss) | 810,562 | 5,134,646 | 1,824,558 | 271,255 | (1,730,796 | ) | 6,310,225 | |||||
Capital expenditures | 3,256,314 | 6,688,038 | 28,672,840 | - | 180,088 | 38,797,280 | ||||||
Total assets | 103,853,548 | 60,345,812 | 62,550,666 | 651,642 | 24,173,584 | 251,575,252 |
Year ended December 31, 2008 | ||||||||||||
First Majestic | Corporate | |||||||||||
El Pilon | Plata | La Encantada | and Other | |||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Revenue | 11,707,631 | 15,983,118 | 17,145,790 | 380,613 | (892,265 | ) | 44,324,887 | |||||
Cost of sales | 10,083,947 | 12,219,616 | 8,613,007 | 377,170 | (874,325 | ) | 30,419,415 | |||||
Amortization, depreciation and accretion | 1,280,949 | 1,467,927 | 620,827 | - | - | 3,369,703 | ||||||
Depletion | 1,544,162 | 737,087 | 752,888 | - | - | 3,034,137 | ||||||
Mine operating earnings (loss) | (1,201,427 | ) | 1,558,488 | 7,159,068 | 3,443 | (17,940 | ) | 7,501,632 | ||||
General and administrative | - | - | - | - | 7,549,079 | 7,549,079 | ||||||
Stock-based compensation | - | - | - | - | 3,680,111 | 3,680,111 | ||||||
Net interest, other income (expense) and foreign exchange | (2,209,177 | ) | (2,883,908 | ) | (1,363,857 | ) | - | 3,120,262 | (3,336,680 | ) | ||
Income tax (recovery) expense | 27,030 | (897,488 | ) | 87,976 | - | (1,136,972 | ) | (1,919,454 | ) | |||
Net income (loss) | (3,437,634 | ) | (427,932 | ) | 5,707,235 | 3,443 | (6,989,896 | ) | (5,144,784 | ) | ||
Capital expenditures | 12,003,673 | 19,636,692 | 16,299,105 | - | 173,844 | 48,113,314 | ||||||
Total assets | 118,741,809 | 58,033,744 | 33,087,571 | 247,368 | 21,049,157 | 231,159,649 |
Notes Page 25
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
18. INCOME TAXES
The reconciliation of the income tax provision computed at statutory rates to the reported income tax provision is as follows:
2009 | 2008 | |||||
$ | $ | |||||
Combined federal a nd provincial income tax rate | 30.00% | 31.00% | ||||
Income tax benefit computed at Canadian statutory rates | (924,010 | ) | 2,189,914 | |||
Foreign tax rates different from s tatutory rates | 8,602 | (127,363 | ) | |||
Impact of change in ta x rates on future income taxes | 836,147 | - | ||||
Non-deductible expenses | (424,678 | ) | (2,106,551 | ) | ||
Change in valuation allowance | 1,493,871 | 2,032,710 | ||||
Foreign exchange | 2,409,644 | 1,050,000 | ||||
Difference between statutory and a ctual tax rates | 232,498 | (27,375 | ) | |||
Other | (401,882 | ) | (1,091,881 | ) | ||
3,230,192 | 1,919,454 |
Significant components of the Company's future tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:
2009 | 2008 | |||||
$ | $ | |||||
Future income tax assets | ||||||
Net tax losses carried forward | 19,453,298 | 16,446,519 | ||||
Other assets/liabilities | 3,235,061 | 1,511,108 | ||||
Share issue costs | 1,707,129 | 1,684,688 | ||||
Capital losses | 530,986 | 529,968 | ||||
Valuation allowance | (6,175,094 | ) | (6,886,775 | ) | ||
Net future income tax assets | 18,751,380 | 13,285,508 | ||||
Future income tax liabilities | ||||||
Excess of carrying value of mineral property assets over tax value | (47,168,391 | ) | (43,975,595 | ) | ||
Future income tax liabilities, net | (28,417,011 | ) | (30,690,087 | ) |
The Company has approximately $13.0 million (2008 - $17.8 million) of non-capital losses that may be available for future tax purposes and will expire in the following years:
2025 | $ 3,748,753 |
2026 | $ 6,298,941 |
2027 | $ 2,967,115 |
The Company has capital losses available for deduction against future capital gains of $4.1 million (2008 - $4.1 million) that may be available for tax purposes in Canada. These capital losses may be carried forward indefinitely. Management believes that uncertainty exists regarding the realization of these future tax assets and therefore a valuation allowance has been recorded.
In addition, subject to certain restrictions, the Company has tax pools of approximately $64.5 million (2008 - $47.6 million) available to offset future taxable income in Mexico.
Notes Page 26
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
19. OTHER LONG TERM LIABILITIES
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the fully agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the advance received from the bank, but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $753,657 (2008-$832,769).
20. CAPITAL LEASE OBLIGATIONS
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for $14.1 million (US$11.2 million) of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. On March 13, 2009, the Company executed a restructuring agreement for the balance of $3.6 million (US$2.9 million) payable to the equipment lease vendor, to be paid over 24 monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.
On January 12, 2009, the Company executed two additional financing arrangements with an equipment vendor, committing the Company to total payments of approximately $2.6 million (US$2.0 million) representing the purchase price plus interest with terms of 36 monthly lease payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
The following is a schedule of future minimum lease payments under the capital leases as at December 31, 2009:
$US | $CA | |||||
2010 Gross lease payments | 2,127,454 | 2,235,960 | ||||
2011 Gross lease payments | 651,155 | 684,364 | ||||
2012 Gross lease payments | 132,549 | 139,309 | ||||
2,911,158 | 3,059,633 | |||||
Less: interest | (239,769 | ) | (251,997 | ) | ||
Total payments, net of interest | 2,671,389 | 2,807,636 | ||||
Less: current portion | (2,035,540 | ) | (2,139,352 | ) | ||
Capital Lease Obligation | 635,849 | 668,284 |
Notes Page 27
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
21. ASSET RETIREMENT OBLIGATIONS | ||||
Year ended | Year ended | |||
December 31, 2009 | December 31, 2008 | |||
$ | $ | |||
Balance, beginning of the year | 5,304,369 | 2,290,313 | ||
Effect of change i n estimates | (877,834 | ) | 2,979,726 | |
Interest accretion | 445,090 | 200,477 | ||
Effect of translation of foreign currencies | (535,537 | ) | (166,147 | ) |
Balance, end of the year | 4,336,088 | 5,304,369 |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | 2009 | 2008 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2020 | 1,815,518 | 1,865,674 | ||||||
La Parrilla Silver Mine | 2025 | 998,293 | 1,609,602 | ||||||
San Martin Silver Mine | 2019 | 1,522,277 | 1,829,093 | ||||||
4,336,088 | 5,304,369 |
During the year ended December 31, 2009, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $6.1 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $1.7 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.0 million of the obligation relates to the San Martin Silver Mine, and $2.5 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
22. CONTINGENT LIABILITIES
Due to the size, complexity and nature of the Companys operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, these matters will not have a material effect on the consolidated financial statements of the Company.
23. COMMITMENTS
The Company is obligated to make certain mining property option payments as described in Note 9, in connection with the acquisition of its mineral property interests.
The Company has office lease commitments of $116,880 per annum in 2010 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at December 31, 2009, the Company is committed to construction contracts of approximately $2.1 million (US$2.0 million) (2008 - $5.9 million or US$4.9 million) relating to the La Encantada Project which is currently in the final stage of completion.
Notes Page 28
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
23. COMMITMENTS (continued)
As a result of the acquisition of Normabec, the Company is committed to make a US$1 million payment in December 2010 to acquire surface rights forming part of the Real de Catorce Project. It is also committed to make a payment of US$200,000 in December 2010 for technical and geological information collected over the Real de Catorce area.
The Company is committed to making severance payments amounting to $1.9 million (2008 - $0.7 million) to four officers in the event of a change of control of the Company.
24. NON-CASH FINANCING AND INVESTING ACTIVITIES
2009 | 2008 | |||||
$ | $ | |||||
NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||
Fair value of warrants upon completion of public offering | 848,758 | 2,737,000 | ||||
Fair value of warrants upon completion of private placements | 389,000 | - | ||||
Issuance of shares for debt settlement | 2,741,260 | - | ||||
Issuance of shares for acquisition of Normabec | 16,696,479 | - | ||||
Issuance of shares for First Silver Arrangement | - | 9,009,660 | ||||
Transfer of contributed surplus to common shares for options exercised | 29,125 | 363,990 | ||||
Assets acquired by capital lease | 2,259,380 | 1,621,135 |
25. SUBSEQUENT EVENTS
Subsequent to December 31, 2009:
(a) |
A total of 50,000 options were exercised for proceeds of $92,000; |
(b) |
On January 2, 2010, 142,438 warrants exercisable at a price of $9.11 per share expired unexercised; |
(c) |
On January 8, 2010, 25,000 warrants were exercised at a price of $3.30 per share; |
(d) |
On February 1, 2010, 200,000 options exercisable at a price of $5.50 per share expired unexercised; |
(e) |
On February 2, 2010, 200,000 options were granted at a price of $3.56 per share expiring on February 2, 2013; |
(f) |
On March 19, 2010, 25,000 options were granted at a price of $3.15 per share expiring on March 19, 2013. |
Notes Page 29
FIRST MAJESTIC SILVER CORP.
2008 ANNUAL REPORT
TSX:FR
FIRST MAJESTIC IS EMERGING AS A WORLD-CLASS SILVER PRODUCER THROUGH THE ACQUISITION AND EXPANSION OF ADVANCED-STAGE SILVER PROJECTS IN MEXICO. WE ARE COMMITTED TO BUILDING LONG-TERM, SUSTAINABLE MINING OPERATIONS THAT ARE BASED ON SOUND ENVIRONMENTAL PRACTICES AND THE WELLBEING OF COMMUNITIES IN WHICH WE OPERATE. |
TRUSTED TO DELIVER. COMMITTED TO GROWTH.
TABLE OF CONTENTS
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 3
IN ONE OF THE MOST TURBULENT ECONOMIC PERIODS IN HISTORY, FIRST MAJESTIC REMAINED FOCUSED ON IMPROVING PRODUCTION CAPACITIES AND EFFICIENCIES, GROWING RESOURCES THROUGH AN AGGRESSIVE AND FOCUSED DRILL PROGRAM, AND BUILDING ONE OF THE SILVER INDUSTRYS MOST EXPERIENCED AND RESPECTED MANAGEMENT TEAMS.
LETTER TO SHAREHOLDERS
2008 STARTED OFF TO BE A VERY EXCITING YEAR with silver trading at US$20 per ounce in March and the Companys shares reaching 52-week highs. However, 2008 will not be remembered for this optimism, it will be remembered as a time of global economic crisis. A year when the world changed - we are in uncertain times, there is no doubting it.
There are plenty of reasons to be pessimistic about the state of the world economy, but this is definitely not the case for the precious metals industry. If ever there was a time to be optimistic about silver (& gold), this is most certainly the time.
Unlike so many investments that have recently plummeted in value, such as real estate and oil to name but two, silver and gold remain strong. Precious metals are assets that investors are turning to in these times of uncertainty. Physical demand has consistently outstripped supply in recent years and with many copper and zinc mines shutting down worldwide, silver supplies are being further tightened. For these reasons, we expect silver to outperform gold over the next few years. We feel we are heading into a very exciting time indeed.
Other than our share price and the negative impact on all companies in the fourth quarter due to the dramatic changes that occurred, this past year was another successful year for First Majestic. Our mission remains to become one of North Americas largest silver producers, and we continue to make strong progress towards that goal. We are proud of our team of mining professionals and our workforce of over 1300 people who we owe our successes to.
Production growth continued to climb steadily due in large measure to ongoing improvements to our facilities and processes. In addition to our advances in production, we have been rewarded on the exploration and development front as well. On a global consolidated basis, Proven and Probable Reserves increased by 102%, Measured and Indicated Resources increased by 9% and Inferred Resources increased by 110%.
Gross revenues remained strong and grew by 22.4% despite the lower silver price in the fourth quarter.
At the La Encantada Silver Mine, construction began in June 2008 on the new 3500 tpd cyanidation plant. This new plant is scheduled to commence operations in July 2009. We are very excited that once this plant is completed, it is expected to produce over four million ounces of silver annually in the form of doré bars.
As a reflection of our corporate culture, but not reflected in our bottom line, perhaps the two accomplishments in which our team takes the most pride in this year come from our dedication to running a socially and environmentally responsible company. First Majestic received two awards from the Mexican authorities; the Socially Responsible Business Distinction for 2008 and the PROFEPA Clean Industry Certificate for the La Parrilla Silver Mine. Both awards were significant achievements for our company and something we will continue to strive to achieve yearly.
Our primary focus in 2009 is to continue to increase the scale of operations and to shift our mix of production from concentrates to doré bars. This will significantly reduce smelting charges going forward and result in increased net revenues and profits. We are also keenly focused towards ongoing improvements on operating efficiencies and control systems in an effort to realize the benefit of the economies of scale that will ultimately bolster profit and the value of our shares.
Keith Neumeyer
President & CEO
4
HIGHLIGHTS
FIRST MAJESTIC IS DRIVEN TO BECOME ONE OF NORTH AMERICA’S LARGEST SILVER PRODUCERS.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 5
FRIENDLY, SILVER-RICH MEXICO
WHY MEXICO?
MEXICO IS ONE OF THE MOST ATTRACTIVE REGIONS in the world for mining and exploration. This appeal comes from a variety of factors, including a strong mining culture, excellent geology, political stability and favorable tax and environmental permitting regimes.
Well known for being the worlds largest producer of silver, Mexico remains relatively unexplored. The Fraser Institute says Mexico has more geological potential than any other country as measured by its CMPI index.
In response to a surging demand for gold and silver as investments, Mexico has taken steps to create the right conditions, infrastructure and framework to better accommodate foreign mining companies. There are now around 200 foreign companies exploring and operating in Mexico, and more than 70% are Canadian.
In 2005, the Mexican government approved the restructuring of its Mining Law to deregulate the sector. A large number of free trade agreements further facilitate mining in Mexico, most importantly enabling 100% Foreign Direct Investment (FDI). Interest rates and inflation have been well managed, and most red tape has been reduced or simplified.
Clearly, large-scale mining is a priority for Mexico. Mining is seen as a social and regional development tool, and this is bringing about positive, grassroots changes. There is more access to technology and communications infrastructure than ever before, and access to talented workers has never been better.
6
SOCIAL RESPONSIBILITY
COMMITTED TO OUR COMMUNITIES
FIRST MAJESTIC IS COMMITTED to reaching the highest standard in exemplary corporate citizenship in every community in which we operate. We share common values and strive to make meaningful contributions to community whenever possible.
We focus on both engaging local workforce and on promoting economic sectors beyond our operations. The objective is to create a sustainable economic environment by helping communities to build infrastructure that will avail them new opportunities and a better quality of life. We have launched many social programs that have achieved just that.
Special focus is given to improve and help the local primary and secondary schools. During Christmas, we donate presents to the communities so no child is left without a gift. Working in cooperation with the state governments, we assist in meeting the areas health needs of our communities, compensating local doctors and providing free health services.
We are directly involved with many capital improvement projects, including paving of roadways, construction and upgrades on elementary and high schools, providing clean water to primary schools, assisting with agricultural improvements and construction of a small local clothing factory.
First Majestic is very proud to have been awarded the prestigious Socially Responsible Business Distinction for 2008 by Centro Mexicano para la Filantropia. This milestone for the company recognizes excellence in corporate ethics, quality of work, community citizenship, and environmental responsibility.
First Majestic also remains steadfastly committed to maintaining a clean and safe work environment, and we continue to work with our employees in order to assure that they have the best training, adequate tools, best equipment, and supervision. We were very proud this year to see the La Parrilla Silver Mine receive the prestigious Clean Industry Certificate awarded by Mexican Environmental Authority PROFEPA.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 7
FOCUS ON MANAGEMENT
First Majestic, Mexico |
BACK IN 2003, building one of the largest silver producing mining companies in North America was only a vision. From those humble beginnings, First Majestic has grown to over $50 million in gross revenues, employing over 1300 people and affecting the lives of many thousands more in the communities in which we work.
In Mexico, we have built one of the most respected and knowledgeable operational teams in the country. Our reputation for supporting our employees both personally and professionally, and the care we show for the environment and our communities, has allowed us to attract the country’s finest talent. Collectively, our top 40 executives have over 600 years of mining and management experience.
OUR TEAM IN MEXICO is led by Ramon Davila, Chief Operating Officer, who runs all operations in Mexico out of our Mexican head office in Durango. Our senior management team in Durango includes Francisco Garza, Vice President Finance and Administration, Sergio Ramirez, Regional General Manager of Operations, Florentino Muñoz, Regional General Manager of Exploration, Mario Maldonado, Manager of Human Resources and Oscar Melgar, Manager of Purchasing.
In 2008, our team in Mexico successfully implemented major expansion projects and upgrades at each operation. In addition, improvements to our processes have been continuously implemented, providing better controls and reporting which, in turn, has and will continue to lower costs.
Not only are we committed to the professional development of our existing employees, we are committed to our future ones as well.
8
First Majestic, Vancouver |
Through the Chamber of Mines, First Majestic provides scholarships to students at various schools, including University of Guanajuato, University of Zacatecas, University of San Luis Potosi and several others.
THE VANCOUVER HEAD OFFICE is responsible for regulatory, accounting and investor relations functions. All accounting functions and financial reporting requirements are run by Raymond Polman our Chief Financial Officer and all other regulatory functions are directed by Connie Lillico, Corporate Secretary.
A very close relationship exists between our Vancouver and Mexican offices, and both Raymond and Connie are in touch with Mexico continually to manage their respective areas of the business.
Possibly the most unique thing in the Vancouver office this year was an initiative implemented by Keith Neumeyer, President and CEO respecting yoga classes for the staff. He requests that each employee attend a yoga class twice per week on company time and once per week on their own time. First Majestic has also sponsored the Vancouver 10km Sun Run and all our Vancouver staff are offered Spanish speaking lessons weekly. It’s obviously not all play, but these are healthy parts of our business that help bring more value to shareholders.
The First Majestic family of energetic, talented people in both Mexico and Canada are all focused on one common vision: to be one of the biggest silver producers in North America. The heart of our mines is silver, but the heart of our success is our people.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 9
SILVER COIN, BULLION SALES
IN 2008, FIRST MAJESTIC began minting and selling silver coins, ingots and bars. Our intention was first to be able to supply silver to our shareholders who were requesting physical silver. This interesting side-business grew very quickly and is expected to continue as demand remains extremely strong.
Within a few short months, we were inundated with requests to supply larger quantities to shareholders and other investors. In response, we launched the sale of silver on our website that allows people to buy coins and bars directly from First Majestic online.
Our silver is shipped from Mexico in the form of dore bars and then sent to the refinery where it is purified into .999 fine silver.
10
.999 |
PURE
SILVER |
THERES NO SUBSTITUTE FOR SILVER! AS CAN BE SEEN BY THE AVERAGE TRADING PRICE FOR SILVER IN THE LAST FEW YEARS. 2008 SAW THE AVERAGE SILVER PRICE ATTAINING $14.97 COMPARED TO $13.38 IN 2007 and $11.50 in 2006. | |
From there, the silver is shipped to the mint where it is melted into several different forms of finished products. Sales of these products have recently exceeded 10% of First Majestics total monthly production.
Online sales are beginning to represent a significant portion of our sales and profits. These sales are a very efficient revenue source because we own the silver and are able to realize higher than normal margins when we sell directly.
This innovative approach of selling our silver directly to investors is allowing First Majestic to tap into a new revenue source. More importantly, we are supplying physical silver to individuals who may otherwise find it difficult due to the tightness in the marketplace.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 11
LA ENCANTADA SILVER MINE A MAJOR EXPANSION PROGRAM IS UNDERWAY AT LA ENCANTADA TO DRAMATICALLY INCREASE SILVER PRODUCTION. |
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12
LA ENCANTADA SILVER MINE is a producing underground mine located 120km from the city of Múzquiz in the northwest corner of the State of Coahuila in Mexico. The property is easily accessible by road.
The property covers 2,826 hectares (6,982 acres) of mining claims , the mine, a 1000 tonnes per day flotation mill, associated facilities including a laboratory, maintenance buildings, water wells, airstrip, 180 houses, mine office, warehouses, a clubhouse, guest houses, restaurant and recreational facilities.
La Encantada is First Majestics highest grade mine and lowest cost producer. The mill is undergoing a US$21.6 million expansion program, which was launched in July 2008. The first part of the expansion program involved expanding the capacity of the current flotation mill from 800 tpd to 1000 tpd.This was successfully completed in December 2008. The second and larger part of the expansion program, scheduled for completion in mid-2009, will add a 3,500 tpd cyanidation plant enabling the production of doré bars versus concentrates.
The mill is presently operating at approximately 950 tpd and produces a silver rich lead concentrate. Once the expansion program is complete, it is anticipated that silver production will reach over 4.0 million ounces of silver doré on an annual basis.
During the 2008 exploration program a new mineralized zone was discovered at the 1790 mine level. This zone has been named the Buenos Aires zone and was defined with 15 drill holes resulting in defining approximately 850,000 tonnes of Resources at an average grade of 339 grams per tonne of silver. These additional Resources of approximately 13.4 million ounces of silver equivalent were added to the new NI 43-101 Report which was released in December 2008.
Total Reserves / Resources (all catagories) increased to 88.7 million equivalent ounces of silver.
LOCATION - COAHUILA, MÉXICO | |
Ownership: 100% | 2008 Production (Silver Equiv.):1.6 million ounces |
Monthly Capacity (Tonnes): 30,000 | 2008 Production Costs ($US per Tonne): $45.93 |
Employment: 352 | 2008 Cash Costs ($US, excl. smelting): $3.59 |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 13
LA PARRILLA SILVER MINE MAJOR DISCOVERY AT LAS VACAS NOW UNDER DEVELOPMENT FOR PRODUCTION IN 2010 |
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14
THE LA PARRILLA SILVER MINE is located approximately 75 km southeast of the city of Durango in central Mexico. Excellent infrastructure exists in the area with the mine only 4 km away from the main highway, which links Durango and Zacatecas.
La Parrilla was the first mine developed by First Majestic. It began commercial silver production in October 2004 and its operations have been scaled up continually from 180 tpd in early 2005 to the 840 tpd it is presently operating at.
The plant processes both oxide and sulphide silver ores in two separate 425 tpd parallel circuits. Both doré metal bars and flotation concentrates are being produced.
The Companys mining claims surrounding the main mine and mill complex cover a very large, 53,249 hectare (131,558 acres) land package consisting of several known areas of mineralization, such as: the Los Rosarios, La Rosa and La Blanca/San José vein system (Los Rosarios System); San Marcos; Quebradillas; Las Vacas; San Nicolas; Las Animas, and numerous other targets for exploration along several known structures and projected intersections, such as Milagros, La Víbora and Sacramento.
Since acquisition of La Parrilla, the mine has proven to be much larger than originally thought. The company has spent the past five years improving the operations through a variety of mechanical improvements, modernizations, underground development, mill expansion, and resource definition.
Exploration at La Parrilla to September 2008 has included 310 drill holes for a total drilled depth of 72,084 meters (72.1 kms); 274 km of geophysical surveying (IP/AR); 36 sq km of aeromagnetic investigations; and about 4,100 samples for geochemical research; in addition to 17,540 metres (17.5 kms) of underground development. The most significant mining area currently under development is the Las Vacas mine, which is being prepared for production in 2010.
The latest NI 43-101 Report published in January 2009 resulted in a 19.79% increase in overall resources at the La Parrilla. Total Reserves / Resources (all categories) have reached 88.75 million equivalent ounces of silver.
LOCATION - JALISCO, MÉXICO | |
Ownership: 100% | 2008 Production (Silver Equiv.):1.0 million ounces |
Monthly Capacity (Tonnes): 28,500 | 2008 Production Costs ($US per Tonne): $38.90 |
Employment: 310 | Cash Costs ($US, excl. smelting): $10.12 |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 15
SAN MARTIN SILVER MINE WITH RENEWED INVESTMENT AND MINING APPROACH THE SAN MARTIN CONTINUES TO PRODUCE SUBSTANTIAL OUNCES OF SILVER |
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16
THE SAN MARTIN SILVER MINE is located in the Bolaños river valley, a 250 kilometre drive by paved road north from Guadalajara. The San Martín consists of a 950 tpd cyanide and flotation mill, along with all buildings, housing, restaurant, lab and ancillary facilities, including 7840 hectares (19,370 acres) of mining claims.
The San Martin mine and mill has been in operation since 1983 and is a major contributor to the economy of the town of San Martin de Bolaños, which has a population of around 3,000 people. For much of 2008, the mill has been operating at 750 tpd, producing a total of 1.0 million ounces of silver for the year. An expansion program launched in June 2008 resulted in the mill capacity reaching the current 950 tpd in December 2008. The upgrades included the construction of a new thickener, new clarifiers and new filter presses to complete the expansion of the cyanidation process to current levels.
The expansion program also resulted in many improvements to the facilities, including the repair and reinforcing of the older leaching tanks and construction of spill containment systems. These improvements are part of the process of achieving a Clean Industry Certification from PROFEPA for the San Martin operation.
Until recently, the area has never been explored using modern exploration techniques. First Majestics drill program from January 1, 2007 to September 30, 2008 included 127 drill holes with a total depth of 19,619 metres of core, in addition to about 3906 metres of underground development for mining, drill sites and access preparations.
During this exploration program, new mineralized zones were discovered in the Zuloaga (Pinolea and Ballenas levels and Cymoid zone), La Blanca, Rosario-Condesa, La Mancha, Huichola and La Hedionda veins.
The most recent NI 43-101 Report published in January 2009, showed a significant increase in overall Reserves and Resources which now stand at 64.6 million ounces of silver equivalent (all categories).
LOCATION - JALISCO, MÉXICO | |
Ownership: 100% | 2008 Production (Silver Equiv.):1.0 million ounces |
Monthly Capacity (Tonnes): 28,500 | 2008 Production Costs ($US per Tonne): $38.90 |
Employment: 310 | Cash Costs ($US, excl. smelting): $10.12 |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 17
DEL TORO SILVER MINE DEL TORO TO BECOME FIRST MAJESTIC’S FOURTH PRODUCING MINE PERMITTING UNDERWAY |
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18
THE DEL TORO SILVER MINE is located 60 km to the southeast from First Majestics La Parrilla Silver Mine and consists of a 320 contiguous hectares (791 acres) of mining claims which covers the old Perseverancia mine and the San Juan mine.
Del Toro is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings. The program has been highly successful in delineating a significant resource base within a short period of time. In October 2008, First Majestic released the first Resource definition on Del Toro, which far exceeded managements expectations. The Measured and Indicated Resources represented approximately 21 million ounces of silver equivalent and approximately 36 million ounces of silver equivalent were estimated in the Inferred Resource category for a total resource of over 56 million equivalent ounces of silver.
Ore is being extracted from the Del Toro mine and shipped to the La Parrilla mill for mixing into La Parrillas production and for batch metallurgical testing.
Permitting is presently underway for the construction of a new mill at Del Toro. Assuming all permitting is completed by mid-year 2009, and funds are available for the project, a new 500 tpd mill is anticipated to be operating in the first half of 2010. All infrastructure, including electricity and water and people are currently available.
LOCATION - ZACATECAS, MÉXICO Ownership: 100% |
DEL TOROS SAN JUAN OREBODIES |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 19
1805, 925 West Georgia Street
Vancouver, B.C. Canada V6C 3L2 Phone: 604.688.3033 Fax: 604.639.8873 Toll Free: 1.866.529.2807 info@firstmajestic.com www.firstmajestic.com |
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of First Majestic Silver Corp. (the Company) are the responsibility of the Companys management. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada and reflect managements best estimates and judgment based on information currently available.
Management has developed and maintains a system of internal controls to ensure that the Companys assets are safeguarded, transactions are authorized and properly recorded, and financial information is reliable.
The Board of Directors is responsible for ensuring management fulfills its responsibilities. The Audit Committee reviews the results of the audit and the annual consolidated financial statements prior to their submission to the Board of Directors for approval.
The consolidated financial statements have been audited by Deloitte & Touche LLP and their report outlines the scope of their examination and gives their opinion on the financial statements.
Keith Neumeyer | Raymond Polman |
President & CEO | Chief Financial Officer |
March 25, 2009 | March 25, 2009 |
20
Deloitte & Touche LLP
|
Auditors’ report
To the Shareholders of
First Majestic Silver Corp.
We have audited the consolidated balance sheets of First Majestic Silver Corp. as at December 31, 2008, and 2007, and the consolidated statements of loss, shareholders’ equity and comprehensive income (loss), and cash flows for the years ended December 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2008 and 2007, and the results of its operations and its cash flows for the years ended December 31, 2008 and 2007 in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
March 31, 2009
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT
|
21
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED BALANCE SHEETS |
AS AT DECEMBER 31, 2008 AND 2007 |
(Expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
CONTINGENT LIABILITIES (Note
21)
COMMITMENTS (Note 22)
Director | Director |
The accompanying notes are an integral part of these consolidated financial statements
22
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF LOSS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
(Expressed in Canadian dollars, except share amounts) |
2008 | 2007 | |||
$ | $ | |||
Revenue (Note 14) | 44,324,887 | 42,924,920 | ||
Cost of sales | 30,419,415 | 26,989,300 | ||
Amortization and depreciation | 3,169,226 | 2,402,262 | ||
Depletion | 3,034,137 | 6,317,134 | ||
Accretion of reclamation obligation | 200,477 | 208,448 | ||
Mine operating earnings | 7,501,632 | 7,007,776 | ||
General and administrative | 7,549,079 | 7,460,903 | ||
Stock-based compensation | 3,680,111 | 3,865,689 | ||
11,229,190 | 11,326,592 | |||
Operating loss | (3,727,558 | ) | (4,318,816 | ) |
Interest and other expenses | (1,372,768 | ) | (1,169,935 | ) |
Investment and other income | 1,180,742 | 1,358,166 | ||
Foreign exchange loss | (3,144,654 | ) | (11,299 | ) |
Write off of mineral properties | - | (1,703,591 | ) | |
Loss before taxes | (7,064,238 | ) | (5,845,475 | ) |
Income tax - current | 136,533 | 259,392 | ||
Income tax (recovery) - future | (2,055,987 | ) | 1,125,255 | |
Income tax (recovery) expense | (1,919,454 | ) | 1,384,647 | |
NET LOSS FOR THE PERIOD | (5,144,784 | ) | (7,230,122 | ) |
Other Comprehensive Income | ||||
Effect of changing translation | ||||
adjustment method (Note 2) | - | (3,244,350 | ) | |
Translation adjustment | (7,616,671 | ) | (19,852,359 | ) |
Unrealized loss on available for sale securities | (413,512 | ) | - | |
COMPREHENSIVE LOSS FOR THE PERIOD | (13,174,967 | ) | (30,326,831 | ) |
LOSS PER COMMON SHARE | ||||
BASIC & DILUTED | $ (0.07 | ) | $ (0.13 | ) |
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||
BASIC | 71,395,164 | 56,720,099 | ||
DILUTED | 83,336,455 | 68,457,839 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 23
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE LOSS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
(Expressed in Canadian dollars, except share amounts) |
Accumulated | |||||||||||||||||||
Other | |||||||||||||||||||
Comprehensive | Total | ||||||||||||||||||
Share capital | Special | Contributed | Income (Loss) | AOCI | |||||||||||||||
Shares | Amount | To be issued | Warrants | Surplus | ("AOCI") (1) | Deficit | and deficit | Total | |||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||
Balance at December 31, 2006 | 51,698,630 | 103,466,619 | 9,294,020 | - | 11,720,436 | 7,910,502 | (27,101,977 | ) | (19,191,475 | ) | 105,289,600 | ||||||||
Net loss | - | - | - | - | - | - | (7,230,122 | ) | (7,230,122 | ) | (7,230,122 | ) | |||||||
Other comprehensive loss: | |||||||||||||||||||
Exchange translation adjustment of changing consolidation method for First Majestic Plata | - | - | - | - | - | (3,244,350 | ) | - | (3,244,350 | ) | (3,244,350 | ) | |||||||
Translation adjustment | - | - | - | - | - | (19,852,359 | ) | - | (19,852,359 | ) | (19,852,359 | ) | |||||||
Total comprehensive loss | (30,326,831 | ) | (30,326,831 | ) | |||||||||||||||
Adjustment relating to Minera El Pilon transaction | - | - | - | - | (417,317 | ) | - | - | - | (417,317 | ) | ||||||||
Shares issued for: | |||||||||||||||||||
Exercise of options | 1,407,500 | 3,022,400 | - | - | - | - | - | - | 3,022,400 | ||||||||||
Exercise of warrants | 2,668,823 | 6,876,102 | - | - | - | - | - | - | 6,876,102 | ||||||||||
First Silver arrangement | 1,625 | 7,865 | (7,865 | ) | - | - | - | - | - | - | |||||||||
Acquisition of La Encantada | 382,582 | 2,000,904 | - | - | - | - | - | - | 2,000,904 | ||||||||||
Conversion of special warrants | 6,883,000 | 29,221,643 | - | (32,138,643 | ) | 2,917,000 | - | - | - | - | |||||||||
Special warrants issued | - | - | - | 32,138,643 | - | - | - | - | 32,138,643 | ||||||||||
Stock option expense during the period | - | - | - | - | 3,865,689 | - | - | - | 3,865,689 | ||||||||||
Wa rrants issued during the period | - | - | - | - | 333,443 | - | - | - | 333,443 | ||||||||||
Transfer of contributed surplus upon exercise of stock options | - | 1,104,250 | - | - | (1,104,250 | ) | - | - | - | - | |||||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | - | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | |||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | - | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | |||||||
Net income | - | - | - | - | - | - | (5,144,784 | ) | (5,144,784 | ) | (5,144,784 | ) | |||||||
Other comprehensive loss: | |||||||||||||||||||
Translation adjustment | - | - | - | - | - | (7,616,671 | ) | - | (7,616,671 | ) | (7,616,671 | ) | |||||||
Unrealized loss on marketable securities | - | - | - | - | - | (413,512 | ) | - | (413,512 | ) | (413,512 | ) | |||||||
Total comprehensive loss | (13,174,967 | ) | (13,174,967 | ) | |||||||||||||||
Shares issued for: | |||||||||||||||||||
Exercise of options | 436,650 | 1,398,566 | - | - | - | - | - | - | 1,398,566 | ||||||||||
Exercise of warrants | 7,500 | 31,875 | - | - | - | - | - | - | 31,875 | ||||||||||
First Silver arrangement | 1,861,500 | 9,009,660 | (9,009,660 | ) | - | - | - | - | - | - | |||||||||
Public offering, net of issue costs | 8,500,000 | 40,144,471 | - | - | - | - | - | - | 40,144,471 | ||||||||||
Stock option expense, net of deferred compensation | - | - | - | - | 3,609,247 | - | - | - | 3,609,247 | ||||||||||
Warrants issued during the period | - | - | - | - | 2,737,000 | - | - | - | 2,737,000 | ||||||||||
Transfer of contributed surplus upon exercise of stock options | - | 363,990 | - | - | (363,990 | ) | - | - | - | - | |||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | - | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries, except for the unrealized losses of $413,512 on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
24
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
(Expressed in Canadian dollars) |
2008 | 2007 | |||
$ | $ | |||
OPERATING ACTIVITIES | ||||
Net income (loss) for the period | (5,144,784 | ) | (7,230,122 | ) |
Adjustment for items not affecting cash | ||||
Depletion | 3,034,137 | 6,317,134 | ||
Depreciation | 3,169,226 | 2,402,262 | ||
Stock-based compensation | 3,680,111 | 3,865,689 | ||
Accretion of reclamation obligation | 200,477 | 208,448 | ||
Unrealized gain on futures contracts | (81,307 | ) | - | |
Write-down of other assets | 240,000 | - | ||
Write-down of mineral property interests | - | 1,703,591 | ||
Future income taxes | (2,055,987 | ) | 1,125,255 | |
Other long-term liabilities | (209,085 | ) | - | |
Unrealized foreign exchange | 1,800,823 | 290,487 | ||
4,633,611 | 8,682,744 | |||
Net change in non-cash working capital items | ||||
Decrease (increase) in accounts receivable and other receivables | 1,517,537 | (2,164,592 | ) | |
Increase in inventories | (1,571,118 | ) | (1,220,429 | ) |
Increase in prepaid expenses and advances | (588,697 | ) | (983,728 | ) |
Increase in accounts payable and accrued liabilities | 1,218,517 | 147,418 | ||
Increase in unearned revenue | 110,258 | - | ||
Decrease in employee profit sharing payable | (162,823 | ) | (116,365 | ) |
Decrease in taxes receivable and payable | (369,312 | ) | (173,839 | ) |
Increase in vendor liability and interest | 399,112 | - | ||
Increase in vendor liability on mineral property | 1,372,973 | - | ||
6,560,058 | 4,171,209 | |||
INVESTING ACTIVITIES | ||||
Expenditures on mineral property interests (net of accruals) | (24,485,036 | ) | (18,895,126 | ) |
Additions to plant and equipment (net of accruals) | (14,921,672 | ) | (11,841,594 | ) |
Increase in derivative financial instruments | (127,153 | ) | - | |
Increase in silver futures contract deposits | (363,278 | ) | - | |
Increase in deposits on long term assets and other | (704,487 | ) | - | |
Increase in restricted cash securitizing vendor liability (Note 10) | (13,940,237 | ) | - | |
Acquisition costs of Minera La Encantada less cash acquired | - | (3,798,900 | ) | |
(54,541,863 | ) | (34,535,620 | ) | |
FINANCING ACTIVITIES | ||||
Issuance of common shares and warrants net of issue costs | 41,574,912 | 11,002,752 | ||
Issuance of special warrants, net of issue costs | - | 29,221,643 | ||
Payment of short-term vendor liability | - | (13,341,380 | ) | |
Payment of short-term Arrangement liability | (388,836 | ) | (388,836 | ) |
Payment of capital lease obligations | (2,551,752 | ) | - | |
Payment of liability for acquisition of Desmin | - | (1,165,300 | ) | |
38,634,324 | 25,328,879 | |||
DECREASE IN CASH AND CASH EQUIVALENTS | (9,347,481 | ) | (5,035,532 | ) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH HELD IN FOREIGN CURRENCY | (3,816 | ) | - | |
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD | 12,835,183 | 17,870,715 | ||
UNRESTRICTED CASH | 3,483,886 | 12,835,183 | ||
RESTRICTED CASH (Note 10) | 13,940,237 | - | ||
CASH AND CASH EQUIVALENTS - END OF THE PERIOD | 17,424,123 | 12,835,183 | ||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | - | |||
Cash | 495,168 | 521,201 | ||
Short-term deposits | 2,988,718 | 12,313,982 | ||
Restricted cash | 13,940,237 | - | ||
17,424,123 | 12,835,183 | |||
Interest paid | 883,307 | 1,039,418 | ||
Income taxes paid | 135,847 | - | ||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 23) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 25
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
1. DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS
First Majestic Silver Corp. (the “Company” or “First Majestic”) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in México. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the latter part of the year ended December 31, 2008, there was a significant decline in the spot and forward prices of silver and other commodities and access to the capital markets significantly tightened. In 2009, there has been some recovery in the silver price and on March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940 (Note 24(c)). In addition, $13.9 million of the Company’s cash is restricted pending the outcome of the litigation described in Note 10. Ultimately, the Company’s ability to continue as a going concern is dependent on maintaining sustained profitable operations and/or obtaining funds from other sources as required for capital developments. If the Company were unable to continue as a going concern, then material adjustments would be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”).
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”) and First Silver Reserve Inc. (“First Silver”), as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V., (“First Majestic Plata”), Minera El Pilon, S.A. de C.V., (“El Pilon”), and Minera La Encantada, S.A. de C.V. (“La Encantada”). The prior balances of Desmin, S.A. de C.V. were amalgamated into La Encantada on January 1, 2008, with no gain or loss on the amalgamation. First Silver underwent a wind up and distribution of assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 10. Inter-company balances and transactions are eliminated on consolidation.
Measurement Uncertainties
The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Significant areas where management judgment is applied include, among others, the expected economic lives and the future operating results and net cash flows expected to result from exploitation of resource properties and related assets, the amount of proven and probable mineral reserves, income tax provisions, stock-based compensation, the determination of the fair value of assets acquired in business combinations and the amount of future site reclamation costs and asset retirement obligations. Actual results could differ from those reported.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market instruments with terms to maturity not exceeding 90 days at date of issue. The Company does not believe it is exposed to significant credit or interest rate risk although cash and cash equivalents are held in excess of federally insured limits with major financial institutions. Cash and cash equivalents include $13.9 million of restricted cash as described in Note 10.
Inventories
Finished product, ore in process and stockpile are valued at the lower of cost and net realizable value. Cost is determined as the average production cost of saleable silver and metal by-product. Materials and supplies are valued at the lower of cost and net realizable value.
Mineral Property Interests
The acquisition, development and deferred exploration costs are depleted on a units-of-production basis over the estimated economic life of the ore body following commencement of production.
Mineral property costs and exploration, development and field support costs directly relating to mineral properties are deferred until the property to which they directly relate is placed into production, sold, abandoned or subject to a condition of impairment. The deferred costs are amortized over the useful life of the ore body following commencement of production, or written off if the property is sold or abandoned. Administration costs and other exploration costs that do not relate to any specific property are expensed as incurred.
26
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
The Company reviews and evaluates its mining properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The carrying value of exploration stage mineral property interests represent costs incurred to date. The Company is in the process of exploring its other mineral properties interests and has not yet determined whether they contain ore reserves that are economically recoverable. Accordingly, the recoverability of these capitalized costs is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete their exploration and development, and upon future profitable production.
Although the Company has taken steps to verify ownership and legal title to mineral properties in which it has an interest, according to the usual industry standards for the stage of mining, development and exploration of such properties, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects. Management is not aware of any such agreements, transfers or defects.
From time to time, the Company acquires or disposes of properties pursuant to the terms of option agreements. Options are exercisable entirely at the discretion of the optionee and, accordingly, are recorded as mineral property costs or recoveries when the payments are made or received.
Asset Retirement Obligations and Reclamation Costs
Future costs to retire an asset including dismantling, remediation and ongoing treatment and monitoring of the site are recognized and recorded as a liability at fair value at the date the liability is incurred. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. Future site restoration costs are capitalized as part of the carrying value of the related mineral property at their initial value and amortized over the mineral property’s useful life based on a units-of-production method.
Translation of Foreign Currencies
(i) Foreign Currency Transactions
The currency of measurement for the Companys Mexican operating subsidiaries is the Mexican peso. Transaction amounts denominated in foreign currencies (currencies other than the Mexican peso) are translated into Mexican pesos at exchange rates prevailing on the transaction dates. Carrying value of foreign currency denominated monetary assets and liabilities are translated into the currency of measurement at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities are translated at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at the exchange rates in effect at the time of the transactions. Exchange gains and losses arising from the translation of these items are included in operations.
(ii) Subsidiary Financial Statements
The financial statements of Mexican subsidiaries are translated to Canadian dollars using the current rate method. In August 2007, the Company changed the method by which it translated the accounts of First Majestic Plata. The operations of First Majestic Plata changed from integrated to self-sustaining and commercial operations of the La Parrilla Silver Mine experienced a change in the functional currency from the Canadian dollar to the Mexican peso. As a result, the current rate method was adopted and replaced the temporal method. The translation loss of $3,244,350 attributable to current rate translation of non-monetary items as of the date of the change is included as an element of the exchange gains and losses and as a separate component of accumulated other comprehensive income.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the financial statements and their respective tax bases (temporary differences), using substantively enacted income tax rates. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation applied from the commencement of operations, calculated using the straight line method over the following useful lives:
Computer equipment | 3 years straight-line |
Automobile | 5 years straight-line |
Office equipment | 5 years straight-line |
Mine and mill equipment | 10 years straight-line |
Buildings | 20 years straight-line |
Construction in progress costs are not amortized until the related asset is complete, ready for use and utilized in commercial production.
Revenue Recognition
Revenue from the sale of silver is recorded in the Companys accounts when title transfers to the customer, which generally occurs on the date the shipment is received, when collection is reasonably assured, and when the price is reasonably determinable. Revenue is recorded in the statement of operations net of treatment and refining costs paid to counterparties. Revenue from the sale of silver is subject to adjustment upon final settlement of estimated metal prices, weights and assays. Adjustments to revenue for metal price changes are recorded on final settlement. By-product revenue is included as a component of sales.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 27
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
Unearned Revenue
Unearned revenue is recorded when cash has been received from customers prior to shipping of the related silver coins, ingots and bullion products.
Impairment of Long-Lived Assets
Long-lived assets are assessed for impairment at least annually, and when events and circumstances warrant. The carrying value of a long-lived asset is impaired when the carrying amount exceeds the estimated undiscounted net cash flow from use or disposal. In the event that a long-lived asset is determined to be impaired, the amount by which the carrying value exceeds its fair value is charged to earnings.
Loss Per Share
Basic loss per share is computed by dividing the loss available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the “if converted” method. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method. The effects of potential issuances of shares under options and warrants would be anti-dilutive, and therefore basic and diluted loss per share are the same.
Stock-based Compensation
The Company uses the fair value method for recording compensation for all awards made to directors, employees and non-employees including stock appreciation rights, direct awards of stock and stock-based awards that call for settlement in cash or other assets. The compensation expense is determined as the fair value of the option at the date of grant and is calculated using the Black-Scholes Option Pricing Model . The contributed surplus balance is reduced as the options are exercised and the amount initially recorded is transferred to share capital. The effect of forfeitures of stock-based compensation is recorded as an adjustment to stock-based compensation expense in the period the option is forfeited.
Derivatives
The Company may periodically use foreign exchange and commodity contracts to manage exposure to fluctuations in foreign exchange rates and commodity prices. Derivative financial instruments are recorded on the Company’s balance sheet at their fair values with changes in fair values recorded in the results of operations during the period in which the change occurred.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (“OCI”). OCI represents changes in shareholders’ equity during a period arising from transactions other than changes related to transactions with owners. OCI includes unrealized gains and losses on financial assets classified as available-for-sale, changes in the fair value of the effective portion of derivative instruments included in cash flow hedges and currency translation adjustments on the Company’s net investment in self-sustaining foreign operations.
Cumulative changes in OCI are included in accumulated other comprehensive income (“AOCI”).
28
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
Financial Instruments Recognition and Measurement and Hedges
Financial assets and liabilities, including derivatives, are recognized on the consolidated balance sheet when the Company becomes a party to the contractual provisions of the financial instrument. All financial instruments are required to be measured at fair value on initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities. Transaction costs are expensed as incurred for financial instruments classified as held-for-trading. For financial instruments classified as other than held-for-trading, transaction costs are added to the carrying amount of the financial asset or liability on initial recognition and amortized using the effective interest method.
Financial assets and financial liabilities held-for-trading are measured at fair value with changes in those fair values recognized in the statement of loss. Loans and receivables and other financial liabilities are measured at amortized cost using the effective interest method. Available-for-sale financial assets are presented in available-for-sale securities in the Companys consolidated balance sheet and measured at fair value with unrealized gains and losses, including changes in foreign exchange rates, recognized in OCI. Other than temporary unrealized losses on available-for-sale, financial assets are recognized in the statement of income or loss. Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market are measured at cost.
Derivative instrument are recorded on the consolidated balance sheet at fair value, including those derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts. Changes in the fair values of derivative instruments are recognized in net income with the exception of derivatives designated as effective cash flow hedges.
The Company has designated its financial assets and liabilities as follows:
Comparative Figures
Certain comparative figures have been reclassified to conform with the classifications used in 2008.
Significant Changes in Accounting Policies
Capital Disclosures and Financial Instruments - Disclosures and Presentation
Effective January 1, 2008, the Company adopted three new presentation and disclosure standards that were issued by the Canadian Institute of Chartered Accountants: Handbook Section 1535, Capital Disclosures (“Section 1535”), Handbook Section 3862, Financial Instruments – Disclosures (“Section 3862”) and Handbook Section 3863, Financial Instruments – Presentation (“Section 3863”).
Section 1535 requires the disclosure of both qualitative and quantitative information that enables users of financial statements to evaluate (i) an entity’s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance.
Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments – Disclosure and Presentation, revising and enhancing its disclosure requirements and carrying forward unchanged its presentation requirements for financial instruments. Sections 3862 and 3863 place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks.
Inventories
The Company adopted CICA Section 3031, Inventories, on January 1, 2008. This section provides further guidance on the measurement and disclosure requirements for inventories. Specifically, the new pronouncement requires inventories to be measured at the lower of cost and net realizable value, and provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. The adoption of the new standard did not have a material impact on the Company’s results of operations or financial position.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 29
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
Recent Pronouncements
The Company has assessed new and revised accounting pronouncements that have been issued but that are not yet effective and determined that the following may have a significant impact on the Company.
(i) |
The CICA issued the new Handbook Section 3064, “Goodwill and Intangible Assets”, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start- up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009. The Company is currently assessing the impact of this new standard on its consolidated financial statements. |
(ii) |
The CICA issued the new Handbook Section 1582, “Business Combinations”, Section 1601 “Consolidations” and Section 1602 “Non-controlling Interests” to harmonize with International Financial Reporting Standards (“IFRS”). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted. The Company is currently assessing the impact of these new standards. |
International Financial Reporting Standards (“IFRS”)
In 2006, the Canadian Accounting Standards Board (“AcSB”) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canada’s own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is presently undergoing a diagnostic assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. The Company will continue to monitor changes in IFRS during implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting.
3. MANAGEMENT OF CAPITAL RISK
The Company’s objective when managing capital is to maintain its ability to continue as a going concern while at the same time maximizing growth of its business and providing returns on its shareholders’ investments. The Company’s overall strategy with respect to capital risk management remains unchanged from the prior year ended December 31, 2007.
The Company’s capital structure consists of shareholders’ equity, comprising of issued capital, share capital to be issued, contributed surplus, retained earnings (deficit) and accumulated other comprehensive loss.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Company’s Board of Directors.
The Company’s investment policy is to invest its cash in highly liquid short term interest bearing investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. As a result of the funding received subsequent to year end, the Company expects that the capital resources available to it will be sufficient to carry out its development plans and operations for at least the next twelve months.
4. FINANCIAL INSTRUMENTS AND RISKS
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
30
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business and value added tax and other receivables. The Company sells its silver primarily to one international organization with a strong credit rating, payments of receivables are scheduled, routine and received within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.1 million as at December 31, 2008, a significant portion which is past due. The Company expects to recover the full amount.
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company’s credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and to support its expansion plans. The Company does not have any committed loan facilities. As at December 31, 2008, the Company has outstanding accounts payable and accrued liabilities of $17.3 million which are generally payable in 90 days or less.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940 (see Note 24(c)). Although, the Company does not have a history of operating profits, the Company believes it has sufficient cash on hand to meet operating requirements as they arise for at least the next twelve months.
The Company has an obligation regarding its purchase of First Silver Reserve (“FSR”) to make a final installment payment of $13,341,380, due on May 30, 2008, and to make simple interest payments at 6% per annum, payable quarterly on the outstanding vendor balance. In November 2007, an action was commenced by the Company and FSR against the previous majority shareholder of FSR (“Majority Shareholder”), who was a previous director, President and Chief Executive Officer of FSR, and a company he controls, whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer of FSR, he engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory requirements owed to FSR, which resulted in FSR not acquiring a mine. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
Pending resolution of the litigation set out above, the Company has withheld payment of quarterly installments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008 totaling $598,857 to the previous Majority Shareholder, and has maintained a reserve of cash in the amount of such installments. The Company has withheld payments of the final installment and interest, combined to a total of $13,940,237 due May 30, 2008 until such litigation has been resolved, and such date is presently not determinable. The Company filed on July 22, 2008 an irrevocable Letter of Credit with the Supreme Court of British Columbia as security for this matter.
The Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 3,814,049 | $ | 1,815,197 | $ | 1,998,852 | $ | - | $ | - | |||||
Purchase Obligations (1) | 5,984,323 | 5,984,323 | - | - | - | ||||||||||
Vendor Liability on Mineral Property (2) | 1,372,973 | 1,372,973 | - | - | - | ||||||||||
Total Contractual Obligations (3) | $ | 11,171,345 | $ | 9,172,493 | $ | 1,998,852 | $ | - | $ | - |
(1) |
Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project. |
(2) |
Vendor liability on mineral property totalling US$1,121,160 on the Quebradillas Mine at La Parrilla. |
(3) |
Amounts a bove do not include payments related to the Company's future asset retirement obligations (see Note 20), nor do they i nclude a ccounts payable a nd accrued liabilities of $17.3 million. |
Currency Risk
Financial instruments that impact the Companys net earnings or other comprehensive income due to currency fluctuations include Mexican peso denominated cash and cash equivalents, accounts receivable, investments in mining interests and accounts payable. The sensitivity of the Companys net earnings and other comprehensive income due to changes in the exchange rate between the Mexican peso and the Canadian dollar is included in the table below.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 31
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
Commodity Price Risk
Commodity price risk is the risk that movements in the spot price of silver have a direct and immediate impact on the Companys income or the value of its related financial instruments. The Company also derives by-product revenue from the sale of gold, lead and zinc. The Companys sales are directly dependent on commodity prices that have shown volatility and are beyond the Companys control.
The Company does not use other derivative instruments to hedge its commodity price risk.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
The Companys interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Companys interest bearing financial liabilities comprise fixed rate debt instruments and capital leases with terms to maturity ranging up to three years.
The sensitivity analyses below have been determined based on the undernoted risks at December 31, 2008.
(1) |
These sensitivities are hypothetical and should be used with caution, favourable hypothetical changes in the assumptions result in an increased amount and unfavourable hypothetical changes in the assumptions result in a decreased amount of net income and/or other comprehensive income. |
Fair Value Estimation
The Company’s financial instruments are comprised of cash and cash equivalents, marketable securities, accounts receivables, other receivables, derivative financial instruments, accounts payable and accrued liabilities, employee profit sharing payable, capital lease obligations and vendor liability.
Marketable securities and derivative instruments are carried at fair value. The fair values of accounts receivable, other receivables, accounts payable and accrued liabilities, unearned revenue, employee profit sharing payable and capital lease obligations approximate their carrying value due to the short term nature of these items. The fair value of the vendor liability and interest payable is not readily determinable due to the uncertainty with respect to the outcome of the litigation described in Note 10.
5. RESTRICTED CASH
On July 22, 2008, the Company secured its outstanding vendor liability (Note 10) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. The Letter of Credit is revolving with annual expiry on July 22. The cash and short term investments earn market rates of interest from which the 0.5% per annum cost of the Letter of Credit is deducted and the net interest remitted to the Company. The Restricted Cash is segregated from operating cash as the funds are not accessible by the Company pending the litigation described in Note 10.
6. OTHER RECEIVABLES
Details of the components of other receivables are as follows:
2008 | 2007 | |||
$ | $ | |||
Value added ta xes recoverable | 6,109,943 | 4,467,782 | ||
Other taxes recoverable | 406,536 | 1,286,967 | ||
Interest receivable | 188,111 | 16,325 | ||
Advances to employees | 67,240 | 11,288 | ||
Advances to s uppliers | 440,863 | 421,535 | ||
Other | - | 396,298 | ||
7,212,693 | 6,600,195 |
32
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
7. INVENTORIES
Inventories consist of the following:
2008 | 2007 | |||
$ | $ | |||
Silver coins and bullion | 247,368 | - | ||
Finished product - Doré and concentrates | 1,342,550 | 1,321,004 | ||
Ore in process | 196,169 | 246,289 | ||
Stockpile | 1,631,625 | - | ||
Materials and supplies | 1,523,628 | 1,341,587 | ||
4,941,340 | 2,908,880 |
8. PREPAID EXPENSES AND OTHER
As at December 31, 2008, the Company had futures contracts for the receipt of 100,000 ounces of silver at a price of US$10.305 per ounce and sold call options for 50,000 ounces at US$13.00 per ounce. The Company provides deposits in connection with these contracts. The fair value of these contracts and deposits at December 31, 2008 was $490,431 (2007-$nil).
9. MINING INTERESTS
Expenditures incurred on mining interests, net of accumulated depletion, are as follows:
2008 | 2007 | |||||||||||
Accumulated | Accumulated | |||||||||||
depreciation | depreciation | |||||||||||
and | and | |||||||||||
Cost | depletion | Net | Cost | depletion | Net | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Mining properties | 167,130,756 | 14,436,791 | 152,693,965 | 138,832,672 | 11,202,175 | 127,630,497 | ||||||
Plant and equipment | 48,271,432 | 6,144,052 | 42,127,380 | 31,133,655 | 2,229,705 | 28,903,950 | ||||||
215,402,188 | 20,580,843 | 194,821,345 | 169,966,327 | 13,431,880 | 156,534,447 |
A summary of the net book value of mining properties is as follows:
2008 | 2007 | |||||||||||
Non- | Plant and | |||||||||||
Depletable | Depletable | Subtotal | Equipment | Total | Total | |||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||
Producing properties | ||||||||||||
La Encantada (a) | 6,645,503 | - | 6,645,503 | 18,320,120 | 24,965,623 | 10,086,394 | ||||||
La Parrilla (b) | 16,606,554 | - | 16,606,554 | 16,022,373 | 32,628,927 | 24,517,121 | ||||||
San Martin (c) | 26,681,678 | - | 26,681,678 | 7,784,887 | 34,466,565 | 19,468,380 | ||||||
49,933,735 | - | 49,933,735 | 42,127,380 | 92,061,115 | 54,071,895 | |||||||
Exploration properties | ||||||||||||
La Encantada (a) | - | 2,858,043 | 2,858,043 | - | 2,858,043 | 1,728,689 | ||||||
La Parrilla (b) | - | 8,722,897 | 8,722,897 | - | 8,722,897 | 4,717,254 | ||||||
San Martin (c) (1) | - | 77,582,247 | 77,582,247 | - | 77,582,247 | 87,749,359 | ||||||
Candamena | - | - | - | - | - | 700,000 | ||||||
Del Toro (d) (2) | - | 11,881,557 | 11,881,557 | - | 11,881,557 | 6,804,780 | ||||||
Cuitaboca (e) | - | 1,715,486 | 1,715,486 | - | 1,715,486 | 762,470 | ||||||
- | 102,760,230 | 102,760,230 | - | 102,760,230 | 102,462,552 | |||||||
49,933,735 | 102,760,230 | 152,693,965 | 42,127,380 | 194,821,345 | 156,534,447 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
(2) |
The ore from Del Toro is processed via the La Parrilla Silver Mine. |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 33
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
A summary of plant and equipment is as follows:
2008 | 2007 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
La Encantada Silver Mine | 19,541,421 | 1,221,301 | 18,320,120 | 9,451,422 | 301,669 | 9,149,753 | ||||||
La Parrilla Silver Mine | 18,590,746 | 2,568,373 | 16,022,373 | 14,763,264 | 1,063,330 | 13,699,934 | ||||||
San Martin Silver Mine | 10,139,265 | 2,354,378 | 7,784,887 | 6,918,969 | 864,706 | 6,054,263 | ||||||
Used in Mining Operations | 48,271,432 | 6,144,052 | 42,127,380 | 31,133,655 | 2,229,705 | 28,903,950 | ||||||
Corporate office equipment | 712,525 | 229,475 | 483,050 | 528,865 | 96,556 | 432,309 | ||||||
48,983,957 | 6,373,527 | 42,610,430 | 31,662,520 | 2,326,261 | 29,336,259 |
Details by specific assets are as follows:
2008 | 2007 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Land | 2,302,273 | - | 2,302,273 | 2,309,428 | - | 2,309,428 | ||||||
Automobile | 427,817 | 140,703 | 287,114 | 266,020 | 41,256 | 224,764 | ||||||
Buildings | 6,250,748 | 399,982 | 5,850,766 | 5,971,902 | 182,714 | 5,789,188 | ||||||
Machinery and equipment | 27,744,172 | 5,053,327 | 22,690,845 | 21,898,609 | 1,922,611 | 19,975,998 | ||||||
Computer equipment | 566,511 | 239,162 | 327,349 | 372,549 | 91,386 | 281,163 | ||||||
Office equipment | 600,413 | 447,405 | 153,008 | 219,127 | 62,625 | 156,502 | ||||||
Leasehold improvements | 320,304 | 92,949 | 227,355 | 308,183 | 25,669 | 282,514 | ||||||
Construction in progress | 10,771,720 | - | 10,771,720 | 316,702 | - | 316,702 | ||||||
48,983,958 | 6,373,528 | 42,610,430 | 31,662,520 | 2,326,261 | 29,336,259 |
Mineral property options paid and future option payments are due as follows:
Note 9(d) | Note 9(e) | ||||||||
Del Toro | Cuitaboca | Total | |||||||
US$ | US$ | US$ | |||||||
Paid as at December 31, 2008 | 5,887,500 | 925,000 | 6,812,500 | ||||||
Payable as at March 31, 2009 | - | - | - | ||||||
Payable May 25, 2009 | - | 250,000 | 250,000 | ||||||
Payable June 6, 2009 | 37,500 | - | 37,500 | ||||||
Payable as at June 30, 2009 | 37,500 | 250,000 | 287,500 | ||||||
Payable as at September 30, 2009 | 37,500 | 250,000 | 287,500 | ||||||
Payable November 25, 2009 | - | 275,000 | 275,000 | ||||||
Payable December 6, 2009 | 62,500 | - | 62,500 | ||||||
Payable as at December 31, 2009 | 100,000 | 525,000 | 625,000 | ||||||
Payable in 2010 and beyond | 225,000 | 1,050,000 | 1,275,000 | ||||||
Total Future Option Payments | 325,000 | 1,575,000 | 1,900,000 |
(a) La Encantada Silver Mine, Coahuila State
The La Encantada Silver Mine is a producing underground mine located in Northern México approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz de Boquillas del Cármen, is 45 kilometres away via dirt road. The La Encantada Silver Mine consists of a 1,000 tonnes per day flotation plant, an airstrip, and other facilities, including a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.
34
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
(b) La Parrilla Silver Mine, Durango State
The La Parrilla Silver Mine is a group of producing underground mines consisting of the La Rosa/Rosarios/La Blanca connected mines, the San Marcos Mine and the Quebradillas Mine, located approximately 65 kilometres southeast of the city of Durango, México. It includes mining equipment, a 420 tonne-per-day cyanidation plant, a 420 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
During the year ended December 31, 2008, the Company amended payment terms to an optionor regarding the outstanding payments as at December 31, 2008 on the Quebradillas Mine. In regards to the aggregate of US$749,000 which was previously payable in 2008, the Company has agreed to make a series of payments in 2009 totaling US$1,121,160 (Cdn$1,372,973) which includes interest calculated at a rate of the three month LIBOR plus 3%.
There is a net smelter royalty (“NSR”) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. The Company has paid US$69,000 (2007 – US$nil) relating to royalties.
(c) San Martin Silver Mine, Jalisco State
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, México. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 950 tonnes per day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.
(d) Del Toro Silver Mine (formerly referred as the “Chalchihuites Group of Properties”), Zacatecas State
The Del Toro Silver Mine, formerly referred as the Chalchihuites Group of Properties, is located 60 km to the southeast from the Company’s La Parrilla Silver Mine and consists of a 320 contiguous hectare land package which covers the Perseverancia area and the San Juan area. In 2004, the Company signed several option agreements which covered a total land area of 487 hectares located in the Chalchihuites Mining District, in the municipality of Chalchihuites, located 150 km to the northwest of Zacatecas City in the Western portion of Zacatecas State. In January 2007, the Company exercised its option to acquire the San Juan Silver Mine, and in June 2007 exercised its option to acquire the Perseverancia Silver Mine. During the year ended December 31, 2007, the Company acquired 100 hectares of surface rights covering the area surrounding the San Juan area.
In September 2007, the Company took 100% ownership of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package.
Regarding the final US$2 million purchase payment due June 8, 2007, US$1 million was paid in June 2007 and the balance was released from trust on May 13, 2008 upon registration of the property concessions in the name of the Company with the Mexican mining registry.
In March 2008, the Company paid and executed one outstanding option agreement, entered into on August 29, 2005, to acquire the La Esperanza and the San Rafael mining concessions comprising approximately 29 hectares in the Chalchihuites area for a total purchase price of US$175,000 payable over a three-year period (US$65,000 paid) during the year ended December 31, 2008. A finder’s fee in the aggregate of $7,365 was paid to a director of the Company.
(e) Cuitaboca Silver Project, Sinaloa State
The Cuitaboca Silver Project, located in the State of Sinaloa, México, consists of an option to acquire a 5,134 hectare land package. This option was acquired in May 2006 through the acquisition of First Silver and its wholly owned subsidiary, El Pilon.
During the year ended December 31, 2008, the Company paid US$375,000 (2007 – US$275,000) related to mineral property options. The Company has an option agreement dated November 25, 2004 with Consorcio Minero Latinamericano, S.A. de C.V., a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims covering 3,718 hectares located in the State of Sinaloa, México. To purchase the claims, the Company must pay a total of US$2,500,000 in staged cash payments through November 25, 2010 (US$925,000 paid as at December 31, 2008). A 2.5% NSR on the claims may be purchased for an additional US$500,000 at any time during the term of the agreement or for a period of 12 months thereafter.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 35
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
10. VENDOR LIABILITY AND INTEREST
First Majestic's aggregate purchase price of $53,365,519, on acquisition of First Silver Reserves Inc. (FSR) in May 2006, was payable to the Majority Shareholder in three instalments. The first instalment of $26,682,759, representing 50% of the purchase price, was paid on closing of the acquisition on May 30, 2006. An additional 25% instalment of $13,341,380, was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum, is payable quarterly on the outstanding vendor balance.
In November 2007, an action was commenced by the Company and FSR against the majority shareholder of FSR (Majority Shareholder), who was a previous director, President & Chief Executive Officer of FSR, and a company he controls, whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer, he engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to FSR, which resulted in FSR not acquiring a mine. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
Pending resolution of the litigation set out above, the Company has withheld payments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008 to the previous Majority Shareholder. The Company is withholding payment of the final instalment of $13,341,380 due May 30, 2008 and the above interest payments, an amount totalling $13,940,237. On July 22, 2008, the Company posted an irrevocable Letter of Credit with the Supreme Court of British Columbia pending the outcome which is not anticipated for at least one year or until such litigation has been resolved.
On March 14, 2008, a statement of defence and counter-claim was filed in respect of the action commenced by the Company. Pursuant to the counterclaim, a claim has been made for payment of an aggregate of $598,857 in respect of interest payments due under the share purchase agreement dated April 3, 2006, which the Company has withheld under such agreement. The Majority Shareholder further claims unquantified damages, costs and interest. The Company believes that the issues raised in the counterclaim will turn on the success of the Company's action against the defendant; however, the outcome of this litigation is not presently determinable.
11. DEPOSITS ON LONG-TERM ASSETS
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
2008 | 2007 | |||
$ | $ | |||
Property payment, Del Toro (Note 9(d)) | - | 991,565 | ||
Deposit on services | - | 216,923 | ||
Deposit on equipment | 1,986,517 | 73,542 | ||
1,986,517 | 1,282,030 |
12. ACQUISITION OF MINERA LA ENCANTADA S.A. DE C.V.
In December 2006, the Company signed a letter of agreement to acquire 100% of the issued and outstanding shares of Minera La Encantada S.A. de C.V. (La Encantada), a Mexican mining company owned by Minas Peñoles S.A. de C.V. and Industrias Peñoles S. A. de C.V. for the purchase price of US$3,250,000 and a 4% NSR. La Encantadas primary asset is the La Encantada Silver Mine in Coahuila State, México. A non-refundable deposit of US$1,000,000 was made on the date of the agreement and the balance was paid upon closing on March 20, 2007. Pursuant to the terms of the agreement, the Company exercised its option to acquire the 4% NSR in exchange for 382,582 common shares at a value of $5.23 per share and 191,291 warrants exercisable at a price of $6.81 per share for a two-year period. The warrants were valued at $333,443 using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 4.02%, estimated volatility of 72%, expected life of 2 years and expected dividend yield of 0%).
36
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
The final allocation of the purchase price to the assets acquired and liabilities assumed is as follows:
Consideration: | $ | |
Cash paid (US$3,250,000) | 3,798,900 | |
382,582 common shares issued | 2,037,249 | |
Fair value of 191,291 s hare purchase warrants issued | 333,444 | |
6,169,593 | ||
Allocation of purchase price: | ||
Net working capital | - | |
Proven and Probable Mineral Reserves i n Production | 3,061,300 | |
Plant and equipment | 7,300,268 | |
Asset retirement obligation | (2,327,800 | ) |
Future i ncome taxes | (1,864,175 | ) |
6,169,593 |
The final determination of the fair value of the La Encantadas assets and liabilities acquired is based on the fair value of the assets acquired which includes an independent valuation for certain assets and liabilities, and an independent purchase price allocation assessment.
In January 2008, La Encantada was amalgamated into Desmin with both companies continuing forward as Minera La Encantada S.A. de C.V.
13. SHARE CAPITAL
(a) Authorized - unlimited number of common shares without par value
Issued | Year ended December 31, 2008 | Year ended December 31, 2007 | ||||||||||
Shares | $ | Shares | $ | |||||||||
Balance - beginning of the period | 63,042,160 | 145,699,783 | 51,698,630 | 103,466,619 | ||||||||
Issued during the period | ||||||||||||
For cash: | ||||||||||||
Exercise of options | 436,650 | 1,398,566 | 1,407,500 | 3,022,400 | ||||||||
Exercise of warrants | 7,500 | 31,875 | 2,668,823 | 6,876,102 | ||||||||
Public offering of units (i) | 8,500,000 | 40,144,471 | - | - | ||||||||
For exercise of special warrants (ii) | - | - | 6,883,000 | 29,221,643 | ||||||||
For First Silver Arrangement (Note 13(d)) | 1,861,500 | 9,009,660 | 1,625 | 7,865 | ||||||||
For acquisition of La Encantada (Note 12) | - | - | 382,582 | 2,000,904 | ||||||||
Transfer of contributed surplus for | ||||||||||||
stock options exercised | - | 363,990 | - | 1,104,250 | ||||||||
Balance - end of the period | 73,847,810 | 196,648,345 | 63,042,160 | 145,699,783 |
(i) |
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 Units at an issue price of $5.35 per Unit for net proceeds to the Company of $40,144,471. Each Unit consisted of one common share in the capital of the Company and one-half of one Common Share purchase warrant. Each whole Common Share purchase warrant entitles the holder to acquire one additional Common Share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 Common Shares (the "Option Shares") at a price of $5.07 per Option Share and up to an additional 637,500 Warrants at a price of $0.56 per Warrant. The underwriters did not exercise their option to purchase any Option Shares, but did acquire the 637,500 Warrants (see Note 13(c)). |
(ii) |
On May 10, 2007, the Company completed a public offering with a syndicate of underwriters who purchased 6,883,000 Special Warrants at a price of $5.00 per Special Warrant for net proceeds to the Company of $29,221,643. Each Special Warrant entitled the holder to receive, without further consideration, upon exercise or deemed exercise, one common share and one half common share purchase warrant. Each whole share purchase warrant was exercisable at a price of $6.50 expiring on November 10, 2008. The Underwriters received a commission of 5.5% of the gross proceeds of the offering at closing. The Company filed a short form prospectus dated July 25, 2007 qualifying the distribution of 6,883,000 common shares and 3,441,500 share purchase warrants issued upon the exercise of 6,883,000 Special Warrants. |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 37
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
(b) Stock Options
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the 2008 Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the year ended December 31, 2008, are as follows:
Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||
Weighted | Weighted | |||||
Average | Weighted | Average | Weighted | |||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |
Balance, beginning of the period | 5,892,500 | 4.04 | 2.75 years | 5,052,500 | 3.30 | 2.34 years |
Granted | 2,672,500 | 2.93 | 3.67 years | 2,680,000 | 4.50 | 3.83 years |
Exercised | (436,650) | 3.20 | 0.51 years | (1,407,500) | 2.15 | 0.22 years |
Forfeited or expired | (1,265,850) | 3.05 | 0.45 years | (432,500) | 4.32 | 0.34 years |
Balance, end of the period | 6,862,500 | 3.84 | 2.78 years | 5,892,500 | 4.04 | 2.75 years |
The following table summarizes both the stock options outstanding and those that are exercisable at December 31, 2008:
Price | Options | Options | |||
$ | Outstanding | Exercisable | Expiry Dates | ||
3.28 | 12,500 | 12,500 | June 13, 2009 | ||
4.32 | 630,000 | 630,000 | December 6, 2009 | ||
5.50 | 200,000 | 200,000 | February 1, 2010 | ||
4.64 | 75,000 | 56,250 | June 1, 2010 | ||
4.17 | 100,000 | 75,000 | August 8, 2010 | ||
3.72 | 30,000 | 22,500 | September 24, 2010 | ||
3.98 | 20,000 | 13,750 | October 17, 2010 | ||
4.45 | 660,000 | 495,000 | October 30, 2010 | ||
4.34 | 50,000 | 37,500 | November 1, 2010 | ||
4.42 | 25,000 | 18,750 | November 12, 2010 | ||
4.34 | 200,000 | 150,000 | December 5, 2010 | ||
4.42 | 50,000 | 25,000 | February 20, 2011 | ||
4.65 | 100,000 | 50,000 | March 25, 2011 | ||
4.19 | 30,000 | 15,000 | April 26, 2011 | ||
4.02 | 100,000 | 50,000 | May 15, 2011 | ||
4.30 | 450,000 | 450,000 | June 19, 2011 | ||
4.67 | 130,000 | 32,500 | July 4, 2011 | ||
4.15 | 300,000 | 75,000 | July 28, 2011 | ||
3.62 | 735,000 | 183,750 | August 28, 2011 | ||
1.60 | 200,000 | 50,000 | October 8, 2011 | ||
1.27 | 125,000 | 31,250 | October 17, 2011 | ||
4.32 | 245,000 | 245,000 | December 6, 2011 | ||
4.41 | 400,000 | 400,000 | December 22, 2011 | ||
5.00 | 155,000 | 155,000 | February 7, 2012 | ||
4.65 | 25,000 | 25,000 | June 20, 2012 | ||
4.34 | 925,000 | 693,750 | December 5, 2012 | ||
3.62 | 100,000 | 25,000 | August 28, 2013 | ||
1.44 | 240,000 | 60,000 | November 10, 2013 | ||
1.56 | 550,000 | 137,500 | December 17, 2013 | ||
6,862,500 | 4,415,000 |
During the year ended December 31, 2008, the Company granted stock options to directors, officers and employees to purchase 2,672,500 shares of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, $3,680,111 has been recorded as an expense in the year ended December 31, 2008 relating to all stock options.
38
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
The weighted average fair value of stock options issued at the date of grant was $1.05 per share during the year ended December 31, 2008 (2007 - $1.39) .
The fair value of stock options granted in the period is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
2008 | 2007 | |
Risk-free interest rate | 2.4% | 4.0% |
Estimated volatility | 64.9% | 56.3% |
Expected life | 2.35 years | 1.7 years |
Expected dividend yield | 0% | 0% |
Option-pricing models require the use of estimates and assumptions including the expected volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide a reliable measure of the fair value of the Companys stock options.
(c) Share Purchase Warrants
The changes in share purchase warrants for the year ended December 31, 2008 are as follows:
Year ended December 31, 2008 | Year ended December 31, 2007 | |||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||
Average | Average | Average | Average | |||||||||||||||
Number of | Exercise Price | Term to | Number of | Exercise Price | Term to | |||||||||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||||||||
Balance, beginning of the period | 5,845,240 | 5.66 | 0.89 years | 8,766,271 | 4.02 | 1.12 years | ||||||||||||
Issued (i) (ii) | 4,887,500 | 7.00 | 2.00 years | 3,632,791 | 6.52 | 1.32 years | ||||||||||||
Exercised | (7,500 | ) | 4.25 | 0.86 years | (2,668,823 | ) | 2.58 | 0.33 years | ||||||||||
Cancelled or expired | (5,646,449 | ) | 5.62 | 0.00 years | (3,884,999 | ) | 4.89 | 0.00 years | ||||||||||
Balance, end of the period | 5,078,791 | 6.99 | 1.19 years | 5,845,240 | 5.66 | 0.89 years |
(i) |
On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector implied volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2.38 million was credited to contributed surplus. |
(ii) |
On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector implied volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus. |
The following table summarizes the share purchase warrants outstanding at December 31, 2008:
Exercise Price | Warrants | |
$ | Outstanding | Expiry Dates |
6.81 | 191,291 | March 20, 2009 |
7.00 | 4,887,500 | March 25, 2010 |
5,078,791 |
(d) Share Capital to be Issued
On June 5, 2006, pursuant to the acquisition of First Silver Reserve, Inc. and its San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic. Under the terms of the plan of arrangement (the Arrangement), First Majestic acquired the remaining First Silver shares in consideration for either: (i) the issuance of one common share of First Majestic for each two First Silver shares acquired; or (ii) a cash payment of $2.165 per share of First Silver.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 39
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
The former shareholders of First Silver had until December 13, 2006 to deposit their completed Letters of Transmittal and to elect to receive either cash or shares of First Majestic. At December 31, 2006, the former shareholders of First Silver tendered 718,404 common shares of First Silver for cash, and another 9,583,813 shares of First Silver were tendered for shares of First Majestic. The remaining 3,840,504 shares of First Silver not tendered for either cash or shares of First Majestic may now only be tendered for shares of First Majestic.
At December 31, 2006, the Company recorded $9,294,020 as share capital to be issued, representing 1,920,252 shares of First Majestic issuable in exchange for 3,840,504 shares of First Silver not tendered for cash and not yet tendered for First Majestic shares by the former shareholders of First Silver. During 2007 the prior shareholders of First Silver were issued 1,625 shares in exchange for 3,250 shares of First Silver. In 2008 the prior shareholders of First Silver were issued a further 1,861,500 shares in exchange for 3,723,000 shares of First Silver. At December 31, 2008, the prior shareholders of First Silver had not yet exchanged a remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
14. REVENUES
Details of the components of revenue are as follows:
Years Ended | ||||||||
December 31, | ||||||||
2008 | 2007 | |||||||
$ | % | $ | % | |||||
Gross revenues - silver Doré bars and concentrates | 56,102,459 | 100.0% | 45,837,983 | 100.0% | ||||
Less: refining, smelting and transportation charges | (11,777,572 | ) | 21.0% | (2,913,063 | ) | 6.4% | ||
Net revenue | 44,324,887 | 79.0% | 42,924,920 | 93.6% |
15. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2008, the Company:
a) |
incurred $248,025 (2007 - $197,696) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
b) |
incurred $310,920 (2007 - $478,206) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in México pursuant to a consulting agreement. |
c) |
incurred $8,010,843 (2007 - $1,728,222) of service fees with a mining services company sharing our premises in Durango México. This related party provides management services and pays mining contractors who provide services at the Company’s mines in México. Of the fees incurred, $3,122,130 was unpaid at December 31, 2008 (December 31, 2007 - $94,724). This relationship was terminated in February 2009. |
d) |
incurred $7,365 (2007 - $254,742) to a director of the Company as finder’s fees upon the completion of certain option agreements relating to the Del Toro Silver Mine. |
e) |
provided a loan of US$30,000 (2007-$nil) to a director of the Company. This loan was fully repaid subsequent to December 31, 2008. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
16. SEGMENTED INFORMATION
The Company considers that it has three operating segments all of which are located in México, and one corporate segment with locations in Canada and México. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property, the Cuitaboca Silver Project and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
40
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
These reportable operating segments are summarized in the table below.
Year ended December 31, 2008 | ||||||||||
First Majestic | Corporate | |||||||||
El Pilon | Plata | La Encantada | and other | |||||||
operations | operations | operations | eliminations | Total | ||||||
$ | $ | $ | $ | $ | ||||||
Silver s ales | 11,707,631 | 15,090,853 | 17,145,790 | 380,613 | 44,324,887 | |||||
Cost of sales | 10,083,947 | 11,345,291 | 8,613,007 | 377,170 | 30,419,415 | |||||
Amortization, depreciation and accretion | 1,280,949 | 1,467,927 | 620,827 | - | 3,369,703 | |||||
Depletion | 1,544,162 | 737,087 | 752,888 | - | 3,034,137 | |||||
Mine operating earnings (loss) | (1,201,427 | ) | 1,540,548 | 7,159,068 | 3,443 | 7,501,632 | ||||
Net interest, other income (expense) and foreign exchange | (2,209,177 | ) | (2,883,908 | ) | (1,363,857 | ) | 3,120,262 | (3,336,680 | ) | |
Income tax (recovery) expense | 27,030 | (897,488 | ) | 87,976 | (1,136,972 | ) | (1,919,454 | ) | ||
Net income (loss) | (3,437,634 | ) | (445,872 | ) | 5,707,235 | (6,968,513 | ) | (5,144,784 | ) | |
Capital expenditures | 12,003,673 | 19,636,692 | 16,299,105 | 173,844 | 48,113,314 | |||||
Total assets | 118,741,809 | 58,033,744 | 33,087,571 | 21,296,525 | 231,159,649 | |||||
Year ended December 31, 2007 | ||||||||||
First Majestic | Corporate | |||||||||
El Pilon | Plata | La Encantada | and other | |||||||
operations | operations | operations | eliminations | Total | ||||||
$ | $ | $ | $ | $ | ||||||
Silver sales | 16,365,358 | 11,455,068 | 15,104,494 | - | 42,924,920 | |||||
Cost of sales | 12,276,345 | 8,110,761 | 6,602,194 | - | 26,989,300 | |||||
Amortization, depreciation and accretion | 991,000 | 859,951 | 666,241 | 93,518 | 2,610,710 | |||||
Depletion | 5,392,958 | 747,648 | 176,528 | - | 6,317,134 | |||||
Mine operating earnings (loss) | (2,294,946 | ) | 1,736,707 | 7,659,533 | (93,518 | ) | 7,007,776 | |||
Net interest, other income (expense) and foreign exchange | (75,529 | ) | 98,771 | (898,321 | ) | 1,052,011 | 176,932 | |||
Income tax (recovery) expense | (548,007 | ) | 1,158,106 | 774,548 | - | 1,384,647 | ||||
Net income (loss) | (3,460,404 | ) | (4,176,781 | ) | 5,490,100 | (5,083,037 | ) | (7,230,122 | ) | |
Capital expenditures | 4,089,862 | 18,762,747 | 17,757,365 | 424,562 | 41,034,536 | |||||
Total assets | 117,199,424 | 46,404,153 | 22,060,269 | (660,995 | ) | 185,002,851 |
17. INCOME TAXES
The Company has approximately $17.8 million (2007 - $14.8 million) of non-capital losses that may be available for future tax purposes and expire commencing 2009 through 2028. The Company has capital losses available for deduction against future capital gains of $4.1 million (2007 - $0.5 million) that may be available for tax purposes in Canada. These capital losses may be carried forward indefinitely. Management believes that uncertainty exists regarding the realization of these future tax assets and therefore a valuation allowance has been recorded.
In addition, subject to certain restrictions, the Company has tax pools of approximately $47.6 million available to offset future taxable income in México.
The reconciliation of the income tax provision computed at statutory rates to the reported income tax provision is as follows:
2008 | 2007 | |||
$ | $ | |||
Combined federal and provincial income tax rate | 31.00% | 34.12% | ||
Income tax benefit computed at Canadian statutory rates | 2,189,914 | 1,994,476 | ||
Foreign tax rates different from statutory rates | (127,363 | ) | (109,488 | ) |
Non-deductible expenses | (2,106,551 | ) | (4,916,662 | ) |
Change in valuation allowance | 2,032,710 | 705,842 | ||
Other | (69,256 | ) | 941,185 | |
1,919,454 | (1,384,647 | ) |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 41
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
Significant components of the Company's future tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:
2008 | 2007 | |||
$ | $ | |||
Future income tax assets | ||||
Net tax losses carried forward | 16,446,519 | 7,578,741 | ||
Other assets/liabilities | 1,511,108 | 1,032,285 | ||
Share issue costs | 1,684,688 | 1,549,472 | ||
Capital losses | 529,968 | - | ||
Valuation allowance | (6,886,775 | ) | (4,854,065 | ) |
Net future income tax assets | 13,285,508 | 5,306,433 | ||
Future income tax liabilities | ||||
Excess of carrying value of mineral property assets over tax value | (43,975,595 | ) | (37,155,115 | ) |
Future income tax liabilities, net | (30,690,087 | ) | (31,848,682 | ) |
18. OTHER LONG TERM LIABILITIES
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the fully agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the advance received from the bank, but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $832,769 (2007-$1,207,332).
19. CAPITAL LEASE OBLIGATIONS
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for US$11.2 million of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. In December 2008, the Company negotiated a restructuring of the outstanding principal balance of US$2,884,655 plus 9% interest to February 1, 2009, to be paid over twenty four monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance and secured by a guarantee from First Majestic (the parent company).
The following is a schedule of future minimum lease payments under the capital leases at December 31, 2008:
$US | $CA | |||
2009 Gross lease payments | 1,482,277 | 1,815,197 | ||
2010 Gross lease payments | 1,511,289 | 1,850,724 | ||
2011 Gross lease payments | 120,960 | 148,128 | ||
3,114,526 | 3,814,049 | |||
Less: interest | (270,436 | ) | (331,176 | ) |
Total payments, net of interest | 2,844,090 | 3,482,873 | ||
Less: current portion | (1,293,873 | ) | (1,584,477 | ) |
Capital Lease Obligation | 1,550,217 | 1,898,396 |
20. ASSET RETIREMENT OBLIGATIONS
Year ended | Year ended | |||
December 31, 2008 | December 31, 2007 | |||
$ | $ | |||
Balance, beginning of the period | 2,290,313 | 3,898,085 | ||
Amounts a ssumed on a cquistions | - | 2,305,800 | ||
Effect of change in estimates | 2,979,726 | (3,493,413 | ) | |
Interest a ccretion | 200,477 | 208,448 | ||
Effect of translation of foreign currencies | (166,147 | ) | (628,607 | ) |
5,304,369 | 2,290,313 |
42
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | 2008 | 2007 | ||||
Date | $ | $ | ||||
La Encantada Silver Mine | 2018 | 1,865,674 | 307,271 | |||
La Parrilla Silver Mine | 2022 | 1,609,602 | 360,000 | |||
San Martin Silver Mine | 2016 | 1,829,093 | 1,623,042 | |||
5,304,369 | 2,290,313 |
During the year ended December 31, 2008, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $7.27 million (US$5.94 million), which has been discounted using a credit adjusted risk free rate of 8.5%, of which $2.46 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.31 million of the obligation relates to the San Martin Silver Mine, and $2.51 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
21. CONTINGENT LIABILITIES
In February 2004, an action was commenced against the Company by the optionors of the Wekusko Property in Canada whereby the optionors are seeking an amount of $43,500 cash, 30,000 common shares of the Company and an entitlement to exercise an option to purchase 100,000 shares of the Company at $0.35 per share. The Company believes it has substantial defences to the claim; however the outcome of this litigation is not presently determinable.
Under Mexican regulations, the Company may be obligated to remit taxes to the government on payments made for the acquisition of mineral claims in the event that the recipients of such payments fail to make the required tax remittances relating to those payments. Although unlikely, the maximum potential remittance is approximately $4.0 million however the Company believes it has substantial defences to any claims.
22. COMMITMENTS
The Company has to make certain option payments as described in Note 9, in connection with the acquisition of its mineral property interests.
The Company is also obligated to make certain interest and cash payments, as described in Note 10, in connection with the acquisition of a controlling interest in FSR, subject to litigation.
Under Mexican regulations, employees (excluding directors and senior management) are eligible for a profit sharing bonus of 10% of annual pre-tax profit. The amount of the profit sharing bonus accrued as a component of cost of sales for the year ended December 31, 2008 is $nil (2007 - $112,611).
In May 2007, the Company entered into an office premises lease for a period of four years and eight months commencing August 1, 2007. The premises lease commits the Company to a net annual rental expense of $48,700 in 2007, $116,880 in 2008 through 2011, and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at December 31, 2008, the Company is committed to approximately $5.9 million relating to the La Encantada Project which is currently being constructed.
The Company is committed to making severance payments amounting to US$520,000 (2007- US$540,000) to four officers in the event that there is a change of control of the Company.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 43
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
23. OTHER NON-CASH FINANCING AND INVESTING ACTIVITIES
2008 | 2007 | |||
$ | $ | |||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||
Fair value of warrants issued for the acquisition of La Encantada (Note 12) | - | 333,443 | ||
Fair value of warrants issued upon conversion of special warrants | - | 5,193,357 | ||
Fair value of warrants upon completion of public offering | 2,737,000 | - | ||
Issuance of shares for First Silver Arrangement (Note 13) | 9,009,660 | 7,865 | ||
Issuance of shares for acquisition of La Encantada | - | 2,000,904 | ||
Transfer of contributed surplus to common shares for options exercised (Note 13) | 363,990 | 1,104,250 | ||
Conversion of special warrants to common shares | - | 29,221,643 | ||
Assets acquired by capital lease | 1,621,135 | 1,733,078 |
24. SUBSEQUENT EVENTS
Subsequent to December 31, 2008:
(a) |
On January 5, 2009, the Company issued 6,250 common shares at a price of $1.27 per share pursuant to the exercise of stock options. |
(b) |
On January 12, 2009, the Company executed two financing arrangements with an equipment vendor, committing the Company for a total of approximately US$2 million with terms of 36 monthly lease payments of US$38,420 consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of US$34,600 consisting of principal only. |
(c) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The underwriters have an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine, including the completion of a 3,500 tonne-per-day cyanidation plant, and the remainder for general working capital. |
(d) |
On March 13, 2009, the Company executed a restructuring agreement for the balance of US$2.9 million payable to an equipment lease vendor, committing the Company to make 24 monthly lease payments of approximately US$130,000 consisting of principal plus 9% interest on outstanding balances. |
(e) |
On March 20, 2009, 191,291 share purchase warrants exercisable at a price of $6.81 per share expired unexercised. |
44
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
MANAGEMENT’S DISCUSSION AND ANALYSIS
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently charac terized by words such as “plan”, “expect”, “forecast”, “ project”, ”intend”, ”believe”, ”anticipate”, “outlook” and other similar words, or statements that certain events or conditions “may” or “will” occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncer tainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the po ssibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Company’s Annual Information Form under the heading “Risk Factors”. The Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (“First Majestic” or “the Company”) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in México. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively. The common shares are also quoted on the “Grey Market” (Pink Sheets) in the U.S. under the symbol “FRMSF” and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol “FMV”. Silver producing operations of the Company are carried out through three operating mines: the La Parrilla, La Encantada, and San Martin mines.
The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2008 and 2007. Additional information on the Company, including the Company’s Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its two wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”), and First Silver Reserve Inc (“First Silver”), as well as the indirect wholly owned subsidiaries of CFM: First Majestic Plata, S.A. de C.V. (“FM Plata”), Mineral El Pilón, S.A. de C.V. (“El Pilón”), and Minera La Encantada, S.A. de C.V. (“La Encantada”). First Silver underwent a wind up and distribution of assets and liabilities to the Company in December 2007; however, First Silver has not been dissolved pending the outcome of litigation described herein.
QUALIFIED PERSONS
Unless otherwise indicated, Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the Qualified Person for the Company and has reviewed the technical information herein. National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine can be found on the Company’s web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of March 31, 2009, unless otherwise stated.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 45
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
FINANCIAL PERFORMANCE AND HIGHLIGHTS
|
Total annual production for 2008 increased by 18% to 4,229,998 ounces of silver equivalents, including 3,654,698 ounces of silver, 1,661 ounces of gold, 7,457,707 pounds of lead and 425,710 pounds of zinc. This compares to the 3,584,265 ounces of silver equivalents produced in 2007 consisting of 3,170,139 ounces of silver, 2,049 ounces of gold and 2,924,146 pounds of lead. |
|
Gross revenue for 2008, prior to smelting charges, was $56.1 million compared to $45.8 million in 2007, an increase of 22.4%. In 2008 the Company shipped 3,590,202 ounces of silver equivalent at an average price of $15.63 per ounce (US$14.66) compared to 3,461,560 ounces in 2007 at an average price of $13.24 (US$12.33). |
|
Due to low metal prices in the latter half of 2008, the Company elected to carry 553,923 ounces of equivalent silver in inventory over the year end from its annual production. The inventory at year end consisted of 429,652 ounces in stockpiles, 101,755 ounces of finished product and 22,516 ounces in process. These ounces are expected to be sold throughout 2009. |
|
Sales revenue (after smelting, refining and transportation charges) for the year ended December 31, 2008 was $44.3 million; an increase of 3% compared to $42.9 million for the year ended December 31, 2007. Smelting, refining and transportation charges increased from $2.9 million in 2007 to $11.8 million in 2008. A primary focus of the Company in 2009 is to increase its scale of operations and to shift its mix of production from concentrates toward doré production to reduce its smelting charges and increase net revenues. Average smelting and transportation charges for doré in 2008 were US$0.39 per equivalent ounce whereas for concentrates were US$4.78 per equivalent ounce (see Non-GAAP measures below). |
|
Direct cash costs per ounce of silver (see Non-GAAP measures below) for the year ended December 31, 2008 decreased to US$5.87 per ounce of silver, compared to US$7.06 per ounce of silver for the year ended December 31, 2007 and US$6.37 per ounce of silver for the fourth quarter of 2008 compared to US$7.97 per ounce of silver for the fourth quarter of 2007 due to higher silver ounces produced in 2008. |
|
Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate smelting which have positively impacted costs for 2009. |
|
At the La Encantada Silver Mine, construction began in June 2008 on the new US$21.6 million cyanidation plant which will have a capacity of 3,500 tonnes per day (tpd) once completed. The plant is scheduled to commence operations in July 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of doré bars. |
|
Reserve and Resource development was a high priority for the Company in 2008, leading to substantial increases in Reserves and Resources at all of its operating mines. On a consolidated basis, Proven and Probable Reserves increased by 102% to 47.8 million equivalent ounces of silver, compared to 23.7 million equivalent ounces of silver at the end of 2007. Measured and Indicated Resources increased by 9% to 92.3 million equivalent ounces of silver in 2008, compared to 85.1 million equivalent ounces of silver at the end of 2007. Inferred Resources increased by 113% to 158.8 million equivalent ounces of silver in 2008, compared to 74.7 million equivalent ounces of silver at the end of 2007. |
|
During 2008, the Company invested $30.1 million in capital expenditures on its mineral properties, and a further $18.0 million on additions to plant and equipment. |
|
Mine operating earnings for the year ended December 31, 2008 was $7.5 million, an increase of 7% compared to mine operating earnings of $7.0 million for the year ended December 31, 2007. |
|
The Company reduced its operating loss for 2008 to $3.7 million, a 14% reduction compared to an operating loss of $4.3 million for the year ended December 31, 2007. |
|
The Company incurred a net loss after taxes of $5.1 million for the year ended December 31, 2008, compared to a net loss after taxes of $7.2 million for the year ended December 31, 2007. The net loss after taxes for this year was after deducting a non-cash stock-based compensation expense of $3.7 million (2007 - $3.9 million) and recording a recovery for future income taxes of $2.1 million. |
|
Subsequent to December 31, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine, including the completion of the 3,500 tonne-per-day cyanidation plant, and the remainder for general working capital. |
46
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
The subsidiaries, mines, mills and properties in México are as follows:
Subsidiaries | Mine and Mill | Exploration Properties |
First Majestic Plata, S.A. de C.V. |
La
Parrilla Silver Mine
Del Toro Silver Mine |
La
Parrilla properties
Del Toro properties (formerly referred to as the Chalchihuites Group of Properties) |
Minera El Pilón, S.A. de C.V. | San Martin Silver Mine |
San
Martin property
Cuitaboca Silver Project Jalisco Group of Properties |
Minera La Encantada, S.A. de C.V. | La Encantada Silver Mine | La Encantada property |
Majestic Services,
S.A. de C.V.
(a labour services company) |
(all of the above) | (all of the above) |
Corporación First
Majestic, S.A. de C.V.
(holding company for the above) |
(holding company for the above) | (holding company for the above) |
Certain financial results in this MD&A, regarding operations, cash costs, and average realized revenues, are presented in the Mine Operations Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars. U.S. dollar results are translated using the U.S. dollar rates on the dates on which the transactions occurred.
MINING OPERATING RESULTS
Consolidated First Majestic
Quarter Ended December 31, | RESULTS | Year to Date December 31, | ||
2008 | 2007 | 2008 | 2007 | |
215,646 | 146,798 | Ore processed/tonnes milled | 758,338 | 604,756 |
207 | 241 | Average silver grade (g/tonne) | 219 | 222 |
65% | 77% | Recovery (%) | 68% | 73% |
930,120 | 868,354 | Silver ounces produced | 3,654,698 | 3,170,139 |
403 | 490 | Gold ounces produced | 1,661 | 2,049 |
31,650 | 27,239 | Equivalent ounces from gold | 100,496 | 106,046 |
2,093,988 | 1,107,154 | Pounds of lead produced | 7,457,707 | 2,924,146 |
93,239 | 112,706 | Equivalent ounces from lead | 450,423 | 308,079 |
24,413 | - | Pounds of zinc produced | 425,710 | - |
1,403 | - | Equivalent ounces from zinc | 24,381 | - |
1,056,219 | 1,008,299 | Total production - ounces silver equivalent | 4,229,998 | 3,584,265 |
827,845 | 908,688 | Ounces of silver equivalents sold | 3,590,202 | 3,461,560 |
6.37 | 7.97 | Total US cash cost per ounce (1)(2) | 5.87 | 7.06 |
5,845 | 5,346 | Underground development (m) | 27,890 | 20,279 |
4,194 | 8,122 | Diamond drilling (m) | 61,440 | 35,655 |
37.57 | 50.30 | Total US production cost per tonne (2) | 43.08 | 42.96 |
(1) |
The Company reports non-GAAP measures which include
Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver
(prior to
smelting charge), and smelting charges per ounce of
silver in order to manage and evaluate operating performance at each of
the Companys
mines. These measures are widely used in the silver
mining industry as a benchmark for performance, but do not have a
standardized
meaning, and are not GAAP measures. See Reconciliation
to GAAP below
|
(2) | Cash Costs do not include smelting; production costs per tonne include smelter charges. |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 47
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
LA ENCANTADA SILVER MINE
Quarter Ended December 31, | RESULTS | Year to Date December 31, | ||
2008 | 2007 | 2008 | 2007 | |
79,480 | 37,657 | Ore processed/tonnes milled | 257,960 | 185,549 |
281 | 370 | Average silver grade (g/tonne) | 283 | 306 |
59% | 78% | Recovery (%) | 62% | 68% |
427,753 | 341,709 | Silver ounces produced | 1,442,566 | 1,238,316 |
- | - | Gold ounces produced | - | - |
- | - | Equivalent ounces from gold | - | - |
1,195,557 | 298,269 | Pounds of lead produced | 3,312,869 | 1,091,902 |
56,299 | 30,933 | Equivalent ounces from lead | 193,675 | 128,061 |
- | - | Pounds of zinc produced | - | - |
- | - | Equivalent ounces from zinc | - | - |
484,053 | 372,642 | Total production - ounces silver equivalent | 1,636,242 | 1,366,377 |
450,063 | 303,056 | Ounces of silver equivalents sold | 1,529,301 | 1,272,810 |
3.82 | 4.22 | Total US cash cost per ounce (1) (2) | 3.59 | 3.35 |
3,075 | 1,587 | Underground development (m) | 8,463 | 5,647 |
2,107 | 532 | Diamond drilling (m) | 8,048 | 1,474 |
32.98 | 44.26 | Total US production cost per tonne (2) | 45.93 | 33.85 |
LA PARRILLA SILVER MINE
Quarter Ended December 31, | RESULTS | Year to Date December 31, | ||
2008 | 2007 | 2008 | 2007 | |
66,395 | 53,138 | Ore processed/tonnes milled | 246,166 | 179,411 |
206 | 222 | Average silver grade (g/tonne) | 234 | 204 |
70% | 70% | Recovery (%) | 70% | 68% |
305,685 | 261,931 | Silver ounces produced | 1,291,210 | 802,603 |
297 | 142 | Gold ounces produced | 864 | 427 |
15,899 | 7,884 | Equivalent ounces from gold | 47,139 | 22,435 |
897,031 | 801,746 | Pounds of lead produced | 3,979,046 | 1,782,220 |
36,864 | 81,024 | Equivalent ounces from lead | 245,056 | 175,785 |
24,414 | - | Pounds of zinc produced | 24,414 | - |
1,403 | - | Equivalent ounces from zinc | 1,403 | - |
359,851 | 350,838 | Total production - ounces silver equivalent | 1,584,808 | 1,000,823 |
228,661 | 336,405 | Ounces of silver equivalents sold | 1,282,340 | 986,390 |
6.68 | 8.95 | Total US cash cost per ounce (1) (2) | 5.39 | 8.70 |
1,557 | 1,477 | Underground development (m) | 10,457 | 6,414 |
668 | 6,869 | Diamond drilling (m) | 37,944 | 30,481 |
47.01 | 46.05 | Total US production cost per tonne (2) | 44.42 | 42.91 |
(1) |
The Company reports non-GAAP measures which include
Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver
(prior to smelting charge), and smelting charges per ounce of
silver in order to manage and evaluate operating performance at each of
the Companys mines. These measures are widely used in the silver
mining industry as a benchmark for performance, but do not have a
standardized meaning, and are not GAAP measures. See Reconciliation
to GAAP below
|
(2) | Cash Costs do not include smelting; production costs per tonne include smelter charges. |
48
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
SAN MARTIN SILVER MINE
Quarter Ended December 31, | RESULTS | Year to Date December 31, | ||
2008 | 2007 | 2008 | 2007 | |
69,771 | 56,003 | Ore processed/tonnes milled | 254,211 | 239,796 |
124 | 171 | Average silver grade (g/tonne) | 141 | 171 |
71% | 86% | Recovery (%) | 80% | 84% |
196,681 | 264,714 | Silver ounces produced | 920,921 | 1,129,220 |
106 | 348 | Gold ounces produced | 797 | 1,622 |
15,751 | 19,355 | Equivalent ounces from gold | 53,357 | 83,611 |
1,399 | 7,409 | Pounds of lead produced | 165,792 | 50,024 |
75 | 749 | Equivalent ounces from lead | 11,691 | 4,233 |
- | - | Pounds of zinc produced | 401,297 | - |
- | - | Equivalent ounces from zinc | 22,979 | - |
212,315 | 284,819 | Total production - ounces silver equiv. | 1,008,948 | 1,217,065 |
149,121 | 269,227 | Ounces of silver equivalents sold | 778,561 | 1,202,360 |
11.43 | 11.83 | Total US cash cost per ounce (1)(2) | 10.12 | 9.92 |
1,214 | 2,282 | Underground development (m) | 8,971 | 8,218 |
1,419 | 721 | Diamond drilling (m) | 15,448 | 3,700 |
33.82 | 58.40 | Total US production cost per tonne (2) | 38.90 | 50.05 |
(1) |
The Company reports non-GAAP measures which
include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable
silver (prior to
smelting charge) and smelting charges per ounce
of silver in order to manage and evaluate operating performance at each of
the Companys
mines. These measures are widely used in the silver
mining industry as a benchmark for performance, but do not have a
standardized
meaning, and are not GAAP measures. See Reconciliation
to GAAP below.
|
(2) | Cash Costs do not include smelting; production costs per tonne include smelter charges. |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 49
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Reconciliation of Cash Costs to GAAP |
Three Months Ended
December 31, 2008 |
Year ended
December 31, 2008 |
|||||||
San Martin | La Parrilla (1) | La Encantada | Q42008 | San Martin | La Parrilla (1) | La Encantada | 2008 | ||
DIRECT MINING EXPENSES(MMI) | US$ | 2,437,236 | 2,642,802 | 2,175,866 | 7,255,903 | 10,332,232 | 11,048,812 | 7,558,285 | 28,939,328 |
PROFIT SHARING | US$ | - | - | - | - | - | - | - | - |
OTHER SELLING COSTS | |||||||||
(TRANSPORT, ETC.) | US$ | (1,272) | 72,397 | 46,234 | 117,359 | 78,930 | 247,807 | 235,831 | 562,568 |
THIRD PARTY SMELTING | US$ | 110,772 | 1,080,074 | 988,885 | 2,179,732 | 571,209 | 3,977,916 | 6,667,136 | 11,216,262 |
BYPRODUCT CREDITS | US$ | (187,427) | (673,849) | (589,497) | (1,450,773) | (1,094,506) | (4,339,639) | (2,613,425) | (8,047,570) |
LESS PROFIT SHARING | US$ | - | - | - | - | - | - | - | - |
TOTAL CASH COSTS | US$ | 2,359,309 | 3,121,425 | 2,621,488 | 8,102,221 | 9,887,866 | 10,934,898 | 11,847,827 | 32,670,588 |
CASH COST PER OUNCE | |||||||||
PRODUCED | US$/OZ | 12.00 | 10.21 | 6.13 | 8.71 | 10.74 | 8.47 | 8.21 | 8.94 |
SMELTING/REFINING/ | |||||||||
TRANSPORTATION | |||||||||
COST PER OUNCE | US$/OZ | (0.56) | (3.53) | (2.31) | (2.34) | (0.62) | (3.08) | (4.62) | (3.07) |
DIRECT MINING EXPENSES | |||||||||
CASH COST | US$/OZ | 11.43 | 6.68 | 3.82 | 6.37 | 10.12 | 5.39 | 3.59 | 5.87 |
TONNES PRODUCED | TONNES | 69,771 | 66,396 | 79,479 | 215,646 | 254,211 | 246,167 | 257,960 | 758,338 |
OUNCES OF SILVER PRODUCED | OZ | 196,682 | 305,685 | 427,753 | 930,121 | 920,921 | 1,291,211 | 1,442,566 | 3,654,699 |
OUNCES OF SILVER EQ PRODUCED | OZ EQ | 15,633 | 62,771 | 62,250 | 140,654 | 88,027 | 302,203 | 199,626 | 589,856 |
TOTAL OZ OF SILVER EQ PRODUCED | OZ EQ | 212,315 | 359,850 | 484,053 | 1,056,218 | 1,008,948 | 1,584,808 | 1,636,242 | 4,229,998 |
MINING | $/Tonne | 13.18 | 17.96 | 11.69 | 14.10 | 17.88 | 18.20 | 11.03 | 15.65 |
MILLING | $/Tonne | 13.84 | 18.50 | 9.77 | 13.78 | 12.93 | 21.30 | 7.16 | 13.69 |
INDIRECT | $/Tonne | 7.91 | 3.34 | 5.91 | 5.77 | 9.88 | 5.43 | 11.14 | 8.86 |
SELLING AND TRANSPORT COSTS | $/Tonne | (0.02) | 1.09 | 0.58 | 0.54 | 0.31 | 1.01 | 0.91 | 0.74 |
SMELTING AND REFINING COSTS | $/Tonne | 1.59 | 16.27 | 12.44 | 10.11 | 2.25 | 16.16 | 25.85 | 14.79 |
BY PRODUCT CREDITS | $/Tonne | (2.69) | (10.15) | (7.42) | (6.73) | (4.31) | (17.63) | (10.13) | (10.61) |
DIRECT COST PER TONNE | $/Tonne | 33.82 | 47.01 | 32.98 | 37.57 | 38.90 | 44.42 | 45.93 | 43.08 |
RECONCILIATION: | |||||||||
Cash Cost | US$ | 2,359,309 | 3,121,425 | 2,621,488 | 8,102,221 | 9,887,866 | 10,934,898 | 11,847,826 | 32,670,589 |
Inventory changes | US$ | (305,899) | 196,454 | (176,063) | (285,508) | (893,499) | (466,693) | 293,719 | (1,066,473) |
Byproduct credits | US$ | 187,427 | 673,849 | 589,497 | 1,450,773 | 1,094,506 | 4,339,639 | 2,613,425 | 8,047,570 |
Smelting and refining | US$ | (110,772) | (1,080,074) | (988,885) | (2,179,732) | (571,209) | (3,977,917) | (6,667,136) | (11,216,263) |
Other | US$ | - | (503,377) | - | (503,377) | - | (278,966) | - | (278,966) |
Cost of sales - Calculated | US$ | 2,130,065 | 2,408,276 | 2,046,036 | 6,584,377 | 9,517,664 | 10,550,960 | 8,087,833 | 28,156,457 |
Average CDN/US Exchange Rate | 0.8279 | 0.8229 | 0.8461 | 0.8316 | 0.9438 | 0.9300 | 0.9390 | 0.9372 | |
Booked Cost of Sales - CDN$ | CDN$ | 2,572,773 | 2,926,679 | 2,418,181 | 7,917,633 | 10,083,947 | 11,345,291 | 8,613,007 | 30,042,245 |
Note 1: Does not include cost of sales on the intercompany transfers of doré from La Parrilla to parent company in the amount of Cdn$377,170.
Reconciliation of Cash Costs to GAAP |
Three Months Ended
December 31, 2008 |
Year ended
December 31, 2008 |
|||||||||
INVENTORY RECONCILIATION (2): | San Martin | La Parrilla | La Encantada | Vancouver | Q42008 | San Martin | La Parrilla | La Encantada | Vancouver | 2008 | |
Opening inventory | OZ EQ | 207,691 | 334,847 | 115,714 | 11,668 | 669,920 | 15,592 | 31,590 | 31,264 | 20,650 | 99,096 |
Production - silver equivalent ounces | OZ EQ | 212,315 | 359,851 | 484,053 | - | 1,056,219 | 1,008,948 | 1,584,808 | 1,636,242 | - | 4,229,998 |
Shipments - silver equivalent ounces | OZ EQ | (149,121) | (228,661) | (450,063) | (16,463) | (844,308) | (778,561) | (1,282,340) | (1,529,301) | (24,607) | (3,614,809) |
Reduction of stockpile | OZ EQ | - | (123,384) | (37,352) | - | (160,736) | - | (123,384) | (37,352) | - | (160,736) |
Inventory adjustments | OZ EQ | (27,853) | 21,840 | 13,730 | 47,248 | 54,965 | (50,779) | 11,382 | 35,814 | 46,410 | 42,827 |
Shipment adjustments | OZ EQ | (47,832) | (142,437) | 10,585 | - | (179,684) | - | - | - | - | - |
Ending inventory | OZ EQ | 195,200 | 222,056 | 136,667 | 42,453 | 596,376 | 195,200 | 222,056 | 136,667 | 42,453 | 596,376 |
Value of ending inventory | CDN$ | 1,203,178 | 1,013,558 | 628,829 | 572,147 | 3,417,712 | 1,203,178 | 1,013,558 | 628,829 | 572,147 | 3,417,712 |
Note 2: The inventory reconciliation above consists of silver coins, bullion, doré, concentrates, ore in process and stockpile but excludes materials and supplies.
50
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
REVIEW OF MINING OPERATING RESULTS
The Company turned its focus toward operating efficiencies in the final quarter of 2008, scaling up its mine operations in its three primary mines in an effort to realize economies of scale. Expansions began in July of 2008 at each of the operating mines culminating in higher capacities in the fourth quarter. At the La Parrilla Silver Mine, mill capacity was expanded from 800 tpd and reached 850 tpd in November 2008. At the La Encantada Silver Mine, several improvements were made within the current flotation mill which resulted in overall capacity reaching 1,000 tpd in November 2008. At the San Martin Silver Mine, expansion of the mill was completed in December resulting in an increase in capacity from 800 tpd to 950 tpd. Total capacity has increased from 2,400 tpd to 2,800 tpd, a 17% increase. The impact of the increased scale of production was also aided by a weakening Mexican peso and the net result has been a reduction of the cost per tonne from US$50.30 in the fourth quarter of 2007 to US$37.57 per tonne in the fourth quarter of 2008 (See “Non-GAAP Measures”).
Silver production increased from 3,584,265 equivalent ounces of silver for the year ended December 31, 2007 to 4,229,998 equivalent ounces of silver for the year ended December 31, 2008, an increase of 18%. This can be attributed to an increase of mill throughput tonnage, from 604,756 tonnes in 2007 to 758,338 tonnes in 2008, an increase of 25%. Lead production increased by 155%, from 2,924,146 pounds in 2007 to 7,457,707 pounds in 2008. Gold production decreased by 19%, from 2,049 ounces in 2007 to 1,661 ounces in 2008.
Due to a sharp decline in silver, lead and zinc prices in late 2008, cash management was a priority for the Company. The Company revised its exploration and development plans in late 2008 as it had achieved its targets for Reserves and Resource development resulting in an increase in mine life now equalling more than 20 years.
The Company’s revised mine development plan for 2008 included the completion of 25,000 metres of underground development across its operations and projects, a reduction from its prior target of 46,000 metres; however, a total of 27,890 metres were completed during the year ended December 31, 2008, representing an increase of 38% when compared with the 20,279 metres completed in the previous year.
The Company’s revised plan for diamond drilling in 2008 included a reduction from 82,000 metres to the completion of 60,000 metres of diamond drilling across its operations and projects. Diamond drilling increased by 72%, from 35,655 metres in 2007 to 61,440 metres in 2008.
The fourth quarter of 2008 was impacted by the cut backs that occurred in late 2008. Development decreased by 34%, from 8,876 metres of development completed in the third quarter to 5,845 metres in the fourth quarter. The diamond drilling program saw a reduction of 84%, from 26,666 metres drilled in the third quarter to 4,194 metres drilled in the fourth quarter.
Production increased by 26%, from 840,918 equivalent ounces of silver in the third quarter to 1,056,219 equivalent ounces of silver in the fourth quarter of 2008; however, the results of the third quarter of 2008 were negatively impacted by heavy rains. Silver production increased by 29% from 719,399 ounces in the third quarter to 930,120 ounces in the fourth quarter. Lead production also increased by 38% from 1,518,271 pounds in the third quarter to 2,093,988 pounds in the fourth quarter. Production of gold decreased by 25%, from 536 ounces in the third quarter to 403 ounces in the fourth quarter. The fourth quarter of 2008 also saw an increase of 5% over the equivalent ounces of silver produced in the fourth quarter of 2007.
During the fourth quarter, the overall recoveries of silver from the three mills reflected a decrease from 67% to 65%; however, the overall average silver head grade increased from 196 grams per tonne (“g/t”) of silver in the third quarter to 207 g/t of silver in the fourth quarter.
The Company also reviewed its unfulfilled orders for mining equipment and cancelled pending orders of new equipment. Its original agreement for 20 pieces of equipment in 2008 was scaled back to the nine pieces which had been delivered. Also, the Company restructured its remaining US$2.9 million in equipment lease payments to provide for two years of level monthly payments and accrued interest, commencing February 1, 2009.
Management believes strongly in responsible, sustainable growth and contributing to its people and the communities in which it operates. In March 2009, the Company was awarded the prestigious Socially Responsible Business Distinction for 2008 (Distintivo Empressa Socialmente Responsable 2008) by Centro Mexicano para la Filantropia (CEMEFI). To receive this award, the Company demonstrated responsibility, transparency and sustainability within its operations and projects in México.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 51
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
RESERVES AND RESOURCES UPDATE
Reserve and Resource development was a high priority for the Company in 2008, leading to substantial increases in Reserves and Resources at all of its operating mines. The Companys management set a target to expand its total Reserves and Resources to 300 million equivalent silver ounces of all combined categories by the end of 2008. Based on updated NI 43-101 reports published between October 2008 and February 2009, the Company defined a total of 140.2 million ounces of silver equivalent in Proven and Probable Reserves and Measured and Indicated Resources, in addition to 158.8 million ounces of silver equivalent in Inferred Resources.
|
In October 2008, the Company released an updated NI 43-101 compliant resource estimate for the Del Toro Silver Mine. This mineral resource estimate, with a cut-off date of July 31, 2008, included Measured and Indicated Resources of 20.9 million ounces of silver equivalent and Inferred Resources of 36.0 million ounces of silver equivalent. |
|
In December 2008, the Company released an updated NI 43-101 compliant resource estimate for the La Encantada Silver Mine. This mineral resource estimate, with a cut-off date of September 30, 2008, included Proven and Probable Reserves of 35.5 million ounces of silver equivalent, Measured and Indicated Resources of 33.1 million ounces of silver equivalent and Inferred Resources of 20.0 million ounces of silver equivalent. |
|
In January 2009, the Company released an updated NI 43-101 compliant resource estimate for the San Martin Silver Mine. This mineral resource estimate, with a cut-off date of September 30, 2008, included Proven and Probable Reserves of 7.0 million ounces of silver equivalent, Measured and Indicated Resources of 7.6 million ounces of silver equivalent and Inferred Resources of 50.0 million ounces of silver equivalent. |
|
In February 2009, the Company released an updated NI 43-101 compliant resource estimate for the La Parrilla Silver Mine. This mineral resource estimate, prepared with a cut-off date of September 30, 2008, included Proven and Probable Reserves of 5.2 million ounces of silver equivalent, Measured and Indicated Resources of 30.7 million ounces of silver equivalent and Inferred Resources of 52.8 million ounces of silver equivalent. |
Shareholders and interested parties are encouraged to read these reports which can be viewed on SEDAR (www.sedar.com) and the Companys web site at www.firstmajestic.com.
Reserves and Resources data follows:
Note: The 2008 Reserve and Resource estimates for the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine are as of September 30, 2008, respectively. The 2008 Resource estimate for the Del Toro Silver Mine is as of July 31, 2008. The 2007 Reserve and Resource estimates for the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine are as of October 31, 2007, October 31, 2007 and January 1, 2007 respectively. Measurement is shown in ounces of silver equivalent.
52
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
RESERVES AND RESOURCES - 2007 AND 2008
Ag Eq Oz. | ||||
% | ||||
Consolidated First Majestic | 2007 | 2008 | Increase | |
(Decrease) | ||||
Proven and Probable Reserves | 23,690,775 | 47,834,309 | 24,143,534 | 101.91% |
Measured and Indicated Resources | 85,083,804 | 92,320,108 | 7,236,304 | 8.50% |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | 108,774,579 | 140,154,417 | 31,379,838 | 28.85% |
Inferred Resources | 74,732,705 | 158,804,145 | 84,071,440 | 112.50% |
La Encantada Silver Mine | 2007 | 2008 | Increase | % |
(Decrease) | ||||
Proven and Probable Reserves | 12,620,835 | 35,548,863 | 22,928,028 | 181.67% |
Measured and Indicated Resources | 40,122,659 | 33,107,288 | (7,015,371) | (17.48%) |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | 52,743,494 | 68,656,151 | 15,912,657 | 30.17% |
Inferred Resources | 13,428,000 | 20,034,145 | 6,606,145 | 49.20% |
La Parrilla Silver Mine | 2007 | 2008 | Increase | % |
(Decrease) | ||||
Proven and Probable Reserves | 6,107,551 | 5,246,954 | (860,597) | (14.09%) |
Measured and Indicated Resources | 29,336,405 | 30,700,000 | 1,363,595 | 4.65% |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | 35,443,956 | 35,946,954 | 502,998 | 1.42% |
Inferred Resources | 38,639,050 | 52,800,000 | 14,160,950 | 36.65% |
San Martin Silver Mine | 2007 | 2008 | Increase | % |
(Decrease) | ||||
Proven and Probable Reserves | 4,962,389 | 7,038,492 | 2,076,103 | 41.84% |
Measured and Indicated Resources | 15,624,740 | 7,569,820 | (8,054,920) | (51.55%) |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | 20,587,129 | 14,608,312 | (5,978,817) | (29.04%) |
Inferred Resources | 22,665,655 | 50,000,000 | 27,334,345 | 120.60% |
Del Toro Silver Mine | 2007 | 2008 | Increase | % |
(Decrease) | ||||
Proven and Probable Reserves | - | - | - | n/a |
Measured and Indicated Resources | - | 20,943,000 | 20,943,000 | n/a |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | - | 20,943,000 | 20,943,000 | n/a |
Inferred Resources | - | 35,970,000 | 35,970,000 | n/a |
Note: The 2008 Reserve and Resource estimates for the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine are as of September 30, 2008, respectively. The 2008 Resource estimate for the Del Toro Silver Mine is as of July 31, 2008. The 2007 Reserve and Resource estimates for the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine are as of October 31, 2007, October 31, 2007 and January 1, 2007 respectively. Measurement is shown in ounces of silver equivalent.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 53
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
MINE UPDATES
La Encantada Silver Mine
Location: Coahuila, México | Ownership: 100% |
Reserves/Resources (PP&MI): 68.7 million ounces | Monthly Capacity (Tonnes): 30,000 |
Employment: 352 | 2008 Production (Silver Equiv.): 1.6 million ounces |
2008 Production Costs ($US per Tonne): $45.93 | 2008 Cash Costs/Oz. ($US, excl. smelting): $3.59 |
The La Encantada Silver Mine is a producing underground mine located in Northern México in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest city is, Melchor Muzquiz, is 225 kilometres away via 45 kilometres of gravel road and 180 kilometres in paved road. The La Encantada Silver Mine consists of a 1,000 tpd flotation plant, an airstrip, and other facilities, including a mining village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.
The La Encantada mine is the Companys lowest cost producer, and has the highest Reserve / Resource position. This mine is undergoing a US$21.6 million expansion, to be completed in mid-2009, to convert the mill into a 3,500 tpd cyanidation by agitated leaching process, thereby becoming a producer of doré bars. The mill is presently operating at approximately 950 tpd and produces a silver rich lead concentrate.
During the fourth quarter of 2008, construction continued on the 3,500 tpd cyanidation plant. Earth and rock removal at the site preparation are 95% complete, foundations for the leaching tanks are 100% complete and assembly is proceeding with eight of the leaching tanks. The foundations of the primary and intermediate thickeners are complete and the assembly of the primary and intermediate thickeners is progressing well. Also, the construction work for the new tailings dam is in process. Eighty percent of the equipment has been acquired and is in the process of being delivered. To date, the Company has spent US$10.5 million on the plant and the Company estimates commissioning to commence in mid-2009.
At the La Encantada mill, several modifications were completed to increase the mill capacity from 800 to 1,000 tpd, which was completed in November 2008. Production in the fourth quarter was 79,480 tonnes showing an increase of 27% when compared with the 62,406 tonnes produced in the third quarter of 2008. The average head grade was 281 g/t, an increase of 15% when compared to the 244 g/t achieved in the previous quarter due to larger tonnage of high grade ore coming from the mine. A total of 484,053 equivalent ounces of silver were produced during the fourth quarter, which represents an increase of 45% from the 334,595 equivalent ounces of silver in the third quarter. Silver production consisted of 427,753 ounces of silver, an increase of 49% versus the 287,668 ounces in the previous quarter and 1,195,557 pounds of lead, an increase of 54% from the 777,099 pounds in the previous quarter due to better lead recoveries at the flotation plant.
Underground mine development continued with a total of 3,075 metres of development completed in the fourth quarter aimed at several targets including the San Javier/Milagros Breccias, Azul y Oro and the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. This compares to 2,232 metres of development completed in the previous quarter showing an increase of 38%. The purpose of the ongoing underground development program is to prepare for increased production levels in 2009, to confirm additional Reserves and Resources, and for exploration and exploitation purposes going forward. Underground diamond drilling continued with a total of 2,107 metres compared with 2,662 metres drilled in the previous quarter. During the fourth quarter of 2008, the Company decided to substantially reduce the diamond drill and development programs, reducing from three rigs to only one rig operating underground, with the rig engaged in production and operations activities only.
La Parrilla Silver Mine
Location: Durango, México | Ownership: 100% |
Reserves/Resources (PP&MI): 35.9 million ounces | Monthly Capacity (Tonnes): 25,500 |
Employment: 332 | 2008 Production (Silver Equiv.): 1.6 million ounces |
2008 Production Costs ($US per Tonne): $44.42 | 2008 Cash Costs/Oz. ($US, excl. smelting): $5.39 |
The La Parrilla Silver Mine is a group of producing underground mines consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings, the San Marcos mine and the Quebradillas mine, located approximately 65 kilometres southeast of the city of Durango, México. It includes an 850 tpd mill consisting of a 425 tpd cyanidation circuit and a 425 tpd flotation circuit, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
This is the first mine developed by the Company and its operations have been scaled up continually from a 180 tpd operation in early 2005, to the current average throughput of 840 tpd. This mill produces doré bars and both silver-rich lead and zinc concentrates.
An expansion program of the mill was launched in July 2008 to expand this operation up to 1,000 tpd by April 2009. However, due to market conditions that affected the entire mining sector in the fourth quarter of 2008, the expansion program was suspended resulting in the current mill capacity of 850 tpd.
54
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
During the fourth quarter of 2008, the diamond drilling and development activity for both preparation and exploration decreased. As well, capital expenditures and operating costs were reduced to a minimum in order to compensate for the lower silver and lead prices realized in the fourth quarter.
The most important activities undertaken in the year were the continued underground development at the different areas within the La Parrilla property. This included the preparation of Levels 7 and 8 at the Rosarios/La Rosa area where the new long hole drilling method using a new Stopemate machine began operations in the early part of the year with good results in increasing the productivity. In order to reduce dilution, bolting in the hanging wall was completed and achieved good results. At Quebradillas, development continued to focus on accessing the sulphides areas in the lower levels. At San Marcos and at the San Jose/La Blanca areas, development continued to access new production areas at the lower levels within the mines.
Production from the La Parrilla mill increased from 51,822 tonnes in the third quarter of 2008 to 66,395 tonnes in the fourth quarter of 2008, an increase of 28%. The average head grade of silver at the mill decreased from 213 g/t in the third quarter of 2008 to 206 g/t in the fourth quarter, a decrease of 3%. Recoveries of silver increased from 65% in the third quarter to 70% in the fourth quarter of 2008.
Total silver production from the mill increased from 300,461 ounces of silver equivalent in the third quarter of 2008 to 359,851 ounces of silver equivalent in the fourth quarter of 2008, a 20% increase. The composition of the silver equivalent production in the fourth quarter of 2008 included 305,685 ounces of silver, 297 ounces of gold and 897,031 pounds of lead.
Diamond drilling and underground development continued to define additional Reserves and Resources at the different areas of the La Parrilla property. Due to the lower silver and lead prices, the number of drill rigs that were active during the year were reduced in the fourth quarter, from seven to one. As a result, the total metres of diamond drilling decreased from 18,160 metres in the third quarter of 2008 to 668 metres in the fourth quarter of 2008, a reduction of 96%. However, total metres drilled during the year increased by 24%, from 30,481 metres in 2007 to 37,944 metres in 2008. In addition to the ongoing diamond drill program, a total of 1,557 metres of underground development was completed in the fourth quarter of 2008 which when compared with the 4,347 metres in the third quarter of 2008 shows a decrease of 64%. During the year, a total of 10,457 metres were developed which compared with a total of 6,414 metres completed in 2007 shows an increase of 63%. Underground development in the fourth quarter focused on the La Rosa/Rosario, La Blanca, San Marcos, Quebradillas and San José areas, with the objective of increasing total Reserves and developing new production areas.
In February 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a Clean Industry Certificate to the La Parrilla Silver Mine. This Certificate was achieved after twenty nine months of voluntary environmental audit work, which demonstrates the Companys sustained focus in complying with international and Mexican mining standards.
San Martin Silver Mine
Location: Jalisco, México | Ownership: 100% |
Reserves/Resources (PP&MI): 14.6 million ounces | Monthly Capacity (Tonnes): 28,500 |
Employment: 310 | 2008 Production (Silver Equiv.): 1.0 million ounces |
2008 Production Costs ($US per Tonne): $38.90 | 2008 Cash Costs/Oz. ($US, excl. smelting): $10.12 |
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, México. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 1,000 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine, having acquired it in two transactions in May and September 2006. The mill has historically produced 100% doré bars and continues to do so to this day. In early 2008, a 500 tpd flotation circuit was completed to take advantage of the large sulphide Resource at this mine, however, due to low base metal prices and high concentrate smelting charges this circuit is presently not being operated.
During the fourth quarter, in order to reduce operating costs, the Company temporarily reduced the production of ore from the main Zuloaga vein, eliminating all the external contractors and focusing on a combination of ore from the mine and stockpile inventory to feed the cyanidation process. Also, due to the high cost of smelting charges and the low prices of lead and zinc, the operation of the flotation circuit was suspended.
Expansion of the mill commenced in July 2008. The program included adding additional leaching tanks, thickeners and the addition of a third ball mill. The plan was to expand this mill from the historic 800 tpd to 1,200 tpd by April 2009. However, due to market conditions and the need to preserve cash, the expansion program was suspended in November 2008 resulting in the mill running at the current 950 tpd since December 2008. The upgrades included the construction of a new thickener, new clarifiers and new filter presses to complete the expansion of the cyanidation process. Other upgrades completed included the pouring of cement floors around the leaching and thickeners areas and the repair and reinforcement of the older leaching tanks. These improvements are part of the process of achieving a Clean Industry Certification from PROFEPA.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 55
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Production at the San Martin mine increased from 56,071 tonnes in the third quarter of 2008 to 69,771 tonnes in the fourth quarter, an increase of 24% increase. The average head grade decreased slightly, from 127 g/t in the third quarter to 124 g/t during the current quarter, representing a 3% decrease from during the previous quarter.
Combined recoveries of silver in the quarter were 71%, compared to 89% in the previous quarter, resulting in total production of 212,315 equivalent ounces of silver, which is 3% higher than the 205,862 equivalent ounces of silver in the third quarter of 2008. The equivalent ounces of silver consisted of 196,681 ounces of silver, 106 ounces of gold, and 1,399 pounds of lead.
During the fourth quarter of 2008, a total of 1,419 metres of diamond drilling was completed. This is compared to 5,844 metres drilled in the third quarter amounting to a 76% decrease due to the decrease in exploration corporate wide.
During the fourth quarter, a total of 1,214 metres of underground development was completed compared with 2,297 metres of underground development in the third quarter. An important part of this development continues to be focused on access to the upper levels in the mine where oxide ores are present. During the fourth quarter, work continued at the new zone in the Rosario area where old workings continue to be rehabilitated with additional exploration work and some direct underground development. This activity is ongoing with the purposes of grade control; the development of additional Reserves and Resources; and exploration to define additional targets for future mine expansion.
Del Toro Silver Mine, Zacatecas, México (previously referred to as Chalchihuites Group of Properties)
Location: Zacatecas, México | Ownership: 100% |
Resources (MI): 20.9 million ounces | Employment: 50 |
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of a 320 contiguous hectare land package which covers the old Perseverancia mine and the San Juan mine. In 2004, the Company entered into a number of option agreements and, based on encouraging exploration results in 2005 and 2006, in January 2007, the Company exercised its option to acquire the San Juan silver mine, and in June 2007 exercised its option to acquire the Perseverancia silver mine. During the year ended December 31, 2007, the Company acquired 100 hectares of surface rights covering the area surrounding the San Juan mine.
The Del Toro is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings. The Company has been extracting development ore from the mine and shipping it to its La Parrilla mill for mixing into La Parrillas production and for batch metallurgical testing.
On October 28, 2008, the Company announced drill results from hole SSJ-08 and the ongoing drilling program at the Del Toro. Holes SSJ-04 and SSJ-08 represent the discovery of a third deeper massive sulphide ore body which is 25 metres below the two other ore bodies discovered by previous drilling. Drill Hole SSJ-08 cut 62.05 metres (203.58 Ft) of 422 g/t Ag, 6.29% Pb, 6.78% Zn & 0.74 g/t Au.
The Perseverancia area is presently being upgraded and rehabilitated to increase production from the high grade chimney areas. During the fourth quarter, the upgrade of the shaft continued and construction and installation of a new 200 tpd head frame and new hoist was completed which will allow for an increase in production from this area in the following months.
Presently permitting is underway for the construction of a new mill at Del Toro. Assuming all permitting is completed by mid 2009, and funds are available for this project, a new 500 tpd mill is anticipated to be operating in the first half of 2010.
EXPLORATION PROPERTY UPDATES
Cuitaboca Silver Project, Sinaloa, México
The Company has an option to purchase a 100% interest in the Cuitaboca Silver Project, consisting of 5,134 hectares located in the State of Sinaloa, México, which contains at least six well known veins with sulphide mineralization carrying high grade silver. The veins within the property are known as the La Lupita, Los Sapos, Chapotal, Colateral-Jesus Maria, Mojardina and Santa Eduwiges. In October 2008, in an effort to reduce costs, the Company temporarily halted its activities at the Cuitaboca project. Further exploration and development consisting of 2,000 metres of direct drifting along the vein and a diamond drill program at both the Colateral and Mojardina veins is being deferred until silver commodity prices recover and/or funds can be allocated to this project. Road construction for access to the La Lupita, Los Sapos, Chapotal, and Santa Eduwiges veins was also deferred.
Jalisco Group of Properties, Jalisco, México
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, México. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued pending an improvement in market conditions.
56
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
SELECTED ANNUAL INFORMATION
Year ended
December 31 2008 $ |
Year ended
December 31 2007 $ |
Transitional year
Six months ended December 31, 2006 $ (1) |
||||
Revenue | 44,324,887 | (2) | 42,924,920 | (2) | 12,754,965 | (2) |
Mine operating earnings (loss) | 7,501,632 | 7,007,776 | (1,492,118) | |||
Net loss for the period | (5,144,784) | (3) | (7,230,122) | (7,588,192) | ||
Basic and diluted loss per share | (0.07) | (0.13) | (0.17) | |||
Total assets | 231,159,649 | (4) | 185,002,851 | 185,361,654 | ||
Total long term liabilities | 38,725,621 | (5) | 36,591,521 | (5) | 55,930,797 | (5) |
(1) |
The Company changed its fiscal year end in 2006, from June 30 to December 31. The results disclosed for December 31, 2006, are for the six months then ended, as is required by Canadian GAAP. |
|
(2) |
During the year ended December 31, 2008, revenues increased by $1.4 million due to the ramping up of production at the La Parrilla and La Encantada Silver Mines. During the year ended December 31, 2007, revenues increased by $30.2 million over the revenues for the six month transitional year ended December 31, 2006. This increase is primarily due to the difference in volumes of production, and the comparison of one year to a six month period. In the year ended December 31, 2008, the Company shipped 3,590,202 ounces of silver equivalent compared to 3,461,650 ounces of silver equivalent during the year ended December 31, 2007. Increased production of silver has resulted from the ramping up of the La Parrilla mill, and the acquisition of San Martin in June 2006, and La Encantada in November, 2006. In the six months ended December 31, 2006, total silver revenues were attributed to 1,016,583 ounces of silver equivalent. |
|
|
La Parrilla Silver Mine During the year ended December 31, 2008, a total 246,166 tonnes of ore were processed with an average head grade of 234 grams per tonne of silver resulting in a total of 1,584,808 equivalent ounces of silver produced and 1,282,340 ounces of silver equivalent shipped. During the year ended December 31, 2007, a total of 179,411 tonnes of ore were processed with an average head grade of 204 grams per tonne of silver resulting in a total of 1,000,823 equivalent ounces of silver produced, and 986,390 ounces of silver equivalent shipped. During the six month period ended December 31, 2006, a total of 29,057 tonnes of ore were processed with an average head grade of 172 grams per tonne of silver resulting in a total of 110,114 equivalent ounces of silver produced. |
|
|
San Martin Silver Mine During the year ended December 31, 2008, a total of 254,211 tonnes of ore were processed with an average head grade of 141 grams per tonne of silver resulting in a total of 1,008,948 equivalent ounces of silver produced and 778,561 ounces of silver equivalents shipped. For the year ended December 31, 2007, a total of 239,796 tonnes of ore was processed with an average grade of 171 grams per tonne of silver resulting in 1,217,065 ounces of silver equivalents, and 1,202,360 ounces of silver equivalents shipped. The San Martin mine and mill, over the six month period ended December 31, 2006, processed 128,175 tonnes of ore with an average grade of 192 grams per tonne of silver resulting in 725,055 ounces of silver equivalent. |
|
|
La Encantada Silver Mine During the year ended December 31, 2008, 257,960 tonnes of ore were processed with an average head grade of 283 grams per tonne of silver resulting in a total of 1,636,242 equivalent ounces of silver produced and 1,529,301 ounces of silver equivalents shipped. During the year ended December 31, 2007, 1,366,377 equivalent ounces of silver were produced, and 1,272,810 ounces of silver equivalent were shipped, compared to 181,413 equivalent ounces of silver in the prior six month period ended December 31, 2006, which included production only for the months of November and December 2006. Net losses in these periods included non-cash stock based compensation expenses of $3,680,111 for the year ended December 31, 2008 compared to $3,865,689 for the year ended December 31, 2007 and $1,558,892 for the six month transition year ended December 31, 2006. |
|
(3) |
There was a net income tax recovery of $1,919,454 in the year ended December 31, 2008 compared to a tax expense of $1,384,647 in the year ended December 31, 2007, attributed primarily to an increase in future income tax benefits as well as a reduction of non-allowable tax deductions. |
|
(4) |
During the year ended December 31, 2008, the increase in total assets consists primarily of approximately $5 million in cash and cash equivalents, $38 million on mining interests and plant and equipment, net of depletion, depreciation and translation adjustments. |
|
(5) |
During the year ended December 31, 2006, the Company paid $13.3 million for its 25% annual vendor liability to the majority shareholder of First Silver, and the final payment of $13.3 million was due on May 30, 2008 but the payment has been withheld pending resolution of the litigation further described herein (see Liquidity Risk below). |
The Company has not paid any dividends since incorporation and it presently has no plans to pay dividends.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 57
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
RESULTS OF OPERATIONS
Year ended December 31, 2008 compared to the Year ended December 31, 2007
Gross revenue (prior to smelting, refining and transportation costs) increased from $45.8 million for the year ended December 31, 2007 to $56.1 million for the year ended December 31, 2008, an increase of $10.3 million or 22%. Most of the increase was due to higher average silver prices, from US$12.33 per ounce in 2007 to US$14.66 per ounce in 2008, an increase of 19%, as shipments were only up marginally. Due to low metal prices at the end of 2008, the Company inventoried 554,000 ounces of production to be sold in 2009. Net revenue increased from $42.9 million for the year ended December 31, 2007 to $44.3 million for the year ended December 31, 2008, an increase of $1.4 million or 3%. The increase in commodity prices was not fully realized in 2008 net revenues due to a significant increase in smelter and refining charges, predominantly affecting concentrates sold to the Peñoles smelter.
Effective December 1, 2008, smelting and refining charges were substantially reduced. Subsequently, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate smelting. The Company is also shifting its mix of production toward doré production with the anticipated completion of the La Encantada cyanidation plant, which will reduce the overall smelting charges for the Company due to the significantly lower refining charges for doré compared to concentrates. Production for the year consisted of production from the mines and the mills including production which is inventoried in the form of doré, concentrates, ore in process and stockpile.
Mine operating earnings for the year ended December 31, 2008 was $7,501,632, an increase of 7% over the $7,007,776 of mine operating earnings for the year ended December 31, 2007 and is primarily due to the increase of 128,642 equivalent silver ounces sold in 2008 compared to 2007. Though there was an overall increase in average silver prices in 2008 compared to 2007, this was offset by the increase in smelter and refining charges and an increase in operating costs. There was an increase in depreciation and amortization expenses of $766,964 in 2008 compared to 2007 which were normal charges on plant and equipment related to capital expansions at all three operating mines. Also contributing to the increase in mine operating earnings is a reduction of $3,282,997 in depletion expense for 2008 due to the increase in life of mine from the updated NI 43-101 reports with larger mine reserves and a reduction of depletion due to the effect of inventorying a portion of depletion due to the adoption of the new Canadian GAAP inventory guidelines per CICA HB section 3031.
An operating loss of $3,727,558 was incurred after general and administrative costs and stock-based compensation, for the year ended December 31, 2008 compared to a loss of $4,318,816 for the year ended December 31, 2007 which is a 14% decrease from the prior year. Most of the decrease is attributed to the increase in mine operating earnings as described above and a decrease in stock-based compensation of $185,578 or 5%.
Interest and other expenses increased by $202,833 or 17% compared to the prior year and is primarily attributed to additional interest on capital leases. Investment and other income decreased by $177,424 or 13% from prior year due to declining interest rates on short term investments. There was a significant increase in foreign exchange loss, primarily in the fourth quarter, due to the effect of a strengthening US dollar on outstanding US dollar denominated liabilities, which has had a negative effect on net income for the year.
The income tax benefit recorded in 2008 was $1,919,454 which is the tax benefit attributable to the loss generated by the Company during the year. This compares to an income tax provision of $1,384,647 for 2007, based on the taxable income generated in that year.
The net loss for the year after taxes is $5,144,784 or $0.07 per common share in 2008 compared to $7,230,122 or $0.13 per common share in 2007, for a decrease of $2,085,338 and is primarily due to increased mine earnings in 2008 and to the write off of $1,703,591 in the prior year.
Fourth Quarter of 2008 compared to the Fourth Quarter of 2007
Q4 2008 | Q4 2007 | |||
$ | $ | |||
Revenue | 9,106,605 | 11,631,477 | ||
Mine operating (loss) earnings | (1,126,697 | ) | 3,229,142 | |
Operating loss | (3,787,419 | ) | (345,596 | ) |
Loss before taxes | (8,053,990 | ) | (524,397 | ) |
Income tax (recovery) expense | (2,515,084 | ) | 768,234 | |
Net loss for the quarter | (5,538,906 | ) | (1,292,631 | ) |
Sales revenue declined by 22% to $9,106,605, compared to $11,631,477 in the fourth quarter of 2007. In the fourth quarter of 2008, the Company also experienced declining silver prices, higher smelting and refining charges and negative sales adjustments related to provisionally priced sales in the previous quarter, as doré settles in one month and concentrates settle in two months from the time of delivery to the smelter. In the fourth quarter of 2008, the average gross revenue per ounce sold was US$11.67 while in the fourth quarter of 2007, it was US$13.85.
58
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Mine operating loss for the fourth quarter of 2008 was $1,126,697 compared to mine operating earnings of $3,229,142 in the fourth quarter of 2007. Cost of sales increased to $8,294,803 in the fourth quarter of 2008, compared to $6,335,226 in the fourth quarter of 2007 due to the processing of lower grade ore and lower recoveries at all three mines. Amortization and depreciation expense increased by $408,189 to $1,049,767 in the fourth quarter of 2008, compared to $641,578 in the fourth quarter of 2007 due to increased investments in plant and equipment. There was a $636,626 reduction in depletion, which was $825,185 in the fourth quarter of 2008 compared to $1,461,811 in the fourth quarter of 2007, due to longer mine life related to updated NI 43-101 reports and the inventory effect of inventorying a portion of depletion due to the adoption of the new Canadian GAAP inventory rules per CICA HB section 3031.
General and administrative expenses decreased by $332,610 to $1,795,307 in the fourth quarter of 2008, compared to $2,127,917 in the fourth quarter of 2007, as the Company took measures to reduce expenditures and preserve cash. Stock-based compensation decreased by $581,406 to $865,415 in the fourth quarter of 2008, compared $1,446,821 in the fourth quarter of 2007, due to a lower number of options granted in the fourth quarter of 2008.
Operating loss was $3,787,419 in the fourth quarter of 2008 compared to $345,596 in the fourth quarter of 2007. This increased operating loss is primarily due to lower mine operating earnings for 2008 compared to 2007.
Loss before income tax was $8,053,990 for the fourth quarter of 2008, compared to $524,397 for the fourth quarter of 2007. Foreign exchange loss increased by $3,534,738, from $215,766 in the fourth quarter of 2007 to $3,750,504 in the fourth quarter of 2008, due to strengthening U.S. dollar relative to the Mexican peso and Canadian dollar. Interest and other expenses increased by $375,696, from $207,734 in the fourth quarter of 2007 to $583,430 in the fourth quarter of 2008, due to higher capital lease obligations in 2008. Lower interest on short-term investments gave rise to a $177,336 reduction in investment and other income, from $244,699 in the fourth quarter of 2007 to $67,363 in the fourth quarter of 2008.
The income tax benefit recorded in the fourth quarter of 2008 was $2,515,084 which is the tax benefit attributable to the loss generated by the Company during the period. This compares to an income tax provision of $768,234 for the fourth quarter of 2007, based on the taxable income generated in that period.
The net loss after taxes was $5,538,906 or $0.08 per share for the fourth quarter of 2008 compared to a net loss of $1,292,631 or $0.03 per share in the fourth quarter of 2007.
SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the last eight quarters.
Quarter |
Net sales
revenues $ |
Net income
(loss) after taxes $ |
Basic and diluted
net income (loss) per common share $ |
Stock based compensation (1) $ |
Property write
downs $ |
Note | |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | - | 2 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 | - | ||
Q2 | 11,436,889 | (296,956) | 0.00 | 670,616 | - | 3 | |
Q1 | 12,964,182 | 1,065,323 | 0.02 | 1,108,216 | - | ||
Year ended December 31, 2007 | Q4 | 11,631,477 | (1,292,631) | (0.03) | 1,446,821 | - | |
Q3 | 10,288,478 | (2,070,082) | (0.04) | 723,992 | 1,703,591 | 4 | |
Q2 | 10,846,344 | (729,658) | (0.01) | 775,532 | - | ||
Q1 | 10,158,621 | (3,137,751) | (0.06) | 919,344 | - |
Notes:
(1) |
Stock-based Compensation - the net losses are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
(2) |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metals settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million in the fourth quarter of 2008. |
(3) |
In the quarter ended June 30, 2008, the Company had a revision to its smelting charges imposed, resulting in an incremental charge and reduction of net sales of $1.9 million (US$1,852,830) in the quarter. Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate. |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 59
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
(4) |
Write downs of mineral properties net losses are impacted by managements decision not to pursue certain mineral properties. In the quarter ended September 30, 2007, management elected not to proceed with the acquisitions of the Candameña Mining District and accordingly, included a $1,703,591 one time write down of the carrying value of the Candameña mineral property to its estimated proceeds from disposal. |
Revenues Per Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including metal by-products of gold, lead and zinc, after having deducted refining and smelting charges. The following analysis provides the gross revenues prior to refining and smelting charges, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP. Gross revenues are deducted by shipped ounces of equivalent silver to calculate the average realized price per ounce of silver sold.
Quarter Ended | Year Ended | |||
December 31, | December 31, | |||
Revenue Analysis | 2008 | 2007 | 2008 | 2007 |
$ | $ | $ | $ | |
Gross revenues - silver dore bars and concentrates | 11,712,165 | 12,357,792 | 56,102,459 | 45,837,983 |
Less: refining, smelting and transportation charges | (2,605,560) | (726,316) | (11,777,572) | (2,913,063) |
Net revenue | 9,106,605 | 11,631,476 | 44,324,887 | 42,924,920 |
Equivalent ounces of silver sold | 827,845 | 908,688 | 3,590,202 | 3,461,560 |
Average gross revenue per ounce sold ($CDN) | 14.15 | 13.60 | 15.63 | 13.24 |
Average exchange rate in the period ($US/$CDN) | 1.2123 | 0.9818 | 1.0660 | 1.0740 |
Average gross revenue per ounce sold ($US) | 11.67 | 13.85 | 14.66 | 12.33 |
LIQUIDITY
At December 31, 2008, the Company had a working capital deficiency of $1,036,466 and cash and cash equivalents of $17,424,123 compared to working capital of $1,125,368 and cash and cash equivalents of $12,835,183 at December 31, 2007. Current liabilities at December 31, 2008 include the long-term vendor liability and associated interest relating to the acquisition of First Silver in the amount of $13,940,237. On July 22, 2008, the Company secured its outstanding vendor liability by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. The Letter of Credit is revolving with annual expiry on July 22. The cash and short term investments earn market rates of interest from which the 0.5% per annum cost of the Letter of Credit is deducted and the net interest remitted to the Company. The Restricted Cash is segregated from operating cash as the funds are not accessible by the Company pending the litigation described in Liquidity Risk below. Also included in current liabilities at December 31, 2008 is the current portion of capital lease obligations of $1,584,477.
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters issuing 8,500,000 Units at an issue price of $5.35 per Unit for net proceeds to the Company of $40,144,471. Each Unit consisted of one common share in the capital of the Company and one-half of one Common Share purchase warrant. Each whole Common Share purchase warrant entitles the holder to acquire one additional Common Share at a price of $7.00 expiring March 25, 2010. In addition, the Company received $1,398,566 pursuant to the exercise of 436,650 stock options and $31,875 pursuant to the exercise of 7,500 share purchase warrants during the year ended December 31, 2008.
During the year ended December 31, 2008, the Company made investments on its mineral properties of $24.5 million (2007 - $18.9 million), and on plant and equipment further expenditures of $14.9 million (2007 - $11.8 million) on a cash basis. In the fourth quarter of 2008, the Company took actions to reduce its rate of spending on exploration and development expenditures, reducing the number of drill rigs deployed from 22 early in the year to four by the end of the year. Although the Company has expended approximately US$10.5 million to date on its capital expansion at La Encantada, this is expected to be a US$21.6 million capital expansion that would increase capacity to 3,500 tonnes per day.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The underwriters have an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine and the remainder for general working capital.
Funds surplus to the Companys short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to any liquidity risk and there are no restrictions on the ability of the Company to meet its obligations. The Company has no exposure and has not invested any of its treasuries in any asset backed commercial paper securities. See Liquidity Risk below.
60
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
2009 OUTLOOK
This section of the MD&A provides managements production and costs forecasts for 2009. We also discuss the major capital projects planned for the La Encantada mine in 2009. These are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
PRODUCTION DATA | La Encantada | La Parrilla | San Martin | Consolidated |
Tonnes Milled | 611,800 | 275,358 | 307,753 | 1,194,911 |
Silver head grades (grams/tonne) | 212 | 250 | 150 | 205 |
Silver recoveries | 60% | 75% | 80% | 68% |
Silver ounces | 2,572,301 | 1,604,776 | 1,187,470 | 5,364,547 |
Gold ounces | 15 | 465 | 1,187 | 1,667 |
Lead tonnes | 944 | 1,322 | - | 2,266 |
Silver equivalent ounces (1) | 2,668,627 | 1,769,154 | 1,266,625 | 5,704,406 |
AVERAGE COSTS | ||||
Production costs per ounce (US$) | 4.71 | 6.83 | 9.10 | 6.40 |
Smelting/refining per ounce (US$) | 1.38 | 1.23 | 0.28 | 1.09 |
Transport and marketing per ounce (US$) | 0.17 | 0.18 | 0.16 | 0.17 |
Production costs per tonne (US$) | 21.72 | 39.79 | 35.10 | 28.84 |
(1) Pricing assumptions for equivalents Au = US$800/oz., Pb = US$0.55/oz. , Zn = US$0.50/oz.
Silver production is expected to increase in mid 2009 when the La Encantada plant expansion is completed and plant capacity has been increased from 1,000 tpd to 3,500 tpd. The Company expects to gradually bring the new cyanidation plant into production beginning with production of 1,000 tpd in the first month, 2,000 tpd in the second month, 3,000 tpd in the third month, and achieving full capacity of 3,500 tpd in the fourth month of production.
Capital expenditures at the La Encantada mine are expected to amount to US$21.6 million upon completion in mid-2009.
Cash costs are expected to remain constant due to foreign exchange translation effects on domestic peso based costs which when translated into US dollars have shown a decrease from earlier in 2008. The Company estimates that 65% of the production costs are in pesos, and 35% are denominated in U.S. dollars.
Smelting and refining charges are expected to decrease in 2009 due to new refining and smelting agreements entered into in February 2009 for doré and concentrate production. With the shift in production at the La Encantada mine, the mix of doré to concentrate production will increase from 49% to 92% by the fourth quarter of 2009.
Sales of coins, ingots and bullion will increase in the year from 5% of production in Q1/09, to approximately 10% by the end of Q2/09 and will remain at that level for the balance of 2009. These sales result in approximately a 10% increase in selling price over normal quoted selling prices in any quarter. Additional information on the Companys silver coins, ingots and bullion, including how to place an order, may be found on the Companys website at www.firstmajestic.com.
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2008, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the audited consolidated financial statements and the related notes.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2008, the Company:
(a) |
incurred $248,025 (2007 - $197,696) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
(b) |
incurred $310,920 (2007 - $478,206) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in México pursuant to a consulting agreement. |
(c) |
incurred $8,010,843 (2007 - $1,728,222) of service fees with a mining services company sharing our premises in Durango México. This related party provides management services and pays mining contractors who provide services at the Companys mines in México. Of the fees incurred, $3,122,130 was unpaid at December 31, 2008 (December 31, 2007 - $94,724). This relationship was terminated in February 2009. |
(d) |
incurred $7,365 (2007- $254,742) to a director of the Company as finders fees upon the completion of certain option agreements relating to the Del Toro Silver Mine. |
(e) |
provided a loan of US$30,000 (2007-$nil) to a director of the Company. This loan was fully repaid subsequent to December 31, 2008. |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 61
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
PROPOSED TRANSACTIONS
The board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
MANAGEMENT OF CAPITAL RISK
The Company’s objective when managing capital is to maintain its ability to continue as a going concern while at the same time maximizing growth of its business and providing returns on its shareholders’ investments. The Company’s overall strategy with respect to capital risk management remains unchanged from the prior year ended December 31, 2007.
The Company’s capital structure consists of shareholders’ equity, comprising of issued capital, share capital to be issued, contributed surplus, retained earnings (deficit) and accumulated other comprehensive loss.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Company’s Board of Directors.
The Company’s investment policy is to invest its cash in highly liquid short term interest bearing investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. As a result of the funding received subsequent to year end, the Company expects that the capital resources available to it will be sufficient to carry out its development plans and operations for at least the next twelve months.
FINANCIAL INSTRUMENTS AND RISKS
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business and value added tax and other receivables. The Company sells its silver primarily to one international organization with a strong credit rating, payments of receivables are scheduled, routine and received within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.1 million as at December 31, 2008, a significant portion which is past due. The Company expects to recover the full amount.
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company’s credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and to support its expansion plans. The Company does not have any committed loan facilities. As at December 31, 2008, the Company has outstanding accounts payable and accrued liabilities of $17.3 million which are generally payable in 90 days or less.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940 (see “Liquidity” above). Although, the Company does not have a history of operating profits, the Company believes it will generate sufficient cash from operations which together with cash on hand at March 27, 2009, will be sufficient to meet operating requirements as they arise for at least the next twelve months.
The Company has an obligation regarding its purchase of First Silver Reserve (“FSR”) to make a final instalment payment of $13,341,380, due on May 30, 2008, and to make simple interest payments at 6% per annum, payable quarterly on the outstanding vendor balance. In November 2007, an action was commenced by the Company and FSR against the previous majority shareholder of FSR (“Majority Shareholder”), who was a previous director, President and Chief Executive Officer of FSR, and a company he controls, whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer of FSR, he engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory requirements owed to FSR, which resulted in FSR not acquiring a mine. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
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FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Pending resolution of the litigation set out above, the Company has withheld payment of quarterly instalments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008 totalling $598,857 to the previous Majority Shareholder, and has maintained a reserve of cash in the amount of such instalments. The Company has withheld payments of the final instalment and interest, combined to a total of $13,940,237 due May 30, 2008 until such litigation has been resolved, and such date is presently not determinable. The Company filed on July 22, 2008 an irrevocable Letter of Credit with the Supreme Court of British Columbia as security for this matter.
The Companys liabilities have contractual maturities which are summarized below:
(1) | Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project |
(2) | Vendor liability on mineral property totalling US$1,121,160 on the Quebradillas Mine at La Parrilla. |
(3) | Amounts above do not include payments related to the Companys future asset retirement obligations (see Note 20), nor do they include accounts payable and accrued liabilities of $17.3 million. Excludes the vendor liability relating to the acquistion of First Silver of $13,940,237. |
Currency Risk
Financial instruments that impact the Companys net earnings or other comprehensive income due to currency fluctuations include Mexican peso denominated cash and cash equivalents, accounts receivable, investments in mining interests and accounts payable. The sensitivity of the Companys net earnings and other comprehensive income due to changes in the exchange rate between the Mexican peso and the Canadian dollar is included in the table below.
Commodity Price Risk
Commodity price risk is the risk that movements in the spot price of silver have a direct and immediate impact on the Companys income or the value of its related financial instruments. The Company also derives by-product revenue from the sale of gold, lead and zinc. The Companys sales are directly dependent on commodity prices that have shown volatility and are beyond the Companys control.
The Company does not use other derivative instruments to hedge its commodity price risk.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
The Companys interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Companys interest bearing financial liabilities comprise fixed rate debt instruments and capital leases with terms to maturity ranging up to three years.
The sensitivity analyses below have been determined based on the undernoted risks at December 31, 2008.
Reasonably possible changes | ||||||||||||
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|
$US Denominated
Silver Commodity Price |
|
|
$US / Peso Echange Rate |
|
|
Peso / $CDN
Exchange Rate |
|
|
Market
Interest Rate |
|
Impact on Annual Operations | +/- 10% | +/- 10% | +/- 10% | +/- 25 bps | ||||||||
Net Income (1) | $ | 5,196,932 | $ | 2,604,453 | $ | 2,557,372 | $ | 43,560 | ||||
Other Comprehensive Income (1) | $ | - | $ | - | $ | 440,923 | $ | - |
(1) | These sensitivities are hypothetical and should be used with caution, favourable hypothetical changes in the assumptions result in an increased amount and unfavourable hypothetical changes in the assumptions result in a decreased amount of net income and/or other comprehensive income. |
Fair Value Estimation
The Companys financial instruments are comprised of cash and cash equivalents, marketable securities, accounts receivables, other receivables, derivative financial instruments, accounts payable and accrued liabilities, employee profit sharing payable, capital lease obligations and vendor liability.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 63
Marketable securities and derivative instruments are carried at fair value. The fair values of accounts receivable, other receivables, accounts payable and accrued liabilities, unearned revenue, employee profit sharing payable and capital lease obligations approximate their carrying value due to the short term nature of these items. The fair value of the vendor liability and interest payable is not readily determinable due to the uncertainty with respect to the outcome of the litigation described in Note 10 in the consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for period ended December 31, 2008. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
Carrying Values of Property, Plant and Equipment and Other
Mineral Property Interests
The Company reviews and evaluates its mineral
properties for impairment at least annually or when events and changes in
circumstances indicate that the related carrying amounts may not be recoverable.
Impairment is considered to exist if the total estimated future undiscounted
cash flows are less than the carrying amount of the assets. Estimated
undiscounted future net cash flows for properties in which a mineral resource
has been identified are calculated using estimated future production, commodity
prices, operating and capital costs and reclamation and closure costs.
Undiscounted future cash flows for exploration stage mineral properties are
estimated by reference to the timing of exploration and/or development work,
work programs proposed, the exploration results achieved to date and the likely
proceeds receivable if the Company sold specific properties to third parties. If
it is determined that the future net cash flows from a property are less than
the carrying value, then an impairment loss is recorded to write down the
property to fair value.
The Company has completed an impairment review of its properties at December 31, 2008. The estimates used by management are subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and
Equipment
Property, plant and equipment comprise one of the largest
components of the Companys assets and, as such, the amortization of these
assets has a significant effect on the Companys financial statements. On the
commencement of commercial production, depletion of each mining property is
provided on the unit-of-production basis using estimated reserves and resources
expected to be converted to reserves as the depletion basis. The mining plant
and equipment and other capital assets are depreciated, following the
commencement of commercial production, over their expected economic lives using
the unit-of-production method. Capital projects in progress are not depreciated
until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets.
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and
decommissioning related to its mining properties. The Company, using mine
closure plans or other similar studies that outline the requirements planned to
be carried out, estimates the future obligations from mine closure activities.
Since the obligations are dependent on the laws and regulations of the county in
which the mines operate, the requirements could change resulting from amendments
in those laws and regulations relating to environmental protection and other
legislation affecting resource companies.
64
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at December 31, 2008.
Income Taxes
Future income tax assets and liabilities
are computed based on differences between the carrying amounts of assets and
liabilities on the balance sheet and their corresponding tax values, using the
enacted or substantially enacted, as applicable, income tax rates at each
balance sheet date. Future income tax assets also result from unused loss
carry-forwards and other deductions. The valuation of future income tax assets
is reviewed quarterly and adjusted, if necessary, by use of a valuation
allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Coincident with the tax consolidation, México introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in México. Management has reviewed its IETU obligations and its consolidated tax position at December 31, 2008, and management is required to assess whether the Company is more likely than not to benefit from these tax losses prior to recording a benefit from the tax losses.
Changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
Stock-Based Compensation
The Company uses the
Black-Scholes Option Pricing Model
. Option pricing models require the
input of subjective assumptions including the expected price volatility. Changes
in the input assumptions can materially affect the fair value estimate, and
therefore the existing models do not necessarily provide a reliable single
measure of the fair value of the Companys stock options granted during the
year.
SIGNIFICANT CHANGES IN ACCOUNTING POLICIES
Capital Disclosures and Financial Instruments - Disclosures
and Presentation
Effective January 1, 2008, the Company adopted three new
presentation and disclosure standards that were issued by the Canadian Institute
of Chartered Accountants: Handbook Section 1535, Capital Disclosures (Section
1535), Handbook Section 3862, Financial Instruments Disclosures (Section
3862) and Handbook Section 3863, Financial Instruments Presentation (Section
3863).
Section 1535 requires the disclosure of both qualitative and quantitative information that enables users of financial statements to evaluate (i) an entitys objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance.
Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments Disclosure and Presentation, revising and enhancing its disclosure requirements and carrying forward unchanged its presentation requirements for financial instruments. Sections 3862 and 3863 place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks.
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 65
Inventories
The Company adopted CICA Section 3031,
Inventories, on January 1, 2008. This section provides further guidance on the
measurement and disclosure requirements for inventories. Specifically, the new
pronouncement requires inventories to be measured at the lower of cost and net
realizable value, and provides guidance on the determination of cost and its
subsequent recognition as an expense, including any write-down to net realizable
value. The adoption of the new standard did not have a material impact on the
Companys results of operations or financial position.
FUTURE ACCOUNTING CHANGES
The Company has assessed new and revised accounting pronouncements that have been issued but that are not yet effective and determined that the following may have a significant impact on the Company.
The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009. The Company is currently assessing the impact of this new standard on its consolidated financial statements.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted. The Company is currently assessing the impact of these new standards.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management reviewed internal controls in detail in 2008 and noted weaknesses in internal controls related to education and adoption of new automated internal controls in México proposed when its new accounting information systems were adopted in the first quarter of 2008. The risk of material error is mitigated by extensive management review of financial reports and various account reconciliations and analyses in both México and Canada. Management is continuing to rely significantly on substantive testing and detailed analyses in parallel with establishing detailed controls over the new systems in order to mitigate specific weaknesses while ensuring the fair presentation of its annual financial statements.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in México but these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at December 31, 2008.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
66
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is presently undergoing a diagnostic assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. While the effects of IFRS have not yet been fully determined, the Company has identified several key areas where it is likely to be impacted by accounting policy changes, including the accounting for Property, Plant and Equipment, Asset Retirement Obligations and Business Combinations. Further detailed analysis of these areas is underway, and no decisions have yet been made with regard to accounting policy choices.
A more detailed review of the impact of IFRS on the Companys consolidated financial statements, and other areas of the Company is in progress and is expected to be completed by the end of 2009. The Company will continue to monitor changes in IFRS during the implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting. There will be changes in accounting policies related to the adoption of IFRS and these changes may materially impact the Companys financial statements in the future.
OTHER MD&A REQUIREMENTS
(a) | Additional information relating to the Company may be found on or in: |
SEDAR at www.sedar.com, | |
the Companys Annual Information Form, | |
the Companys audited consolidated financial statements for the year ended December 31, 2008. | |
(b) | Outstanding Share Data as of the Report Date: |
As of March 31, 2009, the Company has the following securities outstanding: | |
Issued common shares: 82,341,636 common shares |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT | 67
Stock options chronologically:
The following table summarizes the stock options outstanding at March 31, 2009:
Price | Options | Options | |
$ | Outstanding | Exercisable | Expiry Dates |
3.28 | 12,500 | 12,500 | June 13, 2009 |
4.32 | 605,000 | 605,000 | December 6, 2009 |
5.50 | 200,000 | 200,000 | February 1, 2010 |
4.64 | 75,000 | 75,000 | June 1, 2010 |
4.17 | 100,000 | 100,000 | August 8, 2010 |
3.72 | 30,000 | 30,000 | September 24, 2010 |
3.98 | 20,000 | 13,750 | October 17, 2010 |
4.45 | 600,000 | 450,000 | October 30, 2010 |
4.34 | 50,000 | 37,500 | November 1, 2010 |
4.42 | 25,000 | 18,750 | November 12, 2010 |
4.34 | 200,000 | 150,000 | December 5, 2010 |
4.42 | 50,000 | 37,500 | February 20, 2011 |
4.65 | 100,000 | 75,000 | March 25, 2011 |
4.19 | 20,000 | 10,000 | April 26, 2011 |
4.02 | 100,000 | 50,000 | May 15, 2011 |
4.30 | 450,000 | 450,000 | June 19, 2011 |
4.67 | 130,000 | 65,000 | July 4, 2011 |
4.15 | 300,000 | 150,000 | July 28, 2011 |
3.62 | 695,000 | 347,500 | August 28, 2011 |
1.60 | 200,000 | 50,000 | October 8, 2011 |
1.27 | 118,750 | 29,688 | October 17, 2011 |
4.32 | 245,000 | 245,000 | December 6, 2011 |
4.41 | 400,000 | 400,000 | December 22, 2011 |
5.00 | 155,000 | 155,000 | February 7, 2012 |
4.65 | 25,000 | 25,000 | June 20, 2012 |
4.34 | 925,000 | 693,750 | December 5, 2012 |
3.62 | 100,000 | 50,000 | August 28, 2013 |
1.44 | 240,000 | 60,000 | November 10, 2013 |
1.56 | 550,000 | 137,500 | December 17, 2013 |
6,721,250 | 4,723,438 |
The following table summarizes the share purchase warrants outstanding at March 31, 2009:
Exercise Price | Warrants | |
$ | Outstanding | Expiry Dates |
7.00 | 4,887,500 | March 25, 2010 |
3.50 | 4,243,788 | March 5, 2011 |
9,131,288 |
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CORPORATE INFORMATION
CORPORATE HEADQUARTERS | STOCK TRANSFER AGENT |
Suite 1805 - 925 West Georgia Street | Computershare Trust Company of Canada |
Vancouver, B.C. Canada V6C 3L2 | 510 Burrard Street, 3rd Floor |
Telephone 604.688.3033 | Vancouver, B.C. Canada V6C 3B9 |
Fax 604.639.8873 | Telephone 604-661-9400 |
Toll Free 1.866.529.2807 | Fax 604-661-9401 |
info@firstmajestic.com | |
www.firstmajestic.com | LEGAL ADVISORS |
BOARD OF DIRECTORS AND OFFICERS | McCullough OConnor Irwin LLP |
888 Dunsmuir Street, Suite 1100 | |
Robert McCallum , B.Sc., P.Eng. 1,3 | Vancouver, B.C. Canada V6C 3K4 |
Chairman & Director | |
Keith Neumeyer | INDEPENDENT AUDITORS |
President, Chief Executive Officer and Director | |
Ramon Davila , Ing., M.Sc. Eng. | Deloitte & Touche |
Chief Operating Officer and Director | P.O. Box 49279, Four Bentall Centre |
Raymond Polman , B.Sc. (Econ), CA | 2800 1055 Dunsmuir Street |
Chief Financial Officer | Vancouver, B.C. Canada V7X 1P4 |
Connie Lillico | |
Corporate Secretary | ANNUAL GENERAL MEETING |
Douglas Penrose , CA 1,3 | |
Director | Date: Thursday, May 28, 2009 |
Tony Pezzotti 1,2 | Time: 10:00 am |
Director | Fairmont Waterfront Hotel, |
David A. Shaw , Ph.D 2,3 | Cheakamus Room |
Director | 900 Canada Place Way |
Robert (Bob) Young , P.Eng. 2 | Vancouver, B.C. Canada V6C 3L5 |
Director | |
MARKET INFORMATION | |
INVESTOR RELATIONS CONTACT | |
Trading Symbol: FR | |
Investor relations | Stock Exchange: TSX |
info@firstmajestic.com | Frankfurt/Berlin: FMV, WKN: A0LHKJ |
Pink Sheets: FRMSF | |
Jill Anne Arias | |
Executive Assistant & Corporate Relations | |
Telephone 604.688.3033 | |
Toll Free 1.866.529.2807 (North America only) |
1 |
Audit committee |
2 |
Human resources, compensation and nominating committee |
3 |
Corporate governance committee |
FIRST MAJESTIC SILVER CORP. 2008 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently charac terized by words such as “plan”, “expect”, “forecast”, “ project”, ”intend”, ”believe”, ”anticipate”, “outlook” and other similar words, or statements that certain events or conditions “may” or “will” occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncer tainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the po ssibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Company’s Annual Information Form under the heading “Risk Factors”. The Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (“First Majestic” or “the Company”) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in México. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively. The common shares are also quoted on the “Grey Market” (Pink Sheets) in the U.S. under the symbol “FRMSF” and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol “FMV”. Silver producing operations of the Company are carried out through three operating mines: the La Parrilla, La Encantada, and San Martin mines.
The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2008 and 2007. Additional information on the Company, including the Company’s Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its two wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”), and First Silver Reserve Inc (“First Silver”), as well as the indirect wholly owned subsidiaries of CFM: First Majestic Plata, S.A. de C.V. (“FM Plata”), Mineral El Pilón, S.A. de C.V. (“El Pilón”), and Minera La Encantada, S.A. de C.V. (“La Encantada”). First Silver underwent a wind up and distribution of assets and liabilities to the Company in December 2007; however, First Silver has not been dissolved pending the outcome of litigation described herein.
QUALIFIED PERSONS
Unless otherwise indicated, Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the Qualified Person for the Company and has reviewed the technical information herein. National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine can be found on the Company’s web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of March 31, 2009, unless otherwise stated.
1
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
FINANCIAL PERFORMANCE AND HIGHLIGHTS
|
Total annual production for 2008 increased by 18% to 4,229,998 ounces of silver equivalents, including 3,654,698 ounces of silver, 1,661 ounces of gold, 7,457,707 pounds of lead and 425,710 pounds of zinc. This compares to the 3,584,265 ounces of silver equivalents produced in 2007 consisting of 3,170,139 ounces of silver, 2,049 ounces of gold and 2,924,146 pounds of lead. |
|
Gross revenue for 2008, prior to smelting charges, was $56.1 million compared to $45.8 million in 2007, an increase of 22.4%. In 2008 the Company shipped 3,590,202 ounces of silver equivalent at an average price of $15.63 per ounce (US$14.66) compared to 3,461,560 ounces in 2007 at an average price of $13.24 (US$12.33). |
|
Due to low metal prices in the latter half of 2008, the Company elected to carry 553,923 ounces of equivalent silver in inventory over the year end from its annual production. The inventory at year end consisted of 429,652 ounces in stockpiles, 101,755 ounces of finished product and 22,516 ounces in process. These ounces are expected to be sold throughout 2009. |
|
Sales revenue (after smelting, refining and transportation charges) for the year ended December 31, 2008 was $44.3 million; an increase of 3% compared to $42.9 million for the year ended December 31, 2007. Smelting, refining and transportation charges increased from $2.9 million in 2007 to $11.8 million in 2008. A primary focus of the Company in 2009 is to increase its scale of operations and to shift its mix of production from concentrates toward doré production to reduce its smelting charges and increase net revenues. Average smelting and transportation charges for doré in 2008 were US$0.39 per equivalent ounce whereas for concentrates were US$4.78 per equivalent ounce (see Non-GAAP measures below). |
|
Direct cash costs per ounce of silver (see Non-GAAP measures below) for the year ended December 31, 2008 decreased to US$5.87 per ounce of silver, compared to US$7.06 per ounce of silver for the year ended December 31, 2007 and US$6.37 per ounce of silver for the fourth quarter of 2008 compared to US$7.97 per ounce of silver for the fourth quarter of 2007 due to higher silver ounces produced in 2008. |
|
Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate smelting which have positively impacted costs for 2009. |
|
At the La Encantada Silver Mine, construction began in June 2008 on the new US$21.6 million cyanidation plant which will have a capacity of 3,500 tonnes per day (tpd) once completed. The plant is scheduled to commence operations in July 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of doré bars. |
|
Reserve and Resource development was a high priority for the Company in 2008, leading to substantial increases in Reserves and Resources at all of its operating mines. On a consolidated basis, Proven and Probable Reserves increased by 102% to 47.8 million equivalent ounces of silver, compared to 23.7 million equivalent ounces of silver at the end of 2007. Measured and Indicated Resources increased by 9% to 92.3 million equivalent ounces of silver in 2008, compared to 85.1 million equivalent ounces of silver at the end of 2007. Inferred Resources increased by 113% to 158.8 million equivalent ounces of silver in 2008, compared to 74.7 million equivalent ounces of silver at the end of 2007. |
|
During 2008, the Company invested $30.1 million in capital expenditures on its mineral properties, and a further $18.0 million on additions to plant and equipment. |
|
Mine operating earnings for the year ended December 31, 2008 was $7.5 million, an increase of 7% compared to mine operating earnings of $7.0 million for the year ended December 31, 2007. |
|
The Company reduced its operating loss for 2008 to $3.7 million, a 14% reduction compared to an operating loss of $4.3 million for the year ended December 31, 2007. |
|
The Company incurred a net loss after taxes of $5.1 million for the year ended December 31, 2008, compared to a net loss after taxes of $7.2 million for the year ended December 31, 2007. The net loss after taxes for this year was after deducting a non-cash stock-based compensation expense of $3.7 million (2007 - $3.9 million) and recording a recovery for future income taxes of $2.1 million. |
|
Subsequent to December 31, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine, including the completion of the 3,500 tonne-per-day cyanidation plant, and the remainder for general working capital. |
2
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
The subsidiaries, mines, mills and properties in México are as follows:
Subsidiaries | Mine and Mill | Exploration Properties |
First Majestic Plata, S.A. de C.V. |
La
Parrilla Silver Mine
Del Toro Silver Mine |
La
Parrilla properties
Del Toro properties (formerly referred to as the Chalchihuites Group of Properties) |
Minera El Pilón, S.A. de C.V. | San Martin Silver Mine |
San
Martin property
Cuitaboca Silver Project Jalisco Group of Properties |
Minera La Encantada, S.A. de C.V. | La Encantada Silver Mine | La Encantada property |
Majestic Services,
S.A. de C.V.
(a labour services company) |
(all of the above) | (all of the above) |
Corporación First
Majestic, S.A. de C.V.
(holding company for the above) |
(holding company for the above) | (holding company for the above) |
Certain financial results in this MD&A, regarding operations, cash costs, and average realized revenues, are presented in the Mine Operations Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars. U.S. dollar results are translated using the U.S. dollar rates on the dates on which the transactions occurred.
MINING OPERATING RESULTS
Consolidated First Majestic
Quarter Ended December 31, | RESULTS | Year to Date December 31, | ||
2008 | 2007 | 2008 | 2007 | |
215,646 | 146,798 | Ore processed/tonnes milled | 758,338 | 604,756 |
207 | 241 | Average silver grade (g/tonne) | 219 | 222 |
65% | 77% | Recovery (%) | 68% | 73% |
930,120 | 868,354 | Silver ounces produced | 3,654,698 | 3,170,139 |
403 | 490 | Gold ounces produced | 1,661 | 2,049 |
31,650 | 27,239 | Equivalent ounces from gold | 100,496 | 106,046 |
2,093,988 | 1,107,154 | Pounds of lead produced | 7,457,707 | 2,924,146 |
93,239 | 112,706 | Equivalent ounces from lead | 450,423 | 308,079 |
24,413 | - | Pounds of zinc produced | 425,710 | - |
1,403 | - | Equivalent ounces from zinc | 24,381 | - |
1,056,219 | 1,008,299 | Total production - ounces silver equivalent | 4,229,998 | 3,584,265 |
827,845 | 908,688 | Ounces of silver equivalents sold | 3,590,202 | 3,461,560 |
6.37 | 7.97 | Total US cash cost per ounce (1)(2) | 5.87 | 7.06 |
5,845 | 5,346 | Underground development (m) | 27,890 | 20,279 |
4,194 | 8,122 | Diamond drilling (m) | 61,440 | 35,655 |
37.57 | 50.30 | Total US production cost per tonne (2) | 43.08 | 42.96 |
(1) |
The Company reports non-GAAP measures which include
Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver
(prior to
smelting charge), and smelting charges per ounce of
silver in order to manage and evaluate operating performance at each of
the Companys
mines. These measures are widely used in the silver
mining industry as a benchmark for performance, but do not have a
standardized
meaning, and are not GAAP measures. See Reconciliation
to GAAP below
|
(2) | Cash Costs do not include smelting; production costs per tonne include smelter charges. |
3
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
LA ENCANTADA SILVER MINE
Quarter Ended December 31, | RESULTS | Year to Date December 31, | ||
2008 | 2007 | 2008 | 2007 | |
79,480 | 37,657 | Ore processed/tonnes milled | 257,960 | 185,549 |
281 | 370 | Average silver grade (g/tonne) | 283 | 306 |
59% | 78% | Recovery (%) | 62% | 68% |
427,753 | 341,709 | Silver ounces produced | 1,442,566 | 1,238,316 |
- | - | Gold ounces produced | - | - |
- | - | Equivalent ounces from gold | - | - |
1,195,557 | 298,269 | Pounds of lead produced | 3,312,869 | 1,091,902 |
56,299 | 30,933 | Equivalent ounces from lead | 193,675 | 128,061 |
- | - | Pounds of zinc produced | - | - |
- | - | Equivalent ounces from zinc | - | - |
484,053 | 372,642 | Total production - ounces silver equivalent | 1,636,242 | 1,366,377 |
450,063 | 303,056 | Ounces of silver equivalents sold | 1,529,301 | 1,272,810 |
3.82 | 4.22 | Total US cash cost per ounce (1) (2) | 3.59 | 3.35 |
3,075 | 1,587 | Underground development (m) | 8,463 | 5,647 |
2,107 | 532 | Diamond drilling (m) | 8,048 | 1,474 |
32.98 | 44.26 | Total US production cost per tonne (2) | 45.93 | 33.85 |
LA PARRILLA SILVER MINE
Quarter Ended December 31, | RESULTS | Year to Date December 31, | ||
2008 | 2007 | 2008 | 2007 | |
66,395 | 53,138 | Ore processed/tonnes milled | 246,166 | 179,411 |
206 | 222 | Average silver grade (g/tonne) | 234 | 204 |
70% | 70% | Recovery (%) | 70% | 68% |
305,685 | 261,931 | Silver ounces produced | 1,291,210 | 802,603 |
297 | 142 | Gold ounces produced | 864 | 427 |
15,899 | 7,884 | Equivalent ounces from gold | 47,139 | 22,435 |
897,031 | 801,746 | Pounds of lead produced | 3,979,046 | 1,782,220 |
36,864 | 81,024 | Equivalent ounces from lead | 245,056 | 175,785 |
24,414 | - | Pounds of zinc produced | 24,414 | - |
1,403 | - | Equivalent ounces from zinc | 1,403 | - |
359,851 | 350,838 | Total production - ounces silver equivalent | 1,584,808 | 1,000,823 |
228,661 | 336,405 | Ounces of silver equivalents sold | 1,282,340 | 986,390 |
6.68 | 8.95 | Total US cash cost per ounce (1) (2) | 5.39 | 8.70 |
1,557 | 1,477 | Underground development (m) | 10,457 | 6,414 |
668 | 6,869 | Diamond drilling (m) | 37,944 | 30,481 |
47.01 | 46.05 | Total US production cost per tonne (2) | 44.42 | 42.91 |
(1) |
The Company reports non-GAAP measures which include
Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver
(prior to smelting charge), and smelting charges per ounce of
silver in order to manage and evaluate operating performance at each of
the Companys mines. These measures are widely used in the silver
mining industry as a benchmark for performance, but do not have a
standardized meaning, and are not GAAP measures. See Reconciliation
to GAAP below
|
(2) | Cash Costs do not include smelting; production costs per tonne include smelter charges. |
4
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
SAN MARTIN SILVER MINE
Quarter Ended December 31, | RESULTS | Year to Date December 31, | ||
2008 | 2007 | 2008 | 2007 | |
69,771 | 56,003 | Ore processed/tonnes milled | 254,211 | 239,796 |
124 | 171 | Average silver grade (g/tonne) | 141 | 171 |
71% | 86% | Recovery (%) | 80% | 84% |
196,681 | 264,714 | Silver ounces produced | 920,921 | 1,129,220 |
106 | 348 | Gold ounces produced | 797 | 1,622 |
15,751 | 19,355 | Equivalent ounces from gold | 53,357 | 83,611 |
1,399 | 7,409 | Pounds of lead produced | 165,792 | 50,024 |
75 | 749 | Equivalent ounces from lead | 11,691 | 4,233 |
- | - | Pounds of zinc produced | 401,297 | - |
- | - | Equivalent ounces from zinc | 22,979 | - |
212,315 | 284,819 | Total production - ounces silver equiv. | 1,008,948 | 1,217,065 |
149,121 | 269,227 | Ounces of silver equivalents sold | 778,561 | 1,202,360 |
11.43 | 11.83 | Total US cash cost per ounce (1)(2) | 10.12 | 9.92 |
1,214 | 2,282 | Underground development (m) | 8,971 | 8,218 |
1,419 | 721 | Diamond drilling (m) | 15,448 | 3,700 |
33.82 | 58.40 | Total US production cost per tonne (2) | 38.90 | 50.05 |
(1) |
The Company reports non-GAAP measures which
include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable
silver (prior to
smelting charge) and smelting charges per ounce
of silver in order to manage and evaluate operating performance at each of
the Companys
mines. These measures are widely used in the silver
mining industry as a benchmark for performance, but do not have a
standardized
meaning, and are not GAAP measures. See Reconciliation
to GAAP below.
|
(2) | Cash Costs do not include smelting; production costs per tonne include smelter charges. |
5
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Reconciliation of Cash Costs to GAAP |
Three Months Ended
December 31, 2008 |
Year ended
December 31, 2008 |
|||||||
San Martin | La Parrilla (1) | La Encantada | Q42008 | San Martin | La Parrilla (1) | La Encantada | 2008 | ||
DIRECT MINING EXPENSES(MMI) | US$ | 2,437,236 | 2,642,802 | 2,175,866 | 7,255,903 | 10,332,232 | 11,048,812 | 7,558,285 | 28,939,328 |
PROFIT SHARING | US$ | - | - | - | - | - | - | - | - |
OTHER SELLING COSTS | |||||||||
(TRANSPORT, ETC.) | US$ | (1,272) | 72,397 | 46,234 | 117,359 | 78,930 | 247,807 | 235,831 | 562,568 |
THIRD PARTY SMELTING | US$ | 110,772 | 1,080,074 | 988,885 | 2,179,732 | 571,209 | 3,977,916 | 6,667,136 | 11,216,262 |
BYPRODUCT CREDITS | US$ | (187,427) | (673,849) | (589,497) | (1,450,773) | (1,094,506) | (4,339,639) | (2,613,425) | (8,047,570) |
LESS PROFIT SHARING | US$ | - | - | - | - | - | - | - | - |
TOTAL CASH COSTS | US$ | 2,359,309 | 3,121,425 | 2,621,488 | 8,102,221 | 9,887,866 | 10,934,898 | 11,847,827 | 32,670,588 |
CASH COST PER OUNCE | |||||||||
PRODUCED | US$/OZ | 12.00 | 10.21 | 6.13 | 8.71 | 10.74 | 8.47 | 8.21 | 8.94 |
SMELTING/REFINING/ | |||||||||
TRANSPORTATION | |||||||||
COST PER OUNCE | US$/OZ | (0.56) | (3.53) | (2.31) | (2.34) | (0.62) | (3.08) | (4.62) | (3.07) |
DIRECT MINING EXPENSES | |||||||||
CASH COST | US$/OZ | 11.43 | 6.68 | 3.82 | 6.37 | 10.12 | 5.39 | 3.59 | 5.87 |
TONNES PRODUCED | TONNES | 69,771 | 66,396 | 79,479 | 215,646 | 254,211 | 246,167 | 257,960 | 758,338 |
OUNCES OF SILVER PRODUCED | OZ | 196,682 | 305,685 | 427,753 | 930,121 | 920,921 | 1,291,211 | 1,442,566 | 3,654,699 |
OUNCES OF SILVER EQ PRODUCED | OZ EQ | 15,633 | 62,771 | 62,250 | 140,654 | 88,027 | 302,203 | 199,626 | 589,856 |
TOTAL OZ OF SILVER EQ PRODUCED | OZ EQ | 212,315 | 359,850 | 484,053 | 1,056,218 | 1,008,948 | 1,584,808 | 1,636,242 | 4,229,998 |
MINING | $/Tonne | 13.18 | 17.96 | 11.69 | 14.10 | 17.88 | 18.20 | 11.03 | 15.65 |
MILLING | $/Tonne | 13.84 | 18.50 | 9.77 | 13.78 | 12.93 | 21.30 | 7.16 | 13.69 |
INDIRECT | $/Tonne | 7.91 | 3.34 | 5.91 | 5.77 | 9.88 | 5.43 | 11.14 | 8.86 |
SELLING AND TRANSPORT COSTS | $/Tonne | (0.02) | 1.09 | 0.58 | 0.54 | 0.31 | 1.01 | 0.91 | 0.74 |
SMELTING AND REFINING COSTS | $/Tonne | 1.59 | 16.27 | 12.44 | 10.11 | 2.25 | 16.16 | 25.85 | 14.79 |
BY PRODUCT CREDITS | $/Tonne | (2.69) | (10.15) | (7.42) | (6.73) | (4.31) | (17.63) | (10.13) | (10.61) |
DIRECT COST PER TONNE | $/Tonne | 33.82 | 47.01 | 32.98 | 37.57 | 38.90 | 44.42 | 45.93 | 43.08 |
RECONCILIATION: | |||||||||
Cash Cost | US$ | 2,359,309 | 3,121,425 | 2,621,488 | 8,102,221 | 9,887,866 | 10,934,898 | 11,847,826 | 32,670,589 |
Inventory changes | US$ | (305,899) | 196,454 | (176,063) | (285,508) | (893,499) | (466,693) | 293,719 | (1,066,473) |
Byproduct credits | US$ | 187,427 | 673,849 | 589,497 | 1,450,773 | 1,094,506 | 4,339,639 | 2,613,425 | 8,047,570 |
Smelting and refining | US$ | (110,772) | (1,080,074) | (988,885) | (2,179,732) | (571,209) | (3,977,917) | (6,667,136) | (11,216,263) |
Other | US$ | - | (503,377) | - | (503,377) | - | (278,966) | - | (278,966) |
Cost of sales - Calculated | US$ | 2,130,065 | 2,408,276 | 2,046,036 | 6,584,377 | 9,517,664 | 10,550,960 | 8,087,833 | 28,156,457 |
Average CDN/US Exchange Rate | 0.8279 | 0.8229 | 0.8461 | 0.8316 | 0.9438 | 0.9300 | 0.9390 | 0.9372 | |
Booked Cost of Sales - CDN$ | CDN$ | 2,572,773 | 2,926,679 | 2,418,181 | 7,917,633 | 10,083,947 | 11,345,291 | 8,613,007 | 30,042,245 |
Note 1: Does not include cost of sales on the intercompany transfers of doré from La Parrilla to parent company in the amount of Cdn$377,170.
Reconciliation of Cash Costs to GAAP |
Three Months Ended
December 31, 2008 |
Year ended
December 31, 2008 |
|||||||||
INVENTORY RECONCILIATION (2): | San Martin | La Parrilla | La Encantada | Vancouver | Q42008 | San Martin | La Parrilla | La Encantada | Vancouver | 2008 | |
Opening inventory | OZ EQ | 207,691 | 334,847 | 115,714 | 11,668 | 669,920 | 15,592 | 31,590 | 31,264 | 20,650 | 99,096 |
Production - silver equivalent ounces | OZ EQ | 212,315 | 359,851 | 484,053 | - | 1,056,219 | 1,008,948 | 1,584,808 | 1,636,242 | - | 4,229,998 |
Shipments - silver equivalent ounces | OZ EQ | (149,121) | (228,661) | (450,063) | (16,463) | (844,308) | (778,561) | (1,282,340) | (1,529,301) | (24,607) | (3,614,809) |
Reduction of stockpile | OZ EQ | - | (123,384) | (37,352) | - | (160,736) | - | (123,384) | (37,352) | - | (160,736) |
Inventory adjustments | OZ EQ | (27,853) | 21,840 | 13,730 | 47,248 | 54,965 | (50,779) | 11,382 | 35,814 | 46,410 | 42,827 |
Shipment adjustments | OZ EQ | (47,832) | (142,437) | 10,585 | - | (179,684) | - | - | - | - | - |
Ending inventory | OZ EQ | 195,200 | 222,056 | 136,667 | 42,453 | 596,376 | 195,200 | 222,056 | 136,667 | 42,453 | 596,376 |
Value of ending inventory | CDN$ | 1,203,178 | 1,013,558 | 628,829 | 572,147 | 3,417,712 | 1,203,178 | 1,013,558 | 628,829 | 572,147 | 3,417,712 |
Note 2: The inventory reconciliation above consists of silver coins, bullion, doré, concentrates, ore in process and stockpile but excludes materials and supplies.
6
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
REVIEW OF MINING OPERATING RESULTS
The Company turned its focus toward operating efficiencies in the final quarter of 2008, scaling up its mine operations in its three primary mines in an effort to realize economies of scale. Expansions began in July of 2008 at each of the operating mines culminating in higher capacities in the fourth quarter. At the La Parrilla Silver Mine, mill capacity was expanded from 800 tpd and reached 850 tpd in November 2008. At the La Encantada Silver Mine, several improvements were made within the current flotation mill which resulted in overall capacity reaching 1,000 tpd in November 2008. At the San Martin Silver Mine, expansion of the mill was completed in December resulting in an increase in capacity from 800 tpd to 950 tpd. Total capacity has increased from 2,400 tpd to 2,800 tpd, a 17% increase. The impact of the increased scale of production was also aided by a weakening Mexican peso and the net result has been a reduction of the cost per tonne from US$50.30 in the fourth quarter of 2007 to US$37.57 per tonne in the fourth quarter of 2008 (See “Non-GAAP Measures”).
Silver production increased from 3,584,265 equivalent ounces of silver for the year ended December 31, 2007 to 4,229,998 equivalent ounces of silver for the year ended December 31, 2008, an increase of 18%. This can be attributed to an increase of mill throughput tonnage, from 604,756 tonnes in 2007 to 758,338 tonnes in 2008, an increase of 25%. Lead production increased by 155%, from 2,924,146 pounds in 2007 to 7,457,707 pounds in 2008. Gold production decreased by 19%, from 2,049 ounces in 2007 to 1,661 ounces in 2008.
Due to a sharp decline in silver, lead and zinc prices in late 2008, cash management was a priority for the Company. The Company revised its exploration and development plans in late 2008 as it had achieved its targets for Reserves and Resource development resulting in an increase in mine life now equalling more than 20 years.
The Company’s revised mine development plan for 2008 included the completion of 25,000 metres of underground development across its operations and projects, a reduction from its prior target of 46,000 metres; however, a total of 27,890 metres were completed during the year ended December 31, 2008, representing an increase of 38% when compared with the 20,279 metres completed in the previous year.
The Company’s revised plan for diamond drilling in 2008 included a reduction from 82,000 metres to the completion of 60,000 metres of diamond drilling across its operations and projects. Diamond drilling increased by 72%, from 35,655 metres in 2007 to 61,440 metres in 2008.
The fourth quarter of 2008 was impacted by the cut backs that occurred in late 2008. Development decreased by 34%, from 8,876 metres of development completed in the third quarter to 5,845 metres in the fourth quarter. The diamond drilling program saw a reduction of 84%, from 26,666 metres drilled in the third quarter to 4,194 metres drilled in the fourth quarter.
Production increased by 26%, from 840,918 equivalent ounces of silver in the third quarter to 1,056,219 equivalent ounces of silver in the fourth quarter of 2008; however, the results of the third quarter of 2008 were negatively impacted by heavy rains. Silver production increased by 29% from 719,399 ounces in the third quarter to 930,120 ounces in the fourth quarter. Lead production also increased by 38% from 1,518,271 pounds in the third quarter to 2,093,988 pounds in the fourth quarter. Production of gold decreased by 25%, from 536 ounces in the third quarter to 403 ounces in the fourth quarter. The fourth quarter of 2008 also saw an increase of 5% over the equivalent ounces of silver produced in the fourth quarter of 2007.
During the fourth quarter, the overall recoveries of silver from the three mills reflected a decrease from 67% to 65%; however, the overall average silver head grade increased from 196 grams per tonne (“g/t”) of silver in the third quarter to 207 g/t of silver in the fourth quarter.
The Company also reviewed its unfulfilled orders for mining equipment and cancelled pending orders of new equipment. Its original agreement for 20 pieces of equipment in 2008 was scaled back to the nine pieces which had been delivered. Also, the Company restructured its remaining US$2.9 million in equipment lease payments to provide for two years of level monthly payments and accrued interest, commencing February 1, 2009.
Management believes strongly in responsible, sustainable growth and contributing to its people and the communities in which it operates. In March 2009, the Company was awarded the prestigious Socially Responsible Business Distinction for 2008 (Distintivo Empressa Socialmente Responsable 2008) by Centro Mexicano para la Filantropia (CEMEFI). To receive this award, the Company demonstrated responsibility, transparency and sustainability within its operations and projects in México.
7
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
RESERVES AND RESOURCES UPDATE
Reserve and Resource development was a high priority for the Company in 2008, leading to substantial increases in Reserves and Resources at all of its operating mines. The Companys management set a target to expand its total Reserves and Resources to 300 million equivalent silver ounces of all combined categories by the end of 2008. Based on updated NI 43-101 reports published between October 2008 and February 2009, the Company defined a total of 140.2 million ounces of silver equivalent in Proven and Probable Reserves and Measured and Indicated Resources, in addition to 158.8 million ounces of silver equivalent in Inferred Resources.
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In October 2008, the Company released an updated NI 43-101 compliant resource estimate for the Del Toro Silver Mine. This mineral resource estimate, with a cut-off date of July 31, 2008, included Measured and Indicated Resources of 20.9 million ounces of silver equivalent and Inferred Resources of 36.0 million ounces of silver equivalent. |
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In December 2008, the Company released an updated NI 43-101 compliant resource estimate for the La Encantada Silver Mine. This mineral resource estimate, with a cut-off date of September 30, 2008, included Proven and Probable Reserves of 35.5 million ounces of silver equivalent, Measured and Indicated Resources of 33.1 million ounces of silver equivalent and Inferred Resources of 20.0 million ounces of silver equivalent. |
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In January 2009, the Company released an updated NI 43-101 compliant resource estimate for the San Martin Silver Mine. This mineral resource estimate, with a cut-off date of September 30, 2008, included Proven and Probable Reserves of 7.0 million ounces of silver equivalent, Measured and Indicated Resources of 7.6 million ounces of silver equivalent and Inferred Resources of 50.0 million ounces of silver equivalent. |
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In February 2009, the Company released an updated NI 43-101 compliant resource estimate for the La Parrilla Silver Mine. This mineral resource estimate, prepared with a cut-off date of September 30, 2008, included Proven and Probable Reserves of 5.2 million ounces of silver equivalent, Measured and Indicated Resources of 30.7 million ounces of silver equivalent and Inferred Resources of 52.8 million ounces of silver equivalent. |
Shareholders and interested parties are encouraged to read these reports which can be viewed on SEDAR (www.sedar.com) and the Companys web site at www.firstmajestic.com.
Reserves and Resources data follows:
Note: The 2008 Reserve and Resource estimates for the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine are as of September 30, 2008, respectively. The 2008 Resource estimate for the Del Toro Silver Mine is as of July 31, 2008. The 2007 Reserve and Resource estimates for the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine are as of October 31, 2007, October 31, 2007 and January 1, 2007 respectively. Measurement is shown in ounces of silver equivalent.
8
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
RESERVES AND RESOURCES - 2007 AND 2008
Ag Eq Oz. | ||||
% | ||||
Consolidated First Majestic | 2007 | 2008 | Increase | |
(Decrease) | ||||
Proven and Probable Reserves | 23,690,775 | 47,834,309 | 24,143,534 | 101.91% |
Measured and Indicated Resources | 85,083,804 | 92,320,108 | 7,236,304 | 8.50% |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | 108,774,579 | 140,154,417 | 31,379,838 | 28.85% |
Inferred Resources | 74,732,705 | 158,804,145 | 84,071,440 | 112.50% |
La Encantada Silver Mine | 2007 | 2008 | Increase | % |
(Decrease) | ||||
Proven and Probable Reserves | 12,620,835 | 35,548,863 | 22,928,028 | 181.67% |
Measured and Indicated Resources | 40,122,659 | 33,107,288 | (7,015,371) | (17.48%) |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | 52,743,494 | 68,656,151 | 15,912,657 | 30.17% |
Inferred Resources | 13,428,000 | 20,034,145 | 6,606,145 | 49.20% |
La Parrilla Silver Mine | 2007 | 2008 | Increase | % |
(Decrease) | ||||
Proven and Probable Reserves | 6,107,551 | 5,246,954 | (860,597) | (14.09%) |
Measured and Indicated Resources | 29,336,405 | 30,700,000 | 1,363,595 | 4.65% |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | 35,443,956 | 35,946,954 | 502,998 | 1.42% |
Inferred Resources | 38,639,050 | 52,800,000 | 14,160,950 | 36.65% |
San Martin Silver Mine | 2007 | 2008 | Increase | % |
(Decrease) | ||||
Proven and Probable Reserves | 4,962,389 | 7,038,492 | 2,076,103 | 41.84% |
Measured and Indicated Resources | 15,624,740 | 7,569,820 | (8,054,920) | (51.55%) |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | 20,587,129 | 14,608,312 | (5,978,817) | (29.04%) |
Inferred Resources | 22,665,655 | 50,000,000 | 27,334,345 | 120.60% |
Del Toro Silver Mine | 2007 | 2008 | Increase | % |
(Decrease) | ||||
Proven and Probable Reserves | - | - | - | n/a |
Measured and Indicated Resources | - | 20,943,000 | 20,943,000 | n/a |
Total Proven + Probable Reserves | ||||
and Measured + Indicated Resources | - | 20,943,000 | 20,943,000 | n/a |
Inferred Resources | - | 35,970,000 | 35,970,000 | n/a |
Note: The 2008 Reserve and Resource estimates for the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine are as of September 30, 2008, respectively. The 2008 Resource estimate for the Del Toro Silver Mine is as of July 31, 2008. The 2007 Reserve and Resource estimates for the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine are as of October 31, 2007, October 31, 2007 and January 1, 2007 respectively. Measurement is shown in ounces of silver equivalent.
9
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
MINE UPDATES
La Encantada Silver Mine
Location: Coahuila, México | Ownership: 100% |
Reserves/Resources (PP&MI): 68.7 million ounces | Monthly Capacity (Tonnes): 30,000 |
Employment: 352 | 2008 Production (Silver Equiv.): 1.6 million ounces |
2008 Production Costs ($US per Tonne): $45.93 | 2008 Cash Costs/Oz. ($US, excl. smelting): $3.59 |
The La Encantada Silver Mine is a producing underground mine located in Northern México in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest city is, Melchor Muzquiz, is 225 kilometres away via 45 kilometres of gravel road and 180 kilometres in paved road. The La Encantada Silver Mine consists of a 1,000 tpd flotation plant, an airstrip, and other facilities, including a mining village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.
The La Encantada mine is the Companys lowest cost producer, and has the highest Reserve / Resource position. This mine is undergoing a US$21.6 million expansion, to be completed in mid-2009, to convert the mill into a 3,500 tpd cyanidation by agitated leaching process, thereby becoming a producer of doré bars. The mill is presently operating at approximately 950 tpd and produces a silver rich lead concentrate.
During the fourth quarter of 2008, construction continued on the 3,500 tpd cyanidation plant. Earth and rock removal at the site preparation are 95% complete, foundations for the leaching tanks are 100% complete and assembly is proceeding with eight of the leaching tanks. The foundations of the primary and intermediate thickeners are complete and the assembly of the primary and intermediate thickeners is progressing well. Also, the construction work for the new tailings dam is in process. Eighty percent of the equipment has been acquired and is in the process of being delivered. To date, the Company has spent US$10.5 million on the plant and the Company estimates commissioning to commence in mid-2009.
At the La Encantada mill, several modifications were completed to increase the mill capacity from 800 to 1,000 tpd, which was completed in November 2008. Production in the fourth quarter was 79,480 tonnes showing an increase of 27% when compared with the 62,406 tonnes produced in the third quarter of 2008. The average head grade was 281 g/t, an increase of 15% when compared to the 244 g/t achieved in the previous quarter due to larger tonnage of high grade ore coming from the mine. A total of 484,053 equivalent ounces of silver were produced during the fourth quarter, which represents an increase of 45% from the 334,595 equivalent ounces of silver in the third quarter. Silver production consisted of 427,753 ounces of silver, an increase of 49% versus the 287,668 ounces in the previous quarter and 1,195,557 pounds of lead, an increase of 54% from the 777,099 pounds in the previous quarter due to better lead recoveries at the flotation plant.
Underground mine development continued with a total of 3,075 metres of development completed in the fourth quarter aimed at several targets including the San Javier/Milagros Breccias, Azul y Oro and the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. This compares to 2,232 metres of development completed in the previous quarter showing an increase of 38%. The purpose of the ongoing underground development program is to prepare for increased production levels in 2009, to confirm additional Reserves and Resources, and for exploration and exploitation purposes going forward. Underground diamond drilling continued with a total of 2,107 metres compared with 2,662 metres drilled in the previous quarter. During the fourth quarter of 2008, the Company decided to substantially reduce the diamond drill and development programs, reducing from three rigs to only one rig operating underground, with the rig engaged in production and operations activities only.
La Parrilla Silver Mine
Location: Durango, México | Ownership: 100% |
Reserves/Resources (PP&MI): 35.9 million ounces | Monthly Capacity (Tonnes): 25,500 |
Employment: 332 | 2008 Production (Silver Equiv.): 1.6 million ounces |
2008 Production Costs ($US per Tonne): $44.42 | 2008 Cash Costs/Oz. ($US, excl. smelting): $5.39 |
The La Parrilla Silver Mine is a group of producing underground mines consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings, the San Marcos mine and the Quebradillas mine, located approximately 65 kilometres southeast of the city of Durango, México. It includes an 850 tpd mill consisting of a 425 tpd cyanidation circuit and a 425 tpd flotation circuit, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
This is the first mine developed by the Company and its operations have been scaled up continually from a 180 tpd operation in early 2005, to the current average throughput of 840 tpd. This mill produces doré bars and both silver-rich lead and zinc concentrates.
An expansion program of the mill was launched in July 2008 to expand this operation up to 1,000 tpd by April 2009. However, due to market conditions that affected the entire mining sector in the fourth quarter of 2008, the expansion program was suspended resulting in the current mill capacity of 850 tpd.
10
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
During the fourth quarter of 2008, the diamond drilling and development activity for both preparation and exploration decreased. As well, capital expenditures and operating costs were reduced to a minimum in order to compensate for the lower silver and lead prices realized in the fourth quarter.
The most important activities undertaken in the year were the continued underground development at the different areas within the La Parrilla property. This included the preparation of Levels 7 and 8 at the Rosarios/La Rosa area where the new long hole drilling method using a new Stopemate machine began operations in the early part of the year with good results in increasing the productivity. In order to reduce dilution, bolting in the hanging wall was completed and achieved good results. At Quebradillas, development continued to focus on accessing the sulphides areas in the lower levels. At San Marcos and at the San Jose/La Blanca areas, development continued to access new production areas at the lower levels within the mines.
Production from the La Parrilla mill increased from 51,822 tonnes in the third quarter of 2008 to 66,395 tonnes in the fourth quarter of 2008, an increase of 28%. The average head grade of silver at the mill decreased from 213 g/t in the third quarter of 2008 to 206 g/t in the fourth quarter, a decrease of 3%. Recoveries of silver increased from 65% in the third quarter to 70% in the fourth quarter of 2008.
Total silver production from the mill increased from 300,461 ounces of silver equivalent in the third quarter of 2008 to 359,851 ounces of silver equivalent in the fourth quarter of 2008, a 20% increase. The composition of the silver equivalent production in the fourth quarter of 2008 included 305,685 ounces of silver, 297 ounces of gold and 897,031 pounds of lead.
Diamond drilling and underground development continued to define additional Reserves and Resources at the different areas of the La Parrilla property. Due to the lower silver and lead prices, the number of drill rigs that were active during the year were reduced in the fourth quarter, from seven to one. As a result, the total metres of diamond drilling decreased from 18,160 metres in the third quarter of 2008 to 668 metres in the fourth quarter of 2008, a reduction of 96%. However, total metres drilled during the year increased by 24%, from 30,481 metres in 2007 to 37,944 metres in 2008. In addition to the ongoing diamond drill program, a total of 1,557 metres of underground development was completed in the fourth quarter of 2008 which when compared with the 4,347 metres in the third quarter of 2008 shows a decrease of 64%. During the year, a total of 10,457 metres were developed which compared with a total of 6,414 metres completed in 2007 shows an increase of 63%. Underground development in the fourth quarter focused on the La Rosa/Rosario, La Blanca, San Marcos, Quebradillas and San José areas, with the objective of increasing total Reserves and developing new production areas.
In February 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a Clean Industry Certificate to the La Parrilla Silver Mine. This Certificate was achieved after twenty nine months of voluntary environmental audit work, which demonstrates the Companys sustained focus in complying with international and Mexican mining standards.
San Martin Silver Mine
Location: Jalisco, México | Ownership: 100% |
Reserves/Resources (PP&MI): 14.6 million ounces | Monthly Capacity (Tonnes): 28,500 |
Employment: 310 | 2008 Production (Silver Equiv.): 1.0 million ounces |
2008 Production Costs ($US per Tonne): $38.90 | 2008 Cash Costs/Oz. ($US, excl. smelting): $10.12 |
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, México. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 1,000 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine, having acquired it in two transactions in May and September 2006. The mill has historically produced 100% doré bars and continues to do so to this day. In early 2008, a 500 tpd flotation circuit was completed to take advantage of the large sulphide Resource at this mine, however, due to low base metal prices and high concentrate smelting charges this circuit is presently not being operated.
During the fourth quarter, in order to reduce operating costs, the Company temporarily reduced the production of ore from the main Zuloaga vein, eliminating all the external contractors and focusing on a combination of ore from the mine and stockpile inventory to feed the cyanidation process. Also, due to the high cost of smelting charges and the low prices of lead and zinc, the operation of the flotation circuit was suspended.
Expansion of the mill commenced in July 2008. The program included adding additional leaching tanks, thickeners and the addition of a third ball mill. The plan was to expand this mill from the historic 800 tpd to 1,200 tpd by April 2009. However, due to market conditions and the need to preserve cash, the expansion program was suspended in November 2008 resulting in the mill running at the current 950 tpd since December 2008. The upgrades included the construction of a new thickener, new clarifiers and new filter presses to complete the expansion of the cyanidation process. Other upgrades completed included the pouring of cement floors around the leaching and thickeners areas and the repair and reinforcement of the older leaching tanks. These improvements are part of the process of achieving a Clean Industry Certification from PROFEPA.
11
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Production at the San Martin mine increased from 56,071 tonnes in the third quarter of 2008 to 69,771 tonnes in the fourth quarter, an increase of 24% increase. The average head grade decreased slightly, from 127 g/t in the third quarter to 124 g/t during the current quarter, representing a 3% decrease from during the previous quarter.
Combined recoveries of silver in the quarter were 71%, compared to 89% in the previous quarter, resulting in total production of 212,315 equivalent ounces of silver, which is 3% higher than the 205,862 equivalent ounces of silver in the third quarter of 2008. The equivalent ounces of silver consisted of 196,681 ounces of silver, 106 ounces of gold, and 1,399 pounds of lead.
During the fourth quarter of 2008, a total of 1,419 metres of diamond drilling was completed. This is compared to 5,844 metres drilled in the third quarter amounting to a 76% decrease due to the decrease in exploration corporate wide.
During the fourth quarter, a total of 1,214 metres of underground development was completed compared with 2,297 metres of underground development in the third quarter. An important part of this development continues to be focused on access to the upper levels in the mine where oxide ores are present. During the fourth quarter, work continued at the new zone in the Rosario area where old workings continue to be rehabilitated with additional exploration work and some direct underground development. This activity is ongoing with the purposes of grade control; the development of additional Reserves and Resources; and exploration to define additional targets for future mine expansion.
Del Toro Silver Mine, Zacatecas, México (previously referred to as Chalchihuites Group of Properties)
Location: Zacatecas, México | Ownership: 100% |
Resources (MI): 20.9 million ounces | Employment: 50 |
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of a 320 contiguous hectare land package which covers the old Perseverancia mine and the San Juan mine. In 2004, the Company entered into a number of option agreements and, based on encouraging exploration results in 2005 and 2006, in January 2007, the Company exercised its option to acquire the San Juan silver mine, and in June 2007 exercised its option to acquire the Perseverancia silver mine. During the year ended December 31, 2007, the Company acquired 100 hectares of surface rights covering the area surrounding the San Juan mine.
The Del Toro is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings. The Company has been extracting development ore from the mine and shipping it to its La Parrilla mill for mixing into La Parrillas production and for batch metallurgical testing.
On October 28, 2008, the Company announced drill results from hole SSJ-08 and the ongoing drilling program at the Del Toro. Holes SSJ-04 and SSJ-08 represent the discovery of a third deeper massive sulphide ore body which is 25 metres below the two other ore bodies discovered by previous drilling. Drill Hole SSJ-08 cut 62.05 metres (203.58 Ft) of 422 g/t Ag, 6.29% Pb, 6.78% Zn & 0.74 g/t Au.
The Perseverancia area is presently being upgraded and rehabilitated to increase production from the high grade chimney areas. During the fourth quarter, the upgrade of the shaft continued and construction and installation of a new 200 tpd head frame and new hoist was completed which will allow for an increase in production from this area in the following months.
Presently permitting is underway for the construction of a new mill at Del Toro. Assuming all permitting is completed by mid 2009, and funds are available for this project, a new 500 tpd mill is anticipated to be operating in the first half of 2010.
EXPLORATION PROPERTY UPDATES
Cuitaboca Silver Project, Sinaloa, México
The Company has an option to purchase a 100% interest in the Cuitaboca Silver Project, consisting of 5,134 hectares located in the State of Sinaloa, México, which contains at least six well known veins with sulphide mineralization carrying high grade silver. The veins within the property are known as the La Lupita, Los Sapos, Chapotal, Colateral-Jesus Maria, Mojardina and Santa Eduwiges. In October 2008, in an effort to reduce costs, the Company temporarily halted its activities at the Cuitaboca project. Further exploration and development consisting of 2,000 metres of direct drifting along the vein and a diamond drill program at both the Colateral and Mojardina veins is being deferred until silver commodity prices recover and/or funds can be allocated to this project. Road construction for access to the La Lupita, Los Sapos, Chapotal, and Santa Eduwiges veins was also deferred.
Jalisco Group of Properties, Jalisco, México
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, México. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued pending an improvement in market conditions.
12
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
SELECTED ANNUAL INFORMATION
Year ended
December 31 2008 $ |
Year ended
December 31 2007 $ |
Transitional year
Six months ended December 31, 2006 $ (1) |
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Revenue | 44,324,887 | (2) | 42,924,920 | (2) | 12,754,965 | (2) |
Mine operating earnings (loss) | 7,501,632 | 7,007,776 | (1,492,118) | |||
Net loss for the period | (5,144,784) | (3) | (7,230,122) | (7,588,192) | ||
Basic and diluted loss per share | (0.07) | (0.13) | (0.17) | |||
Total assets | 231,159,649 | (4) | 185,002,851 | 185,361,654 | ||
Total long term liabilities | 38,725,621 | (5) | 36,591,521 | (5) | 55,930,797 | (5) |
(1) |
The Company changed its fiscal year end in 2006, from June 30 to December 31. The results disclosed for December 31, 2006, are for the six months then ended, as is required by Canadian GAAP. |
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(2) |
During the year ended December 31, 2008, revenues increased by $1.4 million due to the ramping up of production at the La Parrilla and La Encantada Silver Mines. During the year ended December 31, 2007, revenues increased by $30.2 million over the revenues for the six month transitional year ended December 31, 2006. This increase is primarily due to the difference in volumes of production, and the comparison of one year to a six month period. In the year ended December 31, 2008, the Company shipped 3,590,202 ounces of silver equivalent compared to 3,461,650 ounces of silver equivalent during the year ended December 31, 2007. Increased production of silver has resulted from the ramping up of the La Parrilla mill, and the acquisition of San Martin in June 2006, and La Encantada in November, 2006. In the six months ended December 31, 2006, total silver revenues were attributed to 1,016,583 ounces of silver equivalent. |
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La Parrilla Silver Mine During the year ended December 31, 2008, a total 246,166 tonnes of ore were processed with an average head grade of 234 grams per tonne of silver resulting in a total of 1,584,808 equivalent ounces of silver produced and 1,282,340 ounces of silver equivalent shipped. During the year ended December 31, 2007, a total of 179,411 tonnes of ore were processed with an average head grade of 204 grams per tonne of silver resulting in a total of 1,000,823 equivalent ounces of silver produced, and 986,390 ounces of silver equivalent shipped. During the six month period ended December 31, 2006, a total of 29,057 tonnes of ore were processed with an average head grade of 172 grams per tonne of silver resulting in a total of 110,114 equivalent ounces of silver produced. |
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San Martin Silver Mine During the year ended December 31, 2008, a total of 254,211 tonnes of ore were processed with an average head grade of 141 grams per tonne of silver resulting in a total of 1,008,948 equivalent ounces of silver produced and 778,561 ounces of silver equivalents shipped. For the year ended December 31, 2007, a total of 239,796 tonnes of ore was processed with an average grade of 171 grams per tonne of silver resulting in 1,217,065 ounces of silver equivalents, and 1,202,360 ounces of silver equivalents shipped. The San Martin mine and mill, over the six month period ended December 31, 2006, processed 128,175 tonnes of ore with an average grade of 192 grams per tonne of silver resulting in 725,055 ounces of silver equivalent. |
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La Encantada Silver Mine During the year ended December 31, 2008, 257,960 tonnes of ore were processed with an average head grade of 283 grams per tonne of silver resulting in a total of 1,636,242 equivalent ounces of silver produced and 1,529,301 ounces of silver equivalents shipped. During the year ended December 31, 2007, 1,366,377 equivalent ounces of silver were produced, and 1,272,810 ounces of silver equivalent were shipped, compared to 181,413 equivalent ounces of silver in the prior six month period ended December 31, 2006, which included production only for the months of November and December 2006. Net losses in these periods included non-cash stock based compensation expenses of $3,680,111 for the year ended December 31, 2008 compared to $3,865,689 for the year ended December 31, 2007 and $1,558,892 for the six month transition year ended December 31, 2006. |
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(3) |
There was a net income tax recovery of $1,919,454 in the year ended December 31, 2008 compared to a tax expense of $1,384,647 in the year ended December 31, 2007, attributed primarily to an increase in future income tax benefits as well as a reduction of non-allowable tax deductions. |
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(4) |
During the year ended December 31, 2008, the increase in total assets consists primarily of approximately $5 million in cash and cash equivalents, $38 million on mining interests and plant and equipment, net of depletion, depreciation and translation adjustments. |
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(5) |
During the year ended December 31, 2006, the Company paid $13.3 million for its 25% annual vendor liability to the majority shareholder of First Silver, and the final payment of $13.3 million was due on May 30, 2008 but the payment has been withheld pending resolution of the litigation further described herein (see Liquidity Risk below). |
The Company has not paid any dividends since incorporation and it presently has no plans to pay dividends.
13
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
RESULTS OF OPERATIONS
Year ended December 31, 2008 compared to the Year ended December 31, 2007
Gross revenue (prior to smelting, refining and transportation costs) increased from $45.8 million for the year ended December 31, 2007 to $56.1 million for the year ended December 31, 2008, an increase of $10.3 million or 22%. Most of the increase was due to higher average silver prices, from US$12.33 per ounce in 2007 to US$14.66 per ounce in 2008, an increase of 19%, as shipments were only up marginally. Due to low metal prices at the end of 2008, the Company inventoried 554,000 ounces of production to be sold in 2009. Net revenue increased from $42.9 million for the year ended December 31, 2007 to $44.3 million for the year ended December 31, 2008, an increase of $1.4 million or 3%. The increase in commodity prices was not fully realized in 2008 net revenues due to a significant increase in smelter and refining charges, predominantly affecting concentrates sold to the Peñoles smelter.
Effective December 1, 2008, smelting and refining charges were substantially reduced. Subsequently, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate smelting. The Company is also shifting its mix of production toward doré production with the anticipated completion of the La Encantada cyanidation plant, which will reduce the overall smelting charges for the Company due to the significantly lower refining charges for doré compared to concentrates. Production for the year consisted of production from the mines and the mills including production which is inventoried in the form of doré, concentrates, ore in process and stockpile.
Mine operating earnings for the year ended December 31, 2008 was $7,501,632, an increase of 7% over the $7,007,776 of mine operating earnings for the year ended December 31, 2007 and is primarily due to the increase of 128,642 equivalent silver ounces sold in 2008 compared to 2007. Though there was an overall increase in average silver prices in 2008 compared to 2007, this was offset by the increase in smelter and refining charges and an increase in operating costs. There was an increase in depreciation and amortization expenses of $766,964 in 2008 compared to 2007 which were normal charges on plant and equipment related to capital expansions at all three operating mines. Also contributing to the increase in mine operating earnings is a reduction of $3,282,997 in depletion expense for 2008 due to the increase in life of mine from the updated NI 43-101 reports with larger mine reserves and a reduction of depletion due to the effect of inventorying a portion of depletion due to the adoption of the new Canadian GAAP inventory guidelines per CICA HB section 3031.
An operating loss of $3,727,558 was incurred after general and administrative costs and stock-based compensation, for the year ended December 31, 2008 compared to a loss of $4,318,816 for the year ended December 31, 2007 which is a 14% decrease from the prior year. Most of the decrease is attributed to the increase in mine operating earnings as described above and a decrease in stock-based compensation of $185,578 or 5%.
Interest and other expenses increased by $202,833 or 17% compared to the prior year and is primarily attributed to additional interest on capital leases. Investment and other income decreased by $177,424 or 13% from prior year due to declining interest rates on short term investments. There was a significant increase in foreign exchange loss, primarily in the fourth quarter, due to the effect of a strengthening US dollar on outstanding US dollar denominated liabilities, which has had a negative effect on net income for the year.
The income tax benefit recorded in 2008 was $1,919,454 which is the tax benefit attributable to the loss generated by the Company during the year. This compares to an income tax provision of $1,384,647 for 2007, based on the taxable income generated in that year.
The net loss for the year after taxes is $5,144,784 or $0.07 per common share in 2008 compared to $7,230,122 or $0.13 per common share in 2007, for a decrease of $2,085,338 and is primarily due to increased mine earnings in 2008 and to the write off of $1,703,591 in the prior year.
Fourth Quarter of 2008 compared to the Fourth Quarter of 2007
Q4 2008 | Q4 2007 | |||
$ | $ | |||
Revenue | 9,106,605 | 11,631,477 | ||
Mine operating (loss) earnings | (1,126,697 | ) | 3,229,142 | |
Operating loss | (3,787,419 | ) | (345,596 | ) |
Loss before taxes | (8,053,990 | ) | (524,397 | ) |
Income tax (recovery) expense | (2,515,084 | ) | 768,234 | |
Net loss for the quarter | (5,538,906 | ) | (1,292,631 | ) |
Sales revenue declined by 22% to $9,106,605, compared to $11,631,477 in the fourth quarter of 2007. In the fourth quarter of 2008, the Company also experienced declining silver prices, higher smelting and refining charges and negative sales adjustments related to provisionally priced sales in the previous quarter, as doré settles in one month and concentrates settle in two months from the time of delivery to the smelter. In the fourth quarter of 2008, the average gross revenue per ounce sold was US$11.67 while in the fourth quarter of 2007, it was US$13.85.
14
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Mine operating loss for the fourth quarter of 2008 was $1,126,697 compared to mine operating earnings of $3,229,142 in the fourth quarter of 2007. Cost of sales increased to $8,294,803 in the fourth quarter of 2008, compared to $6,335,226 in the fourth quarter of 2007 due to the processing of lower grade ore and lower recoveries at all three mines. Amortization and depreciation expense increased by $408,189 to $1,049,767 in the fourth quarter of 2008, compared to $641,578 in the fourth quarter of 2007 due to increased investments in plant and equipment. There was a $636,626 reduction in depletion, which was $825,185 in the fourth quarter of 2008 compared to $1,461,811 in the fourth quarter of 2007, due to longer mine life related to updated NI 43-101 reports and the inventory effect of inventorying a portion of depletion due to the adoption of the new Canadian GAAP inventory rules per CICA HB section 3031.
General and administrative expenses decreased by $332,610 to $1,795,307 in the fourth quarter of 2008, compared to $2,127,917 in the fourth quarter of 2007, as the Company took measures to reduce expenditures and preserve cash. Stock-based compensation decreased by $581,406 to $865,415 in the fourth quarter of 2008, compared $1,446,821 in the fourth quarter of 2007, due to a lower number of options granted in the fourth quarter of 2008.
Operating loss was $3,787,419 in the fourth quarter of 2008 compared to $345,596 in the fourth quarter of 2007. This increased operating loss is primarily due to lower mine operating earnings for 2008 compared to 2007.
Loss before income tax was $8,053,990 for the fourth quarter of 2008, compared to $524,397 for the fourth quarter of 2007. Foreign exchange loss increased by $3,534,738, from $215,766 in the fourth quarter of 2007 to $3,750,504 in the fourth quarter of 2008, due to strengthening U.S. dollar relative to the Mexican peso and Canadian dollar. Interest and other expenses increased by $375,696, from $207,734 in the fourth quarter of 2007 to $583,430 in the fourth quarter of 2008, due to higher capital lease obligations in 2008. Lower interest on short-term investments gave rise to a $177,336 reduction in investment and other income, from $244,699 in the fourth quarter of 2007 to $67,363 in the fourth quarter of 2008.
The income tax benefit recorded in the fourth quarter of 2008 was $2,515,084 which is the tax benefit attributable to the loss generated by the Company during the period. This compares to an income tax provision of $768,234 for the fourth quarter of 2007, based on the taxable income generated in that period.
The net loss after taxes was $5,538,906 or $0.08 per share for the fourth quarter of 2008 compared to a net loss of $1,292,631 or $0.03 per share in the fourth quarter of 2007.
SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the last eight quarters.
Quarter |
Net sales
revenues $ |
Net income
(loss) after taxes $ |
Basic and diluted
net income (loss) per common share $ |
Stock based compensation (1) $ |
Property write
downs $ |
Note | |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | - | 2 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 | - | ||
Q2 | 11,436,889 | (296,956) | 0.00 | 670,616 | - | 3 | |
Q1 | 12,964,182 | 1,065,323 | 0.02 | 1,108,216 | - | ||
Year ended December 31, 2007 | Q4 | 11,631,477 | (1,292,631) | (0.03) | 1,446,821 | - | |
Q3 | 10,288,478 | (2,070,082) | (0.04) | 723,992 | 1,703,591 | 4 | |
Q2 | 10,846,344 | (729,658) | (0.01) | 775,532 | - | ||
Q1 | 10,158,621 | (3,137,751) | (0.06) | 919,344 | - |
Notes:
(1) |
Stock-based Compensation - the net losses are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
(2) |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metals settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million in the fourth quarter of 2008. |
(3) |
In the quarter ended June 30, 2008, the Company had a revision to its smelting charges imposed, resulting in an incremental charge and reduction of net sales of $1.9 million (US$1,852,830) in the quarter. Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate. |
15
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
(4) |
Write downs of mineral properties net losses are impacted by managements decision not to pursue certain mineral properties. In the quarter ended September 30, 2007, management elected not to proceed with the acquisitions of the Candameña Mining District and accordingly, included a $1,703,591 one time write down of the carrying value of the Candameña mineral property to its estimated proceeds from disposal. |
Revenues Per Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including metal by-products of gold, lead and zinc, after having deducted refining and smelting charges. The following analysis provides the gross revenues prior to refining and smelting charges, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP. Gross revenues are deducted by shipped ounces of equivalent silver to calculate the average realized price per ounce of silver sold.
Quarter Ended | Year Ended | |||
December 31, | December 31, | |||
Revenue Analysis | 2008 | 2007 | 2008 | 2007 |
$ | $ | $ | $ | |
Gross revenues - silver dore bars and concentrates | 11,712,165 | 12,357,792 | 56,102,459 | 45,837,983 |
Less: refining, smelting and transportation charges | (2,605,560) | (726,316) | (11,777,572) | (2,913,063) |
Net revenue | 9,106,605 | 11,631,476 | 44,324,887 | 42,924,920 |
Equivalent ounces of silver sold | 827,845 | 908,688 | 3,590,202 | 3,461,560 |
Average gross revenue per ounce sold ($CDN) | 14.15 | 13.60 | 15.63 | 13.24 |
Average exchange rate in the period ($US/$CDN) | 1.2123 | 0.9818 | 1.0660 | 1.0740 |
Average gross revenue per ounce sold ($US) | 11.67 | 13.85 | 14.66 | 12.33 |
LIQUIDITY
At December 31, 2008, the Company had a working capital deficiency of $1,036,466 and cash and cash equivalents of $17,424,123 compared to working capital of $1,125,368 and cash and cash equivalents of $12,835,183 at December 31, 2007. Current liabilities at December 31, 2008 include the long-term vendor liability and associated interest relating to the acquisition of First Silver in the amount of $13,940,237. On July 22, 2008, the Company secured its outstanding vendor liability by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. The Letter of Credit is revolving with annual expiry on July 22. The cash and short term investments earn market rates of interest from which the 0.5% per annum cost of the Letter of Credit is deducted and the net interest remitted to the Company. The Restricted Cash is segregated from operating cash as the funds are not accessible by the Company pending the litigation described in Liquidity Risk below. Also included in current liabilities at December 31, 2008 is the current portion of capital lease obligations of $1,584,477.
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters issuing 8,500,000 Units at an issue price of $5.35 per Unit for net proceeds to the Company of $40,144,471. Each Unit consisted of one common share in the capital of the Company and one-half of one Common Share purchase warrant. Each whole Common Share purchase warrant entitles the holder to acquire one additional Common Share at a price of $7.00 expiring March 25, 2010. In addition, the Company received $1,398,566 pursuant to the exercise of 436,650 stock options and $31,875 pursuant to the exercise of 7,500 share purchase warrants during the year ended December 31, 2008.
During the year ended December 31, 2008, the Company made investments on its mineral properties of $24.5 million (2007 - $18.9 million), and on plant and equipment further expenditures of $14.9 million (2007 - $11.8 million) on a cash basis. In the fourth quarter of 2008, the Company took actions to reduce its rate of spending on exploration and development expenditures, reducing the number of drill rigs deployed from 22 early in the year to four by the end of the year. Although the Company has expended approximately US$10.5 million to date on its capital expansion at La Encantada, this is expected to be a US$21.6 million capital expansion that would increase capacity to 3,500 tonnes per day.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The underwriters have an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine and the remainder for general working capital.
Funds surplus to the Companys short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to any liquidity risk and there are no restrictions on the ability of the Company to meet its obligations. The Company has no exposure and has not invested any of its treasuries in any asset backed commercial paper securities. See Liquidity Risk below.
16
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
2009 OUTLOOK
This section of the MD&A provides managements production and costs forecasts for 2009. We also discuss the major capital projects planned for the La Encantada mine in 2009. These are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
PRODUCTION DATA | La Encantada | La Parrilla | San Martin | Consolidated |
Tonnes Milled | 611,800 | 275,358 | 307,753 | 1,194,911 |
Silver head grades (grams/tonne) | 212 | 250 | 150 | 205 |
Silver recoveries | 60% | 75% | 80% | 68% |
Silver ounces | 2,572,301 | 1,604,776 | 1,187,470 | 5,364,547 |
Gold ounces | 15 | 465 | 1,187 | 1,667 |
Lead tonnes | 944 | 1,322 | - | 2,266 |
Silver equivalent ounces (1) | 2,668,627 | 1,769,154 | 1,266,625 | 5,704,406 |
AVERAGE COSTS | ||||
Production costs per ounce (US$) | 4.71 | 6.83 | 9.10 | 6.40 |
Smelting/refining per ounce (US$) | 1.38 | 1.23 | 0.28 | 1.09 |
Transport and marketing per ounce (US$) | 0.17 | 0.18 | 0.16 | 0.17 |
Production costs per tonne (US$) | 21.72 | 39.79 | 35.10 | 28.84 |
(1) Pricing assumptions for equivalents Au = US$800/oz., Pb = US$0.55/oz. , Zn = US$0.50/oz.
Silver production is expected to increase in mid 2009 when the La Encantada plant expansion is completed and plant capacity has been increased from 1,000 tpd to 3,500 tpd. The Company expects to gradually bring the new cyanidation plant into production beginning with production of 1,000 tpd in the first month, 2,000 tpd in the second month, 3,000 tpd in the third month, and achieving full capacity of 3,500 tpd in the fourth month of production.
Capital expenditures at the La Encantada mine are expected to amount to US$21.6 million upon completion in mid-2009.
Cash costs are expected to remain constant due to foreign exchange translation effects on domestic peso based costs which when translated into US dollars have shown a decrease from earlier in 2008. The Company estimates that 65% of the production costs are in pesos, and 35% are denominated in U.S. dollars.
Smelting and refining charges are expected to decrease in 2009 due to new refining and smelting agreements entered into in February 2009 for doré and concentrate production. With the shift in production at the La Encantada mine, the mix of doré to concentrate production will increase from 49% to 92% by the fourth quarter of 2009.
Sales of coins, ingots and bullion will increase in the year from 5% of production in Q1/09, to approximately 10% by the end of Q2/09 and will remain at that level for the balance of 2009. These sales result in approximately a 10% increase in selling price over normal quoted selling prices in any quarter. Additional information on the Companys silver coins, ingots and bullion, including how to place an order, may be found on the Companys website at www.firstmajestic.com.
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2008, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the audited consolidated financial statements and the related notes.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2008, the Company:
(a) |
incurred $248,025 (2007 - $197,696) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
(b) |
incurred $310,920 (2007 - $478,206) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in México pursuant to a consulting agreement. |
(c) |
incurred $8,010,843 (2007 - $1,728,222) of service fees with a mining services company sharing our premises in Durango México. This related party provides management services and pays mining contractors who provide services at the Companys mines in México. Of the fees incurred, $3,122,130 was unpaid at December 31, 2008 (December 31, 2007 - $94,724). This relationship was terminated in February 2009. |
(d) |
incurred $7,365 (2007- $254,742) to a director of the Company as finders fees upon the completion of certain option agreements relating to the Del Toro Silver Mine. |
(e) |
provided a loan of US$30,000 (2007-$nil) to a director of the Company. This loan was fully repaid subsequent to December 31, 2008. |
17
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
PROPOSED TRANSACTIONS
The board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
MANAGEMENT OF CAPITAL RISK
The Company’s objective when managing capital is to maintain its ability to continue as a going concern while at the same time maximizing growth of its business and providing returns on its shareholders’ investments. The Company’s overall strategy with respect to capital risk management remains unchanged from the prior year ended December 31, 2007.
The Company’s capital structure consists of shareholders’ equity, comprising of issued capital, share capital to be issued, contributed surplus, retained earnings (deficit) and accumulated other comprehensive loss.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Company’s Board of Directors.
The Company’s investment policy is to invest its cash in highly liquid short term interest bearing investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. As a result of the funding received subsequent to year end, the Company expects that the capital resources available to it will be sufficient to carry out its development plans and operations for at least the next twelve months.
FINANCIAL INSTRUMENTS AND RISKS
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business and value added tax and other receivables. The Company sells its silver primarily to one international organization with a strong credit rating, payments of receivables are scheduled, routine and received within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.1 million as at December 31, 2008, a significant portion which is past due. The Company expects to recover the full amount.
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company’s credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and to support its expansion plans. The Company does not have any committed loan facilities. As at December 31, 2008, the Company has outstanding accounts payable and accrued liabilities of $17.3 million which are generally payable in 90 days or less.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940 (see “Liquidity” above). Although, the Company does not have a history of operating profits, the Company believes it will generate sufficient cash from operations which together with cash on hand at March 27, 2009, will be sufficient to meet operating requirements as they arise for at least the next twelve months.
The Company has an obligation regarding its purchase of First Silver Reserve (“FSR”) to make a final instalment payment of $13,341,380, due on May 30, 2008, and to make simple interest payments at 6% per annum, payable quarterly on the outstanding vendor balance. In November 2007, an action was commenced by the Company and FSR against the previous majority shareholder of FSR (“Majority Shareholder”), who was a previous director, President and Chief Executive Officer of FSR, and a company he controls, whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer of FSR, he engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory requirements owed to FSR, which resulted in FSR not acquiring a mine. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
18
FIRST MAJESTIC SILVER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND THE FOURTH QUARTER ENDED DECEMBER 31, 2008
Pending resolution of the litigation set out above, the Company has withheld payment of quarterly instalments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008 totalling $598,857 to the previous Majority Shareholder, and has maintained a reserve of cash in the amount of such instalments. The Company has withheld payments of the final instalment and interest, combined to a total of $13,940,237 due May 30, 2008 until such litigation has been resolved, and such date is presently not determinable. The Company filed on July 22, 2008 an irrevocable Letter of Credit with the Supreme Court of British Columbia as security for this matter.
The Companys liabilities have contractual maturities which are summarized below:
(1) | Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project |
(2) | Vendor liability on mineral property totalling US$1,121,160 on the Quebradillas Mine at La Parrilla. |
(3) | Amounts above do not include payments related to the Companys future asset retirement obligations (see Note 20), nor do they include accounts payable and accrued liabilities of $17.3 million. Excludes the vendor liability relating to the acquistion of First Silver of $13,940,237. |
Currency Risk
Financial instruments that impact the Companys net earnings or other comprehensive income due to currency fluctuations include Mexican peso denominated cash and cash equivalents, accounts receivable, investments in mining interests and accounts payable. The sensitivity of the Companys net earnings and other comprehensive income due to changes in the exchange rate between the Mexican peso and the Canadian dollar is included in the table below.
Commodity Price Risk
Commodity price risk is the risk that movements in the spot price of silver have a direct and immediate impact on the Companys income or the value of its related financial instruments. The Company also derives by-product revenue from the sale of gold, lead and zinc. The Companys sales are directly dependent on commodity prices that have shown volatility and are beyond the Companys control.
The Company does not use other derivative instruments to hedge its commodity price risk.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
The Companys interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Companys interest bearing financial liabilities comprise fixed rate debt instruments and capital leases with terms to maturity ranging up to three years.
The sensitivity analyses below have been determined based on the undernoted risks at December 31, 2008.
Reasonably possible changes | ||||||||||||
|
|
$US Denominated
Silver Commodity Price |
|
|
$US / Peso Echange Rate |
|
|
Peso / $CDN
Exchange Rate |
|
|
Market
Interest Rate |
|
Impact on Annual Operations | +/- 10% | +/- 10% | +/- 10% | +/- 25 bps | ||||||||
Net Income (1) | $ | 5,196,932 | $ | 2,604,453 | $ | 2,557,372 | $ | 43,560 | ||||
Other Comprehensive Income (1) | $ | - | $ | - | $ | 440,923 | $ | - |
(1) | These sensitivities are hypothetical and should be used with caution, favourable hypothetical changes in the assumptions result in an increased amount and unfavourable hypothetical changes in the assumptions result in a decreased amount of net income and/or other comprehensive income. |
Fair Value Estimation
The Companys financial instruments are comprised of cash and cash equivalents, marketable securities, accounts receivables, other receivables, derivative financial instruments, accounts payable and accrued liabilities, employee profit sharing payable, capital lease obligations and vendor liability.
19
Marketable securities and derivative instruments are carried at fair value. The fair values of accounts receivable, other receivables, accounts payable and accrued liabilities, unearned revenue, employee profit sharing payable and capital lease obligations approximate their carrying value due to the short term nature of these items. The fair value of the vendor liability and interest payable is not readily determinable due to the uncertainty with respect to the outcome of the litigation described in Note 10 in the consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for period ended December 31, 2008. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
Carrying Values of Property, Plant and Equipment and Other
Mineral Property Interests
The Company reviews and evaluates its mineral
properties for impairment at least annually or when events and changes in
circumstances indicate that the related carrying amounts may not be recoverable.
Impairment is considered to exist if the total estimated future undiscounted
cash flows are less than the carrying amount of the assets. Estimated
undiscounted future net cash flows for properties in which a mineral resource
has been identified are calculated using estimated future production, commodity
prices, operating and capital costs and reclamation and closure costs.
Undiscounted future cash flows for exploration stage mineral properties are
estimated by reference to the timing of exploration and/or development work,
work programs proposed, the exploration results achieved to date and the likely
proceeds receivable if the Company sold specific properties to third parties. If
it is determined that the future net cash flows from a property are less than
the carrying value, then an impairment loss is recorded to write down the
property to fair value.
The Company has completed an impairment review of its properties at December 31, 2008. The estimates used by management are subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and
Equipment
Property, plant and equipment comprise one of the largest
components of the Companys assets and, as such, the amortization of these
assets has a significant effect on the Companys financial statements. On the
commencement of commercial production, depletion of each mining property is
provided on the unit-of-production basis using estimated reserves and resources
expected to be converted to reserves as the depletion basis. The mining plant
and equipment and other capital assets are depreciated, following the
commencement of commercial production, over their expected economic lives using
the unit-of-production method. Capital projects in progress are not depreciated
until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets.
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and
decommissioning related to its mining properties. The Company, using mine
closure plans or other similar studies that outline the requirements planned to
be carried out, estimates the future obligations from mine closure activities.
Since the obligations are dependent on the laws and regulations of the county in
which the mines operate, the requirements could change resulting from amendments
in those laws and regulations relating to environmental protection and other
legislation affecting resource companies.
20
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at December 31, 2008.
Income Taxes
Future income tax assets and liabilities
are computed based on differences between the carrying amounts of assets and
liabilities on the balance sheet and their corresponding tax values, using the
enacted or substantially enacted, as applicable, income tax rates at each
balance sheet date. Future income tax assets also result from unused loss
carry-forwards and other deductions. The valuation of future income tax assets
is reviewed quarterly and adjusted, if necessary, by use of a valuation
allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Coincident with the tax consolidation, México introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in México. Management has reviewed its IETU obligations and its consolidated tax position at December 31, 2008, and management is required to assess whether the Company is more likely than not to benefit from these tax losses prior to recording a benefit from the tax losses.
Changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
Stock-Based Compensation
The Company uses the
Black-Scholes Option Pricing Model
. Option pricing models require the
input of subjective assumptions including the expected price volatility. Changes
in the input assumptions can materially affect the fair value estimate, and
therefore the existing models do not necessarily provide a reliable single
measure of the fair value of the Companys stock options granted during the
year.
SIGNIFICANT CHANGES IN ACCOUNTING POLICIES
Capital Disclosures and Financial Instruments - Disclosures
and Presentation
Effective January 1, 2008, the Company adopted three new
presentation and disclosure standards that were issued by the Canadian Institute
of Chartered Accountants: Handbook Section 1535, Capital Disclosures (Section
1535), Handbook Section 3862, Financial Instruments Disclosures (Section
3862) and Handbook Section 3863, Financial Instruments Presentation (Section
3863).
Section 1535 requires the disclosure of both qualitative and quantitative information that enables users of financial statements to evaluate (i) an entitys objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance.
Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments Disclosure and Presentation, revising and enhancing its disclosure requirements and carrying forward unchanged its presentation requirements for financial instruments. Sections 3862 and 3863 place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks.
21
Inventories
The Company adopted CICA Section 3031,
Inventories, on January 1, 2008. This section provides further guidance on the
measurement and disclosure requirements for inventories. Specifically, the new
pronouncement requires inventories to be measured at the lower of cost and net
realizable value, and provides guidance on the determination of cost and its
subsequent recognition as an expense, including any write-down to net realizable
value. The adoption of the new standard did not have a material impact on the
Companys results of operations or financial position.
FUTURE ACCOUNTING CHANGES
The Company has assessed new and revised accounting pronouncements that have been issued but that are not yet effective and determined that the following may have a significant impact on the Company.
The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009. The Company is currently assessing the impact of this new standard on its consolidated financial statements.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted. The Company is currently assessing the impact of these new standards.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management reviewed internal controls in detail in 2008 and noted weaknesses in internal controls related to education and adoption of new automated internal controls in México proposed when its new accounting information systems were adopted in the first quarter of 2008. The risk of material error is mitigated by extensive management review of financial reports and various account reconciliations and analyses in both México and Canada. Management is continuing to rely significantly on substantive testing and detailed analyses in parallel with establishing detailed controls over the new systems in order to mitigate specific weaknesses while ensuring the fair presentation of its annual financial statements.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in México but these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at December 31, 2008.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
22
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is presently undergoing a diagnostic assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. While the effects of IFRS have not yet been fully determined, the Company has identified several key areas where it is likely to be impacted by accounting policy changes, including the accounting for Property, Plant and Equipment, Asset Retirement Obligations and Business Combinations. Further detailed analysis of these areas is underway, and no decisions have yet been made with regard to accounting policy choices.
A more detailed review of the impact of IFRS on the Companys consolidated financial statements, and other areas of the Company is in progress and is expected to be completed by the end of 2009. The Company will continue to monitor changes in IFRS during the implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting. There will be changes in accounting policies related to the adoption of IFRS and these changes may materially impact the Companys financial statements in the future.
OTHER MD&A REQUIREMENTS
(a) | Additional information relating to the Company may be found on or in: |
SEDAR at www.sedar.com, | |
the Companys Annual Information Form, | |
the Companys audited consolidated financial statements for the year ended December 31, 2008. | |
(b) | Outstanding Share Data as of the Report Date: |
As of March 31, 2009, the Company has the following securities outstanding: | |
Issued common shares: 82,341,636 common shares |
23
Stock options chronologically:
The following table summarizes the stock options outstanding at March 31, 2009:
Price | Options | Options | |
$ | Outstanding | Exercisable | Expiry Dates |
3.28 | 12,500 | 12,500 | June 13, 2009 |
4.32 | 605,000 | 605,000 | December 6, 2009 |
5.50 | 200,000 | 200,000 | February 1, 2010 |
4.64 | 75,000 | 75,000 | June 1, 2010 |
4.17 | 100,000 | 100,000 | August 8, 2010 |
3.72 | 30,000 | 30,000 | September 24, 2010 |
3.98 | 20,000 | 13,750 | October 17, 2010 |
4.45 | 600,000 | 450,000 | October 30, 2010 |
4.34 | 50,000 | 37,500 | November 1, 2010 |
4.42 | 25,000 | 18,750 | November 12, 2010 |
4.34 | 200,000 | 150,000 | December 5, 2010 |
4.42 | 50,000 | 37,500 | February 20, 2011 |
4.65 | 100,000 | 75,000 | March 25, 2011 |
4.19 | 20,000 | 10,000 | April 26, 2011 |
4.02 | 100,000 | 50,000 | May 15, 2011 |
4.30 | 450,000 | 450,000 | June 19, 2011 |
4.67 | 130,000 | 65,000 | July 4, 2011 |
4.15 | 300,000 | 150,000 | July 28, 2011 |
3.62 | 695,000 | 347,500 | August 28, 2011 |
1.60 | 200,000 | 50,000 | October 8, 2011 |
1.27 | 118,750 | 29,688 | October 17, 2011 |
4.32 | 245,000 | 245,000 | December 6, 2011 |
4.41 | 400,000 | 400,000 | December 22, 2011 |
5.00 | 155,000 | 155,000 | February 7, 2012 |
4.65 | 25,000 | 25,000 | June 20, 2012 |
4.34 | 925,000 | 693,750 | December 5, 2012 |
3.62 | 100,000 | 50,000 | August 28, 2013 |
1.44 | 240,000 | 60,000 | November 10, 2013 |
1.56 | 550,000 | 137,500 | December 17, 2013 |
6,721,250 | 4,723,438 |
The following table summarizes the share purchase warrants outstanding at March 31, 2009:
Exercise Price | Warrants | |
$ | Outstanding | Expiry Dates |
7.00 | 4,887,500 | March 25, 2010 |
3.50 | 4,243,788 | March 5, 2011 |
9,131,288 |
24
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2008
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com
www.firstmajestic.com
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of First Majestic Silver Corp. (the Company) are the responsibility of the Companys management. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada and reflect managements best estimates and judgment based on information currently available.
Management has developed and maintains a system of internal controls to ensure that the Companys assets are safeguarded, transactions are authorized and properly recorded, and financial information is reliable.
The Board of Directors is responsible for ensuring management fulfills its responsibilities. The Audit Committee reviews the results of the audit and the annual consolidated financial statements prior to their submission to the Board of Directors for approval.
The consolidated financial statements have been audited by Deloitte & Touche LLP and their report outlines the scope of their examination and gives their opinion on the financial statements.
“Keith Neumeyer” | “Raymond Polman” |
Keith Neumeyer | Raymond Polman |
President & CEO | Chief Financial Officer |
March 25, 2009 | March 25, 2009 |
Auditors’ report
To the Shareholders of
First Majestic Silver Corp.
We have audited the consolidated balance sheets of First Majestic Silver Corp. as at December 31, 2008, and 2007, and the consolidated statements of loss, shareholders’ equity and comprehensive income (loss), and cash flows for the years ended December 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2008 and 2007, and the results of its operations and its cash flows for the years ended December 31, 2008 and 2007 in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
March 31, 2009
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED BALANCE SHEETS |
AS AT DECEMBER 31, 2008 AND 2007 |
(Expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
CONTINGENT LIABILITIES (Note
21)
COMMITMENTS (Note 22)
(signed) Keith Neumeyer | Director | (signed) Douglas Penrose | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF LOSS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
(Expressed in Canadian dollars, except share amounts) |
2008 | 2007 | |||
$ | $ | |||
Revenue (Note 14) | 44,324,887 | 42,924,920 | ||
Cost of sales | 30,419,415 | 26,989,300 | ||
Amortization and depreciation | 3,169,226 | 2,402,262 | ||
Depletion | 3,034,137 | 6,317,134 | ||
Accretion of reclamation obligation | 200,477 | 208,448 | ||
Mine operating earnings | 7,501,632 | 7,007,776 | ||
General and administrative | 7,549,079 | 7,460,903 | ||
Stock-based compensation | 3,680,111 | 3,865,689 | ||
11,229,190 | 11,326,592 | |||
Operating loss | (3,727,558 | ) | (4,318,816 | ) |
Interest and other expenses | (1,372,768 | ) | (1,169,935 | ) |
Investment and other income | 1,180,742 | 1,358,166 | ||
Foreign exchange loss | (3,144,654 | ) | (11,299 | ) |
Write off of mineral properties | - | (1,703,591 | ) | |
Loss before taxes | (7,064,238 | ) | (5,845,475 | ) |
Income tax - current | 136,533 | 259,392 | ||
Income tax (recovery) - future | (2,055,987 | ) | 1,125,255 | |
Income tax (recovery) expense | (1,919,454 | ) | 1,384,647 | |
NET LOSS FOR THE PERIOD | (5,144,784 | ) | (7,230,122 | ) |
Other Comprehensive Income | ||||
Effect of changing translation | ||||
adjustment method (Note 2) | - | (3,244,350 | ) | |
Translation adjustment | (7,616,671 | ) | (19,852,359 | ) |
Unrealized loss on available for sale securities | (413,512 | ) | - | |
COMPREHENSIVE LOSS FOR THE PERIOD | (13,174,967 | ) | (30,326,831 | ) |
LOSS PER COMMON SHARE | ||||
BASIC & DILUTED | $ (0.07 | ) | $ (0.13 | ) |
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||
BASIC | 71,395,164 | 56,720,099 | ||
DILUTED | 83,336,455 | 68,457,839 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE LOSS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
(Expressed in Canadian dollars, except share amounts) |
Accumulated | |||||||||||||||||||
Other | |||||||||||||||||||
Comprehensive | Total | ||||||||||||||||||
Share capital | Special | Contributed | Income (Loss) | AOCI | |||||||||||||||
Shares | Amount | To be issued | Warrants | Surplus | ("AOCI") (1) | Deficit | and deficit | Total | |||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||
Balance at December 31, 2006 | 51,698,630 | 103,466,619 | 9,294,020 | - | 11,720,436 | 7,910,502 | (27,101,977 | ) | (19,191,475 | ) | 105,289,600 | ||||||||
Net loss | - | - | - | - | - | - | (7,230,122 | ) | (7,230,122 | ) | (7,230,122 | ) | |||||||
Other comprehensive loss: | |||||||||||||||||||
Exchange translation adjustment of changing consolidation method for First Majestic Plata | - | - | - | - | - | (3,244,350 | ) | - | (3,244,350 | ) | (3,244,350 | ) | |||||||
Translation adjustment | - | - | - | - | - | (19,852,359 | ) | - | (19,852,359 | ) | (19,852,359 | ) | |||||||
Total comprehensive loss | (30,326,831 | ) | (30,326,831 | ) | |||||||||||||||
Adjustment relating to Minera El Pilon transaction | - | - | - | - | (417,317 | ) | - | - | - | (417,317 | ) | ||||||||
Shares issued for: | |||||||||||||||||||
Exercise of options | 1,407,500 | 3,022,400 | - | - | - | - | - | - | 3,022,400 | ||||||||||
Exercise of warrants | 2,668,823 | 6,876,102 | - | - | - | - | - | - | 6,876,102 | ||||||||||
First Silver arrangement | 1,625 | 7,865 | (7,865 | ) | - | - | - | - | - | - | |||||||||
Acquisition of La Encantada | 382,582 | 2,000,904 | - | - | - | - | - | - | 2,000,904 | ||||||||||
Conversion of special warrants | 6,883,000 | 29,221,643 | - | (32,138,643 | ) | 2,917,000 | - | - | - | - | |||||||||
Special warrants issued | - | - | - | 32,138,643 | - | - | - | - | 32,138,643 | ||||||||||
Stock option expense during the period | - | - | - | - | 3,865,689 | - | - | - | 3,865,689 | ||||||||||
Wa rrants issued during the period | - | - | - | - | 333,443 | - | - | - | 333,443 | ||||||||||
Transfer of contributed surplus upon exercise of stock options | - | 1,104,250 | - | - | (1,104,250 | ) | - | - | - | - | |||||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | - | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | |||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | - | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | |||||||
Net income | - | - | - | - | - | - | (5,144,784 | ) | (5,144,784 | ) | (5,144,784 | ) | |||||||
Other comprehensive loss: | |||||||||||||||||||
Translation adjustment | - | - | - | - | - | (7,616,671 | ) | - | (7,616,671 | ) | (7,616,671 | ) | |||||||
Unrealized loss on marketable securities | - | - | - | - | - | (413,512 | ) | - | (413,512 | ) | (413,512 | ) | |||||||
Total comprehensive loss | (13,174,967 | ) | (13,174,967 | ) | |||||||||||||||
Shares issued for: | |||||||||||||||||||
Exercise of options | 436,650 | 1,398,566 | - | - | - | - | - | - | 1,398,566 | ||||||||||
Exercise of warrants | 7,500 | 31,875 | - | - | - | - | - | - | 31,875 | ||||||||||
First Silver arrangement | 1,861,500 | 9,009,660 | (9,009,660 | ) | - | - | - | - | - | - | |||||||||
Public offering, net of issue costs | 8,500,000 | 40,144,471 | - | - | - | - | - | - | 40,144,471 | ||||||||||
Stock option expense, net of deferred compensation | - | - | - | - | 3,609,247 | - | - | - | 3,609,247 | ||||||||||
Warrants issued during the period | - | - | - | - | 2,737,000 | - | - | - | 2,737,000 | ||||||||||
Transfer of contributed surplus upon exercise of stock options | - | 363,990 | - | - | (363,990 | ) | - | - | - | - | |||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | - | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries, except for the unrealized losses of $413,512 on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
(Expressed in Canadian dollars) |
2008 | 2007 | |||
$ | $ | |||
OPERATING ACTIVITIES | ||||
Net income (loss) for the period | (5,144,784 | ) | (7,230,122 | ) |
Adjustment for items not affecting cash | ||||
Depletion | 3,034,137 | 6,317,134 | ||
Depreciation | 3,169,226 | 2,402,262 | ||
Stock-based compensation | 3,680,111 | 3,865,689 | ||
Accretion of reclamation obligation | 200,477 | 208,448 | ||
Unrealized gain on futures contracts | (81,307 | ) | - | |
Write-down of other assets | 240,000 | - | ||
Write-down of mineral property interests | - | 1,703,591 | ||
Future income taxes | (2,055,987 | ) | 1,125,255 | |
Other long-term liabilities | (209,085 | ) | - | |
Unrealized foreign exchange | 1,800,823 | 290,487 | ||
4,633,611 | 8,682,744 | |||
Net change in non-cash working capital items | ||||
Decrease (increase) in accounts receivable and other receivables | 1,517,537 | (2,164,592 | ) | |
Increase in inventories | (1,571,118 | ) | (1,220,429 | ) |
Increase in prepaid expenses and advances | (588,697 | ) | (983,728 | ) |
Increase in accounts payable and accrued liabilities | 1,218,517 | 147,418 | ||
Increase in unearned revenue | 110,258 | - | ||
Decrease in employee profit sharing payable | (162,823 | ) | (116,365 | ) |
Decrease in taxes receivable and payable | (369,312 | ) | (173,839 | ) |
Increase in vendor liability and interest | 399,112 | - | ||
Increase in vendor liability on mineral property | 1,372,973 | - | ||
6,560,058 | 4,171,209 | |||
INVESTING ACTIVITIES | ||||
Expenditures on mineral property interests (net of accruals) | (24,485,036 | ) | (18,895,126 | ) |
Additions to plant and equipment (net of accruals) | (14,921,672 | ) | (11,841,594 | ) |
Increase in derivative financial instruments | (127,153 | ) | - | |
Increase in silver futures contract deposits | (363,278 | ) | - | |
Increase in deposits on long term assets and other | (704,487 | ) | - | |
Increase in restricted cash securitizing vendor liability (Note 10) | (13,940,237 | ) | - | |
Acquisition costs of Minera La Encantada less cash acquired | - | (3,798,900 | ) | |
(54,541,863 | ) | (34,535,620 | ) | |
FINANCING ACTIVITIES | ||||
Issuance of common shares and warrants net of issue costs | 41,574,912 | 11,002,752 | ||
Issuance of special warrants, net of issue costs | - | 29,221,643 | ||
Payment of short-term vendor liability | - | (13,341,380 | ) | |
Payment of short-term Arrangement liability | (388,836 | ) | (388,836 | ) |
Payment of capital lease obligations | (2,551,752 | ) | - | |
Payment of liability for acquisition of Desmin | - | (1,165,300 | ) | |
38,634,324 | 25,328,879 | |||
DECREASE IN CASH AND CASH EQUIVALENTS | (9,347,481 | ) | (5,035,532 | ) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH HELD IN FOREIGN CURRENCY | (3,816 | ) | - | |
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD | 12,835,183 | 17,870,715 | ||
UNRESTRICTED CASH | 3,483,886 | 12,835,183 | ||
RESTRICTED CASH (Note 10) | 13,940,237 | - | ||
CASH AND CASH EQUIVALENTS - END OF THE PERIOD | 17,424,123 | 12,835,183 | ||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | - | |||
Cash | 495,168 | 521,201 | ||
Short-term deposits | 2,988,718 | 12,313,982 | ||
Restricted cash | 13,940,237 | - | ||
17,424,123 | 12,835,183 | |||
Interest paid | 883,307 | 1,039,418 | ||
Income taxes paid | 135,847 | - | ||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 23) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
1. DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS
First Majestic Silver Corp. (the “Company” or “First Majestic”) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in México. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the latter part of the year ended December 31, 2008, there was a significant decline in the spot and forward prices of silver and other commodities and access to the capital markets significantly tightened. In 2009, there has been some recovery in the silver price and on March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940 (Note 24(c)). In addition, $13.9 million of the Company’s cash is restricted pending the outcome of the litigation described in Note 10. Ultimately, the Company’s ability to continue as a going concern is dependent on maintaining sustained profitable operations and/or obtaining funds from other sources as required for capital developments. If the Company were unable to continue as a going concern, then material adjustments would be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”).
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”) and First Silver Reserve Inc. (“First Silver”), as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V., (“First Majestic Plata”), Minera El Pilon, S.A. de C.V., (“El Pilon”), and Minera La Encantada, S.A. de C.V. (“La Encantada”). The prior balances of Desmin, S.A. de C.V. were amalgamated into La Encantada on January 1, 2008, with no gain or loss on the amalgamation. First Silver underwent a wind up and distribution of assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 10. Inter-company balances and transactions are eliminated on consolidation.
Measurement Uncertainties
The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Significant areas where management judgment is applied include, among others, the expected economic lives and the future operating results and net cash flows expected to result from exploitation of resource properties and related assets, the amount of proven and probable mineral reserves, income tax provisions, stock-based compensation, the determination of the fair value of assets acquired in business combinations and the amount of future site reclamation costs and asset retirement obligations. Actual results could differ from those reported.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market instruments with terms to maturity not exceeding 90 days at date of issue. The Company does not believe it is exposed to significant credit or interest rate risk although cash and cash equivalents are held in excess of federally insured limits with major financial institutions. Cash and cash equivalents include $13.9 million of restricted cash as described in Note 10.
1
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Finished product, ore in process and stockpile are valued at the lower of cost and net realizable value. Cost is determined as the average production cost of saleable silver and metal by-product. Materials and supplies are valued at the lower of cost and net realizable value.
Mineral Property Interests
The acquisition, development and deferred exploration costs are depleted on a units-of-production basis over the estimated economic life of the ore body following commencement of production.
Mineral property costs and exploration, development and field support costs directly relating to mineral properties are deferred until the property to which they directly relate is placed into production, sold, abandoned or subject to a condition of impairment. The deferred costs are amortized over the useful life of the ore body following commencement of production, or written off if the property is sold or abandoned. Administration costs and other exploration costs that do not relate to any specific property are expensed as incurred.
The Company reviews and evaluates its mining properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The carrying value of exploration stage mineral property interests represent costs incurred to date. The Company is in the process of exploring its other mineral properties interests and has not yet determined whether they contain ore reserves that are economically recoverable. Accordingly, the recoverability of these capitalized costs is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete their exploration and development, and upon future profitable production.
Although the Company has taken steps to verify ownership and legal title to mineral properties in which it has an interest, according to the usual industry standards for the stage of mining, development and exploration of such properties, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects. Management is not aware of any such agreements, transfers or defects.
From time to time, the Company acquires or disposes of properties pursuant to the terms of option agreements. Options are exercisable entirely at the discretion of the optionee and, accordingly, are recorded as mineral property costs or recoveries when the payments are made or received.
Asset Retirement Obligations and Reclamation Costs
Future costs to retire an asset including dismantling, remediation and ongoing treatment and monitoring of the site are recognized and recorded as a liability at fair value at the date the liability is incurred. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. Future site restoration costs are capitalized as part of the carrying value of the related mineral property at their initial value and amortized over the mineral property’s useful life based on a units-of-production method.
2
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Translation of Foreign Currencies
(i) Foreign Currency Transactions
The currency of measurement for the Companys Mexican operating subsidiaries is the Mexican peso. Transaction amounts denominated in foreign currencies (currencies other than the Mexican peso) are translated into Mexican pesos at exchange rates prevailing on the transaction dates. Carrying value of foreign currency denominated monetary assets and liabilities are translated into the currency of measurement at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities are translated at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at the exchange rates in effect at the time of the transactions. Exchange gains and losses arising from the translation of these items are included in operations.
(ii) Subsidiary Financial Statements
The financial statements of Mexican subsidiaries are translated to Canadian dollars using the current rate method. In August 2007, the Company changed the method by which it translated the accounts of First Majestic Plata. The operations of First Majestic Plata changed from integrated to self-sustaining and commercial operations of the La Parrilla Silver Mine experienced a change in the functional currency from the Canadian dollar to the Mexican peso. As a result, the current rate method was adopted and replaced the temporal method. The translation loss of $3,244,350 attributable to current rate translation of non-monetary items as of the date of the change is included as an element of the exchange gains and losses and as a separate component of accumulated other comprehensive income.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the financial statements and their respective tax bases (temporary differences), using substantively enacted income tax rates. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation applied from the commencement of operations, calculated using the straight line method over the following useful lives:
Computer equipment | 3 years straight-line |
Automobile | 5 years straight-line |
Office equipment | 5 years straight-line |
Mine and mill equipment | 10 years straight-line |
Buildings | 20 years straight-line |
Construction in progress costs are not amortized until the related asset is complete, ready for use and utilized in commercial production.
Revenue Recognition
Revenue from the sale of silver is recorded in the Companys accounts when title transfers to the customer, which generally occurs on the date the shipment is received, when collection is reasonably assured, and when the price is reasonably determinable. Revenue is recorded in the statement of operations net of treatment and refining costs paid to counterparties. Revenue from the sale of silver is subject to adjustment upon final settlement of estimated metal prices, weights and assays. Adjustments to revenue for metal price changes are recorded on final settlement. By-product revenue is included as a component of sales.
3
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Unearned Revenue
Unearned revenue is recorded when cash has been received from customers prior to shipping of the related silver coins, ingots and bullion products.
Impairment of Long-Lived Assets
Long-lived assets are assessed for impairment at least annually, and when events and circumstances warrant. The carrying value of a long-lived asset is impaired when the carrying amount exceeds the estimated undiscounted net cash flow from use or disposal. In the event that a long-lived asset is determined to be impaired, the amount by which the carrying value exceeds its fair value is charged to earnings.
Loss Per Share
Basic loss per share is computed by dividing the loss available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the “if converted” method. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method. The effects of potential issuances of shares under options and warrants would be anti-dilutive, and therefore basic and diluted loss per share are the same.
Stock-based Compensation
The Company uses the fair value method for recording compensation for all awards made to directors, employees and non-employees including stock appreciation rights, direct awards of stock and stock-based awards that call for settlement in cash or other assets. The compensation expense is determined as the fair value of the option at the date of grant and is calculated using the Black-Scholes Option Pricing Model . The contributed surplus balance is reduced as the options are exercised and the amount initially recorded is transferred to share capital. The effect of forfeitures of stock-based compensation is recorded as an adjustment to stock-based compensation expense in the period the option is forfeited.
Derivatives
The Company may periodically use foreign exchange and commodity contracts to manage exposure to fluctuations in foreign exchange rates and commodity prices. Derivative financial instruments are recorded on the Company’s balance sheet at their fair values with changes in fair values recorded in the results of operations during the period in which the change occurred.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (“OCI”). OCI represents changes in shareholders’ equity during a period arising from transactions other than changes related to transactions with owners. OCI includes unrealized gains and losses on financial assets classified as available-for-sale, changes in the fair value of the effective portion of derivative instruments included in cash flow hedges and currency translation adjustments on the Company’s net investment in self-sustaining foreign operations.
Cumulative changes in OCI are included in accumulated other comprehensive income (“AOCI”).
4
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Instruments Recognition and Measurement and Hedges
Financial assets and liabilities, including derivatives, are recognized on the consolidated balance sheet when the Company becomes a party to the contractual provisions of the financial instrument. All financial instruments are required to be measured at fair value on initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities. Transaction costs are expensed as incurred for financial instruments classified as held-for-trading. For financial instruments classified as other than held-for-trading, transaction costs are added to the carrying amount of the financial asset or liability on initial recognition and amortized using the effective interest method.
Financial assets and financial liabilities held-for-trading are measured at fair value with changes in those fair values recognized in the statement of loss. Loans and receivables and other financial liabilities are measured at amortized cost using the effective interest method. Available-for-sale financial assets are presented in available-for-sale securities in the Companys consolidated balance sheet and measured at fair value with unrealized gains and losses, including changes in foreign exchange rates, recognized in OCI. Other than temporary unrealized losses on available-for-sale, financial assets are recognized in the statement of income or loss. Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market are measured at cost.
Derivative instrument are recorded on the consolidated balance sheet at fair value, including those derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts. Changes in the fair values of derivative instruments are recognized in net income with the exception of derivatives designated as effective cash flow hedges.
The Company has designated its financial assets and liabilities as follows:
Comparative Figures
Certain comparative figures have been reclassified to conform with the classifications used in 2008.
5
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Significant Changes in Accounting Policies
Capital Disclosures and Financial Instruments - Disclosures and Presentation
Effective January 1, 2008, the Company adopted three new presentation and disclosure standards that were issued by the Canadian Institute of Chartered Accountants: Handbook Section 1535, Capital Disclosures (“Section 1535”), Handbook Section 3862, Financial Instruments – Disclosures (“Section 3862”) and Handbook Section 3863, Financial Instruments – Presentation (“Section 3863”).
Section 1535 requires the disclosure of both qualitative and quantitative information that enables users of financial statements to evaluate (i) an entity’s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance.
Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments – Disclosure and Presentation, revising and enhancing its disclosure requirements and carrying forward unchanged its presentation requirements for financial instruments. Sections 3862 and 3863 place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks.
Inventories
The Company adopted CICA Section 3031, Inventories, on January 1, 2008. This section provides further guidance on the measurement and disclosure requirements for inventories. Specifically, the new pronouncement requires inventories to be measured at the lower of cost and net realizable value, and provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. The adoption of the new standard did not have a material impact on the Company’s results of operations or financial position.
Recent Pronouncements
The Company has assessed new and revised accounting pronouncements that have been issued but that are not yet effective and determined that the following may have a significant impact on the Company.
(i) |
The CICA issued the new Handbook Section 3064, “Goodwill and Intangible Assets”, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start- up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009. The Company is currently assessing the impact of this new standard on its consolidated financial statements. |
(ii) |
The CICA issued the new Handbook Section 1582, “Business Combinations”, Section 1601 “Consolidations” and Section 1602 “Non-controlling Interests” to harmonize with International Financial Reporting Standards (“IFRS”). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted. The Company is currently assessing the impact of these new standards. |
6
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
International Financial Reporting Standards (“IFRS”)
In 2006, the Canadian Accounting Standards Board (“AcSB”) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canada’s own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is presently undergoing a diagnostic assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. The Company will continue to monitor changes in IFRS during implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting.
3. MANAGEMENT OF CAPITAL RISK
The Company’s objective when managing capital is to maintain its ability to continue as a going concern while at the same time maximizing growth of its business and providing returns on its shareholders’ investments. The Company’s overall strategy with respect to capital risk management remains unchanged from the prior year ended December 31, 2007.
The Company’s capital structure consists of shareholders’ equity, comprising of issued capital, share capital to be issued, contributed surplus, retained earnings (deficit) and accumulated other comprehensive loss.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Company’s Board of Directors.
The Company’s investment policy is to invest its cash in highly liquid short term interest bearing investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. As a result of the funding received subsequent to year end, the Company expects that the capital resources available to it will be sufficient to carry out its development plans and operations for at least the next twelve months.
4. FINANCIAL INSTRUMENTS AND RISKS
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
7
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
4. FINANCIAL INSTRUMENTS AND RISKS (continued)
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business and value added tax and other receivables. The Company sells its silver primarily to one international organization with a strong credit rating, payments of receivables are scheduled, routine and received within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.1 million as at December 31, 2008, a significant portion which is past due. The Company expects to recover the full amount.
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company’s credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and to support its expansion plans. The Company does not have any committed loan facilities. As at December 31, 2008, the Company has outstanding accounts payable and accrued liabilities of $17.3 million which are generally payable in 90 days or less.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940 (see Note 24(c)). Although, the Company does not have a history of operating profits, the Company believes it has sufficient cash on hand to meet operating requirements as they arise for at least the next twelve months.
The Company has an obligation regarding its purchase of First Silver Reserve (“FSR”) to make a final installment payment of $13,341,380, due on May 30, 2008, and to make simple interest payments at 6% per annum, payable quarterly on the outstanding vendor balance. In November 2007, an action was commenced by the Company and FSR against the previous majority shareholder of FSR (“Majority Shareholder”), who was a previous director, President and Chief Executive Officer of FSR, and a company he controls, whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer of FSR, he engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory requirements owed to FSR, which resulted in FSR not acquiring a mine. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
Pending resolution of the litigation set out above, the Company has withheld payment of quarterly installments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008 totaling $598,857 to the previous Majority Shareholder, and has maintained a reserve of cash in the amount of such installments. The Company has withheld payments of the final installment and interest, combined to a total of $13,940,237 due May 30, 2008 until such litigation has been resolved, and such date is presently not determinable. The Company filed on July 22, 2008 an irrevocable Letter of Credit with the Supreme Court of British Columbia as security for this matter.
8
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
4. FINANCIAL INSTRUMENTS AND RISKS (continued)
The Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 3,814,049 | $ | 1,815,197 | $ | 1,998,852 | $ | - | $ | - | |||||
Purchase Obligations (1) | 5,984,323 | 5,984,323 | - | - | - | ||||||||||
Vendor Liability on Mineral Property (2) | 1,372,973 | 1,372,973 | - | - | - | ||||||||||
Total Contractual Obligations (3) | $ | 11,171,345 | $ | 9,172,493 | $ | 1,998,852 | $ | - | $ | - |
(1) |
Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project. |
(2) |
Vendor liability on mineral property totalling US$1,121,160 on the Quebradillas Mine at La Parrilla. |
(3) |
Amounts a bove do not include payments related to the Company's future asset retirement obligations (see Note 20), nor do they i nclude a ccounts payable a nd accrued liabilities of $17.3 million. |
Currency Risk
Financial instruments that impact the Companys net earnings or other comprehensive income due to currency fluctuations include Mexican peso denominated cash and cash equivalents, accounts receivable, investments in mining interests and accounts payable. The sensitivity of the Companys net earnings and other comprehensive income due to changes in the exchange rate between the Mexican peso and the Canadian dollar is included in the table below.
Commodity Price Risk
Commodity price risk is the risk that movements in the spot price of silver have a direct and immediate impact on the Companys income or the value of its related financial instruments. The Company also derives by-product revenue from the sale of gold, lead and zinc. The Companys sales are directly dependent on commodity prices that have shown volatility and are beyond the Companys control.
The Company does not use other derivative instruments to hedge its commodity price risk.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
The Companys interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Companys interest bearing financial liabilities comprise fixed rate debt instruments and capital leases with terms to maturity ranging up to three years.
9
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
4. FINANCIAL INSTRUMENTS AND RISKS (continued)
The sensitivity analyses below have been determined based on the undernoted risks at December 31, 2008.
|
Reasonably possible changes |
|||||||||||
|
|
$US Denominated Silver Commodity Price |
|
$US /Peso
|
|
Peso/$CDN
|
|
Market interest rate |
|
|||
Impact on Annual Operations |
|
+/- 10% |
|
+/- 10% |
|
+/- 10% |
|
+/- 25 basis points |
|
|||
Net Income (1) |
$ |
5,196,932 |
$ |
2,604,453 |
$ |
2,557,372 |
$ |
43,560 |
|
|||
Other Comprehensive Income (1) |
$ |
- |
$ |
- |
$ |
440,923 |
$ |
- |
|
(1) |
These sensitivities are hypothetical and should be used with caution, favourable hypothetical changes in the assumptions result in an increased amount and unfavourable hypothetical changes in the assumptions result in a decreased amount of net income and/or other comprehensive income. |
Fair Value Estimation
The Company’s financial instruments are comprised of cash and cash equivalents, marketable securities, accounts receivables, other receivables, derivative financial instruments, accounts payable and accrued liabilities, employee profit sharing payable, capital lease obligations and vendor liability.
Marketable securities and derivative instruments are carried at fair value. The fair values of accounts receivable, other receivables, accounts payable and accrued liabilities, unearned revenue, employee profit sharing payable and capital lease obligations approximate their carrying value due to the short term nature of these items. The fair value of the vendor liability and interest payable is not readily determinable due to the uncertainty with respect to the outcome of the litigation described in Note 10.
5. RESTRICTED CASH
On July 22, 2008, the Company secured its outstanding vendor liability (Note 10) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. The Letter of Credit is revolving with annual expiry on July 22. The cash and short term investments earn market rates of interest from which the 0.5% per annum cost of the Letter of Credit is deducted and the net interest remitted to the Company. The Restricted Cash is segregated from operating cash as the funds are not accessible by the Company pending the litigation described in Note 10.
10
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
6. OTHER RECEIVABLES
Details of the components of other receivables are as follows:
2008 | 2007 | |||
$ | $ | |||
Value added ta xes recoverable | 6,109,943 | 4,467,782 | ||
Other taxes recoverable | 406,536 | 1,286,967 | ||
Interest receivable | 188,111 | 16,325 | ||
Advances to employees | 67,240 | 11,288 | ||
Advances to s uppliers | 440,863 | 421,535 | ||
Other | - | 396,298 | ||
7,212,693 | 6,600,195 |
7. INVENTORIES
Inventories consist of the following:
2008 | 2007 | |||
$ | $ | |||
Silver coins and bullion | 247,368 | - | ||
Finished product - Doré and concentrates | 1,342,550 | 1,321,004 | ||
Ore in process | 196,169 | 246,289 | ||
Stockpile | 1,631,625 | - | ||
Materials and supplies | 1,523,628 | 1,341,587 | ||
4,941,340 | 2,908,880 |
8. PREPAID EXPENSES AND OTHER
As at December 31, 2008, the Company had futures contracts for the receipt of 100,000 ounces of silver at a price of US$10.305 per ounce and sold call options for 50,000 ounces at US$13.00 per ounce. The Company provides deposits in connection with these contracts. The fair value of these contracts and deposits at December 31, 2008 was $490,431 (2007-$nil).
11
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
9. MINING INTERESTS
Expenditures incurred on mining interests, net of accumulated depletion, are as follows:
2008 | 2007 | |||||||||||
Accumulated | Accumulated | |||||||||||
depreciation | depreciation | |||||||||||
and | and | |||||||||||
Cost | depletion | Net | Cost | depletion | Net | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Mining properties | 167,130,756 | 14,436,791 | 152,693,965 | 138,832,672 | 11,202,175 | 127,630,497 | ||||||
Plant and equipment | 48,271,432 | 6,144,052 | 42,127,380 | 31,133,655 | 2,229,705 | 28,903,950 | ||||||
215,402,188 | 20,580,843 | 194,821,345 | 169,966,327 | 13,431,880 | 156,534,447 |
A summary of the net book value of mining properties is as follows:
2008 | 2007 | |||||||||||
Non- | Plant and | |||||||||||
Depletable | Depletable | Subtotal | Equipment | Total | Total | |||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||
Producing properties | ||||||||||||
La Encantada (a) | 6,645,503 | - | 6,645,503 | 18,320,120 | 24,965,623 | 10,086,394 | ||||||
La Parrilla (b) | 16,606,554 | - | 16,606,554 | 16,022,373 | 32,628,927 | 24,517,121 | ||||||
San Martin (c) | 26,681,678 | - | 26,681,678 | 7,784,887 | 34,466,565 | 19,468,380 | ||||||
49,933,735 | - | 49,933,735 | 42,127,380 | 92,061,115 | 54,071,895 | |||||||
Exploration properties | ||||||||||||
La Encantada (a) | - | 2,858,043 | 2,858,043 | - | 2,858,043 | 1,728,689 | ||||||
La Parrilla (b) | - | 8,722,897 | 8,722,897 | - | 8,722,897 | 4,717,254 | ||||||
San Martin (c) (1) | - | 77,582,247 | 77,582,247 | - | 77,582,247 | 87,749,359 | ||||||
Candamena | - | - | - | - | - | 700,000 | ||||||
Del Toro (d) (2) | - | 11,881,557 | 11,881,557 | - | 11,881,557 | 6,804,780 | ||||||
Cuitaboca (e) | - | 1,715,486 | 1,715,486 | - | 1,715,486 | 762,470 | ||||||
- | 102,760,230 | 102,760,230 | - | 102,760,230 | 102,462,552 | |||||||
49,933,735 | 102,760,230 | 152,693,965 | 42,127,380 | 194,821,345 | 156,534,447 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
(2) |
The ore from Del Toro is processed via the La Parrilla Silver Mine. |
A summary of plant and equipment is as follows:
2008 | 2007 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
La Encantada Silver Mine | 19,541,421 | 1,221,301 | 18,320,120 | 9,451,422 | 301,669 | 9,149,753 | ||||||
La Parrilla Silver Mine | 18,590,746 | 2,568,373 | 16,022,373 | 14,763,264 | 1,063,330 | 13,699,934 | ||||||
San Martin Silver Mine | 10,139,265 | 2,354,378 | 7,784,887 | 6,918,969 | 864,706 | 6,054,263 | ||||||
Used in Mining Operations | 48,271,432 | 6,144,052 | 42,127,380 | 31,133,655 | 2,229,705 | 28,903,950 | ||||||
Corporate office equipment | 712,525 | 229,475 | 483,050 | 528,865 | 96,556 | 432,309 | ||||||
48,983,957 | 6,373,527 | 42,610,430 | 31,662,520 | 2,326,261 | 29,336,259 |
12
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
9. MINING INTERESTS (continued)
Details by specific assets are as follows:
2008 | 2007 | |||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||
$ | $ | $ | $ | $ | $ | |||||||
Land | 2,302,273 | - | 2,302,273 | 2,309,428 | - | 2,309,428 | ||||||
Automobile | 427,817 | 140,703 | 287,114 | 266,020 | 41,256 | 224,764 | ||||||
Buildings | 6,250,748 | 399,982 | 5,850,766 | 5,971,902 | 182,714 | 5,789,188 | ||||||
Machinery and equipment | 27,744,172 | 5,053,327 | 22,690,845 | 21,898,609 | 1,922,611 | 19,975,998 | ||||||
Computer equipment | 566,511 | 239,162 | 327,349 | 372,549 | 91,386 | 281,163 | ||||||
Office equipment | 600,413 | 447,405 | 153,008 | 219,127 | 62,625 | 156,502 | ||||||
Leasehold improvements | 320,304 | 92,949 | 227,355 | 308,183 | 25,669 | 282,514 | ||||||
Construction in progress | 10,771,720 | - | 10,771,720 | 316,702 | - | 316,702 | ||||||
48,983,958 | 6,373,528 | 42,610,430 | 31,662,520 | 2,326,261 | 29,336,259 |
Mineral property options paid and future option payments are due as follows:
Note 9(d) | Note 9(e) | ||||||||
Del Toro | Cuitaboca | Total | |||||||
US$ | US$ | US$ | |||||||
Paid as at December 31, 2008 | 5,887,500 | 925,000 | 6,812,500 | ||||||
Payable as at March 31, 2009 | - | - | - | ||||||
Payable May 25, 2009 | - | 250,000 | 250,000 | ||||||
Payable June 6, 2009 | 37,500 | - | 37,500 | ||||||
Payable as at June 30, 2009 | 37,500 | 250,000 | 287,500 | ||||||
Payable as at September 30, 2009 | 37,500 | 250,000 | 287,500 | ||||||
Payable November 25, 2009 | - | 275,000 | 275,000 | ||||||
Payable December 6, 2009 | 62,500 | - | 62,500 | ||||||
Payable as at December 31, 2009 | 100,000 | 525,000 | 625,000 | ||||||
Payable in 2010 and beyond | 225,000 | 1,050,000 | 1,275,000 | ||||||
Total Future Option Payments | 325,000 | 1,575,000 | 1,900,000 |
13
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
9. MINING INTERESTS (continued)
(a) La Encantada Silver Mine, Coahuila State
The La Encantada Silver Mine is a producing underground mine located in Northern México approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz de Boquillas del Cármen, is 45 kilometres away via dirt road. The La Encantada Silver Mine consists of a 1,000 tonnes per day flotation plant, an airstrip, and other facilities, including a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.
(b) La Parrilla Silver Mine, Durango State
The La Parrilla Silver Mine is a group of producing underground mines consisting of the La Rosa/Rosarios/La Blanca connected mines, the San Marcos Mine and the Quebradillas Mine, located approximately 65 kilometres southeast of the city of Durango, México. It includes mining equipment, a 420 tonne-per-day cyanidation plant, a 420 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
During the year ended December 31, 2008, the Company amended payment terms to an optionor regarding the outstanding payments as at December 31, 2008 on the Quebradillas Mine. In regards to the aggregate of US$749,000 which was previously payable in 2008, the Company has agreed to make a series of payments in 2009 totaling US$1,121,160 (Cdn$1,372,973) which includes interest calculated at a rate of the three month LIBOR plus 3%.
There is a net smelter royalty (“NSR”) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. The Company has paid US$69,000 (2007 – US$nil) relating to royalties.
(c) San Martin Silver Mine, Jalisco State
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, México. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 950 tonnes per day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.
14
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
9. MINING INTERESTS (continued)
(d) Del Toro Silver Mine (formerly referred as the “Chalchihuites Group of Properties”), Zacatecas State
The Del Toro Silver Mine, formerly referred as the Chalchihuites Group of Properties, is located 60 km to the southeast from the Company’s La Parrilla Silver Mine and consists of a 320 contiguous hectare land package which covers the Perseverancia area and the San Juan area. In 2004, the Company signed several option agreements which covered a total land area of 487 hectares located in the Chalchihuites Mining District, in the municipality of Chalchihuites, located 150 km to the northwest of Zacatecas City in the Western portion of Zacatecas State. In January 2007, the Company exercised its option to acquire the San Juan Silver Mine, and in June 2007 exercised its option to acquire the Perseverancia Silver Mine. During the year ended December 31, 2007, the Company acquired 100 hectares of surface rights covering the area surrounding the San Juan area.
In September 2007, the Company took 100% ownership of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package.
Regarding the final US$2 million purchase payment due June 8, 2007, US$1 million was paid in June 2007 and the balance was released from trust on May 13, 2008 upon registration of the property concessions in the name of the Company with the Mexican mining registry.
In March 2008, the Company paid and executed one outstanding option agreement, entered into on August 29, 2005, to acquire the La Esperanza and the San Rafael mining concessions comprising approximately 29 hectares in the Chalchihuites area for a total purchase price of US$175,000 payable over a three-year period (US$65,000 paid) during the year ended December 31, 2008. A finder’s fee in the aggregate of $7,365 was paid to a director of the Company.
(e) Cuitaboca Silver Project, Sinaloa State
The Cuitaboca Silver Project, located in the State of Sinaloa, México, consists of an option to acquire a 5,134 hectare land package. This option was acquired in May 2006 through the acquisition of First Silver and its wholly owned subsidiary, El Pilon.
During the year ended December 31, 2008, the Company paid US$375,000 (2007 – US$275,000) related to mineral property options. The Company has an option agreement dated November 25, 2004 with Consorcio Minero Latinamericano, S.A. de C.V., a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims covering 3,718 hectares located in the State of Sinaloa, México. To purchase the claims, the Company must pay a total of US$2,500,000 in staged cash payments through November 25, 2010 (US$925,000 paid as at December 31, 2008). A 2.5% NSR on the claims may be purchased for an additional US$500,000 at any time during the term of the agreement or for a period of 12 months thereafter.
15
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
10. VENDOR LIABILITY AND INTEREST
First Majestic's aggregate purchase price of $53,365,519, on acquisition of First Silver Reserves Inc. (FSR) in May 2006, was payable to the Majority Shareholder in three instalments. The first instalment of $26,682,759, representing 50% of the purchase price, was paid on closing of the acquisition on May 30, 2006. An additional 25% instalment of $13,341,380, was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum, is payable quarterly on the outstanding vendor balance.
In November 2007, an action was commenced by the Company and FSR against the majority shareholder of FSR (Majority Shareholder), who was a previous director, President & Chief Executive Officer of FSR, and a company he controls, whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer, he engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to FSR, which resulted in FSR not acquiring a mine. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
Pending resolution of the litigation set out above, the Company has withheld payments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008 to the previous Majority Shareholder. The Company is withholding payment of the final instalment of $13,341,380 due May 30, 2008 and the above interest payments, an amount totalling $13,940,237. On July 22, 2008, the Company posted an irrevocable Letter of Credit with the Supreme Court of British Columbia pending the outcome which is not anticipated for at least one year or until such litigation has been resolved.
On March 14, 2008, a statement of defence and counter-claim was filed in respect of the action commenced by the Company. Pursuant to the counterclaim, a claim has been made for payment of an aggregate of $598,857 in respect of interest payments due under the share purchase agreement dated April 3, 2006, which the Company has withheld under such agreement. The Majority Shareholder further claims unquantified damages, costs and interest. The Company believes that the issues raised in the counterclaim will turn on the success of the Company's action against the defendant; however, the outcome of this litigation is not presently determinable.
11. DEPOSITS ON LONG-TERM ASSETS
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
2008 | 2007 | |||
$ | $ | |||
Property payment, Del Toro (Note 9(d)) | - | 991,565 | ||
Deposit on services | - | 216,923 | ||
Deposit on equipment | 1,986,517 | 73,542 | ||
1,986,517 | 1,282,030 |
16
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
12. ACQUISITION OF MINERA LA ENCANTADA S.A. DE C.V.
In December 2006, the Company signed a letter of agreement to acquire 100% of the issued and outstanding shares of Minera La Encantada S.A. de C.V. (La Encantada), a Mexican mining company owned by Minas Peñoles S.A. de C.V. and Industrias Peñoles S. A. de C.V. for the purchase price of US$3,250,000 and a 4% NSR. La Encantadas primary asset is the La Encantada Silver Mine in Coahuila State, México. A non-refundable deposit of US$1,000,000 was made on the date of the agreement and the balance was paid upon closing on March 20, 2007. Pursuant to the terms of the agreement, the Company exercised its option to acquire the 4% NSR in exchange for 382,582 common shares at a value of $5.23 per share and 191,291 warrants exercisable at a price of $6.81 per share for a two-year period. The warrants were valued at $333,443 using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 4.02%, estimated volatility of 72%, expected life of 2 years and expected dividend yield of 0%).
The final allocation of the purchase price to the assets acquired and liabilities assumed is as follows:
Consideration: | $ | |
Cash paid (US$3,250,000) | 3,798,900 | |
382,582 common shares issued | 2,037,249 | |
Fair value of 191,291 s hare purchase warrants issued | 333,444 | |
6,169,593 | ||
Allocation of purchase price: | ||
Net working capital | - | |
Proven and Probable Mineral Reserves i n Production | 3,061,300 | |
Plant and equipment | 7,300,268 | |
Asset retirement obligation | (2,327,800 | ) |
Future i ncome taxes | (1,864,175 | ) |
6,169,593 |
The final determination of the fair value of the La Encantadas assets and liabilities acquired is based on the fair value of the assets acquired which includes an independent valuation for certain assets and liabilities, and an independent purchase price allocation assessment.
In January 2008, La Encantada was amalgamated into Desmin with both companies continuing forward as Minera La Encantada S.A. de C.V.
17
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
13. SHARE CAPITAL
(a) Authorized - unlimited number of common shares without par value
Issued | Year ended December 31, 2008 | Year ended December 31, 2007 | ||||||||||
Shares | $ | Shares | $ | |||||||||
Balance - beginning of the period | 63,042,160 | 145,699,783 | 51,698,630 | 103,466,619 | ||||||||
Issued during the period | ||||||||||||
For cash: | ||||||||||||
Exercise of options | 436,650 | 1,398,566 | 1,407,500 | 3,022,400 | ||||||||
Exercise of warrants | 7,500 | 31,875 | 2,668,823 | 6,876,102 | ||||||||
Public offering of units (i) | 8,500,000 | 40,144,471 | - | - | ||||||||
For exercise of special warrants (ii) | - | - | 6,883,000 | 29,221,643 | ||||||||
For First Silver Arrangement (Note 13(d)) | 1,861,500 | 9,009,660 | 1,625 | 7,865 | ||||||||
For acquisition of La Encantada (Note 12) | - | - | 382,582 | 2,000,904 | ||||||||
Transfer of contributed surplus for | ||||||||||||
stock options exercised | - | 363,990 | - | 1,104,250 | ||||||||
Balance - end of the period | 73,847,810 | 196,648,345 | 63,042,160 | 145,699,783 |
(i) |
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 Units at an issue price of $5.35 per Unit for net proceeds to the Company of $40,144,471. Each Unit consisted of one common share in the capital of the Company and one-half of one Common Share purchase warrant. Each whole Common Share purchase warrant entitles the holder to acquire one additional Common Share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 Common Shares (the "Option Shares") at a price of $5.07 per Option Share and up to an additional 637,500 Warrants at a price of $0.56 per Warrant. The underwriters did not exercise their option to purchase any Option Shares, but did acquire the 637,500 Warrants (see Note 13(c)). |
(ii) |
On May 10, 2007, the Company completed a public offering with a syndicate of underwriters who purchased 6,883,000 Special Warrants at a price of $5.00 per Special Warrant for net proceeds to the Company of $29,221,643. Each Special Warrant entitled the holder to receive, without further consideration, upon exercise or deemed exercise, one common share and one half common share purchase warrant. Each whole share purchase warrant was exercisable at a price of $6.50 expiring on November 10, 2008. The Underwriters received a commission of 5.5% of the gross proceeds of the offering at closing. The Company filed a short form prospectus dated July 25, 2007 qualifying the distribution of 6,883,000 common shares and 3,441,500 share purchase warrants issued upon the exercise of 6,883,000 Special Warrants. |
18
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
13. SHARE CAPITAL (continued)
(b) Stock Options
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the 2008 Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the year ended December 31, 2008, are as follows:
Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||
Weighted | Weighted | |||||
Average | Weighted | Average | Weighted | |||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |
Balance, beginning of the period | 5,892,500 | 4.04 | 2.75 years | 5,052,500 | 3.30 | 2.34 years |
Granted | 2,672,500 | 2.93 | 3.67 years | 2,680,000 | 4.50 | 3.83 years |
Exercised | (436,650) | 3.20 | 0.51 years | (1,407,500) | 2.15 | 0.22 years |
Forfeited or expired | (1,265,850) | 3.05 | 0.45 years | (432,500) | 4.32 | 0.34 years |
Balance, end of the period | 6,862,500 | 3.84 | 2.78 years | 5,892,500 | 4.04 | 2.75 years |
19
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
13. SHARE CAPITAL (continued)
The following table summarizes both the stock options outstanding and those that are exercisable at December 31, 2008:
Price | Options | Options | |||
$ | Outstanding | Exercisable | Expiry Dates | ||
3.28 | 12,500 | 12,500 | June 13, 2009 | ||
4.32 | 630,000 | 630,000 | December 6, 2009 | ||
5.50 | 200,000 | 200,000 | February 1, 2010 | ||
4.64 | 75,000 | 56,250 | June 1, 2010 | ||
4.17 | 100,000 | 75,000 | August 8, 2010 | ||
3.72 | 30,000 | 22,500 | September 24, 2010 | ||
3.98 | 20,000 | 13,750 | October 17, 2010 | ||
4.45 | 660,000 | 495,000 | October 30, 2010 | ||
4.34 | 50,000 | 37,500 | November 1, 2010 | ||
4.42 | 25,000 | 18,750 | November 12, 2010 | ||
4.34 | 200,000 | 150,000 | December 5, 2010 | ||
4.42 | 50,000 | 25,000 | February 20, 2011 | ||
4.65 | 100,000 | 50,000 | March 25, 2011 | ||
4.19 | 30,000 | 15,000 | April 26, 2011 | ||
4.02 | 100,000 | 50,000 | May 15, 2011 | ||
4.30 | 450,000 | 450,000 | June 19, 2011 | ||
4.67 | 130,000 | 32,500 | July 4, 2011 | ||
4.15 | 300,000 | 75,000 | July 28, 2011 | ||
3.62 | 735,000 | 183,750 | August 28, 2011 | ||
1.60 | 200,000 | 50,000 | October 8, 2011 | ||
1.27 | 125,000 | 31,250 | October 17, 2011 | ||
4.32 | 245,000 | 245,000 | December 6, 2011 | ||
4.41 | 400,000 | 400,000 | December 22, 2011 | ||
5.00 | 155,000 | 155,000 | February 7, 2012 | ||
4.65 | 25,000 | 25,000 | June 20, 2012 | ||
4.34 | 925,000 | 693,750 | December 5, 2012 | ||
3.62 | 100,000 | 25,000 | August 28, 2013 | ||
1.44 | 240,000 | 60,000 | November 10, 2013 | ||
1.56 | 550,000 | 137,500 | December 17, 2013 | ||
6,862,500 | 4,415,000 |
During the year ended December 31, 2008, the Company granted stock options to directors, officers and employees to purchase 2,672,500 shares of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, $3,680,111 has been recorded as an expense in the year ended December 31, 2008 relating to all stock options.
The weighted average fair value of stock options issued at the date of grant was $1.05 per share during the year ended December 31, 2008 (2007 - $1.39) .
The fair value of stock options granted in the period is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
2008 | 2007 | |
Risk-free interest rate | 2.4% | 4.0% |
Estimated volatility | 64.9% | 56.3% |
Expected life | 2.35 years | 1.7 years |
Expected dividend yield | 0% | 0% |
20
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
13. SHARE CAPITAL (continued)
Option-pricing models require the use of estimates and assumptions including the expected volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide a reliable measure of the fair value of the Companys stock options.
(c) Share Purchase Warrants
The changes in share purchase warrants for the year ended December 31, 2008 are as follows:
Year ended December 31, 2008 | Year ended December 31, 2007 | |||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||
Average | Average | Average | Average | |||||||||||||||
Number of | Exercise Price | Term to | Number of | Exercise Price | Term to | |||||||||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||||||||
Balance, beginning of the period | 5,845,240 | 5.66 | 0.89 years | 8,766,271 | 4.02 | 1.12 years | ||||||||||||
Issued (i) (ii) | 4,887,500 | 7.00 | 2.00 years | 3,632,791 | 6.52 | 1.32 years | ||||||||||||
Exercised | (7,500 | ) | 4.25 | 0.86 years | (2,668,823 | ) | 2.58 | 0.33 years | ||||||||||
Cancelled or expired | (5,646,449 | ) | 5.62 | 0.00 years | (3,884,999 | ) | 4.89 | 0.00 years | ||||||||||
Balance, end of the period | 5,078,791 | 6.99 | 1.19 years | 5,845,240 | 5.66 | 0.89 years |
(i) |
On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector implied volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2.38 million was credited to contributed surplus. |
(ii) |
On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector implied volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus. |
The following table summarizes the share purchase warrants outstanding at December 31, 2008:
Exercise Price | Warrants | |
$ | Outstanding | Expiry Dates |
6.81 | 191,291 | March 20, 2009 |
7.00 | 4,887,500 | March 25, 2010 |
5,078,791 |
21
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
13. SHARE CAPITAL (continued)
(d) Share Capital to be Issued
On June 5, 2006, pursuant to the acquisition of First Silver Reserve, Inc. and its San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic. Under the terms of the plan of arrangement (the Arrangement), First Majestic acquired the remaining First Silver shares in consideration for either: (i) the issuance of one common share of First Majestic for each two First Silver shares acquired; or (ii) a cash payment of $2.165 per share of First Silver.
The former shareholders of First Silver had until December 13, 2006 to deposit their completed Letters of Transmittal and to elect to receive either cash or shares of First Majestic. At December 31, 2006, the former shareholders of First Silver tendered 718,404 common shares of First Silver for cash, and another 9,583,813 shares of First Silver were tendered for shares of First Majestic. The remaining 3,840,504 shares of First Silver not tendered for either cash or shares of First Majestic may now only be tendered for shares of First Majestic.
At December 31, 2006, the Company recorded $9,294,020 as share capital to be issued, representing 1,920,252 shares of First Majestic issuable in exchange for 3,840,504 shares of First Silver not tendered for cash and not yet tendered for First Majestic shares by the former shareholders of First Silver. During 2007 the prior shareholders of First Silver were issued 1,625 shares in exchange for 3,250 shares of First Silver. In 2008 the prior shareholders of First Silver were issued a further 1,861,500 shares in exchange for 3,723,000 shares of First Silver. At December 31, 2008, the prior shareholders of First Silver had not yet exchanged a remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
14. REVENUES
Details of the components of revenue are as follows:
Years Ended | ||||||||
December 31, | ||||||||
2008 | 2007 | |||||||
$ | % | $ | % | |||||
Gross revenues - silver Doré bars and concentrates | 56,102,459 | 100.0% | 45,837,983 | 100.0% | ||||
Less: refining, smelting and transportation charges | (11,777,572 | ) | 21.0% | (2,913,063 | ) | 6.4% | ||
Net revenue | 44,324,887 | 79.0% | 42,924,920 | 93.6% |
22
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
15. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2008, the Company:
a) |
incurred $248,025 (2007 - $197,696) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
b) |
incurred $310,920 (2007 - $478,206) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in México pursuant to a consulting agreement. |
c) |
incurred $8,010,843 (2007 - $1,728,222) of service fees with a mining services company sharing our premises in Durango México. This related party provides management services and pays mining contractors who provide services at the Company’s mines in México. Of the fees incurred, $3,122,130 was unpaid at December 31, 2008 (December 31, 2007 - $94,724). This relationship was terminated in February 2009. |
d) |
incurred $7,365 (2007 - $254,742) to a director of the Company as finder’s fees upon the completion of certain option agreements relating to the Del Toro Silver Mine. |
e) |
provided a loan of US$30,000 (2007-$nil) to a director of the Company. This loan was fully repaid subsequent to December 31, 2008. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
23
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
16. SEGMENTED INFORMATION
The Company considers that it has three operating segments all of which are located in México, and one corporate segment with locations in Canada and México. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property, the Cuitaboca Silver Project and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below.
Year ended December 31, 2008 | ||||||||||
First Majestic | Corporate | |||||||||
El Pilon | Plata | La Encantada | and other | |||||||
operations | operations | operations | eliminations | Total | ||||||
$ | $ | $ | $ | $ | ||||||
Silver s ales | 11,707,631 | 15,090,853 | 17,145,790 | 380,613 | 44,324,887 | |||||
Cost of sales | 10,083,947 | 11,345,291 | 8,613,007 | 377,170 | 30,419,415 | |||||
Amortization, depreciation and accretion | 1,280,949 | 1,467,927 | 620,827 | - | 3,369,703 | |||||
Depletion | 1,544,162 | 737,087 | 752,888 | - | 3,034,137 | |||||
Mine operating earnings (loss) | (1,201,427 | ) | 1,540,548 | 7,159,068 | 3,443 | 7,501,632 | ||||
Net interest, other income (expense) and foreign exchange | (2,209,177 | ) | (2,883,908 | ) | (1,363,857 | ) | 3,120,262 | (3,336,680 | ) | |
Income tax (recovery) expense | 27,030 | (897,488 | ) | 87,976 | (1,136,972 | ) | (1,919,454 | ) | ||
Net income (loss) | (3,437,634 | ) | (445,872 | ) | 5,707,235 | (6,968,513 | ) | (5,144,784 | ) | |
Capital expenditures | 12,003,673 | 19,636,692 | 16,299,105 | 173,844 | 48,113,314 | |||||
Total assets | 118,741,809 | 58,033,744 | 33,087,571 | 21,296,525 | 231,159,649 | |||||
Year ended December 31, 2007 | ||||||||||
First Majestic | Corporate | |||||||||
El Pilon | Plata | La Encantada | and other | |||||||
operations | operations | operations | eliminations | Total | ||||||
$ | $ | $ | $ | $ | ||||||
Silver sales | 16,365,358 | 11,455,068 | 15,104,494 | - | 42,924,920 | |||||
Cost of sales | 12,276,345 | 8,110,761 | 6,602,194 | - | 26,989,300 | |||||
Amortization, depreciation and accretion | 991,000 | 859,951 | 666,241 | 93,518 | 2,610,710 | |||||
Depletion | 5,392,958 | 747,648 | 176,528 | - | 6,317,134 | |||||
Mine operating earnings (loss) | (2,294,946 | ) | 1,736,707 | 7,659,533 | (93,518 | ) | 7,007,776 | |||
Net interest, other income (expense) and foreign exchange | (75,529 | ) | 98,771 | (898,321 | ) | 1,052,011 | 176,932 | |||
Income tax (recovery) expense | (548,007 | ) | 1,158,106 | 774,548 | - | 1,384,647 | ||||
Net income (loss) | (3,460,404 | ) | (4,176,781 | ) | 5,490,100 | (5,083,037 | ) | (7,230,122 | ) | |
Capital expenditures | 4,089,862 | 18,762,747 | 17,757,365 | 424,562 | 41,034,536 | |||||
Total assets | 117,199,424 | 46,404,153 | 22,060,269 | (660,995 | ) | 185,002,851 |
24
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
17. INCOME TAXES
The Company has approximately $17.8 million (2007 - $14.8 million) of non-capital losses that may be available for future tax purposes and expire commencing 2009 through 2028. The Company has capital losses available for deduction against future capital gains of $4.1 million (2007 - $0.5 million) that may be available for tax purposes in Canada. These capital losses may be carried forward indefinitely. Management believes that uncertainty exists regarding the realization of these future tax assets and therefore a valuation allowance has been recorded.
In addition, subject to certain restrictions, the Company has tax pools of approximately $47.6 million available to offset future taxable income in México.
The reconciliation of the income tax provision computed at statutory rates to the reported income tax provision is as follows:
2008 | 2007 | |||
$ | $ | |||
Combined federal and provincial income tax rate | 31.00% | 34.12% | ||
Income tax benefit computed at Canadian statutory rates | 2,189,914 | 1,994,476 | ||
Foreign tax rates different from statutory rates | (127,363 | ) | (109,488 | ) |
Non-deductible expenses | (2,106,551 | ) | (4,916,662 | ) |
Change in valuation allowance | 2,032,710 | 705,842 | ||
Other | (69,256 | ) | 941,185 | |
1,919,454 | (1,384,647 | ) |
Significant components of the Company's future tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:
25
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
18. OTHER LONG TERM LIABILITIES
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the fully agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the advance received from the bank, but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $832,769 (2007-$1,207,332).
19. CAPITAL LEASE OBLIGATIONS
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for US$11.2 million of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. In December 2008, the Company negotiated a restructuring of the outstanding principal balance of US$2,884,655 plus 9% interest to February 1, 2009, to be paid over twenty four monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance and secured by a guarantee from First Majestic (the parent company).
The following is a schedule of future minimum lease payments under the capital leases at December 31, 2008:
$US | $CA | |||
2009 Gross lease payments | 1,482,277 | 1,815,197 | ||
2010 Gross lease payments | 1,511,289 | 1,850,724 | ||
2011 Gross lease payments | 120,960 | 148,128 | ||
3,114,526 | 3,814,049 | |||
Less: interest | (270,436 | ) | (331,176 | ) |
Total payments, net of interest | 2,844,090 | 3,482,873 | ||
Less: current portion | (1,293,873 | ) | (1,584,477 | ) |
Capital Lease Obligation | 1,550,217 | 1,898,396 |
26
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
20. ASSET RETIREMENT OBLIGATIONS
Year ended | Year ended | |||
December 31, 2008 | December 31, 2007 | |||
$ | $ | |||
Balance, beginning of the period | 2,290,313 | 3,898,085 | ||
Amounts a ssumed on a cquistions | - | 2,305,800 | ||
Effect of change in estimates | 2,979,726 | (3,493,413 | ) | |
Interest a ccretion | 200,477 | 208,448 | ||
Effect of translation of foreign currencies | (166,147 | ) | (628,607 | ) |
5,304,369 | 2,290,313 |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | 2008 | 2007 | ||||
Date | $ | $ | ||||
La Encantada Silver Mine | 2018 | 1,865,674 | 307,271 | |||
La Parrilla Silver Mine | 2022 | 1,609,602 | 360,000 | |||
San Martin Silver Mine | 2016 | 1,829,093 | 1,623,042 | |||
5,304,369 | 2,290,313 |
During the year ended December 31, 2008, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $7.27 million (US$5.94 million), which has been discounted using a credit adjusted risk free rate of 8.5%, of which $2.46 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.31 million of the obligation relates to the San Martin Silver Mine, and $2.51 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
21. CONTINGENT LIABILITIES
In February 2004, an action was commenced against the Company by the optionors of the Wekusko Property in Canada whereby the optionors are seeking an amount of $43,500 cash, 30,000 common shares of the Company and an entitlement to exercise an option to purchase 100,000 shares of the Company at $0.35 per share. The Company believes it has substantial defences to the claim; however the outcome of this litigation is not presently determinable.
Under Mexican regulations, the Company may be obligated to remit taxes to the government on payments made for the acquisition of mineral claims in the event that the recipients of such payments fail to make the required tax remittances relating to those payments. Although unlikely, the maximum potential remittance is approximately $4.0 million however the Company believes it has substantial defences to any claims.
27
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
22. COMMITMENTS
The Company has to make certain option payments as described in Note 9, in connection with the acquisition of its mineral property interests.
The Company is also obligated to make certain interest and cash payments, as described in Note 10, in connection with the acquisition of a controlling interest in FSR, subject to litigation.
Under Mexican regulations, employees (excluding directors and senior management) are eligible for a profit sharing bonus of 10% of annual pre-tax profit. The amount of the profit sharing bonus accrued as a component of cost of sales for the year ended December 31, 2008 is $nil (2007 - $112,611).
In May 2007, the Company entered into an office premises lease for a period of four years and eight months commencing August 1, 2007. The premises lease commits the Company to a net annual rental expense of $48,700 in 2007, $116,880 in 2008 through 2011, and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at December 31, 2008, the Company is committed to approximately $5.9 million relating to the La Encantada Project which is currently being constructed.
The Company is committed to making severance payments amounting to US$520,000 (2007- US$540,000) to four officers in the event that there is a change of control of the Company.
23. OTHER NON-CASH FINANCING AND INVESTING ACTIVITIES
2008 | 2007 | |||
$ | $ | |||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||
Fair value of warrants issued for the acquisition of La Encantada (Note 12) | - | 333,443 | ||
Fair value of warrants issued upon conversion of special warrants | - | 5,193,357 | ||
Fair value of warrants upon completion of public offering | 2,737,000 | - | ||
Issuance of shares for First Silver Arrangement (Note 13) | 9,009,660 | 7,865 | ||
Issuance of shares for acquisition of La Encantada | - | 2,000,904 | ||
Transfer of contributed surplus to common shares for options exercised (Note 13) | 363,990 | 1,104,250 | ||
Conversion of special warrants to common shares | - | 29,221,643 | ||
Assets acquired by capital lease | 1,621,135 | 1,733,078 |
28
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
24. SUBSEQUENT EVENTS
Subsequent to December 31, 2008:
(a) |
On January 5, 2009, the Company issued 6,250 common shares at a price of $1.27 per share pursuant to the exercise of stock options. |
(b) |
On January 12, 2009, the Company executed two financing arrangements with an equipment vendor, committing the Company for a total of approximately US$2 million with terms of 36 monthly lease payments of US$38,420 consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of US$34,600 consisting of principal only. |
(c) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The underwriters have an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine, including the completion of a 3,500 tonne-per-day cyanidation plant, and the remainder for general working capital. |
(d) |
On March 13, 2009, the Company executed a restructuring agreement for the balance of US$2.9 million payable to an equipment lease vendor, committing the Company to make 24 monthly lease payments of approximately US$130,000 consisting of principal plus 9% interest on outstanding balances. |
(e) |
On March 20, 2009, 191,291 share purchase warrants exercisable at a price of $6.81 per share expired unexercised. |
29
ANNUAL INFORMATION FORM
For the year ended December 31, 2008
Date: March 31, 2009
2
TABLE OF CONTENTS
3
PRELIMINARY NOTES
Date of Information
Unless otherwise indicated, all information contained in this Annual Information Form (“AIF”) of First Majestic Silver Corp. (“First Majestic” or the “Company”) is as of March 31, 2009.
Financial Information
All financial information in this AIF is prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).
Forward-looking Information
Certain statements contained in this AIF, and in certain documents incorporated by reference herein, constitute forward-looking statements. These statements relate to future events or the Company’s future performance, business prospects or opportunities. Forward-looking statements include, but are not limited to, statements with respect to commercial mining operations, anticipated mineral recoveries, protected quantities of future mineral production, interpretation of drill results, anticipated production rates and mine life, operating efficiencies, capital budgets, costs and expenditures and conversion of mineral resources to proven and probable mineral reserves, analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
All statements other than statements of historical fact may be forward-looking statements. Statements concerning proven and probable mineral reserves and mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed, and in the case of mineral resources or proven and probable mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect, “forecast”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “outlook” and similar expressions) are not statements of historical fact and may be “forward-looking statements”. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, this AIF should not be unduly relied upon. These statements speak only as of the date of this AIF or as of the date specified in the documents incorporated by reference into this AIF, as the case may be. The Company does not intend, and does not assume any obligation, to update these forward-looking statements. These forward-looking statements involve risks and uncertainties relating to, among other things, results of exploration and development activities, the Company’s historical experience with development-stage mining operations, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government approvals, changes in commodity prices and, particularly, silver prices, actual operating and financial performance of facilities, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, risk factors incorporated by reference herein. See “Risk Factors”.
4
Cautionary Notes to U.S. Investors Concerning Reserve and Resource Estimates
The definitions of Proven and Probable Reserves used in National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) differ from the definitions in the United States Securities and Exchange Commission (“SEC”) Industry Guide 7. Under SEC Guide 7 standards, a “Final” or “Bankable” feasibility study is required to report reserves, the three year history average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.
In addition, the terms “Mineral Resource”, “Measured Mineral Resource”, “Indicated Mineral Resource” and “Inferred Mineral Resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into Reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.
Accordingly, information contained in this AIF and the documents incorporated by reference herein containing descriptions of the Company’s mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
Documents Incorporated By Reference
Information has been incorporated by reference in this AIF from documents filed with securities commissions or similar authorities in Canada . Copies of the documents incorporated herein by reference may be obtained on request without charge from First Majestic’s head office at Suite 1805 –925 W. Georgia Street, Vancouver, British Columbia, V6C 3L2 (telephone: (604) 688-3033) or by accessing the disclosure documents available through the internet on the System for Electronic Document Analysis and Retrieval (“SEDAR”) which can be accessed at www.sedar.com.
The following documents of the Company are specifically incorporated by reference in this AIF:
(a) |
the technical report prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of Pincock Allen & Holt entitled “Technical Report for the La Parrilla Silver Mine, Durango State, México” dated February 16, 2009, as amended and restated on February 26, 2009 and filed on SEDAR on February 27, 2009. See “Mineral Projects – La Parrilla Silver Mine, México”; |
(b) |
the technical report prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of Pincock Allen & Holt entitled “Technical Report for the San Martín Silver Mine, State of Jalisco, México” dated January 15, 2009, as amended and restated on February 26, 2009 and filed on SEDAR on February 27, 2009. See “Mineral Projects – San Martín Silver Mine, México”; |
5
(c) |
the technical report prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of Pincock Allen & Holt entitled “Technical Report for the La Encantada Silver Mine, Coahuila State, México” dated January 12, 2009, as amended and restated on February 26, 2009 and filed on SEDAR on February 27, 2009. See “Mineral Projects-La Encantada Silver Mine, México”; and |
(d) |
the technical report prepared by Leonel Lopez, C.P.G. of Pincock Allen & Holt entitled “Technical Report for the Del Toro Silver Mine, Zacatecas State, México” dated October 9, 2008 and filed on SEDAR on October 9, 2008. See “Mineral Projects-Del Toro Silver Mine, México”. |
Currency
All dollar amounts in this AIF are expressed in Canadian dollars unless otherwise indicated.
6
CORPORATE STRUCTURE
Name, Address and Incorporation
First Majestic was incorporated under the Company Act (British Columbia) (the “Company Act”) on September 26, 1979 by registration of its Memorandum and Articles, under the name Brandy Resources Inc.
On September 5, 1984, the Company changed its name to Vital Pacific Resources Ltd. and consolidated its share capital on a two for one basis.
On May 26, 1987 the Company continued out of British Columbia and was continued as a federal company pursuant to the Canada Business Corporations Act .
On August 27, 1987, the Company was extra provincially registered under the Company Act .
On August 21, 1998, the Company continued out of Canada and was continued into the jurisdiction of the Commonwealth of the Bahamas under the Companies Act (Bahamas).
On January 2, 2002, the Company continued out of the Commonwealth of the Bahamas under the Companies Act (Bahamas) and was continued to the Yukon Territory pursuant to the Business Corporations Act (Yukon) . On January 3, 2002, the Company completed a consolidation of its share capital on a 1 new for 10 old basis and changed its name to First Majestic Resource Corp.
On January 17, 2005, the Company continued out of the Yukon Territory and was continued to British Columbia pursuant to the Business Corporations Act (British Columbia).
On November 22, 2006, the Company changed its name to First Majestic Silver Corp.
The Company’s head office is located at Suite 1805 – 925 W. Georgia Street, Vancouver, British Columbia, Canada, V6C 3L2 and its registered office is located at #1100 - 888 Dunsmuir Street, Vancouver, British Columbia, V6C 3K4.
The Company is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland.
Intercorporate Relationships
The chart set out below illustrates the corporate structure of the Company and its material subsidiaries, the jurisdictions of incorporation, the percentage of voting securities held and their respective interests in various mineral projects and mining properties.
7
GENERAL DEVELOPMENT OF THE BUSINESS
History
Since inception, First Majestic has been in the business of acquisition, development and exploration of mineral properties. During the fiscal year ended June 30, 2004, the Company became focused on the acquisition, development and exploration of mineral properties in México with an emphasis on silver projects.
On January 12, 2004, the Company entered into an agreement to purchase the La Parrilla Silver Mine located approximately 65 kilometres south-east of the city of Durango, México. The purchase price of US$3 million (paid) included all properties, assets and equipment and all mining concessions consisting of 280 hectares. See “Mineral Projects – La Parrilla Silver Mine, México”. The La Parrilla Silver Mine was operated from 1956 to 1999 by the previous owners when it was put on a care and maintenance program in 1999 due to low silver prices. Total tonnage mined during that period is estimated at approximately 700,000 tonnes with an average grade of 300 grams per tonne (“g/t”) silver, 1.5% lead and 1.5% zinc.
Between March 2004 and August 2005, the Company entered into a number of agreements to acquire mining concessions located in Chalchihuites, Zacatecas, México which are located approximately 45 kilometres southeast of the La Parrilla Silver Mine. During the period ended December 31, 2006 and the year ended June 30, 2006, the Company wrote off acquisition and exploration costs totalling $688,766 and $384,930, respectively, relating to certain of the Chalchihuites Group Properties, the remaining properties are now referred to as the Del Toro Silver Mine. The Company paid an aggregate of US$5,825,000 over a four-year period to complete the remaining options.
8
On November 18, 2004, the Company entered into an agreement to acquire the Dios Padre Silver Project located in the western Sierra Madre Mountain Range and midway between Hermosillo and Chihuahua in east central Sonora, México which was amended on December 17, 2004 and June 13, 2005. The acquisition included all properties, assets and equipment and all mining concessions consisting of 285 hectares. The Company was required to pay an aggregate of US$6,500,000 over a four-year period and issue a total of 500,000 common shares upon the completion of specific phases of exploration. During calendar 2006, the Company completed an exploration program which consisted of 17 diamond drill holes totalling 2,216 metres, a review of historical geological data, mapping and resource definition. In addition, a geologic survey of the 285 hectare property surrounding the main mine area was completed to evaluate four different geologic anomalies to determine the possibility of the existence of other mineralized bodies that may increase the potential of the property. The program was not definitive in outlining sufficient economic resources in order to make a positive production decision. During the year ended December 31, 2006, management elected not to proceed with the acquisition of the Dios Padre Silver Project and acquisition and exploration costs totalling $1,899,789 were expensed.
In December 2004, the Company entered into agreements for the purchase of the Candameña Mining District properties located in the Western Sierra Madre Mountain range between Hermosillo and Chihuahua in east central Sonora, México. The Company was required to pay an aggregate of US$7,600,000 over a four-year period. The purchase price included all properties, assets and equipment and all mining concessions consisting of 5,215 hectares. The payment schedule to one of the agreements was amended on May 24, 2005, November 30, 2006 and March 26, 2007 and a 1% NSR, payable up to a maximum of US$4,000,000, was cancelled on November 30, 2006. On August 14, 2007, the Company entered into an agreement with Prospector Consolidated Resources Inc. (“Prospector”) whereby Prospector had the right to acquire 100% interest in the Company’s option to the Candameña Mining District Property by paying $50,000 and issuing two million of its common shares to the Company. The Company received $50,000 in August 2007 and Prospector assumed all option commitments to the underlying property vendors effective August 2007. Prospector received regulatory approval and the Company received two million shares of Prospector in March 2008. See “Past Three Years” below.
In September 2005, the Company acquired a 100% interest in the La Encarnación and San Ignacio Dos mining claims consisting of 16 hectares adjacent to the Company’s La Parrilla Silver Mine for consideration of $40,000 and 200,000 common shares of the Company.
On October 10, 2005, the Company entered into an agreement with Compañia Minera Rio Frio, S.A. de C.V. (“Compañia”) to purchase the La Candelaria Silver Project, Jalisco, México. After completing a due diligence program, a revised agreement with Compañia was entered into on April 26, 2006. Under the revised terms of the agreement, First Majestic was required to make a payment of US$110,000 and issue 100,000 common shares to the vendor upon confirmation of re-registration of the mining claims. Additional payments totalling US$2,090,000 were to be paid over a period of twenty-four months. During the year ended December 31, 2006, management elected not to proceed with the acquisition of the La Candelaria Silver Project and acquisition and exploration costs totalling $292,753 were expensed.
9
Past Three Years
First Majestic entered into an irrevocable share purchase agreement dated for reference April 3, 2006 to purchase approximately 63% of the issued and outstanding shares of First Silver from the major shareholder of First Silver (the “Shareholder”). First Silver’s primary business was silver mining and the acquisition, exploration and development of mineral claims with a primary focus on silver properties in México. First Silver’s wholly owned subsidiary, El Pilon, was the sole owner of the San Martín Silver Mine in Jalisco State, México.
First Majestic purchased 24,649,200 common shares of First Silver (the “Acquisition”) at a price of $2.165 per share for an aggregate purchase price of $53,365,519 payable to the Shareholder in three instalments.
The first instalment of $26,682,759 represented 50% of the purchase price and was paid on closing of the Acquisition on May 30, 2006. A second instalment of $13,341,380, representing 25% of the purchase price, was paid on May 30, 2007. A final instalment of $13,341,380 was payable on May 30, 2008. An interest amount of 6% per annum is payable quarterly on the outstanding payment. Pending the outcome of the litigation referred to in the section entitled “Legal Proceedings” of this Annual Information Form, the Company has withheld payment of quarterly instalments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008. The Company is withholding payment of the final instalment of $13,341,380 due May 30, 2008 and the above interest payments, an amount totalling $13,940,237. On July 22, 2008, the Company posted an irrevocable Letter of Credit with the Supreme Court of British Columbia pending the outcome of such litigation which is not anticipated for at least one year.
On June 5, 2006, First Majestic and First Silver entered into a letter agreement whereby the parties agreed to enter into a business combination such that First Majestic would acquire all of the outstanding securities of First Silver and First Silver would become a wholly owned subsidiary of First Majestic. The business combination was structured as a plan of arrangement (the “Arrangement”) which was formalized in a combination agreement with the parties dated August 9, 2006. On September 14, 2006, First Majestic acquired all of the issued and outstanding First Silver shares which it did not already own for an aggregate of 6,712,159 common shares of First Majestic and an aggregate cash payment of $777,672 paid at closing and $388,836 due on each of September 14, 2007 (which was paid) and September 14, 2008 (which was paid), with interest payable quarterly and compounded annually at 6.0% per annum on the unpaid balances from the closing of the Arrangement.
The Arrangement was approved at a special meeting of shareholders of First Silver on September 7, 2006 and closed on September 14, 2006. At closing, 12,500 stock options exercisable at a price of $3.28 per share expiring on June 13, 2009 and 550,000 stock options exercisable at a price of $4.30 per share expiring on June 19, 2011 were granted by the Company in exchange for 25,000 stock options of First Silver exercisable at a price of $1.64 per share expiring on June 13, 2009 and 1,100,000 stock options of First Silver exercisable at a price of $2.15 per share expiring on June 19, 2011. The common shares of First Silver were delisted from the Toronto Stock Exchange at the close of business on September 18, 2006.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by a former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
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In May 2006, through the acquisition of First Silver and its wholly owned subsidiary, El Pilon, the Company acquired an option to acquire the Cuitaboca Silver Project which consists of a 5,134 hectare land package. The Company presently has an option dated November 25, 2004 with Consorcio Minero Latinamericano, SA de CV, a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims covering 3,718 hectares located in the State of Sinaloa, México. To purchase the claims, the Company must pay a total of US$2,500,000 in staged cash payments through November 25, 2010. As at December 31, 2008, a total of US$925,000 had been paid. During the year ended December 31, 2008, the Company paid US$375,000 related to mineral property options. A 2.5% NSR on the claims may be purchased for an additional US$500,000 at any time during the term of the agreement or for a period of 12 months thereafter.
In August 2006, the Company entered into three agreements to acquire the Quebradillas and Viboras Silver Mines and a contiguous land package of 3,126 hectares of mining concessions located in the La Parrilla Mining District in Durango State, México. The Company has the right to purchase all the mining concessions, the mines, the data of past diamond drill programs and the assets located within the mine areas for a total purchase price of US$3,000,000 payable over a period of two years of which an aggregate of US$2,251,000 had been paid as of December 31, 2008. During the year ended December 31, 2008, the Company amended payment terms to the optionor regarding the outstanding payments as at December 31, 2008. The Company has agreed to make a series of payments in 2009 totalling US$1,121,160 which includes interest calculated at a rate of the three month LIBOR plus 3%. There is a net smelter royalty of 1.5% (“NSR”) of sales revenue to a maximum of US$2,500,000 and the Company has the option to purchase the NSR at any time for US$2,000,000. The Company has paid US$69,000 relating to royalties.
In August 2006, the Company entered into a letter agreement pursuant to which the Company acquired 100% of the issued and outstanding shares of Desmin S.A. de C. V. (“Desmin”), a privately held Mexican mining company for the purchase price of US$1.5 million (the final payment having been made on April 30, 2007), resulting in Desmin becoming a wholly owned subsidiary of the Company. Desmin’s primary asset was an exploitation contract which entitled Desmin to operate the La Encantada Silver Mine located in Coahuila State in Northern México. The exploitation contract provided Desmin an option to acquire all properties within the 985 hectare land package, including the operations of the mine and mill and all the auxiliary installations and associated equipment. The Company purchased the operations of Desmin effective November 1, 2006 and took over the operations of the La Encantada Silver Mine. In addition, Desmin had an agreement to purchase the La Encantada Silver Mine, including the mill and surrounding mining claims.
The Company changed its financial year from June 30 to December 31, effective for the financial period July 1, 2006 to December 31, 2006. The decision to change the Company’s fiscal year end was made so that the Company would have the same fiscal year end as its operating subsidiaries in México. To facilitate the change, the Company reported a one-time, six-month transition year covering the period from July 1, 2006 to December 31, 2006. Subsequent to the transition year, the first full financial year covered the period January 1, 2007 to December 31, 2007.
In January 2007, the Company completed the acquisition of the San Juan Silver Mine which forms part of the Del Toro Silver Mine, formerly referred to as the Chalchihuites Group of Properties by making the final payments of US$500,000 and US$150,000 due January 7, 2007 and July 7, 2007, respectively, pursuant to the agreement. In connection therewith, a finder’s fee in the amount of $77,808 (US$68,422) was paid to a director of the Company.
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In March 2007, the Company acquired all of the issued and outstanding shares of Minera La Encantada S.A. de C. V. (“Minera La Encantada”), a Mexican mining company owned by Industrias Peñoles, S.A. de C.V. (“Peñoles”) for a total purchase price of US$3,250,000 and an NSR of 4%. The Company also acquired the underlying 4% NSR through the issuance of 382,582 shares and 191,291 warrants, each warrant entitling Peñoles to purchase one additional share at a price of $6.81 expiring March 20, 2009. Desmin paid a sliding-scale royalty to Peñoles pursuant to the terms of its exploitation contract. As a result of the Company’s purchase of Minera La Encantada, all royalties were cancelled at closing on March 20, 2007. On January 1, 2008, Desmin amalgamated with Minera La Encantada S.A. de C.V.
On May 10, 2007, the Company completed a private placement of special warrants for gross proceeds of $34,415,000. A total of 6,883,000 special warrants were sold at a price of $5.00 per special warrant through Cormark Securities Inc. and CIBC World Markets Inc., as co-lead underwriters, and Blackmont Capital Inc. Each special warrant was automatically exercised for one common share of the Company and one half of a common share purchase warrant on July 25, 2007 (the date the Company obtained a final receipt for a prospectus qualifying the underlying securities). Each whole share purchase warrant was exercisable at a price of $6.50. The warrants expired on November 10, 2008, none of which were exercised prior to expiry. The underwriters received a commission of 5.5% of the gross proceeds of the offering at closing.
On July 31, 2007, the Company incorporated a new wholly owned Mexican subsidiary, Corporación First Majestic, S.A. de C.V., (“CFM”) and effected a corporate restructuring of Desmin, La Encantada and First Majestic Plata, on August 14, 2007, such that Desmin and La Encantada were amalgamated and the Company now holds the shares of FM Plata, Minera El Pilon and La Encantada, through CFM, which is a Mexican holding company for Mexican tax consolidation purposes.
In August 2007, the Company entered into an agreement with Prospector whereby Prospector had the right to acquire a 100% interest in the Company’s option to acquire the Candameña Mining District Property by paying $50,000 within five business days following the execution of the agreement (paid) and issuing 2,000,000 of its shares to the Company within five business days of regulatory approval or September 7, 2007, whichever is earlier. As Prospector had not received regulatory approval by September 7, 2007, it paid an additional US$150,000 to the Company on October 19, 2007 to satisfy an option commitment to the underlying vendor. In March 2008, the Company received 2,000,000 common shares from Prospector In August 2008, the Company after having made numerous unsuccessful attempts to assist Prospector in the transfer of the rights to the Candameña property, and having advised Prospector that the underlying agreements with the Candameña property owners were in breach and likely to revert to their underlying owners, the Company negotiated the full return of the mining rights to their respective property owners.
The Company’s common shares and warrants were listed and commenced trading on the Toronto Stock Exchange effective January 15, 2008.
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters led by CIBC World Markets Inc. and including Blackmont Capital Inc., Cormark Securities Inc. and GMP Securities L.P., who purchased 8,500,000 units of the Company at a price of $5.35 per unit. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 for a period of 24 months from the closing of the offering. The underwriters also received an over-allotment option, exercisable up until 30 days following the closing of the offering to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 share purchase warrants at a price of $0.56 per warrant. On April 4, 2008, the Company completed the issuance of an aggregate of 637,500 warrants pursuant to the exercise of the over-allotment option.
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On July 6, 2008, the Company entered into an agreement to acquire the Fatima mining concession consisting of 46 hectares of mining concessions located in the Zacatecas State, México and forms part of the Del Toro Silver Mine. The Company has the right to purchase all the mining concessions, for a total purchase price of US$387,500 payable over a period of 30 months, of which an aggregate of US$62,500 had been paid as of December 31, 2008.
Subsequent to December 31, 2008
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters led by CIBC World Markets Inc. and including Blackmont Capital Inc., GMP Securities L.P. and Thomas Weisel Partners, who purchased 8,487,576 units of the Company at a price of $2.50 per unit for gross proceeds to the Company of $21,218,940. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 for a period of 24 months from the closing of the offering. The underwriters also received an over-allotment option, exercisable up until 30 days following the closing of the offering to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 share purchase warrants at a price of $0.20 per warrant.
DESCRIPTION OF BUSINESS
General
The Company is in the business of the production, development, exploration and acquisition of mineral properties focusing on silver in México. The common shares and warrants of the Company trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”. The common shares are also quoted on the Pink Sheets in the U.S. under the symbol “FRMSF” and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol “FMV”.
The Company has an interest in three principal properties in México: the La Parrilla Silver Mine in Durango State, the San Martín Silver Mine in Jalisco State and the La Encantada Silver Mine in Coahuila State. The Company also has interests in an advanced stage development project, the Del Toro Silver Mine, formerly referred to as the Chalchihuites Group Properties in Zacatecas, and in several exploration properties in various states in México including the Cuitaboca Silver Project in Sinaloa.
The Company’s business is not materially affected by intangibles such as licences, patents and trademarks, nor is it affected by seasonal changes. The Company is not aware of any aspect of its business which may be affected in the current financial year by renegotiation or termination of contracts.
At December 31, 2008, the Company had 11 employees based in its Vancouver corporate office, one employee in the United Kingdom and approximately 1,236 employees, contractors and other personnel in México. Additional consultants are also retained from time to time for specific corporate business, development and exploration programs.
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Risk Factors
The Company, and thus the securities of the Company, should be considered a highly speculative investment and investors should carefully consider all of the information disclosed in this AIF prior to making an investment in the Company. In addition to the other information presented in this AIF, the following risk factors should be given special consideration when evaluating an investment in the Company’s securities.
Operating Hazards and Risks
The operation and development of a mine or mineral property involves many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include:
These occurrences could result in environmental damage and liabilities, work stoppages and delayed production, increased production costs, damage to, or destruction of, mineral properties or production facilities, personal injury or death, asset write downs, monetary losses and other liabilities. Liabilities that First Majestic incurs may exceed the policy limits of its insurance coverage or may not be insurable, in which event First Majestic could incur significant costs that could adversely impact its business, operations or profitability.
Uncertainty in the Calculation of Mineral Reserves, Resources and Silver Recovery
There is a degree of uncertainty attributable to the calculation of mineral Reserves and mineral Resources and corresponding grades being mined or dedicated to future production. Until mineral Reserves or mineral Resources are actually mined and the processed, the quantity of minerals and grades must be considered estimates only. In addition, the quantity of mineral Reserves and mineral Resources may vary depending on, among other things, metal prices. Any material change in the quantity of mineral Reserves, mineral Resources, grade or minimum mining thickness may affect the economic viability of First Majestic’s properties. In addition, there can be no assurance that silver recoveries or other metal recoveries in small scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production, or that the existing known and experienced recoveries will continue.
Substantial Decommissioning and Reclamation Costs
During the year ended December 31, 2008, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Company’s estimated obligations is $7.27 million (US$5.94 million), which has been discounted using a credit adjusted risk free rate of 8.5%, of which $2.46 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.31 million of the obligation relates to the San Martín Silver Mine, and $2.51 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on management’s current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
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The costs of performing the decommissioning and reclamation must be funded by the Company’s operations. These costs can be significant and are subject to change. The Company cannot predict what level of decommissioning and reclamation may be required in the future by regulators. If the Company is required to comply with significant additional regulations or if the actual cost of future decommissioning and reclamation is significantly higher than current estimates, this could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition.
Obtaining Future Financing
The further development and exploration of mineral properties in which the Company holds interests or which the Company acquires may depend upon its ability to obtain financing through joint ventures, debt financing, equity financing or other means. There is no assurance that the Company will be successful in obtaining required financing as and when needed. Volatile precious metals markets may make it difficult or impossible for the Company to obtain debt financing or equity financing on favourable terms or at all. The Company currently has $32.2 million of cash in treasury. As a result of the $21,218,940 public offering mentioned above, and in addition to the Company’s ability to earn cash flow from its ongoing operations, the Company considers that it has sufficient capital to support its current operating requirements provided it can continue to generate cash from its operations and that its capital projects are not materially over their projected costs. There is a risk that commodity prices decline and that the Company is unable to continue generating sufficient cash flow from operations or that the Company requires significant additional cash to fund expansions and potential acquisitions. Failure to obtain additional financing on a timely basis may cause the Company to postpone acquisitions, major expansion and development plans, or reduce its operations.
Key Personnel
Recruiting and retaining qualified personnel is critical to First Majestic’s success. The number of persons skilled in mining, exploration and development of mining properties is limited and competition for such persons is intense. As First Majestic’s business activity grows, First Majestic will require additional key financial, administrative and mining personnel as well as additional operations staff. Although the Company believes it will be successful in attracting, training and retaining qualified personnel, there can be no assurance of such success. If the Company is not successful in attracting and training qualified personnel, the efficiency of First Majestic’s operations could be affected, which could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition.
Factors Beyond the Company’s Control
There are also a number of factors beyond the Company’s control. These factors include government regulation, high levels of volatility in market prices, availability of markets, availability of adequate transportation and smelting facilities and the imposition of new or amendments to existing taxes and royalties. The effects of these factors cannot be accurately predicted.
Uninsured Risks
First Majestic’s mineral properties are subject to the risks normally inherent in mineral properties, including but not limited to environmental hazards, industrial accidents, flooding, periodic or seasonal interruptions due to climate and hazardous weather conditions and unusual or unexpected geological formations. Such risks could result in damages, delays and possible legal liability. The Company may become subject to liability for pollution and other hazards against which it cannot insure or against which it may elect not to insure due to high premium costs or other reasons. The payments for any such liabilities would reduce the funds available for exploration and development activities and may have a material impact on First Majestic’s financial position.
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Foreign Operations
The Company’s mining, exploration and development projects are located in México. Such projects could be adversely affected by exchange controls, currency fluctuations, taxation and laws or policies of México or Canada affecting foreign trade, investment or taxation.
Changes in mining or investment policies or shifts in political attitude in México may adversely affect the Company’s business. Operations may be affected by governmental regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. The effect, if any, of these factors cannot be accurately predicted.
Foreign Currency
The Company carries on its primary business activity outside of Canada. Accordingly, it is subject to the risks associated with the fluctuation of the rate of exchange of the Canadian dollar and foreign currencies, in particular the Mexican peso, the currency of México, and the United States dollar, the currency for calculating the Company’s sales of silver based on the world’s commodity markets. Financial instruments that impact the Company’s net earnings or other comprehensive income due to currency fluctuations include: Mexican peso denominated cash and cash equivalents, accounts receivable, accounts payable, and investments in mining interests. Such currency fluctuations may materially affect the Company’s financial position and results of operations.
Title to Properties
Although the Company has obtained title opinions with respect to certain of its properties and has taken reasonable measures to ensure proper title to its properties, there is no guarantee that title to any of its properties will not be challenged or impugned. Third parties may have valid claims underlying portions of the Company’s interest.
Property Interests
The La Parrilla Silver Mine consists of various option agreements pursuant to which the Company holds its rights and mineral claims in certain of adjacent properties which provide that the Company must make a series of cash payments related to some of the properties over certain time periods. If the Company fails to make such payments in a timely manner, the Company may lose selective interest in those properties. The payments consist of US$1,121,160 in fiscal 2009.
The option agreement relating to the Cuitaboca Silver Project pursuant to which the Company holds its rights in certain of the properties provide that the Company must make a series of cash payments over certain time periods. If the Company fails to make such payments in a timely manner, the Company may lose some or all of its interest in this project. The payments consist of US$525,000 in fiscal 2009 and US$1,050,000 in fiscal 2010 and beyond.
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The option agreement relating to the Del Toro Silver Mine pursuant to which the Company holds its rights in certain of the properties provide that the Company must make a series of cash payments over certain time periods. If the Company fails to make such payments in a timely manner, the Company may lose some or all of its interest in this property. The payments consist of US$100,000 in fiscal 2009 and US$225,000 in fiscal 2010 and beyond.
Permits and Licenses
The operations of the Company may require licenses and permits from various governmental authorities. There can be no assurance that the Company will be able to obtain or maintain all necessary licenses and permits that may be required to carry out exploration, development and mining operations at its projects.
Metal Prices
There are global economic factors beyond the control of the Company that may affect the marketability of minerals already discovered and minerals to be discovered. Metal prices have historically fluctuated widely and are affected by numerous factors beyond the Company’s control, including international, economic and political trends, expectations for inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities and worldwide production levels. Movements in the spot price of silver have a direct and immediate impact on the Company’s income. The Company does not use other derivative instruments to hedge its commodity price risk. The effect of these factors cannot accurately be predicted.
Price Volatility of Other Commodities
The Company’s profitability is also affected by the market prices of commodities which are consumed or otherwise used in connection with the operations, such as diesel fuel, natural gas, electricity and cement. Prices of such commodities are also subject to volatile price movements over short periods of time and are affected by factors that are beyond the Company’s control.
Competition
The mining industry is highly competitive in all its phases. The Company competes with a number of companies which are more mature or in later stages of production. These companies may possess greater financial resources, more significant investments in capital equipment and mining infrastructure for the ongoing development, exploration and acquisition of mineral interests, as well as for the recruitment and retention of qualified employees.
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Environmental Regulations
The Company’s operations are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation provides for restrictions and prohibition of spills, release or emission of various substances related to mining industry operations, which could result in environmental pollution. A breach of such legislation may result in imposition of fines and penalties. In addition, certain types of operations require submissions to and approval of environmental impact assessments. Environmental legislation is evolving in a manner, which means stricter standards and enforcement, and fines and penalties for non-compliance are becoming more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations. The Company intends to fully comply with all environmental regulations.
Conflicts of Interest
Certain directors of the Company are also directors or officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest, which they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.
History of Losses
The Company has a history of losses including a net loss of $5,144,784 for the year ended December 31, 2008. At December 31, 2008, the Company had an accumulated deficit of $39,476,883. The Company anticipates that its net losses will be reduced in 2009 as operating earnings from its mines increase due to the scaling up of operations. The Company is focusing its efforts on reducing its mine operating costs as well as its general and administrative costs as it attempts to achieve break even or profitable operations in the current year.
Shares Reserved for Future Issuance
There are stock options and share purchase warrants of the Company outstanding pursuant to which common shares may be issued in the future. Pursuant to the Arrangement between First Majestic and First Silver, there are also shares of First Silver that may be tendered for shares of First Majestic until September 14, 2012. As of the date of this AIF, there are 114,254 shares of First Silver outstanding that may be tendered for 57,127 shares of First Majestic. Options and share purchase warrants are likely to be exercised when the market price of the Company’s common shares exceeds the exercise price of such options or warrants. The exercise of such options or warrants and the subsequent resale of such common shares in the public market could adversely affect the prevailing market price and the Company’s ability to raise equity capital in the future at a time and price which it deems appropriate. The Company may also enter into commitments in the future which would require the issuance of additional common shares and the Company may grant additional share purchase warrants and stock options. Any share issuances from the Company’s treasury will result in immediate dilution to existing shareholders.
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Volatility of Share Price
The price of the shares of resource companies tends to be volatile. Fluctuations in the world price of precious metals and many other elements beyond the control of the Company could materially affect the price of the Company’s common shares.
Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business and value added tax and other receivables. The Company has smelting and refining agreements with four parties and and has lessened its dependency on the primary relationship its prior sole smelting relationship Payments are received from a small number of large customers, the receipts involve significant advance payments, scheduled final settlements, routine and received final receipts within sixty days of submission; therefore, the balance of overdue trade receivables owed to the Company in the ordinary course of business is not significant. The Company has a Mexican value added tax receivable of $6.1 million as at December 31, 2008, a significant portion of which is past due. The Company expects to recover the full amount. The Company believes it is not exposed to significant credit risk and overall the Company’s credit risk has not changed significantly from the prior year.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its expansion plans. The Company does not have any committed loan facilities to meet its business requirements. As at December 31, 2008, the Company has outstanding accounts payable and accrued liabilities of $17.3 million which are generally payable in 90 days or less.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. Although the Company does not have a history of operating profits, the Company believes it has sufficient cash on hand to meet operating requirements as they arise.
The Company has an obligation regarding its purchase of First Silver Reserve (“FSR”) to make a final instalment payment of $13,341,380, due on May 30, 2008, and to make simple interest payments at 6% per annum, payable quarterly on the outstanding vendor balance. In November 2007, an action was commenced by the Company and FSR against the previous majority shareholder of FSR (“Majority Shareholder”), who was a previous director, President & Chief Executive Officer of FSR, and a company he controls, whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer of FSR, he engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to FSR, which resulted in FSR not acquiring a mine. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
Pending resolution of the litigation set out above the Company has withheld payment of quarterly instalments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008 totalling $598,857 to the previous Majority Shareholder, and has maintained a reserve of cash in the amount of such instalments. The Company has withheld payments of the final instalment and interest, combined to a total of $13,940,237 due May 30, 2008 until such litigation has been resolved, and such date is presently not determinable. The Company filed on July 22, 2008 an irrevocable Letter of Credit with the Supreme Court of British Columbia as security for this matter.
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The Company has an ongoing vendor liability regarding its acquisition of the Quebradillas mine and capital lease obligations regarding outstanding lease payments for equipment the Company acquired in 2007 and 2008. The vendor liability for Quebradillas is $1,372,973 in intermittent payments throughout the 2009 year. The capital lease obligation amounts to $3,814,049 in principal and interest, payable in 24 monthly payments beginning in February 2009 and completing in January 2011.
Interest Rate Risk
The Company is exposed to interest rate risk on its short term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
The Company’s interest-bearing financial assets comprise cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time. The Company’s interest-bearing financial liabilities comprise fixed rate debt instruments and capital leases with terms to maturity ranging up to three years.
Future Exploration and Development Activities
Exploration and development of mineral properties involve significant financial risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish reserves by drilling, constructing mining and processing facilities at a site, developing metallurgical processes and extracting precious metals from ore. The Company cannot ensure that its current exploration and development programs will result in profitable commercial mining operations. Also, substantial expenses may be incurred on exploration projects which are subsequently abandoned due to poor exploration results or the inability to define reserves which can be mined economically.
The economic feasibility of development projects is based upon many factors, including the accuracy of reserve estimates, metal recoveries; capital and operating costs; government regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting and environmental protection; and precious metal prices, which are highly volatile. Development projects are also subject to the successful completion of feasibility studies, issuance of necessary governmental permits and availability of adequate financing.
Development projects have no operating history upon which to base estimates of future cash flow. Estimates of Proven, Probable Reserves and Measured, Indicated and Inferred Resources are, to a large extent, based upon detailed geological and engineering analysis.
Mineral Projects
To satisfy the reporting requirements of National Instrument 51-102F2 with respect to the Company’s mineral projects, the Company has opted, as allowed by the Instrument, to reproduce the summaries from the technical reports on the respective material properties.
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La Parrilla Silver Mine, México
The following summary is extracted from a technical report titled “Technical Report for the La Parrilla Silver Mine, Durango State, México” prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of Pincock Allen & Holt (“PAH”) and dated February 16, 2009, as amended and restated on February 26, 2009. Mr. Addison and Mr. Lopez are independent Qualified Persons for the purposes of NI 43-101. The complete report can be viewed on SEDAR at www.sedar.com. The detailed disclosure contained in the above mentioned report is incorporated by reference into this AIF.
La Parrilla Silver Mine is owned and operated by First Majestic Plata, S.A. de C.V. (FMPlata) a wholly-owned indirect subsidiary of the Company through its Mexican holding company, Corporación First Majestic, S.A. de C.V. (“CFM”). La Parrilla Silver Mine was previously operated by First Majestic Resources México, S.A. de C.V.
La Parrilla Silver Mine consists of underground silver/lead/zinc mining operations, and cyanidation and flotation ore processing plant. La Parrilla was discovered in Colonial times (XVI – XVII centuries) and only developed from outcroppings by following mineralization on the structures, until high grade ore shoots were discovered and depleted at times of high prices of the metals.
FMPlata owns mining rights that cover 53,249.22 hectares (131,581.20 acres). The duration of the mineral rights concessions is 50 years, renewable over similar time periods.
La Parrilla mine consists of underground mine development that includes drifts, ramps, raises, stopes and other old workings along the S-SE-trending Los Rosarios system. This system consists of a 2-km-long mineralized structure that encloses numerous veins that branch out into veinlets and stockwork zones. The Los Rosarios system comprises La Rosa, Rosarios, La Blanca and San José mines and it intersects the NS-trending San Marcos vein. Other mineralized zones are located within the surrounding skarn zone of a regional diorite intrusive stock. These include Quebradillas, Protectora, San Nicolas, San José, Las Vacas, Santa Paula, etc.
Historical production records, plus surveys of old stopes within the La Parrilla district, suggest that approximately 1.37 million tonnes of silver ores were extracted from these mines at an estimated average grade of 310 g/tonne silver, 1.9 percent lead and 1.5 percent zinc. This estimate includes production by Mina Los Rosarios between 1978 and 1991, and the Company’s production from 2004 to September 30, 2008. The production amounts to 13.7 million ounces silver, 58.4 million pounds lead and 44.4 million pounds zinc.
FMPlata has developed an on-going aggressive exploration program that includes ramps, drifting and crosscutting into the old working areas of the Los Rosarios system. The exploration budget proposed for 2009 is US$5.18 million. It includes 97 drill holes totaling 17,200m, geophysical and geochemical surveying, and approximately 5,800m of drifting, crosscutting and ramps development. This program is based on the following premises:
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PAH has reviewed the La Parrilla mine Reserve update of September 30, 2008, along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several Reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
The La Parrilla mine has estimated mineable Reserves for the following deposits:
The Proven ore category has been projected up to 20 metres from the drift sample data, while the Probable ore category is projected another 20 metres beyond the Proven ore. The total “in situ” diluted Proven and Probable Reserves at a minimum mining width of 2.00m, as reviewed by PAH, is 0.50 million tonnes of oxides and sulfides averaging 295 grams per tonne silver, 1.40 percent lead and 1.01 percent zinc, for a total of 4.8 million contained ounces of silver only; or 5.2 million ounces of silver equivalent with gold and lead credits.
Resource calculations by FMPlata at La Parrilla are based on projections of the mineralized zones in the underground mine workings, 20 metres beyond the areas of Reserves for the Measured Resources, and another 20 metres beyond the boundaries of the Measured Resources for the blocks of Indicated Resources. Inferred Resources are estimated by projecting up to 50 metres beyond the Indicated Resource block boundaries along mineralized structures, and another 20 metres beyond the blocks’ width. La Parrilla mineral resource estimates were applied mostly to diamond drilling intercepts, as well as to some adjacent blocks from the estimated reserves. The grade for these blocks is determined from the grade estimated for the drill hole intercepted grade and from the adjacent Reserve blocks, and sampling in mine workings and drill holes located within the block area.
The Measured and Indicated silver Resources, including oxides and sulfides mineralization, consist of 3.1 million tonnes averaging 255 grams per tonne silver, for a total content of 30.7 million ounces of silver equivalent inclusive of gold credit for oxides and lead and zinc credit for sulfides. The resources grade has been estimated “in situ” above cutoff grade, and the silver equivalent content is inclusive of gold credit in oxides, at 6 g/tonne silver, and inclusive of lead and zinc credit for sulfides, at 47 g/tonne silver and 30 g/tonne respectively, for sulfides. This estimate is based on sales and on the following prices: silver - US$12.00/oz, Au - US$708/oz, lead - US$0.75/lb and zinc – US$0.75/lb.
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Table 1-1 presents a summary of the La Parrilla Proven and Probable Reserves and Measured and Indicated Resources, in addition to Inferred Resources at the bottom of the table. These Reserves and Resources are exclusive of each other category.
PAH has excluded the zinc mineralization from the Reserve Base. However, zinc may represent a significant value for the La Parrilla operation at better market conditions with higher prices and possibly lower smelter charges. In the current resource grade estimates, the zinc has been considered as part of the block’s grade, and estimated at a 70 percent metallurgical recovery included in the value for silver equivalent calculation.
These Resources are in addition to the previously reported Reserves.
Additional geologic potential exists within the area of La Parrilla to investigate additional targets. Direct exploration of geophysical anomalies may result in significant target zones for further exploration. The Company has determined anomalous areas of interest for further exploration investigations, which may represent concentrations of sulfides or other conductive minerals.
Other areas representing interesting geologic potential within the FMPlata holdings are the following:
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TABLE 1-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Mineral Reserves and Resources Prepared by FMPlata, Reviewed by PAH as of September 30, 2008
(1) |
Estimates by First Majestic Plata, reviewed by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery included. |
(2) |
Silver equivalent based on sales. Prices used for evaluation: Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb. |
(3) |
Oxides Ag equivalent includes gold credit based on FMPlata sales. Au Credit = 6 g/tonne Ag. |
(4) |
Sulfides Ag equivalent includes Pb credit = 47 g/tonne Ag. Zinc is considered at 70% met. recovery = 30 g/tonne Ag. |
(5) |
Cut Off Grade estimated as 184 g/tonne Ag net of Au credit in oxide ores; and 246 g/tonne Ag net of Pb credit in sulfide ores. Zinc not considered in COG estimates. |
(6) |
Preliminary Quebradillas Block Model estimate at COG>50 g/tonne Ag. |
(7) |
Reserves and resources in this report are exclusive of each other. |
(8) |
Rounded figures. |
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Additional Inferred Resources have been projected in Rosarios, Quebradillas, and San Marcos zones.
The Company operates three mines in La Parrilla area. The Rosa/Rosario and La Blanca, the San Marcos, and Quebradillas operations, all are separate mines within an area of about 10 km 2 . The production from the mines during 2008 has been about 143,838 tonnes at an average grade of 213 g/tonne silver. This production includes about 24,000 tonnes of ore extracted from development workings. Oxide ore mined was about 82,419 tonnes, while sulfide ore mined was about 61,419 tonnes.
The La Parrilla processing plant has both an oxide recovery circuit and sulfide recovery circuit; therefore both Doré metal bars and flotation concentrates are produced. Products are marketed to Met-Mex Peñoles’ smelter and refineries, located in Torreón, Coahuila. The tonnes milled during the first 9 months of 2008 totaled 143,838 tonnes. Silver production for the first 9 months was about 731,259 equivalent ounces of silver. The Company’s 5-Year Plans requires improvements in production rates, ore head grades and mill recoveries to achieve about 1.94 million ounces of silver equivalent production per year by the end of 2009.
Mining is semi mechanized with trackless loading and hauling. Some drilling is done with a 2-boom and 1-boom electro-hydraulic drill jumbo, but most development and production drilling is accomplished with hand-held jackleg drills. The principal stoping method for the near-vertical veins of La Parrilla is overhand cut and fill, with backfill mainly obtained from development waste. However, the operators are currently experimenting with long-hole open stoping. Drifting and ramping is all trackless, and at times old drifts and other workings that are used in the modern La Parrilla operations are slashed out to accommodate the trackless equipment. Raising is mainly done conventionally as “bald-headed raises,” but some major raises, ventilation, orepasses, etc, are done with contracted raise boring equipment.
The mines are dry and very little water handling is required. Ventilation is primarily by natural flow, and the operators are in the process of boring exhaust ventilation raises for the mines. Compressed air is provided from surface compressor stations in all three operations.
The ore processing plant at La Parrilla processes both oxide and sulfide silver ore in two separate parallel circuits. The oxide circuit has a process capacity of 420 tonnes per day of which during 2008, an average of 300 tonnes per day of ore from La Parrilla containing 211 grams per tonne of silver and recovers about 65 percent of the contained silver as silver bars. The sulfide circuit has a 420 tonnes per day capacity of which during 2008 an of average of 230 tonnes per day of ore were from La Parrilla containing about 218 grams per tonne silver and 2.0 percent lead and recovers about 65 percent of the silver and about 55 percent of the lead into a concentrate containing about 4.0 kilograms per tonne silver and 28 percent lead.
The plant was extensively expanded and modified in 2006 to allow processing of both oxide and sulfide ore at a rate of 420 tonnes per day each. Metal recoveries are expected to gradually rise to 70 percent, and may, perhaps, improve further as the mineral processed is extracted from other areas of the mine outside of the transition zone. In addition to the plant, the tailing containment area with 10 years of life has been built.
Infrastructure for the operation is well established with adequate roads, buildings and utility systems. Power and water supply systems were expanded in 2006 to mine and process ore at a higher rate than in the past.
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The Company applied for modifications to the previous operating permits (Permiso Unico Ambiental) to accommodate the expansion for the processing plant installations. This was granted on March 23, 2006.
The mine operations are contracted to outside contractors, and surface ore and waste haulage is also contracted. The administration, beneficiation plant and ancillary functions are all accomplished with company personnel. The total personnel on site at the end of September 2008 totaled 509 people of which 458 were outside contractors. The overall efficiencies achieved to date (September 30) in 2008 were about 1.1 tonnes per man-shift, while that for the mine operation only, were about 2.3 tonnes per man-shift.
Site operating costs have averaged about US$47 per tonne mined and milled for the nine-month period of 2008. The all-in costs including mining, milling and downstream processing have averaged about US$50 per tonne for oxides and US$67 per tonne for sulfides. The mining costs were an average of about US$18 per tonne, milling costs were about US$24 for oxide ores and US$21 for sulfide ores per tonne and site G&A costs averaged about US$6.30 per tonne. A summary of the 2008 operating costs is shown in Table 1-2.
TABLE 1-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Summary of Operating Costs
Type of Ore | ||
Concept Area | Oxides | Sulfides |
Mine | 18.50 | 17.52 |
Mill | 23.50 | 20.81 |
Site G&A | 6.32 | 6.32 |
Marketing, SR, Freights, etc. | 1.55 | 22.29 |
Total OC for Cutoff | $49.87 | $66.94 |
Capital expenditures are estimated at about US$6.8 million in 2008, including US$3.2 million for exploration and mine development. Projected capital expenditures budgets decrease to US$3.9 million in 2009 and are at about US$2.9 million per year for the remaining three years of the 5-Year Plan. The detail of the capital costs is found in Table 1-3.
An economic analysis of the project, at a discount rate of 10 percent, resulted in a net present value of US$13.65 million with an Internal Rate of Return of 205 percent. These values show La Parrillas current conditions, which are based on mining lower tonnage at lower grades due to mine preparation developments, and lower metallurgical recoveries due to processing ores from the oxides/sulfides transition zone.
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TABLE 1-3
First Majestic Silver
Corp
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Projected Capital Expenditures, 2009 through 2013
($U.S.)
AREA | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | TOTALS |
Mine | |||||||
Exploration | 5,103,135 | 600,000 | 600,000 | 600,000 | 600,000 | 600,000 | 8,103,135 |
Mine Development | 3,725,198 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 12,725,198 |
Mine Equipment and Other | 2,372,080 | 525,000 | 525,000 | 530,000 | 530,000 | 530,000 | 5,012,080 |
Sub-total | 11,200,413 | 2,925,000 | 2,925,000 | 2,930,000 | 2,930,000 | 2,930,000 | 25,840,413 |
Plant | |||||||
Equipment & Installations | 980,202 | 980,202 | |||||
Sub-total | 980,202 | 980,202 | |||||
Other G&A, Infrastructure | |||||||
Equipment & Installations | 733,821 | 62,216 | 62,216 | 7216 | 7216 | 7216 | 879,901 |
Grupo México Inc. VAT | 912,233 | 912,233 | |||||
Sub-total | 733,821 | 974,449 | 62,216 | 7216 | 7216 | 7216 | 1,792,134 |
TOTALS | 12,914,436 | 3,899,449 | 2,987,216 | 2,937,216 | 2,937,216 | 2,937,216 | 28,612,749 |
These conditions are also affected by high capital and operating costs generated by equipment acquisitions, an aggressive exploration program and mine preparation investments.
San Mart í n Silver Mine, México
The following summary is extracted from a technical report titled Technical Report for the San Martín Silver Mine, State of Jalisco, México prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of PAH and dated January 15, 2009, as amended and restated on February 26, 2009. Mr. Addison and Mr. Lopez are independent Qualified Persons for the purposes of NI 43-101. The complete report can be viewed on SEDAR at www.sedar.com. The detailed disclosure contained in the above mentioned report is incorporated by reference into this AIF.
Ownership
Minera El Pilón S.A. de C.V. (El Pilón) is a wholly owned indirect subsidiary of the Company, through its Mexican holding company, CFM. El Pilón corporate offices are located in Durango city and operates the San Martín underground silver mine and ore processing facility near the town of San Martín de Bolaños in the State of Jalisco. Oxidized ore is being mined primarily from the Zuloaga vein and from the adjacent La Blanca, Rosario and Cinco Señores Veins. Exploration is on-going on these vein structures, on other sub-parallel, crossing veins and in a recently identified cymoid structure of the Zuloaga vein at the Ballenas level, in the blocks 5,400 and 5,550, as well as on the Rosario-Condesa vein system. Primary mineralization in sulfides with lead, zinc and copper occurs at the deepest levels, San Juan and San Carlos of the Zuloaga vein. The Company has withheld investigations and development of the sulfides mineralization due to currently low metal prices.
El Pilón holds 31 contiguous mining concessions in the San Martín de Bolaños mining district that cover mineral rights for 7,841 hectares.
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Geology and Mineralization
The project area lies in the southern part of the Sierra Madre Occidental, an extensive volcanic terrain starting near the United States-Mexican border and trending southeast into the states of Zacatecas and Jalisco. The terrain is characterized by Tertiary age volcanic rocks that have been divided into a lower andesitic sequence of early Tertiary age (40 to 70 million years) and an upper rhyolitic sequence of middle Tertiary age (20 to 40 million years). Volcanism, structural development and mineralization in the San Martín area occurred during late Miocene, resulting in a complex geologic framework, (Starling, 2001). Two distinct features have been recognized by different authors, the pre and post mineralization rock formations, and the indicator Guásima Formation.
The mine has been developed on the Zuloaga vein, which has by far been the most extensively developed vein in the district, having accounted for about one-half of the silver production in the district. Production also occurs from the La Blanca vein, a vertical split off of the Zuloaga vein. The Zuloaga vein occurs along an east-west trending normal fault zone that dips an average 75 degrees to the north, with the hanging wall of the fault down-dropped 100 to 200 metres relative to the footwall. The vein has been identified over a strike length of 3 kilometers, with a developed vertical extent of about 350 metres. El Pilón is developing exploration and rehabilitation of workings along crosscutting veins to the Zuloaga structure, at the Rebaje 40 Oriente on the Cangrejos Level, and at the Rebaje 1100 on the Ballenas Level; in both cases NS veins intersecting the Zuloaga vein show high grade mineralization in widths of up to 10 metres to the hanging wall of previously mined narrow structures. Recent the Company exploration works have identified a Cymoidal structure of the Zuloaga vein at the mine levels 5,400 to 5,550 and it is preparing access and drilling to evaluate its potential.
La Blanca vein is a near-vertical split off of the Zuloaga vein that cuts upward through the Zuloaga hanging wall. La Blanca vein is typically irregular and narrow, but where mineralized, has higher silver and zinc grades.
Two additional veins, the Condesa and Rosario, occur to the southwest and have northwest trends. Access to these veins is from the town of San Martín via an 11.4 kilometer gravel road. The Condesa structure strikes N 40° W and dips 81° SW. The Condesa workings show mineralization over 150 metres along strike, with mineralized zone ranging from 1.5 to 2.0 metres in width and occurring in a quartz-cemented andesitic breccia. The Rosario mine is located within the Santa Rosa arroyo at an elevation of 1,600 metres. The Rosario mine is 11.7 kilometers from the town of San Martín on the same gravel road leading to the Condesa mine. These vein trends intersect the Zuloaga vein in an area below mineralized surface outcrops of the vein and represent a potential exploration target.
Exploration and Project Data
Exploration potential for finding and developing new resources/reserves in the San Martín district appears to be promising. Ore bodies in the mine are typically indicated at depth beneath zones of alteration on the surface expression of the Zuloaga vein. The Zuloaga vein projections from developed mine levels towards its outcropping is under development, since it may hold a significant amount of oxides mineralization. Access to the zone is difficult due to topographic constrains; however, the Company is developing access from the La Escondida level, at the Pinolea level. The vein outcroppings show alteration zones that may be correlated to indicate ore concentrations in the upper portion of the Zuloaga vein.
Direct exploration development is integrated into the mine preparation programs, and for vein deposits this has proven to be the most effective method of exploration. For the year 2007, El Pilón’s drilling program completed 3,900 metres from underground access, while for the year 2008, the program of exploration included drilling 15,719 metres from underground workings, in addition to about 3,770 metres of underground development in drifts and crosscuts for exploration and drill site access.
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The 2009 drilling program designed for the San Martín mine includes 93 drill holes to explore the La Escondida level, Rosario, Condesa, Providencia, La Esperanza, Cymoid and other areas below the known ore shoots on the Zuloaga vein. These 93 drill holes with a total of 13,400 metres are directed to investigate areas of resources with the objective to increase reserves, and if it is successful, the program should result in additional resources for the mine. Due to market conditions at the date hereof, the Company has delayed this program; however, the estimated investment of drilling from underground workings, should they proceed, is US$1.80 million.
Exploration sampling for reserve delineation in the San Martín mine is conducted by drifting along the mineralized zone so that channel samples can be taken and diamond drilling can be conducted. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structure, across the back of the drift. Sampling crews take channel samples at irregular intervals, typically with one sample every 2 to 3.5 metres along new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles.
Core drilling is conducted locally to test the upward and downward projections of the structural zone at a distance from the drifts. Core samples are BQ size, 36 millimeters in diameter, and holes are reportedly of generally good recovery (90 percent), with the remaining bad ground having modest recovery (50 to 60 percent).
Channel, exploration, mine development and production, and plant samples are sent to San Martín’s on site laboratory for chemical analysis of silver and gold. In more recent years additional analyses by atomic absorption for lead and zinc in geology samples have become routine. To evaluate sample quality control, the Company performs multiple assays, up to three times on some samples, and periodic check analyses on samples. Since 2004, the San Martín mine has sent about 10 pulp samples each month to ALS Chemex Laboratories, amount of duplicate samples to SGS Labs in Guadalajara city, for duplicate analysis, obtaining good correlation in silver values and poor correlation in gold assays. The latter may be a consequence of the very low gold content of the samples.
Mining Methods
Current mine production has been averaging about 775 tonnes per day (tpd) from stopes located on La Escondida, San José, Ballenas, Congrejos, San Pablo, San Juan, Santa Elena, and San Carlos levels. Underground drilling is performed using jackleg drills, and blasting is accomplished with ANFO explosives. Underground loading and haulage is performed with 2 cy, 3 cy and 5 cy LHD's (scooptrams) and 10 to 13 tonne-capacity trucks. Opening sizes are driven at 4.0 metres by 3.5 metres. Ramp inclinations are generally limited to about 12 percent. Typically, the total advance for drifting, ramping and raising is about 550 metres per month. The average productivity in headings is 0.7 metres per manshift, which is in the normal range for this type of development.
Mechanized, cut and fill stopes now account for 100 percent of the production, and these are developed either directly on the vein or by first driving a drift on the vein and then driving a parallel drift about 8 metres away, leaving a pillar between the drifts. Crosscuts are then driven about every 10 metres from the parallel drift through the pillar to the vein for ore extraction. Raises are driven as needed to provide access, services and ventilation.
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Ore is trammed to the surface with LHDs or low-profile dump trucks and stockpiled at surface dump sites. On the surface, the ore is loaded from stockpiles into 22-tonne trucks for transport to the mill some 13 kilometers away over a gravel road. The ore haulage from the mine to the mill is performed by a contractor.
Processing Facilities
The San Martín processing plant has been in operation since 1983 at an increasing capacity that has reached 750 tonnes per day and is currently being expanded to 1000 tonnes per day. Silver ore is processed by conventional cyanidation, using agitation in tanks, counter-current decantation (CCD) thickening, and precipitation of the dissolved silver and gold by cementation with zinc dust in the Merrill-Crow process. The precipitate is then smelted to produce Doré for shipment to commercial refineries. In addition to the cyanidation system, the plant also produces a gravity concentrate which is sold to a smelter; the gravity system recovers about 1 percent of the silver and 3 percent of the gold in the ore. Since 1983, the San Martín mine has produced more than 33.3 million ounces of silver together with small amounts of gold.
Plant statistics indicate that during the first three quarters of 2008 plant feed rock (a combination of mine ore and fines screened from waste dumps) averaged 131 g/t silver and about 0.23 g/t gold. Silver and gold recovery into Doré and gravity concentrates for the first three quarters of 2008 were 76.39 and 54.91 percent, respectively. The Company built a 500 tpd flotation circuit which was commissioned during the year and is not currently in operation due to the low lead and zinc market prices and higher smelter costs.
Mineral Reserves/Resources
The San Martín mine uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineable reserves. Reserves are calculated annually, at the end of each calendar year. For their report, PAH reviewed the reserve dated September 30, 2008 (referred to subsequently as the September 30, 2008 Reserve).
Table 2-1 shows a summary of Mineral Reserves and Resources for the San Martín Silver Mine to September 30, 2008.
Reserve Estimates
Reserve blocks have been defined at the various drift levels in the mine where sampling has found economically mineable mineralization within the Zuloaga, La Blanca and two NS newly-accessed veins. The reserve tonnage and grade are based largely on channel samples, locally with some influence from drill core samples. Reserve blocks range from 10 to 50 metres in length along the vein trend, with proven reserve blocks projected up to 25 metres from the drift in which the channel samples were taken, and probable blocks extending another 25 metres beyond the proven blocks.
For the present (September 30, 2008) mineable reserve, PAHs economic breakeven cutoff grade calculation was based (G ag ), solely on a projected US$12.00 per ounce for silver, and the total 2008 operating cost and process recoveries as follows:
G Ag = US$43.09/( $12.00 x 0.775 X 0.99 ) = 4.68 oz/tonne or 146 g Ag/tonne
All 2007 and 2008 production has come from the mechanized cut and fill mining.
30
The gold contained in Doré and concentrates was 19,770 grams (635 ounces), which would indicate a recovered grade of about 0.14 g/t. For each ounce of silver paid there were 0.001 ounces of gold paid (635 ounces gold/724,239 ounces silver). At a gold price of US$708/oz, this represents a contribution of US$0.62 per ounce of silver.
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TABLE 2.1
First Majestic Silver
Corp.
Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Mineral Reserves Prepared by FMS, Reviewed by PAH as of September
30, 2008
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Cut Off estimates as 146 g/tonne Ag for mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits = 10g/tonne Ag. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
Inferred Resources | ||||||||
Inferred Resources | ||||||||
TOTAL (6) | Oxides plus Sulfides | 8,200,000 | 5.34 | 185 | 1.40 | 1.60 | 48,900,000 | 50,000,000 |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Inferred Resources are speculative in nature and may not become Reserves. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
(6) |
Rounded figures. |
32
In addition to the Doré sales, a gravity concentrate is produced. During 2008, 43.6 tonnes of concentrate were sold that contained 4,400 kilograms (9,698 lbs) of lead in the concentrates. For each ounce of silver sold, approximately 0.013 kilograms (0.03 lbs) of lead were sold. At US$0.75/lb of lead, this contributes another US$0.02 per ounce of silver.
This would indicate a total contribution of gold and lead of US$0.64 per ounce of silver.
The silver equivalent breakeven cutoff grade (G Ag eq ), considering the gold/lead contribution, converted to an equivalent silver grade, would be as follows. Since the metal quantities and values shown in the gold/lead contribution include process recoveries, they are not repeated in the cutoff estimation.
G Ag eq = US$43.09/((US$ 12.00 x0.775 X 0.99) + US$0.64)) = 4.38 oz Ag eq./tonne, or about 136 grams Ag eq/tonne.
Most of the January through September 2008 production has been derived from the mechanized cut and fill mining of oxide ores, however, a small amount was obtained from the recovery of old dumps at the mine site. Possible resources of dump material remain, and PAH also calculated a cutoff grade for this material as follows:
C Ag = US$25.63/(US$ 12.00 X 0.775 X 0.99) = 2.78 oz Ag/tonne or 87 g Ag/tonne
Milled oxide ore production for the first 9 months of 2008 was 145,592 tonnes, at an average grade of 131 g Ag/t, and 0.25 g Au/t. Milling of oxide ore from the underground mine totaled 132,043 tonnes at an average grade of 133 g/t silver, and that from the mine dump recovery totaled 13,549 tonnes at an average grade of 111 g/t silver. Gold is present in payable quantities in many areas and lead in some. In the cutoff grade calculation the small gold and lead credits are already included as an operating cost deduction.
There was a significant tonnage of sulfide material (57,072 tonnes) extracted from the mine and transported to the mill patios during the first 9 months of 2008, however, only small amounts of this material were processed in the new flotation plant, as test material. The sulfide material remains stockpiled on the mill patios and will not be processed until market conditions improve for lead and zinc, nor will any additional sulfides be extracted from the mine. In view of the foregoing, PAH has not calculated a cutoff grade for San Martín sulfide material.
From the 145,592 tonnes of production, the silver sold in Doré and concentrates during the first 9 months of 2008 was 22.5 million grams (724,239 ozs.). The gold sold in Doré and concentrates during the 9-month period of 2008 was 19,770 grams (635 ounces). The estimated process recovery for gold was 55.4 percent. For each ounce of silver paid there were 0.001 ounces of gold paid (635 ounces Au/ 724,239 oz. silver). At a gold price of US$708/oz, this represents a contribution of US$0.62 per ounce of silver.
In addition to the Doré sales, a gravity concentrate is produced. During 2008, 43.6 tonnes of gravity concentrates were sold that contained silver, gold and lead values, and the payable lead content was approximately 4,400 kilos of lead. For each ounce of silver sold, approximately 0.01 kilograms (0.02 lbs) of lead were sold. At a price of US$0.75/lb of lead, this contributes another US$0.02 per ounce of silver.
This would indicate a total contribution of gold and lead of US$0.64 per ounce of silver, which have been included as a by-product credit to operating costs.
33
This cutoff estimate was the basis that PAH used to calculate the September 2008 Reserves. The PAH report notes that that the reserve is in addition to the material considered as resources.
Resource Estimates
The resource calculations by the Company are based on projections of the mineralized zones of 50 metres beyond the areas of the reserves for the measured resources, and another 50 metres beyond the boundaries of the measured resources for the blocks of indicated resources. The grade for these blocks is determined from the grade estimated for the adjacent reserve blocks, and sampling in mine workings and drill holes located within the block area.
In addition to the reserves, the Company has estimated resources in blocks along the Zuloaga, La Blanca, Plomosa – Rosario, and Rosario – Condesa veins, and in two other NS newly accessed veins that cross the main mineralized structure. These blocks were estimated in the same manner as that described previously for the reserve blocks, with the additional calculation of lead and zinc assays where they are available. During the period of 2006, the San Martín generated production of lead and gold in gravity concentrates adding some contributions for these metals to the silver recovery and sales. The estimated contribution for these metals was approximately 8 percent for the year; therefore, it is reasonable to add that value to the estimated silver grade, but with no additional contribution of zinc.
The Company’s estimated resource blocks do not include the estimated reserve blocks since these have been projected at distances that are adjacent and beyond the reserve blocks boundaries.
Mineral resources do not include development details for underground mine accessibility and mine planning; therefore, in PAH’s opinion these resources are appropriately reported as resources, with estimated tonnage and grade calculated from available data on an “in-situ” basis.
Based on these assumptions, and in the mine’s silver COG, PAH reviewed the Company’s estimates, resulting in measured and indicated resources of silver equivalent, which includes credit for lead and gold at projected prices for silver of US$12/oz, for lead of US$0.75/lb and for zinc of US$0.50/lb, which equates to about 10 grams of silver per tonne of ore. These estimates do not take in consideration mine dilution nor mine and metallurgical recoveries, or S&R charges. The resources are estimated as “In Situ” material as shown in Table 2-1. At the current rate of San Martín’s production, the resources may add about five more years of life to the mine, with additional potential of inferred resources.
The mineral resources estimated by the Company and reviewed by PAH are presented in Table 2-1. These resources are in addition to the previously reported reserve.
Environmental
The San Martín mine has been operating since 1983 with the necessary land-use and water extraction permits in effect for the operation. El Pilón has purchased the land surface rights where the mine and plant installations are located to better manage the property. Through the years and changes in regulatory framework, El Pilón has been required to update the necessary operation permits.
PAH’s environmental and safety review consisted of discussions with site management and supervision Ing. Juan Francisco Díaz de León V., Mine Manager of Security and Environmental, and the site visit to observe the current site safety and environmental conditions and to identify any potential liabilities having significant economic impacts. PAH’s assessment is not intended as an environmental and safety compliance audit, although prudent practices were considered in our review. In PAHs opinion, the San Martín mine is in compliance with the required permits and authorizations.
34
Periodic regulatory inspections of the site by Secretaria de Medio Ambiente Recursos Naturales y Pesca (SEMARNAP) and the Mines Department are being performed to observe compliance. PAH has reviewed permits and authorizations for the San Martín operation and believes it is in compliance with applicable regulations and obtains permits as required.
Conclusions
The San Martín Silver Mine is a modest-sized underground operation that has utilized used equipment, whenever possible, and expensed its replacement equipment to a large extent. However, according to a new the Company policy, new equipment has been purchased as part of the capital expenditure program. This program of equipment replacement by the Company has been in place for the last two years, including 7 scoop trams, 5 underground trucks and 1 jumbo.
Capital forecast for San Martín during the last quarter of 2008 and 2009 is presented in Table 25-9 of the Technical Report for the San Martín Silver Mine and totals US$1.6 million and US$2.1 million. An amount of US$150,000 has been estimated for portal closures (ten at US$10,000 each) and for tailings pond reclamation. Salvage of plant equipment is forecast to just equal dismantling.
A summary of production including oxides and sulfides is presented in Table 2-2. Production costs for the mine in January to September, 2008 are provided in Table 25-6 of the Technical Report for the San Martín Mine, based on mine accounting records. A total of US$7.9 million was expended during the 9-months period to produce roughly 184,440 tonnes of ore, containing saleable silver amounting to 796,524 ounces. On a unit basis, cash production costs were US$40.87/tonne of ore, and US$10.40/oz of silver produced. Unit costs of US$41.30/tonne of ore are projected for the rest of 2008 and subsequent years.
TABLE 2-2
First Majestic Silver
Corp.
Cia. Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Summary of Economic Analysis - Sensitivity
Case | Discount | NPV, US$ M |
Base | 12 % | 15.00 |
Increase Silver price | 10 % | 18.60 |
Decrease Silver price | 10 % | 11.60 |
Increase Operating costs | 10 % | 13.40 |
Decrease Operating costs | 10 % | 16.80 |
Increase Capital costs | 10 % | 14.80 |
Decrease Capital costs | 10 % | 15.30 |
A simplified cash flow forecast has been prepared and is presented as Table 25-10 of the Technical Report for the San Martín Silver Mine. The economics covers the period through December 2011, at which time the known proven/probable reserves will be exhausted. In the interim, of course, it is expected that underground exploration will be advanced through both diamond drilling and drifting, and that reserves may continually be added over time from the resource base of the mine. The Company has allocated a high capital investment for San Martín to develop reserves and extend the mine life.
35
Basic premises for the cash flow involve silver prices, which are taken at US$12/ounce for 2008, 2009 and 2010 and US$13/ounce thereafter. Gold sales are presented at a percentage of silver revenues and are predicated on historical returns in the past. Operating costs and expenses are projected to be decreased by 24 percent annually. Reclamation expenditures are considered spent in the remaining months of 2008. It can be seen from the table that a net present value for the project at a 12-percent discount rate is approximately US$15.00 million.
The operation exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally. In all modeled cases, however, the San Martín mine shows positive economics as measured by a cash flow exercise, and thus the postulated reserve position is accepted.
La Encantada Silver Mine, México
The following summary is extracted from a technical report titled “Technical Report for the La Encantada Silver Mine, Coahuila State, México” prepared by Richard Addison, P.E. and Leonel Lopez, C.P.G. of PAH dated January 12, 2009, as amended and restated on February 26, 2009. Mr. Addison and Mr. Lopez are independent Qualified Persons for the purposes of NI 43-101. The complete report can be viewed on SEDAR at www.sedar.com. The detailed disclosure contained in the above mentioned report is incorporated by reference into this AIF.
La Encantada Silver Mine is owned and operated by Minera La Encantada, S.A. de C.V., wholly-owned indirect Mexican subsidiary of the Company, through its Mexican holding company, CFM. La Encantada Silver Mine consists of an industrial complex that includes underground silver/lead/zinc mining, a flotation ore processing plant, water wells and pipeline, airport, housing, camp facilities and a new cyanidation plant under construction to process silver tailings. The La Encantada mine was operated by Peñoles for a period of about 25 years, until June 2002. Desmín leased the property from Peñoles and operated the mine and processing plant from July 1, 2004 until November 1, 2006 when Desmín was acquired by the Company. During January to September, 2008 the Company has mined out 178,480 tonnes at an average grade of 297 g/tonne silver and 2.29 percent lead.
The Company owns mining rights that cover 2,237 hectares (5,227 acres) within 18 titled concessions and 3 approved claim applications, in addition to 2 other applications under review by the Mines Department. Minera La Encantada has acquired, from the Ejido Tenochtitlán, Municipality of Ocampo, under expropriation regulations, surface land ownership of 1,343 hectares (3,319 acres) where mine, plant, housing, camp and associated facilities are installed. It also owns the surface rights, installations and water rights for two water wells at El Granizo, which supply La Encantada water needs.
Estimated proven and probable reserves and measured and indicated resources for La Encantada, as of September 30, 2008, are presented in Table 3-1. These include proven and probable reserves of 5.2 million tonnes at 208 g/tonne (6.7 oz) silver, and 2.42 percent (53 lb/tonne) lead, for a total contained silver equivalent, inclusive of lead credit, of 35.5 million ounces. These reserves include 4 million tonnes of tailings at an average grade of 168 g/tonne silver, estimated at a Cut-off Grade of 111 g/tonne silver.
La Encantada reserves have been estimated at a Cutoff Grade of 250 g/tonne silver only and 228 g/tonne silver equivalent net of lead credit. The La Encantada proven and probable reserves in hard rock include 1.2 million tonnes at an average grade of 343 g/tonne silver and 2.39 percent lead.
36
During the period of January through September, 2008 the Company mined 178,480 tonnes of ore, which included 70,000 tonnes from reserves, in addition of other minerals extracted from different areas of the mine for a total of 108,480 tonnes. To September 30, 2008, the La Encantada exploration programs and underground development increased reserves by approximately 183 percent over the 2007 estimates.
37
TABLE 3-1
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada
Mine
Mineral Reserves Prepared by FMS, Reviewed by PAH as of September 30, 2008 (1)
(1) |
Cut Off Grade estimated as250 g/tonne Ag only; and 228 g/tonne Ag eq net of Pb credit. Estimated Reserves are exclusive of Resources. |
(2) |
Silver equivalent includes Pb credit, at prices US$12.00/oz-Ag, $0.75/lb-Pb. Pb credit=22 g/tonne-Ag. |
(3) |
Mining dilution is included at over 2.00m width. Estimates do not include mining recovery. |
(4) |
Zinc is not recovered. |
(5) |
Dump stockpile is considered as measured resource because the average grade is below COG - 203 g/tonne Ag only and 186 g/tonne Ageq, however with pre-screening may be processed. It requires of additional testing. |
(6) |
La Morena sulfide deposit requires additional metallurgical testwork to prove its economic recovery. La Encantada mill does not have an operating zinc circuit at this time. |
(7) |
Tailings are included within Indicated Resources due to required additional testwork and grade below Cutt Off Grade - 111 g/tonne Ag. |
(8) |
Rounded figures. |
(1) |
Cut Off Grade estimated as250 g/tonne Ag only; and 228 g/tonne Ag eq net of Pb credit. Estimated Reserves are exclusive of Resources. |
(2) |
Silver equivalent includes Pb credit, at prices US$12.00/oz-Ag, $0.75/lb-Pb. Pb credit=22 g/tonne-Ag. |
(3) |
Mining dilution is included at over 2.00m width. Estimates do not include mining recovery. |
(4) |
Zinc is not recovered. |
(5) |
Rounded figures. |
38
These were estimated from the following areas: Breccia Milagros, Azul y Oro, Breccia Keylor, Cuerpo 660 E, Cola de Gallo, Bonanza, La Piedra, Breccia San Javier, Dique San Francisco, San Francisco, Jorobada, Rebaje 141, Rebaje and Ojuela Ampliación zones in addition to the Tailings Dam No. 1. Most of these deposit areas remain opened for exploration and development; for instance, Breccia Milagros appears to represent a significant deposit, the full extent of which is still unknown to the Company.
Measured and indicated resources to September 30, 2008 at La Encantada amount to 5.4 million tonnes at 176 g/tonne (5.7 oz) silver and 1.40 percent (31 lb/tonne) lead, for a total contained silver equivalent, inclusive of lead credit, of about 33.1 million ounces. These resources include 1.6 million tonnes of tailings at an average grade of 76 g/tonne (2.4 oz/tonne). Preliminary testwork appears to indicate amenability and probable economic recovery of silver values from the tailings by cyanide leaching processing. Additional bulk testing is recommended to validate and confirm the resource. These resources represent a decrease of about 17 percent over the resources estimated for 2007 in silver equivalent ounces to 33.1 million, due to upgrade of tailings dam No. 2 to probable reserves.
Additional inferred resources have been estimated by the Company at La Encantada. The inferred resources require additional grade and tonnage information before they may be upgraded to indicated or measured resources. They represent geologic potential to be further investigated. La Encantada has estimated inferred resources that amount to about 2.6 million tonnes at an average grade of 220 g/tonne (7.0 oz/tonne) silver and 1.0 percent (22 lb/tonne) lead, for a total estimated content of silver equivalent, inclusive of lead credit, of about 20.0 million ounces. This estimate represents an increment of 51 percent over the reported resources for 2007.
During the La Encantada 2008 exploration drilling program a new mineralized zone was discovered at the 1790 mine level. This zone has been denominated the Buenos Aires zone and delineated with 15 drill holes resulting in about 536,000 tonnes of Indicated Resources at an average grade of 395 g/tonne silver (7.2 million ounces of silver equivalent) and 560,000 tonnes of Inferred Resources at an average grade of 339 g/tonne silver (6.5 million ounces of silver equivalent). Silver equivalent includes lead credits.
Processing flotation plant facilities have an installed capacity of 800 tonnes per day. It includes all supporting facilities, including laboratory, maintenance, etc. The metallurgical current plant average operating rate is about 800 tonnes per day. About three quarters of the ore comes from the mine and the other quarter from upgraded waste dump rock that has been screened to reject the coarser lower-grade fraction.
The Company is presently building, on a site about 1-1/2 kilometers from the existing flotation plant, a cyandiation plant with a capacity of 3,500 tonnes per day. The plant will process the ore and waste dump rock that is currently processed through the flotation plant in conjunction with reclaimed tailings. The plant is scheduled to commence operation in April 2009.
The surface rights to La Encantada Silver Mine are mostly owned by Minera La Encantada (a wholly owned subsidiary of the Company). According to La Encantada, there is a good working relationship with people of the Ejido Tenochtitlán from which the surface rights were purchased by La Encantada, and with the town of Múzquiz, since many of the inhabitants are employed in the exploration or mining operations. No labor or access problems have been reported by La Encantada within the area.
La Encantada was declared in suspension of activities by Peñoles in 2003. In April 24, 2007 La Encantada presented a notification of reactivation of operations at the mine to the National Water Commission (C.N.A.), to Secretaria de Medio Ambiente y Recursos Naturales (SEMARNAT), to Secretaría del Trabajo y Previsión Social, and to Procuradoria Federal de Proteccion al Ambiente (PROFEPA). In accordance with legal a opinion of October 31, 2008 by Mr. Carlos Galván Pastoriza, La Encantada mining operations are currently and have always been conducted in compliance with all applicable laws and regulations.
39
PAH is not aware of any environmental liabilities in La Encantada mining district; most of the area covered by La Encantada concessions is mining and prospective land for mineral exploration and mine development. Mr. José Luis Hernández Santibañez, Corporate Manager of Environmental and Permitting for the Company provided PAH with a document dated October 31, 2008 showing the list of Environmental and Operating Permits for La Encantada in current good standing.
An economic analysis of La Encantada operation shows positive economics as measured by a cash flow model, and thus the postulated reserve position is accepted. La Encantada Silver Mine shows a net present value of US$67 million at a 10 percent discounted rate of return. Table 3-2 presents a summary of La Encantada cash flow based on current reserves/resources estimates.
TABLE 3-2
First Majestic Silver Corp.
Minera
La Encantada, S.A. de C.V.
La Encantada Silver Mine
Economic
Analysis Results as of September 30, 2008
DCFRR, Discount, % | Net Present Value, US $ |
10 | $ 44,143,983.00 |
15 | $ 36,334,243.00 |
20 | $ 30,019,406.00 |
25 | $ 24,851,240.00 |
30 | $ 20,574,641.00 |
TIR: | 85% |
Del Toro Silver Mine, México
The following summary is extracted from a technical report titled Technical Report for the Del Toro Silver Mine, Zacatecas State, México prepared by Leonel Lopez, C.P.G. of PAH dated October 9, 2008. Mr. Lopez is an independent Qualified Person for the purposes of NI 43-101. The complete report can be viewed on SEDAR at www.sedar.com. The detailed disclosure contained in the above mentioned report is incorporated by reference into this AIF.
Del Toro is owned by First Majestic Plata, S.A. de C.V. (FMPlata) a wholly-owned indirect subsidiary of the Company, through its Mexican holding company, CFM, since 2004. Del Toro was formerly referred to by the Company as the Chalchihuites Group of Properties and it consists of polymetallic deposits containing silver/lead/zinc in both oxides in the upper parts and sulfides at depth. FMPlata exploration program for the Del Toro project is focused on the investigation of two areas, the San Juan and Perseverancia areas within the projects holdings.
Del Toro is an Exploration Property for which only mineral resources are estimated. No mineral reserves are estimated for this exploration project with current information.
FMPlatas exploration efforts at Del Toro have delineated a significant resource base within a short period of exploration at relatively low cost. To July 31, 2008 Del Toro Measured and Indicated Resources represent about 21 million ounces of silver equivalent for the San Juan and Perseverancia deposits. Additionally about 36 million ounces of silver equivalent have been estimated in Inferred Resources for both deposits. Del Toro mineralization occurs associated with lead and zinc in polymetallic mineralization; therefore, to report silver equivalent ounces estimated metallurgical recoveries were considered.
40
FMPlata owns mining rights that cover 393 hectares (971 acres) within 21 titled concessions. Duration of the mineral rights concessions is over 50 years with similar renewable periods.
Del Toro consists of numerous areas of interest for mineral exploration within the Chalchihuites mining district, including the San Juan and the Perseverancia areas. Both the San Juan and Perseverancia were historic mines; the Perseverancia was mined for high grade silver rich sulphide ore and the San Juan is believed to be the oldest mine in the district dating back possibly 500 years. Three mineral concentrations in different deposits have been identified at the San Juan area, by underground exploration development and diamond drilling, including the Deposit No. 3 of “high grade” mineralization at depth. The San Juan deposits show lengths that vary between 100 metres to 300 metres along strike and up to 200 metres in vertical projections and widths of up to 20 metres at Level 5 for Deposit No. 1. These deposits have only been partially identified and are opened for further exploration in all directions, which FMPlata continues to explore.
The Perseverancia mine was developed to a depth of nearly 200 metres by following mineral extraction of two “high grade” breccia pipe deposits. FMPlata has delineated the apparent mineralized trend and it is opened for further exploration along strike. The breccia pipes consist of mineral concentration of about 30 metres to 40 metres along strike and 10 metres to 20 metres in width. Known depth of these concentrations is about 250 metres, including about 50 metres drilled intercepted below the old workings deepest level. The Perseverancia mineral trend remains opened for further exploration. Topographic conditions at Perseverancia make difficult drilling access; therefore FMPlata is developing underground access for drilling sites. Other mineralized zones are located within the surrounding skarn zone of a regional granodiorite intrusive stock. These include Magistral, La Esmeralda, La Nueva India, Las Cotorras, San Nicolás, etc.
Historical production records, plus surveying volumes of old stopes within San Juan and Perseverancia old mine workings, suggest that approximately 5 million ounces of silver ores were extracted from these mines at an estimated combined grade of about 700 g/tonne silver, 10 percent to 35 percent lead and 2 percent to 3 percent zinc.
The Chalchihuites mining district represents a typical Mexican mining district which was discovered in Colonial times (XVI – XVII centuries) and only developed from outcroppings by following mineralization along the structures, until high grade ore shoots were discovered and depleted at times of high prices of the metals. The Del Toro Silver Mine is located within this mining district.
FMPlata has commenced an aggressive exploration and development program that includes ramps construction, drifting and crosscutting into the old working areas of the San Juan and Perseverancia areas. Exploration budget for 2008 is US $2.5 million. It includes 25 drill holes in 8,600 metres, geophysical and geochemical surveying, and approximately 2,200m of drifting, crosscutting and ramps development. This program was based on the following premises:
41
Resource calculations by FMPlata at Del Toro are based on projections of the mineralized zones in the underground mine workings, 25 metres beyond the accessible areas of crosscuts, ramps and drifts for the Measured Resources, and another 25 metres beyond the boundaries of the Measured Resources for the blocks of Indicated Resources. Inferred Resources are estimated by projecting up to 50 metres beyond the Indicated Resource block boundaries along mineralized structures, and another 25 metres beyond the blocks’ width. Del Toro mineral resource estimates were determined by underground blocks and diamond drilling intercepts.
The grade for these blocks is determined from the grade estimated for the drill hole intercepted grade and from the adjacent resource blocks from sampling in mine workings and drill holes located within the block area.
The Measured and Indicated silver Resources, including oxides and sulfides mineralization, consist of 1.4 million tonnes averaging 269 grams per tonne silver, 4.7 percent lead and 4.8 percent zinc for a total content of 21 million ounces of silver equivalent including silver only for oxides and credit for lead and zinc for sulfides. The resource grade has been estimated in silver equivalent content based on the following prices: silver - US$12.70/oz, lead - US$0.90 / lb and zinc - US$0.85 / lb. To report equivalent ounces of silver an estimated metallurgical recovery for lead and zinc in sulfides was estimated as follows: lead – 85 percent and zinc – 80 percent, while silver recovery in oxides is estimated in 65 percent. Table 4-1 shows the Del Toro Silver Summary of Resources.
Additional geologic potential exists within the Del Toro project area to investigate targets that may result in resource development for the project. Direct exploration of the geophysical anomaly areas may result in significant target zones for further exploration. Geophysical IP anomalies may represent concentrations of sulfides or other conductive minerals.
Other areas representing interesting geologic potential within FMPlata’s holdings in the Chalchihuites mining district are the following:
FM Plata is driving an exploration/mine development decline (654 metres through June 30) from surface into the old mining areas of the San Juan mine. Concurrently with exploration and development activities, the company is conducting a test-mining program in the mixed oxide-sulfide zone of the No. 1 orebody. A single stope, the 5-050, has been developed as a mechanized overhand cut and fill stope with post pillars and backfill. Three back cuts have been mined to date from the 5-050, resulting in the production of 25,537 tonnes at an average grade of 218 gpt silver and 2.5 percent lead, which was shipped to the Company’s La Parrilla mill for processing. The main purpose of the test mining is to provide a bulk sample for metallurgical test work but also to develop and evaluate parameters for possible future stoping operations. The mining engineers were in the process of planning and designing a mine for the San Juan area at the date of the PAH visit. All development, stoping and ore and waste transport functions for San Juan are done by outside contractors.
42
TABLE 4-1
First Majestic Silver
Corp.
First Majestic Plata, S.A de C.V.
Del Toro Silver
Mine
Summary of Resources, San Juan and Perseverancia
Mines
Mineral Resource Estimates Prepared by FMS , Reviewed by PAH . As of July 31, 2008 (1)(2)(3)(4) | ||||||||||
Mine | Mineralization | Resource | Metric | Width | Ag (g/t) | Pb (%) | Zn (%) | Silver Only | Silver Equivalent (oz) | Silver (oz) |
Category | Tonnes | (m) | (oz) (5) | (Pb-Zn) (5) | (oz) (5) | |||||
San Juan | Oxides | Measured | 269,739 | 20.92 | 166 | 1.50 | 1.53 | 937,000 | 937,000 | |
San Juan | Oxides | Indicated | 458,705 | 210 | 3.01 | 3.40 | 2,010,000 | 2,010,000 | ||
SUB-TOTAL | Oxides | Measured+Indicated | 728,444 | 194 | 2.45 | 2.71 | 2,947,000 | 0 | 2,947,000 | |
Perseverancia | Sulfides | Measured | 18,928 | >2.5 | 381 | 10.01 | 4.74 | 197,000 | 359,000 | 556,000 |
Perseverancia | Sulfides | Indicated | 45,982 | 2.00 | 350 | 9.00 | 3.58 | 439,000 | 746,000 | 1,185,000 |
San Juan | Sulfides | Indicated | 584,618 | 69.66 | 353 | 6.97 | 7.50 | 5,633,000 | 10,622,000 | 16,255,000 |
SUB-TOTAL | Sulfides | Measured+Indicated | 649,528 | 353 | 7.20 | 7.14 | 6,269,000 | 11,727,000 | 17,996,000 | |
TOTAL SJ + P | Sulf. + Oxid. | Measured+Indicated | 1,377,972 | 269 | 4.69 | 4.80 | 9,216,000 | 11,727,000 | 20,943,000 | |
San Juan | Oxides | Inferred | 656,778 | 11.56 | 214 | 3.35 | 3.20 | 2,935,000 | 2,935,000 | |
San Juan | Sulfides | Inferred | 1,141,210 | 71.33 | 359 | 7.07 | 7.59 | 11,193,000 | 21,011,000 | 32,204,000 |
Perseverancia | Sulfides | Inferred | 33,750 | 332 | 8.66 | 3.40 | 306,000 | 525,000 | 831,000 | |
TOTAL SJ + P | Sulfides | Inferred | 1,831,738 | 306 | 5.77 | 5.94 | 14,434,000 | 21,536,000 | 35,970,000 |
(1) |
Resource estimated "in situ". |
(2) |
Price considerations $12.70/tr.oz-Ag, $0.90/lb-Pb, $0.85/lb-Zn. |
(3) |
Mill recovey estimates: Oxides - Ag-65%; Sulfides - Ag-85%, Pb-85% and Zn-80%. |
(4) |
Minimum mining width - 2.00m. |
(5) |
Rounded figures. |
43
A decline from surface is also being driven into the old mining areas of the Perseverancia breccia pipes. No ore has been obtained from the development to date, but the decline had only been driven 258 metres at the time of PAH’s visit, and the mineralized zone had just been penetrated. No test stoping is planned at Perseverancia at this time, however, one of the old Perseverancia vertical shafts was being rehabilitated for ore hoisting for future production. All development and ore and waste transport functions for Perseverancia are done by outside contractors.
Milling of ore from the San Juan area has been done at the Company’s La Parrilla mill. To date about 25,537 tonnes at average grades of 218 gpt silver and 2.5 percent lead have been trucked from the mine to La Parrilla of which 22,660 tonnes have been milled and processed. Metal production from the San Juan ore was about 3,065 kg (98,541 oz) silver and 259 tonnes (571,000 lb) of lead, for average mill recoveries of 61 percent of the silver and 50 percent of the lead. In PAH’s opinion, milling of ore from the Del Toro project should cease until metallurgical test results are available. The metallurgical test work program has only just been started in La Parrilla metallurgical laboratory.
A limited ore recovery program from the large mine dumps at Perseverancia has been conducted. About 244 tonnes of direct-shipping ore, which averaged 1,086 gpt silver, 23.0 percent lead and 9.0 percent zinc had been recovered from the dumps through June 30, 2008. No smelter returns on this production have been available for PAH’s review.
PAH is not aware of any environmental liabilities in the Del Toro project area. FMPlata has presented to Secretaria de Medio Ambiente Recursos Naturales y Pesca (SEMARNAP) the exploration notification in accordance with the applicable regulations. This was presented to the corresponding office in the city of Zacatecas on September 2, 2005. Most of the surrounding area to Del Toro is prospective land within the Chalchihuites mining district.
DIVIDENDS
The Company has not paid any dividends since incorporation and it has no plans to pay dividends for the foreseeable future. The directors of the Company will determine if and when dividends should be declared and paid in the future based on the Company’s financial position at the relevant time. All of the common shares of the Company are entitled to an equal share of any dividends declared and paid.
CAPITAL STRUCTURE
General Description of Capital Structure
The Company’s authorized capital consists of an unlimited number of common shares without par value. A total of 82,341,636 common shares of the Company were issued and outstanding as at the date of this AIF.
Each common share of the Company ranks equally with all other common shares of the Company with respect to dissolution, liquidation or winding-up of the Company and payment of dividends. The holders of common shares of the Company are entitled to one vote for each share of record on all matters to be voted on by such holders and are entitled to receive pro rata such dividends as may be declared by the board of directors of the Company out of funds legally available therefore and to receive pro rata the remaining property of the Company on dissolution. The holders of common shares of the Company have no pre-emptive or conversion rights. The rights attaching to the common shares of the Company can only be modified by the affirmative vote of at least two-thirds of the votes cast at a meeting of shareholders called for that purpose.
44
MARKET FOR SECURITIES
Trading Price and Volume
The common shares of the Company were listed and posted for trading on the Toronto Stock Exchange under the trading symbol FR. The following table sets forth the high and low trading prices and trading volume of the common shares of the Company as reported by the Toronto Stock Exchange for the periods indicated:
Period |
High
$ |
Low
$ |
Volume
|
March 2009 | 2.24 | 1.65 | 8,575,728 |
February 2009 | 3.15 | 1.88 | 8,937,335 |
January 2009 | 2.75 | 2.05 | 4,720,903 |
December 2008 | 2.18 | 1.16 | 3,561,527 |
November 2008 | 1.98 | 1.03 | 3,272,942 |
October 2008 | 2.70 | 0.87 | 7,324,934 |
September 2008 | 3.48 | 2.11 | 5,977,913 |
August 2008 | 4.34 | 3.31 | 2,895,036 |
July 2008 | 4.95 | 4.05 | 4,250,248 |
June 2008 | 4.85 | 4.05 | 4,030,997 |
May 2008 | 4.97 | 3.70 | 4,833,395 |
April 2008 | 4.60 | 3.76 | 3,685,052 |
The common shares of the Company are also quoted on the Pink Sheets in the U.S. under the symbol FRMSF and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol FMV.
The warrants of the Company which were issued pursuant to the offering which closed on March 25, 2008 were listed and posted for trading on the Toronto Stock Exchange under the trading symbol FR.WT.A. The following table sets forth the high and low trading prices and trading volume of the warrants of the Company as reported by the Toronto Stock Exchange for the periods indicated:
Period |
High
$ |
Low
$ |
Volume
|
March 2009 | 0.22 | 0.065 | 956,950 |
February 2009 | 0.43 | 0.17 | 334,000 |
January 2009 | 0.425 | 0.24 | 226,400 |
December 2008 | 0.29 | 0.115 | 452,500 |
November 2008 | 0.285 | 0.08 | 567,650 |
October 2008 | 0.49 | 0.045 | 349,350 |
September 2008 | 0.77 | 0.25 | 167,100 |
August 2008 | 0.94 | 0.355 | 228,900 |
July 2008 | 0.93 | 0.70 | 67,700 |
45
Period |
High
$ |
Low
$ |
Volume
|
June 2008 | 1.03 | 0.61 | 382,450 |
May 2008 | 1.13 | 0.80 | 331,408 |
April 2008 | 1.06 | 0.70 | 572,450 |
The warrants of the Company which were issued pursuant to the offering which closed on March 5, 2009 were listed and posted for trading on the Toronto Stock Exchange under the trading symbol FR.WT.B. The following table sets forth the high and low trading prices and trading volume of the warrants of the Company as reported by the Toronto Stock Exchange for the periods indicated:
Period |
High
$ |
Low
$ |
Volume
|
March 2009 | 0.65 | 0.30 | 878,501 |
Prior Sales
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters led by CIBC World Markets Inc. and including Blackmont Capital Inc., Cormark Securities Inc. and GMP Securities L.P., who purchased 8,500,000 units of the Company at a price of $5.35 per unit. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 for a period of 24 months from the closing of the offering. The underwriters also received an over-allotment option, exercisable up until 30 days following the closing of the offering to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 share purchase warrants at a price of $0.56 per warrant. On April 4, 2008, the Company completed the issuance of an aggregate of 637,500 warrants pursuant to the exercise of the over-allotment option.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters led by CIBC World Markets Inc. and including Blackmont Capital Inc., GMP Securities L.P. and Thomas Weisel Partners, who purchased 8,487,576 units of the Company at a price of $2.50 per unit for proceeds to the Company of $21,218,940. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 for a period of 24 months from the closing of the offering. The underwriters also received an over-allotment option, exercisable up until 30 days following the closing of the offering to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 share purchase warrants at a price of $0.20 per warrant.
46
DIRECTORS AND OFFICERS
Name, Occupation and Security Holding
The following table sets out the names of the current directors and officers of the Company, provinces or states and countries of residence, positions with the Company, principal occupations within the five preceding years, periods during which each director has served as a director and the number of each class of securities of the Company and percentage of such class beneficially owned, directly or indirectly, or subject to control or direction by that person.
The term of each of the current directors of the Company will expire at the next Annual General Meeting unless his office is earlier vacated in accordance with the Articles of the Company or he becomes disqualified to act as a Director. The Company is not required to have an executive committee but it has an Audit Committee, a Human Resources, Compensation and Nominating Committee and a Corporate Governance Committee as indicated below.
Name, Position and City, Province and Country of Residence | Principal Occupation or Employment for Past 5 Years (1) | Period as a Director of the Company | No. and Class of Securities | Percentage of Class (2) |
ROBERT A. McCALLUM,
B.Sc., P.Eng (3) (5) Chairman and Director West Vancouver, British Columbia, Canada |
Professional consulting engineer and President of Robert A. McCallum Inc. from 1999 to present; President and CEO of Kensington Resources Ltd. from June 1, 2004 to October 28, 2005; Director of Shore Gold Inc. from October 28, 2005 to present. | December 15, 2005 to present. |
Common
Stock Options
|
Less than 1.0%
4.38% |
KEITH NEUMEYER
CEO, President and Director London, England |
President of the Company from November 3, 2001 to present; Director of the Company since December 5, 1998. | December 5, 1988 to present. |
Common
Stock Options
|
3.31% 11.52% |
RAMON DAVILA, Ing.
Chief Operating Officer and Director Durango, México |
Chief Operating Officer of the Company from December 14, 2004 to present; Chairman of Minas La Colorado SA de CV from January 1994 to present; Chairman of Minera Lince SA de CV from September 2003 to present; Chairman of Mineral Real Victoria SA de CV from October 2003 to present; Member of the Board for Immobiliaria Aurum SA de CV from June 2005 to present. | April 15, 2004 to present. |
Common
Stock Options
|
Less than 1.0% 11.67% |
RAYMOND L. POLMAN, CA
Chief Financial Officer Vancouver, British Columbia, Canada |
Chief Financial Officer of the Company from February 1, 2007 to present; Chief Financial Officer of Ikona Gear International, Inc. from December 2003 to November 2006. |
N/A
|
Common
Nil Stock options 500,000 |
0.0%
7.29% |
47
Name, Position and City, Province and Country of Residence | Principal Occupation or Employment for Past 5 Years (1) | Period as a Director of the Company | No. and Class of Securities | Percentage of Class (2) |
TONY PEZZOTTI
(3)
(4)
Director Burnaby, British Columbia, Canada |
Retired. Director of Pan Terra Industries Inc. from July 2007 to present. | November 30, 2001 to present. |
Common 581,000
Stock options 300,000 |
Less than 1.0% 4.38% |
DAVID SHAW, Ph.D.
(4)
(5)
Director Vancouver, British Columbia, Canada |
President of Duckmanton Partners Ltd. from June 12, 2000 to present; President and Director of Albion Petroleum Ltd. from October 2006 to present; Director of Reef Resources Ltd. from September 2007 to April 2008; Director of Pan Pacific Aggregates plc from October 2008 to present; CEO of Columbia Gold plc from May 2007 to March 2009. | January 12, 2005 to present. |
Common 73,100
Stock options 300,000 |
Less than 1.0% 4.38% |
DOUGLAS PENROSE, CA
(3)
(5)
Director Kamloops, British Columbia, Canada |
Vice President, Finance and Corporate Services of British Columbia Lottery Corporation from 2000 to April 2008. | September 7, 2006 to present. |
Common 10,000
Stock options 300,000 |
Less than 1.0% 4.38% |
ROBERT YOUNG
(4)
Director Richmond, British Columbia, Canada |
Independent geological consultant from 1999 to present; Director of Goldrush Resources Ltd. from December 2004 to present; Advisor to Copper Mountain Mining Corporation from April 2007 to present. | September 7, 2006 to present. |
Common 10,000
Stock options 312,500 |
Less than 1.0% 4.56% |
CONNIE LILLICO
Corporate Secretary Coquitlam, British Columbia, Canada |
Corporate Secretary of the Company from August 2007 to present; Corporate Secretary of several TSX Venture Exchange issuers from July 2004 to July 2007. | N/A |
Common Nil
Stock options 250,000 |
0.0% 3.65% |
(1) |
The information as to principal occupation and shares beneficially owned has been furnished by the respective individuals. |
(2) |
Based upon the 82,341,636 common shares and options to acquire 6,856,250 common shares of the Company issued and outstanding as of the date of this AIF. |
(3) |
Member of the Audit Committee. |
(4) |
Member of the Human Resources, Compensation and Nominating Committee. |
(5) |
Member of the Corporate Governance Committee. |
The aggregate number of common shares of the Company which the directors and senior officers of the Company beneficially own, directly or indirectly, or over which control or direction is exercised, is 3,824,940 common shares of the Company or approximately 4.7% of the common shares of the Company issued and outstanding as of the date of this AIF.
48
Audit Committee Information
Pursuant to the provisions of National Instrument 52-110 Audit Committees (NI 52-110) the Company is required to provide the following disclosure with respect to its Audit Committee.
Audit Committee Mandate
The text of the Audit Committees Mandate is attached as Appendix A to this AIF.
Composition of the Audit Committee
Members of the Audit Committee are Douglas Penrose, Tony Pezzotti and Robert McCallum. All three members are independent and all three members are considered financially literate.
Relevant Education and Experience
Douglas Penrose received his Bachelor of Commerce degree from the University of Toronto. He has been a member of the Institute of Chartered Accountants of Ontario since 1974 and the Institute of Chartered Accountants of British Columbia since 1978. He brings over 20 years experience in leadership positions in corporate finance, including the position of Chief Financial Officer and was most recently the Vice President of Finance and Corporate Services at the British Columbia Lottery Corporation.
Tony Pezzotti, currently retired, is a seasoned board member who has served on several public company boards, including OSI Geospatial Inc., First Quantum Minerals Ltd., and Kensington Resources Ltd. He also served as a member of the Audit Committees of those companies and was General Manager and co-owner of a privately held steel fabrication company. Mr. Pezzotti also currently serves on the board of Pan Terra Industries Inc.
Robert McCallum graduated in 1959 from the University of Witwatersrand, South Africa with a Bachelor of Science (Mining) followed in 1971 by a PMD in the Executive Management Program at Harvard Graduate School of Business, Boston, Massachusetts. He was most recently President and C.E.O. of Kensington Resources Ltd. prior to its merger with Shore Gold Inc. in 2005 and now sits on the board of Shore Gold.
Reliance on Certain Exemptions
Since the commencement of the Companys most recently completed financial year, the Company has not relied on:
(a) |
the exemption in section 2.4 ( De Minimis Non-Audit Services ) of NI 52-110; |
|
(b) |
the exemption is section 3.2 ( Initial Public Offerings ) of NI 52-110 |
|
(c) |
the exemption is section 3.4 ( Events Outside the Control of the Member ) of NI 52-110; |
|
(d) |
the exemption in section 3.5 ( Death, Disability or Resignation of Audit Committee Member ) of NI 52-110; or |
|
(e) |
an exemption from the Instrument in whole or in part, granted under Part 8 of NI 52-110. |
49
Audit Committee Oversight
The Companys Board of Directors adopted all recommendations by the Audit Committee with respect to the nomination and compensation of the external auditor.
Pre-Approval Policy
The Audit Committee has adopted specific policies for the engagement of non-audit services to be provided to the Company by the external auditor which require the auditors to submit to the Audit Committee a proposal for services to be provided and cost estimates for approval.
External Auditor Service Fees
The following table sets out the fees billed to the Company by Deloitte & Touche LLP, Chartered Accountants, and its affiliates for professional services in each of the years ended December 31, 2008 and December 31, 2007, respectively.
Category | Year ended December 31, 2008 | Year ended December 31, 2007 |
Audit Fees | $283,500 | $264,100 |
Audit-Related Fees | $268,844 | $207,586 |
Tax Fees | $70,403 | $125,055 |
All Other Fees | - | - |
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
To the knowledge of the Company, no director or executive officer of the Company nor a shareholder holding a sufficient number of common shares of the Company to materially affect the control of the Company, nor a personal holding company of any of them,
(a) |
is, at the date of this AIF or has been within the 10 years before the date of the AIF, a director or executive officer of the company (including the Company), that while that person was acting in that capacity, |
|
(i) |
was the subject of a cease trade order or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; |
|
(ii) |
was subject to an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities registration, for a period of more than 30 consecutive days; or |
|
(iii) |
or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement, or compromise with creditors, or had a receiver, receiver manager, or trustee appointed to hold its assets; or |
50
(b) |
has, within the 10 years before the date of this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or comprise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, officer or shareholder. |
To the knowledge of the Company, no director or executive officer of the Company, nor a shareholder holding a sufficient number of common shares of the Company to affect materially the control of the Company, nor a personal holding company of any of them, has been subject to,
(a) |
any penalties or sanctions imposed by the court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or |
(b) |
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision. |
Conflicts of Interest
Certain directors of the Company are also directors or officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting mineral properties. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest, which they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time. See “Interest of Management and Others in Material Transactions”.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
Legal Proceedings
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the amount received from the bank but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $832,769.
In February 2004, an action was commenced against the Company by the optionors of the Wekusko Property in Manitoba whereby the optionors are seeking an amount of $43,500 cash, 30,000 common shares of the Company and an entitlement to exercise an option to purchase 100,000 shares of the Company at a price of $0.35 per share. Management believes that there are substantial defences to the claim; however, the outcome of this litigation is not presently determinable.
In November 2007, an action was commenced by the Company and First Silver against Hector Davila Santos and Minera Arroyo Del Agua, S.A. de C.V. in British Columbia whereby the Company and First Silver allege that while holding the positions of director, President and Chief Executive Officer and Chairman of the Board of First Silver, Mr. Davila Santos engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in First Silver not acquiring the Bolaños Mine from Grupo México. Management believes that there are substantial grounds to this claim; however, the outcome of this litigation is not presently determinable.
51
As disclosed above under “General Development of the Business – Past Three Years”, pursuant to a share purchase agreement dated April 3, 2006, the Company purchased 24,649,200 common shares of First Silver from Hector Davila Santos at a price of $2.165 per share for an aggregate purchase price of $53,365,519 payable in cash to Mr. Davila Santos in three installments. The first installment of $26,682,757 represented 50% of the purchase price and was paid on May 30, 2006. An additional installment of $13,341,380, representing 25% of the purchase price was paid on May 30, 2007. A final installment of $13,341,380 was payable on May 30, 2008. An interest amount of 6% per annum is payable quarterly on the outstanding installment. Pending resolution of the litigation set out above the Company has withheld payment of the final installment due May 30, 2008 and the quarterly installments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008 to Mr. Davila Santos and has maintained a reserve of cash in the amount of such installments. A letter of credit in the amount of $13,940,237 has been posed with the courts.
On March 10, 2008, the Company received a letter from Mr. Davila Santos alleging that the Company is required to pay $6,062,000 to Mr. Davila Santos in connection with approximately 2,800,000 shares of First Silver which were acquired by the Company pursuant to a plan of arrangement (the "Plan of Arrangement") in September 2006. The Company has rejected this demand and believes that it has no obligation to pay any cash amounts in connection with such shares to Mr. Davila Santos. Under the Plan of Arrangement, the former holders of shares of First Silver may deposit the certificates which formerly represented such shares with the depositary under the Plan of Arrangement. Upon such a deposit the former holders are entitled to receive shares of the Company subject to and in accordance with the terms of the Plan of Arrangement. On March 26, 2008, Mr. Davila Santos deposited 2,800,000 shares of First Silver which resulted in the issuance of 1,400,000 shares of the Company.
On March 14, 2008, Mr. Davila Santos filed a statement of defence and counter-claim in respect of the action referred to above. Pursuant to the counterclaim, Mr. Davila Santos has claimed for payment of the amounts referred to above, damages for the failure by the Company to purchase the 2,800,000 shares of First Silver which the Company already owns (as referenced in the previous paragraph), the return of some or all of the shares of First Silver owned by the Company, and for unquantified damages, costs and interest. The Company believes that the issues raised in the counterclaim will turn on the success of the Company's action against Mr. Davila Santos, however, the outcome of this litigation is not presently determinable. Trial has been set in the Supreme Court of British Columbia, Vancouver, British Columbia for April 12, 2010.
Regulatory Actions
No penalties or sanctions were imposed against the Company by a court relating to securities legislation or by a securities regulatory authority during the year ended December 31, 2008.
No penalties or sanctions were imposed by a court or regulatory body against the Company that would likely be considered important to a reasonable investor in making an investment decision.
The Company did not enter into any settlement agreements with a court relating to securities legislation or with a securities regulatory authority during the year ended December 31, 2008.
52
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
No director, senior officer, principal holder of securities or any associate or affiliate thereof of the Company has any interest, directly or indirectly, in material transactions with the Company within the three most recently completed financial years or during the current financial year that has materially affected or will materially affect the Company, other than the following transactions, each of which were in the normal course of business:
1. During the fiscal years ending December 31, 2008, December 31, 2007, December 31, 2006, the Company incurred $nil, $nil and $15,000, respectively, for geological and technical services provided by a current and a former director of the Company and/or companies controlled by a current and a former director of the Company.
2. During the fiscal year ending December 31, 2007, finder’s fees totalling $254,742 were paid to Ramon Davila for the completion of options on portions of the Del Toro Silver Mine known as the San Juan Silver Mine and the Perseverancia Silver Mine.
3. During the fiscal year ending December 31, 2008, a finder’s fee of $7,367 was paid to Ramon Davila in connection with the completion of certain option agreements relating to the Del Toro Silver Mine.
4. During the fiscal year ending December 31, 2008, a loan of US$30,000 was provided to a director of the Company. The loan was fully repaid subsequent to December 31, 2008.
TRANSFER AGENT AND REGISTRARS
The Company’s transfer agent and registrar is Computershare Trust Company of Canada (“Computershare”). Computershare’s register of transfers for the common shares of the Company is located at 510 Burrard Street, Second Floor, Vancouver, British Columbia, Canada, V6C 3B9.
MATERIAL CONTRACTS
The following material contracts were entered into by the Company or by its wholly owned subsidiaries since the beginning of the Company’s fiscal year ended December 31, 2008 or were entered into prior to such fiscal year, and are still in effect as of the date of this AIF:
1. |
Share Purchase Agreement dated April 3, 2006 with Hector Davila Santos pursuant to which the Company agreed to purchase approximately 63% of the issued and outstanding shares of First Silver from the major shareholder of First Silver. See “General Development of the Business – Past Three Years” and “Legal Proceedings and Regulatory Actions”. |
|
2. |
Del Toro Silver Mine, formerly referred to as the Chalchihuites Group Properties: |
|
(a) |
Option Agreement dated June 8, 2004 with Mrs. Catalina Garcia de Mazatan to purchase the Perseversancia mining concession. |
53
(b) |
Option Agreement dated June 7, 2004 with Mrs. Maria de la Paz Barba Davalos to purchase the Carmen, Fanny, Gabi, Lupita, Lourdes, La Guera, Maria de la Paz, Ricardo, Socorro and Violeta mining concessions. |
|
(c) |
Option Agreement dated February 6, 2004 with Mrs. Maria Saenz Sanchez to purchase the La Esperanza and San Rafael mining concessions. |
|
(d) |
Option Agreement dated July 6, 2008 with Juan Fernando Lopez Chavez and Guillermo Lopez Chavez to purchase the Fatima mining concession. |
|
3. |
Quebradillas and Viboras Silver Mines: |
|
(a) |
Assignment of Rights and Obligations Agreement dated August 22, 2006 with Industrial Minera México, S.A. de C.V. and amended on November 15, 2008. |
|
(b) |
Assignment of Rights and Obligations Agreement dated August 22, 2006 with Minerales Metalicos Del Norte, S.A. and amended on November 15, 2008. |
|
(c) |
Assignment of Rights and Obligations Agreement dated August 22, 2006 with Mexican Del Arco, S.A. de C.V. and amended on November 15, 2008. |
|
4. |
Underwriting Agreement dated March 11, 2008 between CIBC World Markets Inc., Cormark Securities Inc., Blackmont Capital Inc. and GMP Securities LP and the Company pursuant to which the underwriters offered to purchase from the Company and the Company offered to sell to the underwriters 8,500,000 units of the Company at a price of $5.35 per unit. |
|
5. |
Warrant Indenture dated March 25, 2008 with Pacific Corporate Trust Company governing the issue of up to 4,887,500 warrants by the Company. |
|
6. |
Underwriting Agreement dated February 19, 2009 between CIBC World Markets Inc., Blackmont Capital Inc., GMP Securities LP, Thomas Weisel Partners and the Company pursuant to which the Underwriters offered to purchase from the Company and the Company offered to sell to the underwriters 6,800,000 units of the Company and the Company granted an option to the underwriters to acquire up to an additional 3,200,000 units of the Company (exercisable prior to closing of the Offering) at a price of $2.50 per unit. |
|
7. |
Warrant Indenture dated March 5, 2009 with Computershare Trust Company of Canada governing the issue of up to 5,750,000 warrants by the Company. |
INTERESTS OF EXPERTS
Names of Experts
Deloitte & Touche LLP is the auditor of the Company and is independent within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of British Columbia.
Richard Addison, P.E. and Leonel Lopez, C.P.G. of Pincock Allen & Holt prepared technical reports on the Company’s La Parrilla Silver Mine dated February 16, 2009 as amended and restated on February 26, 2009, San Martín Silver Mine dated January 15, 2009, as amended and restated on February 26, 2009, the La Encantada Silver Mine dated January 12, 2009, as amended and restated on February 26, 2009 and the Del Toro Silver Mine dated October 9, 2008, as amended February 26, 2009. To management’s knowledge, Mr. Addison and Mr. Lopez do not have any registered or beneficial interests, direct or indirect, in any securities or other property of the Company (or of any of its associates or affiliates).
54
ADDITIONAL INFORMATION
Additional information relating to the Company may be found on SEDAR at www.sedar.com.
Additional information including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans, as applicable, is contained in the Company’s information circular for its most recent annual general meeting.
Additional financial information is provided in the Company’s audited financial statements and MD&A for the year ended December 31, 2008 which may be obtained upon request from First Majestic’s head office, or may be viewed on the Company’s website (www.firstmajestic.com) or on the SEDAR website (www.sedar.com).
APPENDIX A TO THE ANNUAL INFORMATION FORM OF
FIRST MAJESTIC SILVER CORP.
(the Company)
AUDIT COMMITTEE MANDATE
1. MANDATE
The primary mandate of the audit committee (the Audit Committee) of the Board of Directors (the Board) of the Company is to assist the Board in overseeing the Companys financial reporting and disclosure. This oversight includes:
a. |
reviewing the financial statements and financial disclosure that is provided to shareholders and disseminated to the public; |
|
b. |
ascertaining that management has implemented the systems of internal controls to ensure integrity in the financial reporting of the Company; and |
|
c. |
monitoring the independence and performance of the Companys external auditors and reporting directly to the Board on the work of the external auditors. |
2. COMPOSITION AND ORGANIZATION OF THE COMMITTEE
a. |
The Audit Committee must have at least three directors. |
|
b. |
The majority of the Audit Committee members must be independent. A member of the Audit Committee is independent if the member has no direct or indirect material relationship with an issuer. A material relationship means a relationship which could, in the view of the issuers board of directors, reasonably interfere with the exercise of a members independent judgment. |
|
c. |
Every Audit Committee member must be financially literate. Financial literacy is the ability to read and understand a set of financial statements that present a breath and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the issuers financial statements. |
|
d. |
The Board will appoint from themselves the members of the Audit Committee on an annual basis for one year terms. Members may serve for consecutive terms. |
|
e. |
The Board will also appoint a chair of the Audit Committee (the Chair of the Audit Committee) for a one year term. The Chair of the Audit Committee may serve as the chair of the committee for any number of consecutive terms. |
|
f. |
A member of the Audit Committee may be removed or replaced at any time by the Board. The Board will fill any vacancies in the Audit Committee by appointment from among members of the Board. |
3. MEETINGS
a. |
The Audit Committee will meet at least four (4) times per year. Special meetings may be called by the Chair of the Audit Committee as required. |
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b. |
Quorum for a meeting of the Audit Committee will be two (2) members in attendance. |
|
c. |
Members may attend meetings of the Audit Committee by teleconference, videoconference, or by similar communication equipment by means of which all persons participating in the meeting can communicate with each other. |
d. |
The Audit Committee Chair will set the agenda for each meeting, after consulting with management and the external auditor. Agenda materials such as draft financial statements must be circulated to Audit Committee members for members to have a reasonable time to review the materials prior to the meeting. |
|
e. |
Minutes of the Audit Committee meetings will be accurately recorded, with such minutes recording the decisions reached by the committee. Minutes of each meeting must be distributed to members of the Board, the Chief Executive Officer, the Chief Financial Officer and the external auditor. |
4. RESPONSIBILITIES OF THE COMMITTEE
The Audit Committee will perform the following duties:
External Auditor
i. |
select, evaluate and recommend to the Board, for shareholder approval, the external auditor to examine the Companys accounts, controls and financial statements; |
|
ii. |
evaluate, prior to the annual audit by external auditors, the scope and general extent of their review, including their engagement letter, and the compensation to be paid to the external auditors and recommend such payment to the Board; |
|
iii. |
obtain written confirmation from the external auditor that it is objective and independent within the meaning of the Rules of Professional Conduct/Code of Ethics adopted by the provincial institute or order of Chartered Accountants to which it belongs; |
|
iv. |
recommend to the Board, if necessary, the replacement of the external auditor; |
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v. |
meet at least annually with the external auditors, independent of management, and report to the Board on such meetings; |
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vi. |
pre-approve any non-audit services to be provided to the Company by the external auditor and the fees for those services; |
Financial Statements and Financial Information
vii. |
review and discuss with management and the external auditor the annual audited financial statements of the Company and recommend their approval by the Board; |
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viii. |
review and discuss with management, the quarterly financial statements and recommend their approval by the Board; |
|
ix. |
review and recommend to the Board for approval the financial content of the annual report; |
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x. |
review the process for the certification of financial statements by the Chief Executive Officer and Chief Financial Officer; review the Companys management discussion and analysis, annual and interim earnings or financial disclosure press releases, and audit committee reports before the Company publicly discloses this information; |
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xi. |
review annually with external auditors, the Companys accounting principles and the reasonableness of managements judgments and estimates as applied in its financial reporting; |
|
xii. |
review and consider any significant reports and recommendations issued by the external auditor, together with managements response, and the extent to which recommendations made by the external auditors have been implemented; |
Risk Management, Internal Controls and Information Systems
xiii. |
review with the external auditors and with management, the general policies and procedures used by the Company with respect to internal accounting and financial controls; |
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xiv. |
review adequacy of security of information, information systems and recovery plans (this should include reference to the backups in place for the computers, locks on cabinets, etc.); |
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xv. |
review management plans regarding any changes in accounting practices or policies and the financial impact thereof; |
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xvi. |
review with the external auditors and, if necessary, legal counsel, any litigation, claim or contingency, including tax assessments, that could have a material effect upon the financial position of the Company and the manner in which these matters are being disclosed in the financial statements; |
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xvii. |
discuss with management and the external auditor correspondence with regulators, employee complaints, or published reports that raise material issues regarding the Companys financial statements or disclosure; |
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xviii. |
assisting management to identify the Companys principal business risks; |
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xix. |
review the Companys insurance, including directors and officers coverage, and provide recommendations to the Board; |
Other
xx. |
conduct special reviews and/or other assignments from time to time as requested by the Board or the Chief Executive Officer. |
5. PROCESS FOR HANDLING COMPLAINTS REGARDING FINANCIAL MATTERS
The Audit Committee shall establish a procedure for the receipt, retention and follow-up of complaints received by the Company regarding accounting, internal controls, financial reporting, or auditing matters.
The Audit Committee shall ensure that any procedure for receiving complaints regarding accounting, internal controls, financial reporting, or auditing matters will allow the confidential and anonymous submission of concerns by employees, consultants and/or contractors.
6. REPORTING
The Audit Committee will report to the Board on:
i. |
the external auditors independence; |
|
ii. |
the performance of the external auditor and the Audit Committees recommendations; |
|
iii. |
regarding the reappointment or termination of the external auditor; |
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iv. |
the adequacy of the Companys internal controls and disclosure controls; |
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v. |
the Audit Committees review of the annual and interim financial statements; |
|
vi. |
the Audit Committees review of the annual and interim management discussion and analysis; |
|
vii. |
the Companys compliance with legal and regulatory matters to the extent they affect the financial statements of the Company; and |
|
viii. |
all other material matters dealt with by the Audit Committee. |
7. AUTHORITY OF THE COMMITTEE
a. |
The Audit Committee will have the resources and authority appropriate to discharge its duties and responsibilities. The Audit Committee may at any time retain outside financial, legal or other advisors at the expense of the Company without approval of management. |
|
b. |
The external auditor will report directly to the Audit Committee. |
EFFECTIVE DATE
This Mandate was implemented by the Board on December 21, 2006
Deloitte & Touche LLP
2800 - 1055 Dunsmuir Street
4
Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca
Report of Independent Registered Chartered
Accountants on
Reconciliation of Canadian GAAP to United States GAAP
To the Shareholders of First Majestic Silver Corp.
We have audited the consolidated financial statements of First Majestic Silver Corp. and subsidiaries (the Company) as at December 31, 2009 and 2008 and for each of the years then ended and have issued our report dated March 19, 2010. We have also audited the consolidated financial statements of the Company as at December 31, 2008 and 2007 and for each of the years then ended and have issued our report dated March 31, 2009. Such consolidated financial statements and reports are contained in Exhibits 99.4 and 99.7 of Form 40-F. Our audits also included the reconciliation from Canadian GAAP to United States GAAP of the Company contained in Exhibit 99.9 of Form 40-F. This reconciliation from Canadian GAAP to United States GAAP is the responsibility of the Companys management. Our responsibility is to express an opinion based on our audits. In our opinion, such reconciliation from Canadian GAAP to United States GAAP, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Vancouver,
Canada
November 22, 2010
26. Reconciliation between Canadian and United States Generally Accepted Accounting Principles
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), which differ in certain material respects from those principles and practices that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles and practices generally accepted in the United States ("US GAAP").
Consolidated Statements of Income (Loss)
The reconciliation between Canadian GAAP and US GAAP of the net income (loss) is as follows:
Comprehensive Loss
Comprehensive loss under US GAAP is as follows:
Year ended | Year ended | Year ended | |||||||
Dec. 31, 2009 | Dec. 31, 2008 | Dec. 31, 2007 | |||||||
NET INCOME (LOSS) UNDER US GAAP | $ | 2,699,478 | $ | (19,267,458 | ) | $ | (20,430,497 | ) | |
Other comprehensive income (loss) under Canadian GAAP: | $ | (17,022,524 | ) | $ | (8,030,183 | ) | $ | (23,096,709 | ) |
Adjusted for: | |||||||||
Translation adjustment (f) | 4,028,278 | 227,270 | 863,057 | ||||||
(12,994,246 | ) | (7,802,913 | ) | (22,233,652 | ) | ||||
COMPREHENSIVE LOSS UNDER US GAAP | $ | (10,294,768 | ) | $ | (27,070,371 | ) | $ | (42,664,149 | ) |
Consolidated Balance Sheets
The reconciliation between Canadian GAAP and US GAAP of the total assets, total liabilities and total shareholders equity is as follows:
2009 | 2008 | |||||
TOTAL ASSETS UNDER CANADIAN GAAP | $ | 251,575,252 | $ | 231,159,649 | ||
Adjustment to: | ||||||
Mining interests, plant and equipment related to: | ||||||
Exploration expenditures (a) | (38,797,459 | ) | (39,660,073 | ) | ||
Pre-operating income (b) | 217,860 | - | ||||
Depletion expense (c) | (2,392,311 | ) | (214,795 | ) | ||
Capitalization of interest (d) | 79,484 | - | ||||
TOTAL ASSETS UNDER US GAAP | $ | 210,682,826 | $ | 191,284,781 | ||
TOTAL LIABILITIES UNDER CANADIAN GAAP | $ | 52,654,652 | $ | 73,630,824 | ||
Adjustment to future tax liabilities (e) | (12,905,344 | ) | (11,470,255 | ) | ||
TOTAL LIABILITIES UNDER US GAAP | $ | 39,749,308 | $ | 62,160,569 | ||
SHAREHOLDERS' EQUITY UNDER CANADIAN GAAP | $ | 198,920,600 | $ | 157,528,825 | ||
Cumulative mining interests adjustment (a) | (43,916,064 | ) | (40,750,400 | ) | ||
Cumulative adjustment for pre-operating income (b) | 217,860 | - | ||||
Cumulative adjustment to depletion (c) | (2,392,311 | ) | (214,795 | ) | ||
Cumulative adjustment for capitalization of interest (d) | 79,484 | - | ||||
Cumulative adjustment to future income taxes (e) | 12,905,344 | 11,470,255 | ||||
Cumulative adjustment to accumulated other comprehensive income (f) | 5,118,605 | 1,090,327 | ||||
SHAREHOLDERS' EQUITY UNDER US GAAP | 170,933,518 | 129,124,212 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY UNDER US GAAP | $ | 210,682,826 | $ | 191,284,781 |
The components of shareholders' equity under US GAAP would be as follows:
2009 | 2008 | |||||
Share capital | $ | 244,241,006 | $ | 196,648,345 | ||
Share capital to be issued | 276,495 | 276,495 | ||||
Contributed surplus | 27,808,671 | 23,297,258 | ||||
Accumulated other comprehensive income | (35,120,309 | ) | (52,711,330 | ) | ||
Deficit | (66,272,345 | ) | (38,386,556 | ) | ||
Total shareholders' equity | $ | 170,933,518 | $ | 129,124,212 |
Consolidated Statements of Cash Flows
The reconciliation between Canadian GAAP and US GAAP of the statements of cash flows is as follows:
2009 | 2008 | 2007 | |||||||
OPERATING ACTIVITIES UNDER CANADIAN GAAP | $ | 6,703,029 | $ | 6,560,058 | $ | 4,171,209 | |||
Adjustment for: | |||||||||
Exploration expenditures (a) | (3,165,664 | ) | (18,793,234 | ) | (18,940,650 | ) | |||
Pre-operating income (b) | 496,371 | - | - | ||||||
Capitalization of interest (d) | (79,484 | ) | - | - | |||||
OPERATING ACTIVITIES UNDER US GAAP | 3,954,252 | (12,233,176 | ) | (14,769,441 | ) | ||||
INVESTING ACTIVITIES UNDER CANADIAN GAAP | (35,375,240 | ) | (40,601,626 | ) | (34,535,620 | ) | |||
Adjustment for: | |||||||||
Exploration expenditures (a) | 3,165,664 | 18,793,234 | 18,940,650 | ||||||
Pre-operating income (b) | (496,371 | ) | - | - | |||||
Capitalization of interest (d) | 79,484 | - | - | ||||||
Change in restricted cash (h) | (318,095 | ) | (13,940,237 | ) | - | ||||
INVESTING ACTIVITIES UNDER US GAAP | (32,944,558 | ) | (35,748,629 | ) | (15,594,970 | ) | |||
FINANCING ACTIVITIES UNDER CANADIAN GAAP | 17,121,501 | 38,634,324 | 25,328,879 | ||||||
Adjustment for: | |||||||||
Reclassification of change in restricted cash (h) | 14,258,332 | - | - | ||||||
FINANCING ACTIVITIES UNDER US GAAP | 31,379,833 | 38,634,324 | 25,328,879 | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,389,527 | (9,347,481 | ) | (5,035,532 | ) | ||||
EFFECT OF EXCHANGE RATE ON CASH HELD IN FOREIGN CURRENCY | 16,380 | (3,816 | ) | - | |||||
OPENING CASH AND CASH EQUIVALENTS - US GAAP | 3,483,886 | 12,835,183 | 17,870,715 | ||||||
CLOSING CASH AND CASH EQUIVALENTS - US GAAP | $ | 5,889,793 | $ | 3,483,886 | $ | 12,835,183 |
(a) | Exploration expenditures | |
Canadian GAAP allows exploration costs to be capitalized during the search for a commercially mineable body of ore if the Company considers such costs to have the characteristics of fixed assets. Under US GAAP, exploration expenditures on mining interests can only be deferred subsequent to the establishment of mining reserves as defined under SEC regulations. For US GAAP purposes the Company has expensed exploration expenditures in the period incurred. |
(b) |
Revenues and expenditures during the pre-operating period |
||
For Canadian GAAP purposes, the La Encantada Mill Expansion Project had not achieved a commercial stage of production at December 31, 2009 and therefore the net amount of revenues less production costs in connection with the sale of 54,277 silver equivalent ounces of precipitates during the pre-operating period were recorded to construction in progress. Under US GAAP, the production stage is deemed to begin when saleable minerals are extracted from an ore body, regardless of the level of production. The earlier commencement of commercial production under US GAAP for the year ended December 31, 2009 results in an increase in income of $217,860 with a corresponding increase to construction in progress. |
|||
(c) |
Depletion expense |
||
The adjustment to depletion expense is comprised of the following: |
|||
(i) |
Depletion expense under Canadian GAAP is higher than under US GAAP, as a result of differences in the carrying amounts of mining interests under Canadian GAAP and US GAAP as described in note 26(a). |
||
(ii) |
The earlier commencement of commercial production under US GAAP as described in note 26(b) results in an increase in depletion expense under US GAAP. |
||
(iii) |
For Canadian GAAP purposes, acquisition, development and deferred exploration costs related to mining interests are depleted on a units-of-production basis over the estimated economic life of the ore body following commencement of production. The estimated economic life of the ore body for certain mining properties includes a portion of mineralization expected to be classified as reserves, as opposed to only proven and probable reserves. Under US GAAP, in accordance with the United States Securities and Exchange Commission Industry Guide 7, the base used for the depletion calculation is limited to proven and probable reserves resulting in higher depletion expense. |
(d) |
Capitalization of interest |
|
Under Canadian GAAP the Company does not capitalize interest related to long-term construction projects. Under US GAAP, the Company is required to capitalize interest. For the year ended December 31, 2009, for US GAAP purposes the Company has capitalized interest expense of $79,484. |
||
(e) |
Income taxes |
|
The income tax adjustment reflects the impact on income taxes of the US GAAP adjustments described above. Accounting for income taxes under Canadian and US GAAP is similar, except that income tax rates of enacted or substantively enacted tax law must be used to calculate future income tax assets and liabilities under Canadian GAAP, whereas only income tax rates of enacted tax law can be used under US GAAP. |
||
(f) |
Cumulative translation adjustment |
|
The cumulative translation adjustment recorded as a component of accumulated other comprehensive income under Canadian GAAP is lower than under US GAAP, as a result of differences in the carrying amounts of mining interests under Canadian and US GAAP. |
||
(g) |
Income taxes related to uncertain income tax positions |
|
US GAAP prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its consolidated financial statements uncertain income tax positions that it has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). Canadian GAAP has no similar requirements related to the measurement of uncertain income tax positions. The Company identified no measurement differences related to uncertain tax positions. |
||
The following additional disclosures relating to income taxes are required under US GAAP: |
||
Tax years subject to examination by jurisdiction are: |
Canada | 2003 2009 |
Mexico | 2004 2009 |
(h) |
Restricted cash |
||
For US GAAP purposes, restricted cash has been excluded from cash and cash equivalents for the periods presented and the change in restricted cash for the period has been classified as investing activities. |
|||
(i) |
Impact of Recent United States Accounting Pronouncements |
||
(i) |
FASB Accounting Standard Codification (ASC) No. 805, Business Combinations (ASC 805) |
||
ASC 805, Business Combinations improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement establishes principles and requirements for how the acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and its adoption had no impact on the Companys financial statements. |
|||
(ii) |
FASB Accounting Standard Codification (ASC) No. 810, Consolidation (ASC 810) |
||
In December 2007, the FASB issued ASC 810, Consolidation. ASC 810 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This Standard clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. ASC 810 changes the way the consolidated earnings (loss) statement is presented by requiring consolidated net earnings (loss) to be reported including the amounts attributable to both the parent interest and the non-controlling interest. The Standard requires disclosure on the face of the consolidated statement of operations of the amounts of consolidated net earnings (loss) attributable to the parent interest and to the non-controlling interest. ASC 810 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008 and its adoption had no impact on the Companys financial statements. |
|||
(iii) |
FASB Accounting Standard Codification (ASC) No. 815, Derivatives and Hedging (ASC 815) |
||
The FASB issued ASC 815, Derivatives and Hedging, which revises disclosure requirements for derivative instruments and hedging activities. It requires disclosure by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument and requires an additional disclosure about the current status of the payment/performance risk of a guarantee. The Standard is effective for financial statements issued for years beginning after November 15, 2008 and interim periods within those years and its adoption had no impact on the Companys financial statements. |
(iv) |
FASB Accounting Standard Codification (ASC) No. 855, Subsequent events (ASC 855) |
|
The FASB issued ASC 855, Subsequent Events, which establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This Standard is effective for interim or annual periods ending after June 15, 2009 and its adoption had no impact on the Companys financial statements. |
||
(v) |
FASB Accounting Standards Codification (ASC) No. 105, Generally Accepted Accounting Principles (ASC 105) |
|
The FASB issued ASC 105, Generally Accepted Accounting Principles, which identifies the source of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities presented in conformity with US GAAP. It is effective for interim and annual periods ending after September 15, 2009 and its adoption had no impact on the Companys financial statements. |
||
(vi) |
FASB Accounting Standards Codification (ASC) 825, Financial Instruments (ASC 825) |
|
The FASB issued ASC 825, Financial Instruments, which requires disclosures about fair value of financial instruments in interim financial statements of public companies (rather than just annually), and requires those disclosures in summarized financial information at interim periods. ASC 825 is effective for periods ending after June 15, 2009. The adoption of this Standard had no significant impact on the Companys financial statements. |
||
(vii) |
FASB Accounting Standards Codification (ASC) 325 Investments Other (ASC 325) |
|
ASC 325, Investments Other, is effective for interim and annual reporting periods ending after December 15, 2008. The goal is to achieve a more consistent determination of whether an other- than-temporary impairment has occurred and reemphasizes the objective of an other-than- temporary impairment assessment and the related disclosure requirements in ASC 815. The adoption of this Standard had no impact on the Companys results of operations and financial position. |
||
(viii) |
FASB Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) |
|
This Standard provides additional guidance to highlight and expands on the factors that should be considered in estimating fair value when there has been a significant decrease in market activity for a financial asset. The Standard is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. In the period of adoption, a reporting entity must disclose any changes in valuation techniques and related inputs resulting from the application of this Standard, and quantify the total effect of the change in valuation techniques and related inputs, if practicable, by major category. The adoption of this Standard had no impact on the Companys results of operations and financial position. |
(ix) |
FASB Accounting Standards Codification (ASC) 320 Investments Debt and Equity disclosures (ASC 320) |
|
ASC 320 changed (1) the method for determining whether an other-than-temporary impairment exists for debt securities and (2) the amount of an impairment charge to be recorded in earnings. The Standard is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. In the period of adoption, an entity must provide the disclosures required by FASB Statement No. 154, Accounting Changes and Error Corrections, for changes in accounting principles. The adoption of this Standard had no impact on the Companys results of operations and financial position. |
MANAGEMENTS DISCUSSION AND ANALYSIS
FOR THE QUARTER ENDED SEPTEMBER 30, 2010
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as plan, expect, forecast, project, intend, believe, anticipate, outlook and other similar words, or statements that certain events or conditions may or will occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Companys Annual Information Form under the heading Risk Factors. The Company undertakes no obligation to update forward-looking statements if circumstances or managements estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (First Majestic or the Company) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR and FR.WT.B, respectively. The common shares are also quoted on the OTCQX in the U.S. under the symbol FRMSF and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol FMV. Silver producing operations of the Company are carried out through three operating mines: the La Encantada, La Parrilla, and San Martin Silver Mines.
The following Managements Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2009. Additional information on the Company, including the Companys Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM), First Silver Reserve Inc. (First Silver) and Normabec Mining Resources Ltd. (Normabec) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada), Majestic Services S.A. de C.V. (Majestic Services), Minera Real Bonanza, S.A. de C.V. (MRB) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (Servicios). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation in which it is involved as the plaintiff.
QUALIFIED PERSON S
Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the independent Qualified Person for the Company, and Ramon Davila, the Companys Chief Operating Officer is also a certified Qualified Person. Leonel Lopez has reviewed the technical information reported in the National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine. Ramon Davila has reviewed this MD&A for QP technical disclosures. All National Instrument 43-101 technical reports can be found on the Companys website at www.firstmajestic.com or on SEDAR at www.sedar.com.
Suite 1805, 925 West Georgia Street, Vancouver, B.C., Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873| Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP.
MANAGEMENTS DISCUSSION
& ANALYSIS
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of November 8, 2010, unless otherwise stated.
THIRD QUARTER 2010 HIGHLIGHTS
Generated Gross Revenue of $36,076,022, a 114% increase over the third quarter of 2009.
Generated Net Revenue of $33,465,565, a 144% increase over the third quarter of 2009.
Recognized Mine Operating Earnings of $16,869,603, a 307% increase over the third quarter of 2009.
Earned cashflow from operations of $16,206,077 ($0.17 per share) or a 279% increase over the third quarter of 2009 and a 23% increase from the second quarter of 2010.
Net Income after taxes was $10,278,772, a 458% increase over the third quarter of 2009.
Basic Earnings per Share were $0.11, a 450% increase over the third quarter of 2009.
Increased production by 76% over the third quarter of 2009 to 1,920,498 silver equivalent ounces.
Increased sales volume by 84% over the third quarter of 2009 to 1,869,393 silver equivalent ounces.
Reduced Total Cash Costs per ounce by 14% from the third quarter of 2009 to US$7.42 in the current quarter.
Increased cash and cash equivalents by $19.6 million to $25.5 million and improved working capital by $19.3 million to $24.1 million on a year to date basis.
Results of Operations
Consolidated gross revenue (prior to smelting & refining charges, and metal deductions) for the quarter ended September 30, 2010 increased 114% to $36.1 million (US$34.7 million) compared to $16.8 million (US$15.4 million) for the quarter ended September 30, 2009, for an increase of $19.2 million. Compared to the second quarter ended June 30, 2010, consolidated gross revenue increased by $4.3 million or 13%. The increase in revenues in the third quarter of 2010 is primarily attributable to a 15% increase in silver ounces sold compared to the preceding quarter. The increase in ounces sold is due to the increased production from the new cyanidation plant at the La Encantada Silver Mine and from improving operating levels at the La Parrilla Silver Mine which combined to contribute a 95% increase in silver production when compared to the third quarter of 2009.
In the third quarter of 2010, the Company sold 1,869,393 ounces of silver equivalent at an average price of $19.30 per ounce (US$18.57) compared to 1,018,417 ounces in the third quarter of 2009 at an average price of $16.54 per ounce (US$15.07), representing an increase of 84% in shipments over the same quarter in 2009 and a 15% increase over the preceding quarter. In the second quarter of 2010, the Company sold 1,623,844 ounces of silver equivalents at an average price of $19.58 (US$18.68) per ounce.
Production of silver, excluding any equivalents from gold, lead or zinc, increased 95% compared to the third quarter of 2009 and by 18% over the prior quarter. The Company produced 1,823,370 ounces of silver in the current quarter, 1,538,798 ounces of silver in prior quarter and 935,996 ounces in the third quarter of 2009. In the current quarter, 95% of First Majestics revenue resulted from the sale of pure silver making it the purest silver producer relative to its peers.
The new plant at La Encantada achieved commercial production on April 1, 2010. The new plant produces silver doré bars which are 93-97% silver with small amounts of lead, gold and other metals making up the balance of the contents of these bars. The economic differences between doré and concentrate production are significant and are beginning to reflect in the financial numbers. Management completed a review of the economics of lead production and concluded that, based on current lead prices, ore was more valuable if processed directly through cyanidation rather than being floated, and therefore the flotation circuit was placed on care and maintenance in June 2010. As a result of discontinuing flotation, concentrate production at La Encantada decreased in the third quarter and lead as a byproduct decreased by 95% to 28,814 pounds from 549,461 pounds in the second quarter of 2010. The economics of switching from concentrate production to doré production resulted in a 56% savings of smelting and refining costs per silver ounce for consolidated operations in the third quarter of 2010 compared to the third quarter of 2009. The new La Encantada cyanidation plant achieved average throughput of approximately 3,477 tonnes per day in the third quarter as compared to 2,900 tonnes per day in the second quarter.
-2-
Total silver production for the third quarter of 2010 increased by 18% compared to the second quarter of 2010. Total silver equivalents production for the third quarter of 2010 increased 76% from the same quarter of the prior year and 16% from the prior quarter to 1,920,498 ounces of silver equivalents consisting of 1,823,370 ounces of silver, 323 ounces of gold, 1,248,086 pounds of lead and 228,517 pounds of zinc. This compares to the 1,089,481 ounces of silver equivalents produced in the third quarter of 2009, which consisted of 935,996 ounces of silver, 732 ounces of gold, 1,690,354 pounds of lead, and 8,913 pounds of zinc and compares with production in the previous quarter of 1,656,165 ounces of silver equivalents consisting of 1,538,798 ounces of silver, 541 ounces of gold and 1,494,548 pounds of lead.
Net sales revenue (after smelting and refining charges and metals deductions) for the quarter ended September 30, 2010 was $33.5 million, an increase of 144% compared to $13.7 million for the third quarter of 2009. Net sales revenue for the quarter ended September 30, 2010 increased by 16% compared to $29.0 million in the second quarter of 2010. Smelting and refining charges and metal deductions decreased to 7% of gross revenue in the third quarter of 2010 compared to 19% of gross revenue in the third quarter of 2009, due to a shift in the production mix toward silver doré which is a benefit from the new cyanidation plant at La Encantada. Average smelting charges for doré in the third quarter of 2010 were US$0.39 per silver ounce as compared to US$3.84 per silver ounce for concentrates.
The Company generated net income of $10.3 million in the third quarter of 2010, or earnings per common share (EPS) of $0.11 compared to a net income in the third quarter of 2009 of $1.8 million or EPS of $0.02. Net income for the third quarter of 2010 included non-cash stock-based compensation expense of $0.6 million and an income tax provision of $3.5 million. In the second quarter of 2010, net income was $8.9 million resulting in EPS of $0.10. Direct cash costs per ounce of silver (a non-GAAP measure) for the third quarter of 2010 were US$5.79, compared to US$5.56 per ounce of silver in the third quarter of 2009 and US$6.16 per ounce of silver in the second quarter of 2010. The cost increase from the same quarter of the prior year was primarily due to a stronger Mexican peso relative to the US dollar. The cost decrease from the previous quarter was attributed to increased production and improved recoveries at all three mines.
Total cash costs per ounce (including smelting, refining, metal deductions, transportation and other selling costs, and byproduct credits, which is a non-GAAP measure) for the third quarter of 2010 was US$7.42 per ounce of silver compared to US$8.64 per ounce of silver in the third quarter of 2009 and US$8.20 per ounce in the second quarter of 2010. The cost decrease was attributed to reduced smelting & refining costs (US$1.34 per ounce this quarter versus US$3.08 per ounce for the same quarter last year) related to the converting the production at La Encantada plant to doré production instead of concentrate production.
Mine operating earnings for the third quarter of 2010 increased by 307% to $16.9 million, compared to mine operating earnings of $4.1 million for the third quarter of 2009, and are associated with an increase in net revenue during the third quarter of 2010. When compared to the second quarter of 2010, mine operating earnings increased by 29% from $13.1 million to $16.9 million.
Operating income increased by 617%, or $11.8 million, to $13.8 million for the quarter ended September 30, 2010, from $1.9 million for the quarter ended September 30, 2009, due to the 84% increase in ounces sold and the 23% increase in average US$ revenue per ounce of silver sold. When compared to the second quarter of 2010, operating income increased by 38% from $10.0 million to $13.8 million.
During the quarter ended September 30, 2010, the Company spent $4.0 million in its mineral properties and a further $7.2 million in plant and equipment on a cash basis, of which $3.5 million was related to reduction of capital related liabilities. This compares to $4.1 million invested in its mineral properties and a further $6.9 million in plant and equipment on a cash basis in the third quarter ended September 30, 2009. When compared to the second quarter of 2010, the Company invested $2.6 million in mineral properties and a further $3.0 million in plant and equipment on a cash basis. In the first half of 2010, the focus of the Company was the completion of the La Encantada Cyanidation Project and building up its treasury by deferring non-essential exploration and development to the second semester of 2010. In the second half of the year, the Company has reduced its capital related liabilities and increased its capital investment and mine development programs to prepare for additional capital expansion projects at the La Parrilla Mine and the Del Toro Mine.
-3-
The material subsidiaries, mines, mills and properties in Mexico are as follows:
Subsidiaries | Mine and Mill | Exploration Properties |
First Majestic Plata, S.A. de C.V.
|
La Parrilla Silver Mine
Del Toro Silver Mine |
La Parrilla properties
Del Toro properties |
Minera El Pilón, S.A. de C.V.
|
San Martin Silver Mine
|
San Martin property
Jalisco Group of Properties |
Minera La Encantada, S.A. de C.V. | La Encantada Silver Mine | La Encantada property |
Minera Real Bonanza, S.A. de C.V. | Real de Catorce Silver Project | Real de Catorce property |
Majestic Services, S.A. de C.V.
(a labour services company) |
(services for all of the above)
|
(services for all of the above)
|
Corporación First Majestic, S.A. de C.V.
(holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) |
(holding company for First
Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) |
(holding company for First Majestic Plata,
Minera El Pilon, Minera La Encantada and Majestic Services) |
Certain financial results in this MD&A, regarding operations and cash costs are presented in the Mine Operating Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars for comparative purposes. U.S. dollar results are translated using the U.S. dollar rates on the dates which the transactions occurred.
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MINING OPERATING RESULTS
Quarter Ended |
CONSOLIDATED FIRST
MAJESTIC
RESULTS |
Year to Date | ||
2010 | 2009 | 2010 | 2009 | |
434,221 | 215,459 | Ore processed/tonnes milled (4) | 1,175,681 | 636,379 |
226 | 205 | Average silver grade (g/tonne) | 209 | 208 |
58% | 66% | Recovery (%) | 60% | 63% |
1,823,370 | 935,996 | Commercial silver ounces produced | 4,510,800 | 2,693,679 |
- | - | Pre-commercial silver ounces produced (4) | 261,193 | - |
1,823,370 | 935,996 | Total silver ounces produced (4) | 4,771,993 | 2,693,679 |
323 | 732 | Gold ounces produced (4) | 1,721 | 1,969 |
22,794 | 57,503 | Equivalent ounces from gold (4) | 121,039 | 140,843 |
1,248,086 | 1,690,354 | Pounds of lead produced (4) | 5,284,704 | 5,012,255 |
63,433 | 95,112 | Equivalent ounces from lead (4) | 292,134 | 252,142 |
228,517 | 8,913 | Pounds of zinc produced (4) | 228,517 | 8,913 |
10,901 | 870 | Equivalent ounces from zinc (4) | 10,901 | 870 |
1,920,498 | 1,089,481 | Total production - ounces silver equivalent (4) | 5,196,068 | 3,087,535 |
1,920,498 | 1,089,481 | Total commercial production - ounces of silver equivalent | 4,934,111 | 3,087,535 |
1,869,393 | 1,018,417 | Ounces of silver equivalent sold (1) | 4,791,896 | 3,088,141 |
$7.42 | $8.64 | Total US cash cost per ounce (2) | $7.86 | $8.44 |
$5.79 | $5.56 | Direct US cash cost per ounce (2) | $5.60 | $5.58 |
6,207 | 6,597 | Underground development (m) | 16,370 | 16,126 |
7,819 | 1,017 | Diamond drilling (m) | 11,218 | 6,428 |
$28.68 | $32.23 | Total US production cost per tonne (3) | $27.80 | $30.40 |
Quarter Ended |
LA ENCANTADA
RESULTS |
Year to Date | ||
2010 | 2009 | 2010 | 2009 | |
295,328 | 68,481 | Ore processed/tonnes milled (4) | 754,630 | 213,518 |
242 | 256 | Average silver grade (g/tonne) | 224 | 268 |
51% | 48% | Recovery (%) | 50% | 50% |
1,160,468 | 268,973 | Commercial silver ounces produced | 2,543,975 | - |
- | - | Pre-commercial silver ounces produced (4) | 261,193 | - |
1,160,468 | 268,973 | Total silver ounces produced (4) | 2,805,168 | 917,270 |
33 | - | Gold ounces produced (4) | 58 | - |
407 | - | Equivalent ounces from gold (4) | 2,076 | - |
28,814 | 536,454 | Pounds of lead produced (4) | 2,124,060 | 2,008,538 |
3,012 | 27,717 | Equivalent ounces from lead (4) | 122,074 | 93,545 |
1,163,887 | 296,690 | Total production - ounces silver equivalent (4) | 2,929,318 | 1,010,815 |
1,163,887 | 296,690 | Total commercial production - ounces of silver equivalent | 2,667,362 | 1,010,815 |
1,106,543 | 300,003 | Ounces of silver equivalent sold (1) | 2,572,442 | 1,007,973 |
$6.42 | $11.84 | Total US cash cost per ounce (2) | $7.23 | $9.99 |
$5.72 | $7.29 | Direct US cash cost per ounce (2) | $5.45 | $5.84 |
2,287 | 3,637 | Underground development (m) | 6,284 | 7,964 |
2,679 | - | Diamond drilling (m) | 4,577 | 2,397 |
$22.62 | $31.77 | Total US production cost per tonne (3) | $20.81 | $28.75 |
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Quarter Ended |
LA PARRILLA
RESULTS |
Year to Date | ||
2010 | 2009 | 2010 | 2009 | |
76,618 | 72,988 | Ore processed/tonnes milled | 225,332 | 202,442 |
216 | 218 | Average silver grade (g/tonne) | 196 | 211 |
76% | 74% | Recovery (%) | 67% | 71% |
402,760 | 378,680 | Total silver ounces produced | 1,153,671 | 971,981 |
92 | 123 | Gold ounces produced | 311 | 494 |
9,526 | 17,189 | Equivalent ounces from gold | 30,564 | 42,441 |
1,219,272 | 1,153,900 | Pounds of lead produced | 3,160,644 | 3,003,717 |
60,421 | 67,395 | Equivalent ounces from lead | 170,060 | 158,597 |
228,517 | 8,913 | Pounds of zinc produced | 228,517 | 8,913 |
10,901 | 870 | Equivalent ounces from zinc | 10,901 | 870 |
483,608 | 464,134 | Total production - ounces silver equivalent | 1,365,196 | 1,173,889 |
489,531 | 445,044 | Ounces of silver equivalent sold | 1,364,516 | 1,169,899 |
$8.20 | $7.34 | Total US cash cost per ounce (2) | $8.36 | $7.94 |
$3.40 | $3.65 | Direct US cash cost per ounce (2) | $4.11 | $4.44 |
2,126 | 1,941 | Underground development (m) | 5,610 | 5,728 |
46 | 530 | Diamond drilling (m) | 83 | 2,568 |
$38.74 | $34.56 | Total US production cost per tonne (3) | $38.68 | $33.68 |
Quarter Ended |
SAN MARTIN
RESULTS |
Year to Date | ||
2010 | 2009 | 2010 | 2009 | |
62,275 | 73,990 | Ore processed/tonnes milled | 195,719 | 220,420 |
164 | 145 | Average silver grade (g/tonne) | 166 | 148 |
79% | 84% | Recovery (%) | 78% | 76% |
260,142 | 288,343 | Total silver ounces produced | 813,154 | 804,429 |
198 | 609 | Gold ounces produced | 1,352 | 1,475 |
12,861 | 40,314 | Equivalent ounces from gold | 88,399 | 98,402 |
273,003 | 328,657 | Total production - ounces silver equivalent | 901,553 | 902,831 |
262,840 | 319,553 | Ounces of silver equivalent sold | 896,114 | 916,174 |
$10.65 | $7.36 | Total US cash cost per ounce (2) | $9.12 | $7.28 |
$9.77 | $6.46 | Direct US cash cost per ounce (2) | $8.17 | $6.65 |
1,794 | 1,020 | Underground development (m) | 4,476 | 2,434 |
5,094 | 486 | Diamond drilling (m) | 6,558 | 1,462 |
$45.10 | $30.33 | Total US production cost per tonne (3) | $42.24 | $28.99 |
(1) Includes 10,479 ounces in the quarter ended September 30, 2010 and (41,176) ounces for the year to date ended September 30, 2010 (after adjustments for intercompany eliminations) sold as coins, ingots and bullion from Canadian operations and minesite transfers.
(2) The Company reports non-GAAP measures which include direct costs per tonne and total cash cost (including smelting and refining charges) and direct cash cost (total cash cost less smelting and refining costs) per ounce of payable silver, in order to manage and evaluate operating performance at each of the Companys mines. These measures, established by the Gold Institute (Production Cost Standards, November 1999), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP on page 7 and 8.
(3) Total US production cost per tonne includes mining, processing and direct overhead at the mill site and does not include smelting and refining, transportation and other selling costs.
(4) The La Encantada mill expansion project achieved commercial production effective April 1, 2010. During the pre-commercial stage, the tables above included the production from the mill expansion, however, average silver grade, recovery, total US cash cost per ounce, direct US cash cost per ounce and total US production cost per tonne were based on production excluding pre-commercial stage production of 261,957 silver equivalent ounces during the quarter ended March 31, 2010.
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RECONCILIATION OF COST OF SALES TO CASH COSTS
FOR
THE QUARTER AND YEAR ENDED SEPTEMBER 30, 2010 AND 2009
Cash cost per ounce is a measure developed by precious metals companies in an effort to provide a comparable standard; however, there can be no assurance that our reporting of this non-GAAP measure is similar to that reported by other mining companies. Cash costs per ounce is a measure used by the Company to manage and evaluate operating performance at each of the Companys operating mining units, and is widely reported in the silver mining industry as a benchmark for performance, but does not have a standardized meaning. To facilitate a better understanding of these measures as calculated by the Company, we have provided a detailed reconciliation of these measures to our cost of sales, as reported in our Consolidated Statements of Income. Direct cash costs consist of total cash costs less smelting, refining, transportation and other selling costs.
Three Months Ended September 30, 2010 | Three Months Ended September 30, 2009 | ||||||||
San Martin | La Parrilla | La Encantada | Total | San Martin | La Parrilla | La Encantada | Total | ||
COST OF SALES | US$ | 2,872,121 | 3,261,777 | 7,416,103 | 13,550,001 | 2,693,415 | 2,627,831 | 2,372,843 | 7,694,089 |
ADD: THIRD PARTY SMELTING AND REFINING | US$ | 132,823 | 1,783,531 | 534,529 | 2,450,883 | 260,825 | 1,395,590 | 1,224,079 | 2,880,494 |
DEDUCT: BY-PRODUCT CREDITS | US$ | (268,655) | (1,600,649) | (39,822) | (1,909,126) | (487,540) | (1,257,511) | (326,260) | (2,071,311) |
DEDUCT: ROYALTIES | US$ | - | (29,794) | - | (29,794) | - | - | - | - |
ADD (DEDUCT): PROFIT SHARING | US$ | (98,489) | - | (823,994) | (922,483) | (53,874) | - | - | (53,874) |
INVENTORY CHANGES | US$ | 131,883 | (112,914) | 367,809 | 386,778 | (55,280) | 93,860 | 12,302 | 50,882 |
OTHER NON-CASH COSTS | US$ | (144) | 12 | (3,054) | (3,186) | (236,485) | (80,732) | (97,819) | (415,036) |
TOTAL CASH COST (A) | US$ | 2,769,539 | 3,301,963 | 7,451,571 | 13,523,073 | 2,121,061 | 2,779,038 | 3,185,145 | 8,085,244 |
DEDUCT: THIRD PARTY SMELTING, REFINING, TRANSPORT & OTHER SELLING COSTS | US$ | (229,536) | (1,933,695) | (812,328) | (2,975,559) | (260,825) | (1,395,590) | (1,224,079) | (2,880,494) |
DIRECT CASH COST (B) | US$ | 2,540,003 | 1,368,268 | 6,639,243 | 10,547,514 | 1,860,236 | 1,383,448 | 1,961,066 | 5,204,750 |
TONNES PRODUCED | TONNES | 62,275 | 76,618 | 295,328 | 434,221 | 73,990 | 72,988 | 68,481 | 215,459 |
OUNCES OF SILVER PRODUCED (C) | OZ | 260,142 | 402,760 | 1,160,468 | 1,823,370 | 288,343 | 378,680 | 268,973 | 935,996 |
OUNCES OF SILVER EQ PRODUCED | OZ EQ | 12,862 | 80,848 | 3,419 | 97,129 | 40,315 | 85,453 | 27,717 | 153,485 |
TOTAL OZ OF SILVER EQ PRODUCED | OZ EQ | 273,004 | 483,608 | 1,163,887 | 1,920,498 | 328,657 | 464,134 | 296,690 | 1,089,481 |
TOTAL CASH COST PER OUNCE (A/C) | US$/OZ | 10.65 | 8.20 | 6.42 | 7.42 | 7.36 | 7.34 | 11.84 | 8.64 |
TOTAL CASH COST PER OUNCE | US$/OZ | 10.65 | 8.20 | 6.42 | 7.42 | 7.36 | 7.34 | 11.84 | 8.64 |
THIRD PARTY SMELTING, REFINING, ANSPORT & OTHER SELLING COSTS PER OUNCE | US$/OZ | (0.88) | (4.80) | (0.70) | (1.63) | (0.90) | (3.69) | (4.55) | (3.08) |
DIRECT CASH COST PER OUNCE (B/C) | US$/OZ | 9.77 | 3.40 | 5.72 | 5.79 | 6.46 | 3.65 | 7.29 | 5.56 |
MINING | US$/Tonne | 17.86 | 15.24 | 4.03 | 7.99 | 11.47 | 15.17 | 12.98 | 13.21 |
MILLING | US$/Tonne | 17.88 | 17.24 | 16.24 | 16.65 | 13.35 | 14.93 | 11.91 | 13.43 |
INDIRECT | US$/Tonne | 9.36 | 6.26 | 2.35 | 4.04 | 5.51 | 4.46 | 6.88 | 5.59 |
TOTAL PRODUCTION COST | US$/Tonne | 45.10 | 38.74 | 22.62 | 28.68 | 30.33 | 34.56 | 31.77 | 32.23 |
MINING | US$/Oz. | 4.27 | 2.90 | 1.03 | 1.90 | 2.94 | 2.92 | 3.31 | 3.04 |
MILLING | US$/Oz. | 4.28 | 3.28 | 4.13 | 3.98 | 3.43 | 2.88 | 3.03 | 3.09 |
INDIRECT | US$/Oz. | 2.24 | 1.19 | 0.59 | 0.96 | 1.42 | 0.86 | 1.75 | 1.29 |
TRANSPORT AND OTHER SELLING COSTS | US$/Oz. | 0.37 | 0.37 | 0.24 | 0.29 | 0.36 | 0.31 | 0.41 | 0.35 |
SMELTING AND REFINING COSTS | US$/Oz. | 0.51 | 4.43 | 0.46 | 1.34 | 0.90 | 3.69 | 4.55 | 3.08 |
BY-PRODUCT CREDITS | US$/Oz. | (1.03) | (3.97) | (0.03) | (1.05) | (1.69) | (3.32) | (1.21) | (2.21) |
TOTAL CASH COST PER OUNCE | US$/Oz. | 10.65 | 8.20 | 6.42 | 7.42 | 7.36 | 7.34 | 11.84 | 8.64 |
TRANSPORT AND OTHER SELLING COSTS | US$/Oz. | (0.37) | (0.37) | (0.24) | (0.29) | - | - | - | - |
SMELTING AND REFINING COSTS | US$/Oz. | (0.51) | (4.43) | (0.46) | (1.34) | (0.90) | (3.69) | (4.55) | (3.08) |
DIRECT CASH COST | US$/Oz. | 9.77 | 3.40 | 5.72 | 5.79 | 6.46 | 3.65 | 7.29 | 5.56 |
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Note 1 The table above does not include 261,957 silver ounces of pre-commercial production from the La Encantada mill expansion project during the quarter ended March 31, 2010, which were produced at a cost of $2,444,393 (US$2,348,346).
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Three Months Ended September 30, 2010 | Year to Date September 30, 2010 | ||||||||||
INVENTORY RECONCILIATION: | San Martin | La Parrilla | La Encantada | Vancouver | Total | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Opening stockpile inventory | OZ EQ | 2,082 | 74,482 | 311,942 | - | 388,506 | 7,443 | 116,539 | 39,713 | - | 163,695 |
Increase (reduction) of stockpile | OZ EQ | 3,993 | 18,715 | 51,543 | - | 74,251 | (1,368) | (23,342) | 132,174 | - | 107,464 |
Transfer from pre-commercial stage | OZ EQ | - | - | - | - | - | - | - | 191,598 | - | 191,598 |
Ending stockpile inventory | OZ EQ | 6,075 | 93,197 | 363,485 | - | 462,757 | 6,075 | 93,197 | 363,485 | - | 462,757 |
Opening in process inventory | OZ EQ | 29,560 | 40,424 | 69,403 | - | 139,387 | 21,241 | 22,521 | 50,077 | - | 93,839 |
Transfer from pre-commercial stage | OZ EQ | - | - | - | - | - | - | - | 37,277 | - | 37,277 |
Inventory adjustments | OZ EQ | (539) | (17,760) | 35,843 | - | 17,544 | 7,780 | 143 | 17,892 | - | 25,815 |
Ending in process inventory | OZ EQ | 29,021 | 22,664 | 105,246 | - | 156,931 | 29,021 | 22,664 | 105,246 | - | 156,931 |
Opening finished goods inventory | OZ EQ | 3,177 | 1,224 | 51,135 | - | 55,536 | 25,249 | 12,040 | - | - | 37,289 |
Production - silver equivalent ounces | OZ EQ | 273,003 | 483,608 | 1,163,887 | - | 1,920,498 | 901,553 | 1,365,196 | 2,667,362 | - | 4,934,111 |
Shipments - silver equivalent ounces | OZ EQ | (262,840) | (489,531) | (1,106,543) | - | (1,858,914) | (896,114) (1,364,516) | (2,572,442) | - | (4,833,072) | |
Transfer from pre-commercial stage | OZ EQ | - | - | - | - | - | - | - | 2,351 | - | 2,351 |
Inventory adjustments | OZ EQ | 430 | 5,604 | (40,628) | - | (34,594) | (16,918) | (11,815) | (29,420) | - | (58,153) |
Ending finished goods inventory | OZ EQ | 13,770 | 905 | 67,851 | - | 82,526 | 13,770 | 905 | 67,851 | - | 82,526 |
Total ending inventory before transfers | OZ EQ | 95,088 | 116,767 | 536,581 | - | 748,436 | 297,925 | 116,767 | 536,581 | - | 951,273 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 60,533 | 60,533 | - | - | - | 36,880 | 36,880 |
Transfers to coins, ingots and bullion inventory | OZ EQ | (46,221) | - | - | 46,221 | - | (249,058) | - | - | 249,058 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (2,418) | (2,418) | - | - | - | (30,250) | (30,250) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (56,700) | (56,700) | - | - | - | (208,052) | (208,052) |
Total inventory, all stages and products | OZ EQ | 48,867 | 116,767 | 536,581 | 47,636 | 749,851 | 48,867 | 116,767 | 536,581 | 47,636 | 749,851 |
Value of ending inventory | CDN$ | 506,423 | 466,128 | 1,762,081 | 553,826 | 3,288,458 | 506,423 | 466,128 | 1,762,081 | 553,826 | 3,288,458 |
Value of ending inventory - Cdn$ per oz | CDN$ | 10.36 | 3.99 | 3.28 | 11.63 | 4.39 | 10.36 | 3.99 | 3.28 | 11.63 | 4.39 |
Exchange rate at period end | 1.0298 | 1.0298 | 1.0298 | 1.0298 | 1.0298 | 1.0298 | 1.0298 | 1.0298 | 1.0298 | 1.0298 | |
Value of ending inventory - US$ per oz | US$ | 10.06 | 3.88 | 3.19 | 11.29 | 4.26 | 10.06 | 3.88 | 3.19 | 11.29 | 4.26 |
Three Month Ended September 30, 2010 | Year to Date September 30, 2010 | ||||||||||
COST OF SALES RECONCILIATION: | San Martin | La Parrilla | La Encantada | Vancouver | Total | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Cash Cost | US$ | 2,769,539 | 3,301,963 | 7,451,571 | - | 13,523,073 | 7,411,907 | 9,641,888 | 18,395,919 | - | 35,449,714 |
Inventory changes | US$ | (131,883) | 112,914 | (367,809) | - | (386,778) | (170,959) | 10,963 | (930,834) | - | (1,090,830) |
Byproduct credits | US$ | 268,655 | 1,600,649 | 39,822 | - | 1,909,126 | 1,626,416 | 3,973,620 | 1,833,172 | - | 7,433,208 |
Smelting and refining | US$ | (132,823) | (1,783,531) | (534,529) | - | (2,450,883) | (419,989) | (4,513,756) | (3,849,806) | - | (8,783,551) |
Royalties | US$ | - | 29,794 | - | - | 29,794 | - | 70,768 | - | - | 70,768 |
Profit sharing | US$ | 98,489 | - | 823,994 | - | 922,483 | 255,304 | - | 1,544,697 | - | 1,800,001 |
Other | US$ | 144 | (12) | 3,054 | - | 3,186 | (37) | - | 7,041 | - | 7,004 |
Cost of sales - Calculated | US$ | 2,872,121 | 3,261,777 | 7,416,103 | - | 13,550,001 | 8,702,642 | 9,183,483 | 17,000,189 | - | 34,886,314 |
Average CDN/US Exchange Rate | 0.9640 | 0.9643 | 0.9648 | - | 0.9645 | 0.9662 | 0.9662 | 0.9662 | - | 0.9662 | |
Booked Cost of Sales | CDN$ | 2,979,301 | 3,382,684 | 7,686,500 | - | 14,048,485 | 9,006,892 | 9,504,546 | 17,594,528 | - | 36,105,966 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | 169,288 | 169,288 | - | - | - | 520,411 | 520,411 |
Total Cost of Sales as Reported | CDN$ | 2,979,301 | 3,382,684 | 7,686,500 | 169,288 | 14,217,773 | 9,006,892 | 9,504,546 | 17,594,528 | 520,411 | 36,626,377 |
Note 1 Net of intercompany eliminations of $1,162,934 for the quarter ended September 30, 2010 and $3,396,144 for the nine month period ended September 30, 2010.
-9-
REVIEW OF MINING OPERATING RESULTS
The production results for the third quarter of 2010 consisted of 1,920,498 ounces of silver equivalent representing an increase of 76% compared to 1,089,481 ounces of silver equivalent produced in the third quarter of 2009, and an increase of 16% compared to 1,656,165 ounces of silver equivalent (including commercial and pre-commercial production) in the second quarter of 2010.
Production in the third quarter of 2010 consisted of 1,823,370 ounces of silver, an increase of 95% compared to the third quarter of 2009, and an increase of 18% compared to the second quarter of 2010. A total of 1,248,086 pounds of lead was produced, representing a decrease of 26% compared to the third quarter of 2009, and a decrease of 16% compared to the second quarter of 2010. Gold production in the third quarter of 2010 was 323 ounces, representing a decrease of 56% compared to the third quarter of 2009, and a decrease of 40% compared to the second quarter of 2010.
The ore processed during the third quarter of 2010 at the Company's three operating silver mines: the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine amounted to 434,221 tonnes which is an increase of 102% compared to the third quarter of 2009, and an increase of 7% from the second quarter of 2010.
The average silver head grade in the third quarter of 2010 for the three mines increased 10% to 226 grams per tonne (g/t) silver compared to 205 g/t in the third quarter of 2009, and increased compared to 224 g/t silver in the second quarter of 2010.
Inherent in the launch of the new processing plant at La Encantada, which incorporates a mixture of old tailings with fresh ore, is the expectation that the old tailings with an average grade of 150 g/t silver, will reduce consolidated recoveries as well as the average grade of ore processed. The total combined recoveries of silver at the Companys three plants was 58% in the third quarter of 2010 compared to 53% in the second quarter of 2010 and 66% in the third quarter of 2009 when the new cyanidation mill was not operating.
A total of 6,207 metres of underground development was completed in the third quarter of 2010 compared to 5,063 metres completed in the second quarter of 2010. The underground development program is important as it provides access to new areas in the mines and prepares them for future growth of silver production.
A total of 7,819 metres of diamond drilling was completed in the third quarter of 2010 compared to 3,090 metres drilled in the second quarter of 2010, consisting of:
MINE UPDATES
La Encantada Silver Mine, Coahuila, Mexico
The La Encantada Silver Mine is the Companys largest producing underground mine located in Northern Mexico in Coahuila State and can be reached via a flight of 1.5 hours from Torreon. The mine comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz, is 225 kilometres away via mostly paved roads. The La Encantada Silver Mine has a 3,500 tonnes per day (tpd) cyanidation processing plant, a 1,000 tpd flotation plant (currently in care and maintenance), and all the necessary and related facilities and infrastructure including a mining camp with 180 houses, administrative offices, and a private airstrip. The Company owns 100% of the La Encantada Silver Mine.
-10-
During the third quarter of 2010, the new 3,500 tpd mill achieved full production levels with an average throughput of 3,477 tpd (99% of capacity) for a total of 295,328 tonnes (dry metric tonnes) processed in the quarter compared to 2,908 tpd processed in the prior quarter. Management previously announced that the new cyanidation plant had achieved commercial operating levels effective April 1, 2010. The new plant has been operating at full production levels since July 1, 2010, producing silver at a rate of over four million ounces of silver doré annually.
Plant processing in the third quarter of 2010 increased to 295,328 tonnes processed compared to 264,552 tonnes in the second quarter of 2010, an increase of 12%. The average head grade was 242 g/t in the third quarter of 2010, representing a decrease of 2% when compared to 248 g/t in the second quarter of 2010 and a decrease of 6% compared to the 256 g/t in the third quarter of 2009. Silver recovery in the third quarter of 2010 was 51%, an increase from the 44% achieved in the second quarter of 2010, and higher than the 48% in the third quarter of 2009. Recoveries increased in the quarter due to the fine tuning of the cyanidation plant, the halting of production through the flotation circuit, and the direct feed of all fresh ore produced at the mine through the cyanidation plant.
A total of 1,163,887 equivalent ounces of silver were produced by the La Encantada plant during the third quarter of 2010, which represents an increase of 22% compared to 950,223 equivalent ounces of silver produced in second quarter of 2010, and an increase of 292% compared to the 296,690 equivalent ounces of silver produced in the third quarter of 2009. Silver production in the third quarter of 2010 consisted of 1,160,468 ounces of silver, representing an increase of 26% when compared to the 921,078 ounces produced in the second quarter of 2010, and an increase of 331% when compared to the 268,973 ounces produced in the third quarter of 2009. Lead production for the third quarter of 2010 was 28,814 pounds which was a decrease of 520,647 pounds or 95% compared to the second quarter of 2010 and a decrease of 507,640 or 95% compared to the third quarter of 2009 relating to the halting of production from the flotation circuit.
The installation of the new induction furnaces began in September 2010 and this project is now nearing completion. All civil, electrical and mechanical work has been completed with the furnaces, hydraulics and the cooling systems are fully operational. The scrubber and gas washer are presently being tested. A new precipitate dryer is being installed and new screw conveyors are expected to be installed shortly.
With the throughput in the mill at capacity, and with the induction furnaces being installed, the focus in the fourth quarter of 2010 will be refining operations in the areas of recoveries and smelting and improving costs through other operational efficiencies.
In July, the main transportation route to the mine from Muzquiz, Coahuila, was interrupted by Hurricane Alex. In collaboration with other mining companies in the area, the roads were re-opened. The interruption proved to be short lived with minimal delays in transportation of supplies and inventories to the mine. Further work is underway to improve the local transportation infrastructure to prevent future disruptions.
Underground mine development consisted of 2,287 metres completed in the third quarter of 2010 compared to 1,964 metres of development completed in the second quarter of 2010, representing a increase of 16%. This development program focused on improving haulage and logistics for ore and waste that is transported by trucks from the mine from several production areas within the mines, including the San Javier/Milagros Breccias, Azul y Oro, the new Buenos Aires areas and a newly developed area between the 660 level and the Ojuelas ore bodies. The purpose of the ongoing underground development program is to prepare for increased production levels and to confirm additional Reserves and Resources.
A total of 2,679 metres of diamond drilling was completed in the third quarter of 2010 compared to 1,898 metres of diamond drilling in the second quarter of 2010.
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La Parrilla Silver Mine, Durango, Mexico
The La Parrilla Silver Mine, located approximately 65 kilometres southeast of the city of Durango, Mexico, is a group of producing underground operations consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings, in addition to the San Marcos and the Quebradillas mines. The La Parrilla Mine includes an 850 tpd processing plant consisting of two parallel 425 tpd cyanidation and flotation circuits, buildings, offices and associated infrastructure. During the third quarter, the Company acquired through staking, an additional 16,630 hectares of land and in September 2010 the Company acquired 15 hectares of surface rights. The total mining concessions cover a contiguous area of 69,867 hectares. The Company also leases 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
Tonnes processed at the La Parrilla Mine were 76,618 tonnes in the third quarter of 2010, representing an increase of 2% when compared with the 75,271 tonnes processed in the second quarter of 2010, and an increase of 5% when compared with the 72,988 tonnes processed in the third quarter of 2009. The average head grade for the third quarter of 2010 was 216 g/t, 11 g/t higher than the second quarter of 2010 and 2 g/t lower than the third quarter of 2009. Recovery levels of silver in the third quarter were 76%, consistent with the second quarter of 2010, and a 2% increase from the 74% recovery level in the third quarter of 2009.
Total production was 483,608 equivalent ounces of silver in the third quarter of 2010. This was an increase of 11% compared to the second quarter of 2010 and an increase of 4% compared to the third quarter of 2009. The composition of the silver equivalent production in the third quarter of 2010 consisted of 402,760 ounces of silver, 92 ounces of gold, 1,219,272 pounds of lead and 228,517 pounds of zinc. This compares with a composition of 375,465 ounces of silver, 100 ounces of gold, 945,087 pounds of lead produced in the second quarter of 2010 and 378,680 ounces of silver, 123 ounces of gold, 1,153,900 pounds of lead and 8,913 pounds of zinc in the third quarter of 2009.
A total of 2,126 metres of underground development was completed in the third quarter of 2010, compared to 1,780 metres in the second quarter of 2010. A total of 46 metres of diamond drilling was completed in the third quarter of 2010 compared to no diamond drilling in the second quarter of 2010.
Development in the lower levels 8 and 9 of the Rosarios and La Rosa vein continued during the quarter providing access to Reserves and Resources that will be produced in the second half of 2010. Also, access to level 10 was reached via a ramp which is providing access to further Reserves, and upgrading the Indicated and Inferred Resources of the lower part of the Rosarios/La Rosa vein.
At the Quebradillas area, development was focused on the Q25 ore body which was indicated from a previous program of diamond drilling, having developed at strike and the upper part of the ore body for more than 80 metres. The access to this ore body will provide ore for the future production of zinc concentrates at the La Parrilla flotation plant. Geophysical and regional exploration and mapping is currently being carried out in order to define a broad diamond drill program scheduled for 2011.
San Martin Silver Mine, Jalisco, Mexico
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine comprises approximately 7,841 hectares of mineral rights, 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface land rights where the 900 tpd cyanidation plant and 500 tpd flotation plant, mine buildings, infrastructure and offices are located. The Company owns 100% of the San Martin Silver Mine. The processing plant has historically produced 100% of its production in the form of silver doré with some gold content. In early 2008, a 500 tpd flotation circuit was assembled to take advantage of the large sulphide resources at this mine, however, due to low base metal prices and high costs of smelting concentrates, the circuit was placed into care and maintenance pending further capital investment and improved sulphide mineral economics.
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In the third quarter of 2010, 62,275 tonnes were processed at the San Martin Mine, representing a decrease of 3% when compared to the 64,527 tonnes milled in the second quarter of 2010 and decrease of 16% when compared to the 73,990 tonnes milled in the third quarter of 2009. The average head grade was 164 g/t in the third quarter of 2010, representing an increase of 9% when compared to the 150 g/t in the second quarter of 2010 and an increase of 13% when compared to the 145 g/t in the third quarter of 2009.
Total production of 273,003 ounces of silver equivalent in the third quarter of 2010 was 1% higher than the 269,958 equivalent ounces of silver produced in the second quarter of 2010 and 17% lower than the 328,657 equivalent ounces of silver produced in the third quarter of 2009. The equivalent ounces of silver in the third quarter of 2010 consisted of 260,142 ounces of silver and 198 ounces of gold. This compares to 242,255 ounces of silver and 428 ounces of gold produced in the second quarter of 2010, and 288,343 ounces of silver and 609 ounces of gold in the third quarter of 2009. Silver recovery levels in the third quarter of 2010 were 79% compared to 78% in the second quarter of 2010, and decreased from the 84% achieved in the third quarter of 2009.
During the third quarter of 2010, a total of 1,794 metres of underground development was completed compared to 1,319 metres in the second quarter of 2010. In addition, 5,094 metres of diamond drilling was completed in the third quarter of 2010 compared to 1,192 metres in the second quarter of 2010.
Exploration via short hole drilling into the footwall and hanging wall has shown some success with the discovery of the new San Pedro area in 2009. This underground drilling program is continuing and is confirming the presence of structures similar to the San Pedro area which are continually providing additional oxide resources. The surface exploration program which began in 2009 defined the new La Esperanza vein which runs parallel to the Zuloaga vein and has high anomalous samples from 100 to 250 grams per tonne of Ag on surface. A total of seven holes had been completed of which 6 holes have intersected economic mineralization. This first stage of the diamond drilling is expected to be concluded for final evaluation during the fourth quarter of 2010. The Company began developing an access road to this newly discovered vein in the first quarter of 2010 and was completed during the third quarter.
Del Toro Silver Mine, Zacatecas, Mexico
The Del Toro Silver Mine is located 60 km to the southeast of the Companys La Parrilla Silver Mine and consists of 393 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart.
The Del Toro Silver Mine is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings.
In January 2010 the Change of Use of Land Permit for a new Flotation Plant was approved by the SEMARNAT. This permit was the last permit required to commence construction of a new operation in 2011. All necessary permits for the construction of a 1,000 tpd flotation mill were granted by the Mexican authorities in the fourth quarter of 2009 and the first quarter of 2010. No immediate plans are in place to commence construction; however the Company anticipates a decision in early 2011.
During the month of September 2010, the Company re-initiated development of an additional 1,000 metre ramp, which is planned to contact the third ore body at a depth of approximately 300 metres. The objective is to collect a bulk sample of approximately 5,000 tonnes and to process this sample through the La Parrilla processing plant for metallurgical test work. This testing will allow the fine tuning and final design of the flow chart for the construction of a new flotation plant. Bulk sampling and development will also help to determine the most optimal mine exploitation method. During the last 2 weeks of September a total of 50 meters were developed in this ramp, and at present the ramp is approximatedly 10% completed.
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Real de Catorce Silver Project, San Luis Potosi, Mexico
The Real de Catorce Silver Project was acquired in November 2009, through the acquisition of Normabec Mining Resources Ltd. ("Normabec"). As a result of the acquisition of Normabec, the Company owns 100% of the Real de Catorce Silver Project. The Real de Catorce project is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares, with historical production of 230 million ounces between 1773 and 1990.
After the acquisition of the historically famous Real de Catorce silver mine, the Company completed all of the necessary transfers of ownership of the mining claims to its Normabecs Mexican subsidiary Minera Real de Bonanza, SA de CV. The Company is now preparing a plan to reconfirm the geological information and to map out the future development activities in this very large silver mining district.
EXPLORATION PROPERTY UPDATES
Jalisco Group of Properties, Jalisco, Mexico
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, Mexico. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has since been discontinued as the Company focuses its capital investment on other higher priority projects, including the Del Toro Silver Mine and Real de Catorce Silver Project.
RESULTS OF OPERATIONS
Three Months ended September 30, 2010 compared to Three Months ended September 30, 2009.
For the Quarter Ended | |||||||
September 30, 2010 | September 30, 2009 | ||||||
$ | $ | ||||||
Gross revenue | 36,076,022 | 16,845,886 | (1) | ||||
Net revenue | 33,465,565 | 13,724,803 | (2) | ||||
Cost of sales | 14,217,773 | 8,054,387 | (3) | ||||
Depreciation, depletion and amortization | 2,284,304 | 1,415,319 | (4) | ||||
Accretion of reclamation obligation | 93,885 | 105,400 | |||||
Mine operating earnings | 16,869,603 | 4,149,697 | (5) | ||||
General and administrative | 2,519,385 | 1,724,437 | (6) | ||||
Stock-based compensation | 584,059 | 505,847 | (7) | ||||
3,103,444 | 2,230,284 | ||||||
Operating income | 13,766,159 | 1,919,413 | (8) | ||||
Interest and other expenses | (390,433 | ) | (337,208 | ) | (9) | ||
Investment and other income | 1,126,074 | 85,748 | (10) | ||||
Foreign exchange gain (loss) | (698,657 | ) | (447,659 | ) | (11) | ||
Income before taxes | 13,803,143 | 1,220,294 | |||||
Income tax expense - current | 1,044 | 274,327 | |||||
Income tax (recovery) - future | 3,523,327 | (895,656 | ) | ||||
Income tax expense (recovery) | 3,524,371 | (621,329 | ) | (12) | |||
Net income for the period | 10,278,772 | 1,841,623 | (13) | ||||
Earnings per share - basic | 0.11 | 0.02 | |||||
1. |
Consolidated gross revenue (prior to smelting & refining and metal deductions) for the quarter ended September 30, 2010 was $36,076,022 or $19.30 (US$18.57) per ounce compared to $16,845,886 or $16.54 (US$15.07) per ounce for the quarter ended September 30, 2009, for an increase of $19,230,136 or 114%. The increase in the third quarter of 2010 is attributable to a 292% increase in equivalent silver ounces as the new La Encantada processing plant began commercial sales on April 1, 2010; as well, a 23% increase in US$ silver prices in the current quarter compared to the third quarter of 2009. The increase in gross revenue was partially offset by the devaluation of the U.S. dollar against the Canadian dollar. |
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2. |
Net revenue for the three months ended September 30, 2010 increased by $19,740,762 or 144% to $33,465,565 from $13,724,803 in the third quarter of 2009, due to the same increases that affected consolidated gross revenue in the third quarter of 2010. In addition, lower smelting & refining and metal deduction charges per ounce (7.6% of gross revenue compared to 18.7% in the third quarter of 2009) contributed to the increase in net revenue in the third quarter of 2010. |
3. |
Cost of sales increased by $6,163,386 or 77%, to $14,217,773 in the third quarter of 2010 from $8,054,387 in the same quarter of 2009. This increase in cost of sales was related to increasing the equivalent silver ounces sold by 84% from the quarter ended September 30, 2009. In the third quarter of 2010, the Company also processed higher grade ore than the comparative period in 2009. |
4. |
Depreciation, depletion and amortization increased by $868,985 or 61% to $2,284,304 in the third quarter of 2010 from $1,415,319 in the same quarter of 2009, due primarily to the additional $556,542 of depreciation and amortization which commenced upon the new La Encantada mill entering into commercial stage production effective April 1, 2010. |
5. |
Mine operating earnings increased by $12,719,906 or 307% to $16,869,603 for the quarter ended September 30, 2010, compared to $4,149,697 for the same quarter in the prior year. This is primarily due to the $19,740,762 increase in net revenue, and is offset by the higher cost of sales and depreciation, depletion and amortization expenses during the third quarter of 2010. |
6. |
General and administrative expenses increased by $794,948 or 46% compared to the prior year primarily due to an aggressive investor relations campaign and an increase in salaries and benefits year over year. |
7. |
Stock-based compensation increased by $78,212 or 15% due to more options vesting in the third quarter of 2010. |
8. |
Operating income increased by $11,846,746 or 617% to $13,766,159 for the quarter ended September 30, 2010, compared to an operating income of $1,919,413 for the quarter ended September 30, 2009, due to the increase in mine operating earnings associated with higher production levels and higher silver prices. |
9. |
During the quarter ended September 30, 2010, interest and other expenses increased by $53,225 or 16% to $390,433 compared to $337,208 for the quarter ended September 30, 2009 and is primarily due to interest charges relating to the debt facilities with FIFOMI for the completion of the La Encantada cyanidation plant and the pre-payment facility associated with the advances for the sale of lead concentrates. |
10. |
Investment and other income increased by $1,040,326 or 1,213% compared to the same quarter in the prior year. The increase is primarily attributed to the realized gain of $1,094,778 recorded on silver futures contracts. |
11. |
The Company experienced a foreign exchange loss of $698,657 in the quarter ended September 30, 2010 compared to a foreign exchange loss of $447,659 in the quarter ended September 30, 2009 due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar. |
12. |
During the quarter ended September 30, 2010, the Company recorded an income tax expense of $3,524,371 compared to a recovery of $621,329 in the quarter ended September 30, 2009, and this is reflective of higher earnings and would consist primarily of non-cash future income taxes arising from temporary timing differences and utilization of tax loss carryforwards. The Company has sufficient tax loss carryforwards to offset the current taxable earnings in the period. |
13. |
As a result of the foregoing, net income for the quarter ended September 30, 2010 increased 458% to $10,278,772 or basic earnings per share of $0.11 compared to a net income of $1,841,623 or $0.02 per common share in the quarter ended September 30, 2009, for an increase of $8,437,149 compared to the same period in the prior year. |
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Nine months ended September 30, 2010 compared to Nine months ended September 30, 2009.
For the Nine Months Ended | |||||||
September 30, 2010 | September 30, 2009 | ||||||
$ | $ | ||||||
Gross revenue | 89,811,116 | 50,089,619 | (1) | ||||
Net revenue | 80,646,464 | 41,136,552 | (2) | ||||
Cost of sales | 36,626,377 | 25,813,068 | (3) | ||||
Depreciation, depletion and amortization | 6,462,327 | 4,616,916 | (4) | ||||
Accretion of reclamation obligation | 281,806 | 338,610 | |||||
Mine operating earnings | 37,275,954 | 10,367,958 | (5) | ||||
General and administrative | 6,912,850 | 5,656,753 | (6) | ||||
Stock-based compensation | 1,928,202 | 2,203,394 | (7) | ||||
8,841,052 | 7,860,147 | ||||||
Operating income | 28,434,902 | 2,507,811 | (8) | ||||
Interest and other expenses | (1,636,082 | ) | (1,102,179 | ) | (9) | ||
Investment and other income | 1,748,007 | 597,764 | (10) | ||||
Foreign exchange gain (loss) | (282,557 | ) | (559,567 | ) | (11) | ||
Income before taxes | 28,264,270 | 1,443,829 | |||||
Income tax expense - current | 65,016 | 445,910 | |||||
Income tax (recovery) - future | 6,017,571 | (2,819,817 | ) | ||||
Income tax expense (recovery) | 6,082,587 | (2,373,907 | ) | (12) | |||
Net income for the period | 22,181,683 | 3,817,736 | (13) | ||||
Earnings per share - basic | 0.24 | 0.05 | |||||
1. |
Gross revenue (prior to smelting & refining charges, and metal deductions) for the nine month period ended September 30, 2010 was $89,811,116 compared to $50,089,619 for the nine month period ended September 30, 2009, for an increase of $39,721,497 or 79%. A 55% increase in silver equivalent ounces sold in 2010, compared to the similar period in 2009, contributed to this increase. Silver prices were higher in 2010 than the comparative period in 2009, however, the stronger Canadian dollar compared to the U.S. dollar offset a portion of the favourable increase in gross revenue as silver shipments are valued in U.S dollars and translated into Canadian dollars for financial statement presentation. The average gross revenue per ounce sold on a consolidated basis was Cdn$18.74 (US$18.10) per ounce for the nine months ended September 30, 2010, compared to Cdn$16.22 (US$13.86) per ounce for the nine months ended September 30, 2009, and compared to the Comex average of US$18.07 per ounce for the same period. |
2. |
Net revenue for the nine months ended September 30, 2010 increased by $39,509,912 or 96%, from $41,136,552 in 2009 to $80,646,464 in 2010. Smelting and refining charges and metal deductions decreased from 18% to 10% of consolidated gross revenue during the nine month period ended September 30, 2010, compared to the nine months ended September 30, 2009, and reflects the reductions in smelting & refining charges related to sales of silver doré and precipitates compared to silver concentrates. |
3. |
Cost of sales increased by $10,813,309 or 42% from $25,813,068 to $36,626,377 for the nine months ended September 30, 2010. Total equivalent ounces of silver sold for nine months ended September 30, 2010 increased 55% to 4,791,896 ounces (commercial production) compared to the nine months ended September 30, 2009, the total equivalent ounces of silver sold was 3,088,141 ounces for an increase of 1,703,755 equivalent ounces. |
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4. |
Depreciation, depletion and amortization increased by $1,845,411 or 40% to $6,462,327 in the nine months ended September 30, 2010, compared to $4,616,916 in the nine months ended September 30, 2009, and is primarily attributed to an additional $1,210,953 of depreciation expenses of the new processing plant at the La Encantada mine which achieved commercial production status effective April 1, 2010, and which requires the commencement of depreciation and amortization. Additional tonnage milled in the La Encantada cyanidation plant has increased depletion expense by $598,380 for the period. Also, in the nine months ended September 30 2009, the San Martin Mine extracted less tonnage from Reserves, and more tonnage was extracted from areas outside of Reserves, which had an impact on the depletion expense in the same period in 2009. |
5. |
Mine operating earnings increased by $26,907,996 or 260% to $37,275,954 for the nine month period ended September 30, 2010, compared to $10,367,958 for the same period in prior year. This is primarily due to the $39,509,912 increase in net revenue and offset by the higher cost of sales and depreciation, depletion and amortization expense during the nine months ended September 30, 2010. |
6. |
General and administrative expenses increased by $1,256,097 or 22% in the nine months ended September 30, 2010, compared to the same period in the prior year and is primarily due to a small increase in salaries and benefits and an aggressive program of investor relations. |
7. |
Stock-based compensation decreased by $275,192 or 12% due to fewer stock options vesting in the nine months ended September 30, 2010 compared to the prior year. |
8. |
Operating income increased by $25,927,091 or 1,034%, from $2,507,811 for the period ended September 30, 2009, to $28,434,902 for the period ended September 30, 2010. The increase is attributable to the $26,907,996 increase of mine operating earnings, and $275,192 reduction in stock-based compensation, but it was partially offset by an increase of $1,256,097 in general and administration expenses. |
9. |
Interest and other expenses increased by $533,903 or 48% in the nine month period ended September 30, 2010, compared to the prior year and is primarily attributed to additional interest on capital leases and financing cost relating to advance payments on silver shipments. |
10. |
Investment and other income increased by $1,150,243 or 192% to $1,748,007 and is primarily attributed to an increase in realized gains on silver futures contracts. |
11. |
There was a foreign exchange loss of $282,557 for the nine month period ended September 30, 2010, compared to a loss of $559,567 in the nine month period ended September 30, 2009. The foreign exchange loss was due to the effects of the weakening U.S. dollar on the Companys U.S. dollar denominated net monetary assets and the strengthening of the Mexican peso on peso denominated liabilities. |
12. |
During the nine months ended September 30, 2010, the Company recorded an income tax expense of $6,082,587 compared to a tax recovery of $2,373,907 in the nine months ended September 30, 2009 and is reflective of earnings and would consist primarily of non-cash future income taxes arising from temporary timing differences and utilization of tax loss carryforwards. In 2009, the recovery was also attributed to a Canadian dollar equivalent of $542,906 for the adjusted tax deductibility of energy expenses which increased the tax loss carryforwards. |
13. |
Net income for the nine months ended September 30, 2010 was $22,181,683 or $0.24 per common share (basic) compared to net income of $3,817,736 or $0.05 per common share in 2009, for an increase of $18,363,947 or 481%, primarily due to the effects of increased production and increased silver prices. |
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SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the most recent eight quarters.
|
Quarter |
Net sales revenues $ |
Net income (loss) after taxes $ |
Basic and
diluted net income (loss) per common share $ |
Stock-based compensation (9) $ |
Note |
Year ended
December 31, 2010
|
Q3 | 33,465,565 | 10,278,772 | 0.11 | 584,059 | 1 |
Q2 | 28,963,285 | 8,887,116 | 0.10 | 643,964 | 2 | |
Q1 | 18,217,614 | 3,015,795 | 0.03 | 700,179 | 3 | |
Year ended
December 31, 2009
|
Q4 | 18,374,117 | 2,492,488 | 0.03 | 1,099,386 | 4 |
Q3 | 13,724,803 | 1,841,623 | 0.02 | 505,847 | 5 | |
Q2 | 13,024,877 | 1,036,416 | 0.01 | 800,808 | 6 | |
Q1 | 14,386,872 | 939,698 | 0.01 | 896,739 | 7 | |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | 8 |
Notes:
1. |
In the quarter ended September 30, 2010, net sales increased by 4,502,280 compared to the quarter ended June 30, 2010. The increase was primarily due to a 15% increase, or 245,549 equivalent ounces of silver sold after intercompany eliminations, in the third quarter of 2010 as compared to the second quarter of 2010, and an increase in silver price during the quarter. Net income after taxes increased $1,391,656 or 16% in the quarter ended September 30, 2010, compared to the quarter ended June 30, 2010, mainly due to $3,815,298 increase in mine operating earnings that was partially offset by an increase of $2,112,041 in tax expense and an increase of $1,042,732 in foreign exchange loss compared to the second quarter of 2010. |
2. |
In the quarter ended June 30, 2010, net sales increased by $10,745,671 compared to the quarter ended March 31, 2010 and was primarily due to an increase of 325,185 equivalent ounces of silver sold (after intercompany eliminations) in the second quarter of 2010 compared to the first quarter of 2010. In the first quarter of 2010, pre-commercial sales were not included as equivalent ounces sold but instead were credited to the capitalization of the La Encantada mill expansion project. Net sales and net income was positively affected by an increase of the average gross revenue per ounce realized of $19.58 (US$18.68) in the quarter ended June 30, 2010 compared to $16.89 (US$16.23) in the quarter ended March 31, 2010. |
3. |
In the quarter ended March 31, 2010, net sales revenue was comparable to the quarter ended December 31, 2009. The Company sold an additional 153,097 equivalent ounces of silver (after intercompany eliminations) in the first quarter of 2010 compared to the fourth quarter of 2009; however, the average gross revenue per ounce realized was $16.89 (US$16.23) in the quarter ended March 31, 2010 compared to $18.71 (US$17.72) in the quarter ended December 31, 2009; an average effect of $1.82 per ounce or 10% (not including the $2.3 million profit from pre-commercial sales). |
4. |
In the quarter ended December 31, 2009, net sales revenue increased due to increasing silver prices. The average gross revenue per ounce of silver realized increased to US$17.72 in the quarter ended December 31, 2009, compared to US$15.07 in the prior quarter ended September 30, 2009. |
5. |
In the quarter ended September 30, 2009, net sales revenue increased due to rising prices. The average gross revenue per ounce of silver realized was US$15.07 in the quarter ended September 30, 2009, increasing from US$12.60 in the prior quarter ended September 30, 2009. |
6. |
In the quarter ended June 30, 2009, net sales revenue decreased due to losses on final settlements for which provisional payments had already been received in the prior quarter. |
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7. |
In the quarter ended March 31, 2009, a stronger U.S. dollar compared to the Canadian dollar accounted for the increase of revenue. Although silver prices were lower in the first quarter of 2009, the average gross revenue per ounce sold was Cdn$17.52 (US$14.07) per ounce on a consolidated basis for the three-month period ended March 31, 2009. Also contributing to an increase in net sales is $1,194,452 from the sale of coins, ingots and bullion in the three months ended March 31, 2009. |
8. |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metal settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million relating to net U.S. monetary liabilities in the fourth quarter of 2008. |
9. |
Stock-based Compensation - the net income (losses) are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
Revenues In Accordance With Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net sum of invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including associated metal by-products of gold, lead and zinc, after having deducted refining and smelting charges and metal deductions, and after elimination of the intercompany shipments of silver being minted into coins, ingots and bullion products. The following is an analysis of the gross revenues prior to refining and smelting charges and metal deductions, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP in Canadian and US currencies. Gross revenues are divided by shipped ounces of silver to calculate the average realized price per ounce of silver sold.
Revenue Analysis |
Quarter
Ended
September 30, |
Year to Date
September 30, |
||
2010
$ |
2009
$ |
2010
$ |
2009
$ |
|
MEXICO | ||||
Gross revenues - silver dore bars and concentrates | 35,793,605 | 17,058,732 | 89,824,450 | 49,524,306 |
Less: refining & smelting charges, transportation and other selling expenses | (1,635,007) | (2,475,509) | (6,305,882) | (7,181,971) |
Less: metal deductions | (1,067,581) | (716,255) | (3,302,901) | (1,841,777) |
Net revenue from silver dore and concentrates shipments | 33,091,017 | 13,866,968 | 80,215,667 | 40,500,558 |
Equivalent ounces of silver sold | 1,858,914 | 1,064,600 | 4,833,073 | 3,094,046 |
Average gross revenue per ounce sold ($CDN) | 19.26 | 16.02 | 18.59 | 16.01 |
Average exchange rate in the period ($US/$CDN) | 1.0391 | 1.0974 | 1.0356 | 1.1700 |
Average gross revenue per ounce sold ($US) | 18.53 | 14.60 | 17.95 | 13.68 |
CANADA | ||||
Gross revenues - silver coins, ingots and bullion | 1,217,552 | 656,660 | 4,199,072 | 3,658,741 |
Equivalent ounces of silver sold, from Mexican production | 56,700 | 38,088 | 207,882 | 209,575 |
Average gross revenue per ounce sold ($CDN) | 21.47 | 17.24 | 20.20 | 17.46 |
Average exchange rate in the period ($US/$CDN) | 1.0391 | 1.0974 | 1.0356 | 1.1700 |
Average gross revenue per ounce sold ($US) | 20.67 | 15.71 | 19.51 | 14.92 |
CONSOLIDATED | ||||
Combined gross revenues - silver dore, concentrates, coins, ingots and bullion | 37,011,157 | 17,715,392 | 94,023,522 | 53,183,047 |
Less: intercompany eliminations | (935,135) | (869,506) | (4,212,406) | (3,093,428) |
Consolidated gross revenues - silver dore, concentrates, coins, ingots and bullion | 36,076,022 | 16,845,886 | 89,811,116 | 50,089,619 |
Less: refining and smelting charges, net of intercompany | (1,622,326) | (2,440,169) | (6,246,636) | (7,146,631) |
Less: metal deductions, net of intercompany | (988,133) | (680,914) | (2,918,016) | (1,806,436) |
Consolidated net revenue from silver dore, concentrates, coins, ingots and bullion | 33,465,565 | 13,724,803 | 80,646,464 | 41,136,552 |
Equivalent ounces of silver sold (after interco. eliminations) | 1,869,393 | 1,018,417 | 4,791,896 | 3,088,141 |
Average gross revenue per ounce sold ($CDN) | 19.30 | 16.54 | 18.74 | 16.22 |
Average exchange rate in the period ($CDN/$US) | 1.0391 | 1.0974 | 1.0356 | 1.1700 |
Average gross revenue per ounce sold ($US) | 18.57 | 15.07 | 18.10 | 13.86 |
Average market price of per ounce of silver per COMEX ($US) | 18.94 | 14.69 | 18.07 | 13.69 |
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At March 31, 2010, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore, sales receipts in the quarter ended March 31, 2010 of $4,718,618 in connection with the sale of 262,403 silver equivalent ounces of precipitates during the pre-operating period were not recorded as sales revenues but instead were recorded as a reduction of capital in the construction in progress account. As at March 31, 2010, total cash receipts of $5,663,086 was in the connection with the sale of 316,680 silver equivalent ounces of precipitates during the pre-operating period since inauguration of the plant. Effective April 1, 2010, the cyanidation plant had reached the commercial production stage, and all sales were included in the above table.
LIQUIDITY
At September 30, 2010, the Company had working capital of $24.1 million and cash and cash equivalents of $25.5 million compared to working capital of $4.8 million and cash and cash equivalents of $5.9 million at December 31, 2009. Working capital increased by $19.3 million as a result of $37.2 million generated from operating activities, consisting of an increase in inventory by $3.0 million primarily attributed to the La Encantada cyanidation plant for various stages of mineral inventory and the warehouse inventory, and an increase of $0.5 million in prepaid expenses and other relating to advances to suppliers and contractors. Accounts payable and accrued liabilities increased by $2.0 million due to timing of payments to vendors and accrual of the employee profit sharing plan as per Mexican government legislation. The current portion of debt facilities increased by $1.1 million, relating to the increase in the pre-payment facility the Company has drawn relating to the lead concentrates compared to as at December 31, 2009. Also, the current portion of capital leases decreased by $0.7 million due to payments during the period.
During the quarter ended September 30, 2010 the Company spent $4.0 million on mineral properties and a further $7.2 million on plant and equipment on a cash basis, of which $3.5 million was related to reduction of capital related liabilities.
In September and October of 2010, the Company fully repaid from cashflows the balance of $4.0 million in FIFOMI loans outstanding, thereby saving ongoing related finance charges of 12.4% and releasing its security and loan guarantees.
The Company is succeeding with its objective of accumulating cash in treasury, restoring funds which were consumed during the completion of the La Encantada expansion project.
Funds surplus to the Companys short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there are no restrictions on the ability of the Company to use these funds to meet its obligations.
The Company is assessing its long term expansion plans and associated funds requirements. Cash flows from operations were strong at $18.8 million in the third quarter of 2010. Also, there remain 6,280,027 warrants outstanding with an average exercise price of $3.44 which expire in March and August 2011, and which could potentially generate an additional $21.6 million of expansionary capital for the Company in 2011.
2010 OUTLOOK
This section of the MD&A provides managements production and costs forecasts for 2010. These are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
The Company completed a revision of its budget expectations for the second half of 2010. Based on this detailed review of costs and production forecasts, combined with the production level achieved in the third quarter of 2010, it remains likely that the Company will achieve its 2010 production target of 6.3 million silver ounces (6.9 million ounces of silver equivalents). The Company is also continuing with its review of opportunities to maximize its profit per ounce of silver while continuing to find operational efficiencies to reduce its costs and compensate for a stronger Mexican currency relative to the US dollar. These efforts are being made in an attempt to reduce Total US$ Cash Costs per ounce, in order to continue to improve operating income through the final quarter of 2010.
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OFF-BALANCE SHEET ARRANGEMENTS
At September 30, 2010, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the consolidated financial statements and the related notes. Derivative instruments are carried at fair value.
RELATED PARTY TRANSACTIONS
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties. During the quarter ended September 30, 2010, there were no significant transactions with related parties.
PROPOSED TRANSACTIONS
Other than as disclosed herein, the board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
CONTRACTUAL OBLIGATIONS
At September 30, 2010, the Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1 to 3 | 4 to 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Office Lease | $ | 347,400 | $ | 231,600 | $ | 115,800 | $ | - | $ | - | |||||
Capital Lease Obligations | 3,403,662 | 1,422,368 | 1,625,271 | 356,023 | - | ||||||||||
FIFOMI Loan Facilities | 1,390,077 | 1,390,077 | - | - | - | ||||||||||
Prepayment Facility | 1,302,089 | 1,302,089 | - | - | - | ||||||||||
Real de Catorce Payments (1) | 1,235,760 | 1,235,760 | - | - | - | ||||||||||
Asset Retirement Obligations | 4,750,421 | - | - | - | 4,750,421 | ||||||||||
Accounts Payable and Accrued Liabilities | 13,225,832 | 13,225,832 | - | - | - | ||||||||||
Total Contractual Obligations | $ | 25,655,240 | $ | 18,807,725 | $ | 1,741,071 | $ | 356,023 | $ | 4,750,421 |
(1) Contract commitments to acquire surface rights, properties and geological information relating to the Real de Catorce Project.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for the year ended December 31, 2009. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
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Carrying Values of Property, Plant and Equipment and Other Mineral Property Interests
The Company reviews and evaluates its mineral properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and/or development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The Company completed an impairment review of its properties at December 31, 2009 and determined there was no impairment to its mineral property interests. The estimates used by management were subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest components of the Companys assets and, as such, the amortization of these assets has a significant effect on the Companys financial statements. On the commencement of commercial production, depletion of each mining property is provided on the unit-of-production basis using estimated reserves and resources expected to be converted to reserves as the depletion basis. The mining plant and equipment and other capital assets are depreciated, following the commencement of commercial production, over their expected economic lives using the unit-of-production method. Capital projects in progress are not depreciated until the capital asset has been put into operation.
The mineral reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets.
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and decommissioning related to its mining properties. The Company, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future obligations from mine closure activities. Since the obligations are dependent on the laws and regulations of the country in which the mines operate, the requirements could change resulting from amendments in those laws and regulations relating to environmental protection and other legislation affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
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As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at September 30, 2010.
Income Taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantially enacted, as applicable, income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling it on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Co-incident with the tax consolidation, Mexico introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in Mexico. Management has reviewed its IETU obligations and its consolidated tax position at September 30, 2010, and management assessed whether the Company is more likely than not to benefit from these tax losses prior to recording a benefit from the tax losses.
In December 2009, Mexico introduced tax consolidation reform tax rules which, effective January 2010, would require companies to begin the recapture of the benefits of tax consolidation within five years of receiving the benefit, and phased in over a five year period. First Majestics first tax deferral benefit from consolidation was realized in 2008, and as such the benefit of tax consolidation would be recaptured from 2013 to 2018. Numerous companies in Mexico are challenging the legality of these regressive tax reforms. It is unlikely that the outcome of these challenges will be determinable for several years.
Other changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
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Stock-Based Compensation
The Company uses the Black-Scholes Option Pricing Model . Option pricing models require the input of subjective assumptions including the expected price volatility. Changes in the input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide an accurate single measure of the actual fair value of the Companys stock options granted during the year.
FUTURE ACCOUNTING CHANGES
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has adopted these new standards for the period ended September 30, 2010.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In February 2008, the CICA announced that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011. The Company will be required to begin reporting under IFRS for the quarter ending March 31, 2011, and will be required to prepare a revised opening balance sheet as at January 1, 2010, and provide information that conforms to IFRS for comparative periods presented.
The Company has developed an IFRS changeover plan which addresses the key areas such as accounting policies, financial reporting, disclosure controls and procedures, information systems, education and training and other business activities.
The Company commenced its IFRS conversion project during the third quarter of 2009 and has established a conversion plan and an IFRS project team. The IFRS conversion project is comprised of three phases: i) project planning, scoping and preliminary impact analysis; ii) detailed diagnostics and evaluation of financial impacts, selection of accounting policies, and design of operational and business processes; and iii) implementation and review.
The Company is in the second phase of its conversion plan and has completed a detailed analysis of the standards, including the evaluation of policy choices for those standards that may have an impact on its financial statements, business processes and systems.
Management is in the process of quantifying the expected material differences between lFRS and the current accounting treatment under Canadian GAAP. Differences with respect to recognition, measurement, presentation and disclosure of financial information are expected in key accounting areas. The Company cannot reasonably determine the full impact that adopting IFRS would have on its financial statements at this time. As a result, it is unable to quantify the impact of adopting IFRS on the financial statements as at September 30, 2010.
The Company is continuing to monitor developments in standards and interpretations of standards and industry practices. Due to anticipated changes to IFRS and International Accounting Standards prior to the adoption of IFRS, managements plan is subject to change based on new facts and circumstances that arise.
The following list, though not exhaustive, identifies some of the changes in key accounting policies due to the adoption of IFRS:
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Standards | Difference from GAAP | Potential Impact |
Presentation and disclosure | IFRS requires significantly more disclosure than Canadian GAAP for certain standards. In addition, classification and presentation may be different for some balance sheet items. | The increased disclosure requirements will cause the Company to change financial reporting processes to ensure the appropriate data is collected. The Company is analyzing the impact of classification and presentation changes. |
First time Adoption of IFRS (IFRS 1) | IFRS 1 provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions in certain areas to the general requirement for full retrospective application of IFRS. With regards to the IFRS transition, the Company continues to analyze the optional exemptions available under IFRS 1. | The adoption of certain exemptions will impact the January 1, 2010 opening balance sheet adjustments. The Company continues to assess the appropriateness of the accounting policies applied under IFRS both at the time of transition and following transition. |
Property, Plant and Equipment (IAS 16) | IFRS requires all significant components of property, plant and equipment (PPE) to be amortized according to their individual useful lives as determined in accordance with IFRS. IAS 16 permits the revaluation of PPE to fair value. | Potentially material components within processing plants will have shorter useful lives than the entire plant, requiring increased amortization expenses. |
Impairment of Long-lived Assets (IAS 36) | IFRS requires the assessment of asset impairment to be based on comparing the carrying amount to the recoverable amount using discounted cashflows while GAAP only requires discounting if the carrying value of assets exceeds the undiscounted cash flows. IFRS also requires the reversal of any previous asset impairments, excluding goodwill, where circumstances have changed. GAAP prohibits the reversal of impairment losses. | The differences in methodology may result in asset revaluations upon transition to IFRS. . |
Asset Retirement Obligations (IAS 37) | Differences include the basis of estimation for undiscounted cashflows, the discount rate used, the frequency of liability remeasurement, and recognition of a liability when a constructive obligation exists. | IFRS 1 provides an exemption which allows the Company to recognize reclamation and closure costs obligations, estimate costs of the related mining properties using risk free rates, and recalculating depreciation and depletion of assets at fair value as at January 1, 2010. |
Income Taxes (subject to adoption at transition of a revised IAS 12 standard) | Recognition and measurement criteria for deferred tax assets and liabilities may differ. | Deferred tax assets may be derecognized at transition. This standard is in-transition since IAS 12 was withdrawn in November 2009 and the AcSB will adopt the converged standard at changeover to IFRS. The Company is assessing the changes but the changes are not likely significant. |
Functional Currency (IAS 21) | IAS 21 requires the Company to determine the translation differences in accordance with IFRS from the date on which a subsidiary was formed or acquired. | IFRS 1 provides an exemption that allows a Company to reset its cumulative translation account to zero at the date of transition, with the balance being transferred to opening retained earnings. |
Business Combinations (IFRS 3) | Under GAAP, the new HB section 1582 is effective January 1, 2011 and early adoption is permitted. This standard converges Canadian Standard with IFRS 3. | Early adoption of HB section 1582 is permitted, and the Company adopted this section effective January 1, 2010. IFRS 1 includes an exemption for business combinations which occurred prior to the date of transition. |
Leases (IAS 17) | IFRS classifies leases as either financing or operating leases and classification depends on whether substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred from the lessor to the lessee, and is made at the inception of the lease. There are no quantitative thresholds similar to GAAP. | The Company is developing internal indicators to assist in lease classification under IFRS. |
Borrowing Costs (IAS 23) | IAS 23 does not allow the expensing of borrowing costs, to the extent they are directly attributable to acquisition, production and construction of a qualifying asset. | IFRS 1 allows companies to capitalize borrowing costs relating to all qualifying assets prospectively on adoption. |
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Standards | Difference from GAAP | Potential Impact |
Stock-based Compensation (IFRS 2) | Under Canadian GAAP, obligations for cash payments under stock-based compensation plans are accrued using the intrinsic method, compared to the fair value method under IFRS. IFRS also requires the fair value of stock options to be recognized using the graded vesting method, whereas Canadian GAAP allows the straight-line method or the graded vesting method to be used. | While the carrying value of each reporting period will be different under IFRS, the cumulative expense recognized over the life of the instrument will be similar to Canadian GAAP. The graded vesting method will result in the majority of stock option value being recognized upfront. The Company will adopt this change prospectively using the IFRS 1 exemption for share units that vest prior to January 1, 2010. |
Other important considerations during the IFRS transition are the following:
Internal control over financial reporting (ICFR) for all accounting policy changes identified, the Company will assess the impact on the ICFR design and effectiveness implications and will ensure that all changes in accounting policies include the appropriate additional controls and procedures for future IFRS reporting requirements.
Disclosure controls and procedures (DC&P) for all accounting policy changes identified an assessment of DC&P design and effectiveness implication will be analyzed to address any issues with respect to DC&P during IFRS transition.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management has been remediating internal controls since 2009, and is proceeding on a course of strengthening internal controls in accounting systems in Mexico and Canada. The risk of material error is mitigated by extensive management reviews of financial and operating reports, account reconciliations and analyses in both Mexico and Canada. Significant progress on managements remediation plan has been achieved, and management expects the remainder of its current plan to be completed by the end of 2010.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in Mexico, however these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at September 30, 2010.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company may be found on or in:
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2010 (UNAUDITED)
MANAGEMENTS COMMENTS ON
UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements of the
Company have been prepared by and are the
responsibility of the Companys
management.
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED BALANCE SHEETS |
AS AT SEPTEMBER 30, 2010 AND DECEMBER 31, 2009 |
(Unaudited, expressed in Canadian dollars) |
CONTINGENT LIABILITIES (Note 17)
COMMITMENTS (Note 18)
APPROVED BY THE BOARD OF DIRECTORS
Keith Neumeyer (signed) | Director | Douglas Penrose (signed) | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF INCOME |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars, except share amounts) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
$ | $ | $ | $ | |||||||||
Revenues (Note 12) | 33,465,565 | 13,724,803 | 80,646,464 | 41,136,552 | ||||||||
Cost of sales | 14,217,773 | 8,054,387 | 36,626,377 | 25,813,068 | ||||||||
Depletion, depreciation and amortization | 2,284,304 | 1,415,319 | 6,462,327 | 4,616,916 | ||||||||
Accretion of reclamation obligation (Note 15) | 93,885 | 105,400 | 281,806 | 338,610 | ||||||||
Mine operating earnings | 16,869,603 | 4,149,697 | 37,275,954 | 10,367,958 | ||||||||
General and administrative | 2,519,385 | 1,724,437 | 6,912,850 | 5,656,753 | ||||||||
Stock-based compensation | 584,059 | 505,847 | 1,928,202 | 2,203,394 | ||||||||
3,103,444 | 2,230,284 | 8,841,052 | 7,860,147 | |||||||||
Operating income | 13,766,159 | 1,919,413 | 28,434,902 | 2,507,811 | ||||||||
Interest and other expenses | (390,433 | ) | (337,208 | ) | (1,636,082 | ) | (1,102,179 | ) | ||||
Investment and other income | 1,126,074 | 85,748 | 1,748,007 | 597,764 | ||||||||
Foreign exchange loss | (698,657 | ) | (447,659 | ) | (282,557 | ) | (559,567 | ) | ||||
Income before taxes | 13,803,143 | 1,220,294 | 28,264,270 | 1,443,829 | ||||||||
Income tax expense - current | 1,044 | 274,327 | 65,016 | 445,910 | ||||||||
Income tax expense (recovery) - future | 3,523,327 | (895,656 | ) | 6,017,571 | (2,819,817 | ) | ||||||
3,524,371 | (621,329 | ) | 6,082,587 | (2,373,907 | ) | |||||||
NET INCOME FOR THE PERIOD | 10,278,772 | 1,841,623 | 22,181,683 | 3,817,736 | ||||||||
EARNINGS PER COMMON SHARE | ||||||||||||
BASIC | $ | 0.11 | $ | 0.02 | $ | 0.24 | $ | 0.05 | ||||
DILUTED | $ | 0.11 | $ | 0.02 | $ | 0.23 | $ | 0.04 | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
BASIC | 93,139,406 | 84,347,213 | 92,888,446 | 81,058,745 | ||||||||
DILUTED | 96,996,122 | 103,503,490 | 95,279,402 | 100,215,022 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS) |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars, except share amounts) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Comprehensive | Total | |||||||||||||||||||||||
Share Capital | Contributed | Income (Loss) | AOCI | |||||||||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and Deficit | Total | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | |||||||||||||
Net income | - | - | - | - | - | 3,817,736 | 3,817,736 | 3,817,736 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | (18,472,214 | ) | - | (18,472,214 | ) | (18,472,214 | ) | |||||||||||||
Unrealized gain on marketable securities | - | - | - | - | 20,500 | - | 20,500 | 20,500 | ||||||||||||||||
Total comprehensive loss | (14,633,978 | ) | (14,633,978 | ) | ||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 6,250 | 7,938 | - | - | - | - | - | 7,938 | ||||||||||||||||
Public offering, net of issue costs (Note 11(a)(i)) | 8,487,576 | 18,836,518 | - | 848,758 | - | - | - | 19,685,276 | ||||||||||||||||
Private placements, net of issue costs (Note 11(a)(ii)) | 4,167,478 | 9,051,069 | - | 389,000 | - | - | - | 9,440,069 | ||||||||||||||||
Debt settlements (Note 11(a)(iii)) | 1,191,852 | 2,741,260 | - | - | - | - | - | 2,741,260 | ||||||||||||||||
Stock option expense during the period | - | - | - | 2,203,394 | - | - | - | 2,203,394 | ||||||||||||||||
Transfer of contributed surplus upon exercise of stock options | - | 2,950 | - | (2,950 | ) | - | - | - | - | |||||||||||||||
Balance at September 30, 2009 | 87,700,966 | 227,288,080 | 276,495 | 26,735,460 | (41,668,104 | ) | (35,659,147 | ) | (77,327,251 | ) | 176,972,784 | |||||||||||||
Balance at December 31, 2009 | 92,648,744 | 244,241,006 | 276,495 | 27,808,671 | (40,238,914 | ) | (33,166,658 | ) | (73,405,572 | ) | 198,920,600 | |||||||||||||
Net income | - | - | - | - | - | 22,181,683 | 22,181,683 | 22,181,683 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 5,819,417 | - | 5,819,417 | 5,819,417 | ||||||||||||||||
Unrealized loss on marketable securities | - | - | - | - | (102,679 | ) | - | (102,679 | ) | (102,679 | ) | |||||||||||||
Total comprehensive income | 27,898,421 | 27,898,421 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 1,131,625 | 3,571,844 | - | - | - | - | - | 3,571,844 | ||||||||||||||||
Exercise of warrants | 47,500 | 156,750 | - | - | - | - | - | 156,750 | ||||||||||||||||
Stock option expense during the period | - | - | - | 1,941,216 | - | - | - | 1,941,216 | ||||||||||||||||
Transfer of contributed surplus upon exercise of stock options and warrants | - | 1,277,536 | - | (1,277,536 | ) | - | - | - | - | |||||||||||||||
Balance at September 30, 2010 | 93,827,869 | 249,247,136 | 276,495 | 28,472,351 | (34,522,176 | ) | (10,984,975 | ) | (45,507,151 | ) | 232,488,831 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries which primarily affects the mining interests, except for the unrealized gain on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
1. DESCRIPTION OF BUSINESS
First Majestic Silver Corp. (the Company or First Majestic) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR and FR.WT.B, respectively.
2. BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP). These interim financial statements do not contain all the information required by GAAP for annual financial statements and should be read in conjunction with the Companys latest audited consolidated financial statements for the year ended December 31, 2009.
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM), First Silver Reserve Inc. (First Silver) and Normabec Mining Resources Ltd. (Normabec) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada), Majestic Services S.A. de C.V. (Majestic Services), Minera Real Bonanza, S.A. de C.V. (MRB) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (Servicios). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 8. Intercompany balances and transactions are eliminated on consolidation.
3. SIGNIFICANT CHANGES IN ACCOUNTING POLICIES
Change in Accounting Policy and Future Accounting Pronouncements
Business Combinations, Consolidations and Non-controlling
interests
The CICA has approved new Handbook Section 1582, Business
Combinations, Section 1601 Consolidations and Section 1602 Non-controlling
Interests to harmonize with International Financial Reporting Standards
(IFRS). These new sections will be effective for years beginning on or after
January 1, 2011, with early adoption permitted. Section 1582 specifies a number
of changes including: an expanded definition of a business, a requirement to
measure all business acquisitions at fair value, a requirement to measure
non-controlling interests at fair value, and a requirement to recognize
acquisition related costs as expenses. Section 1601 establishes the standards
for preparing consolidated financial statements. Section 1602 specifies that
non-controlling interests be treated as a separate component of equity, not as a
liability or other item outside of equity. The Company has adopted these new
standards effective January 1, 2010 and it has not had a material impact on the
Company.
International Financial Reporting Standards
(IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB)
published a strategic plan that will significantly affect financial reporting
requirements for Canadian companies. The AcSB strategic plan outlines
convergence of Canadian GAAP with IFRS over an expected five-year transitional
period. In February 2008, the AcSB announced that 2011 is the changeover date
for public companies to commence using IFRS, replacing Canadas own GAAP. The
transition date is January 1, 2011, and relates to interim and annual financial
statements on or after January 1, 2011. The transition will require the
restatement for comparative purposes of amounts reported by the Company for all
reporting periods beginning after January 1, 2010.
Notes Page 1 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
4. OTHER RECEIVABLES
Details of the components of other receivables are as follows:
September 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Value added taxes recoverable | 2,939,052 | 4,066,074 | ||||
Other taxes and value added taxes on accounts payable | 2,109,723 | 2,072,442 | ||||
Loan receivable from supplier | 487,963 | 478,824 | ||||
Interest receivable and other | 42,546 | 6,860 | ||||
5,579,284 | 6,624,200 |
5. INVENTORIES
Inventories consist of the following:
September 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Silver coins and bullion including in process shipments | 553,826 | 273,262 | ||||
Finished product - doré and concentrates | 682,727 | 343,990 | ||||
Ore in process | 1,075,668 | 463,549 | ||||
Stockpile | 976,238 | 387,836 | ||||
Materials and supplies | 3,515,137 | 2,343,823 | ||||
6,803,596 | 3,812,460 |
The amounts of inventory recognized as expenses during the period are equivalent to the cost of sales for the respective periods.
6. PREPAID EXPENSES AND OTHER
Details of prepaid expenses and other are as follows:
September 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Prepayments to suppliers and contractors | 1,280,666 | 865,298 | ||||
Deposits | 272,357 | 215,036 | ||||
Marketable securities | 392,047 | 387,425 | ||||
1,945,070 | 1,467,759 |
Notes Page 2 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
7. MINING INTERESTS AND PLANT AND EQUIPMENT
Mining interests and plant and equipment, net of accumulated depreciation, depletion and amortization, are as follows:
September 30, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
Depreciation, | Depreciation, | |||||||||||||||||
Depletion and | Net Book | Depletion and | Net Book | |||||||||||||||
Cost | Amortization | Value | Cost | Amortization | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Mining properties | 197,362,060 | 20,266,734 | 177,095,326 | 183,585,673 | 17,185,500 | 166,400,173 | ||||||||||||
Plant and equipment | 84,015,734 | 12,351,844 | 71,663,890 | 69,026,387 | 8,637,857 | 60,388,530 | ||||||||||||
281,377,794 | 32,618,578 | 248,759,216 | 252,612,060 | 25,823,357 | 226,788,703 |
A summary of the net book value of mining properties is as follows:
September 30, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
Depletion | Depletion | |||||||||||||||||
and | Net Book | and | Net Book | |||||||||||||||
Cost | Amortization | Value | Cost | Amortization | Value | |||||||||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||||||||
Producing properties | ||||||||||||||||||
La Encantada (a) | 16,711,787 | 3,883,818 | 12,827,969 | 13,055,900 | 2,886,830 | 10,169,070 | ||||||||||||
La Parrilla (b) | 26,508,225 | 3,714,083 | 22,794,142 | 22,371,850 | 3,009,041 | 19,362,809 | ||||||||||||
San Martin (c) | 40,846,601 | 12,668,833 | 28,177,768 | 38,902,227 | 11,289,629 | 27,612,598 | ||||||||||||
84,066,613 | 20,266,734 | 63,799,879 | 74,329,977 | 17,185,500 | 57,144,477 | |||||||||||||
Exploration properties | ||||||||||||||||||
La Encantada (a) | 2,911,342 | - | 2,911,342 | 2,467,451 | - | 2,467,451 | ||||||||||||
La Parrilla (b) | 7,885,866 | - | 7,885,866 | 7,625,168 | - | 7,625,168 | ||||||||||||
San Martin (c) | 69,567,782 | - | 69,567,782 | 65,931,244 | - | 65,931,244 | ||||||||||||
Del Toro (d) | 12,328,705 | - | 12,328,705 | 11,855,627 | - | 11,855,627 | ||||||||||||
Real de Catorce (e) | 20,601,752 | - | 20,601,752 | 21,376,206 | - | 21,376,206 | ||||||||||||
113,295,447 | - | 113,295,447 | 109,255,696 | - | 109,255,696 | |||||||||||||
197,362,060 | 20,266,734 | 177,095,326 | 183,585,673 | 17,185,500 | 166,400,173 |
Notes Page 3 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
7. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
A summary of plant and equipment is as follows:
September 30, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
La Encantada Silver Mine | 52,938,432 | 3,697,134 | 49,241,298 | 42,001,694 | 1,954,699 | 40,046,995 | ||||||||||||
La Parrilla Silver Mine | 19,655,069 | 5,063,332 | 14,591,737 | 17,228,300 | 3,792,818 | 13,435,482 | ||||||||||||
San Martin Silver Mine | 11,357,812 | 3,555,358 | 7,802,454 | 9,751,407 | 2,889,290 | 6,862,117 | ||||||||||||
Real de Catorce Silver Project | 64,421 | 36,020 | 28,401 | 44,986 | 1,050 | 43,936 | ||||||||||||
Used in Mining Operations | 84,015,734 | 12,351,844 | 71,663,890 | 69,026,387 | 8,637,857 | 60,388,530 | ||||||||||||
Corporate office equipment | 1,038,156 | 546,756 | 491,400 | 767,782 | 358,501 | 409,281 | ||||||||||||
85,053,890 | 12,898,600 | 72,155,290 | 69,794,169 | 8,996,358 | 60,797,811 |
Details of plant and equipment and corporate office equipment by specific assets are as follows:
September 30, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Land | 2,259,785 | - | 2,259,785 | 2,279,494 | - | 2,279,494 | ||||||||||||
Automobile | 612,095 | 289,080 | 323,015 | 401,056 | 204,920 | 196,136 | ||||||||||||
Buildings | 10,699,838 | 865,276 | 9,834,562 | 5,918,355 | 578,177 | 5,340,178 | ||||||||||||
Machinery and equipment | 64,930,072 | 10,424,179 | 54,505,893 | 26,154,678 | 7,311,470 | 18,843,208 | ||||||||||||
Computer equipment | 987,075 | 473,133 | 513,942 | 560,018 | 279,783 | 280,235 | ||||||||||||
Office equipment | 667,687 | 633,251 | 34,436 | 577,215 | 460,070 | 117,145 | ||||||||||||
Leasehold improvements | 320,314 | 213,681 | 106,633 | 320,304 | 161,938 | 158,366 | ||||||||||||
Construction in progress (1)(2) | 4,577,024 | - | 4,577,024 | 33,583,049 | - | 33,583,049 | ||||||||||||
85,053,890 | 12,898,600 | 72,155,290 | 69,794,169 | 8,996,358 | 60,797,811 |
(1) |
Construction in progress includes $1,685,668 relating to La Encantada, $832,208 relating to La Parrilla and $2,059,148 relating to San Martin (December 31, 2009 - $31,283,949 relating to La Encantada, $535,604 relating to La Parrilla and $1,763,496 relating to San Martin). |
(2) |
On April 1, 2010, the La Encantada mill expansion project achieved commercial stage of production. Prior to April 1, 2010, the net amount of revenues less production costs of $2,770,596 (December 31, 2009 - $496,371) in connection with the sale of 316,680 silver equivalent ounces (December 31, 2009 54,277 silver equivalent ounces) of precipitates during the pre- operating period from November 19, 2009 to March 31, 2010 were offset to construction in progress. |
(a) La Encantada Silver Mine, Coahuila State
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz, is 225 km away via mostly paved road. The La Encantada Silver Mine consists of a 3,500 tonnes per day cyanidation plant, a 1,000 tonnes per day flotation plant, an airstrip, and a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine. On April 1, 2010, the mill expansion project achieved commercial stage production and all revenues and costs from that date are recorded in the mine operating earnings.
Notes Page 4 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
7. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
(b) La Parrilla Silver Mine, Durango State
The La Parrilla Silver Mine is a system of connected underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 km southeast of the city of Durango, in the State of Durango, Mexico. Located at the mine are: mining equipment, a 425 tonnes per day cyanidation plant, a 425 tonnes per day flotation plant and mining concessions covering an area of 53,000 hectares. The Company owns 100% of the La Parrilla Silver Mine. In September 2010, the Company entered into an agreement to acquire an additional 15 hectare of surface rights at Quebradillas for total consideration of $348,710 (4.2 million Mexican pesos). At September 30, 2010, the Company had paid $39,277 (476,000 Mexican pesos). The remaining balance of $309,433 (3.8 million Mexican pesos) will be paid in 25 monthly instalments of $12,377 (150,000 Mexican pesos). The Company owns 45 hectares and leases an additional 69 hectares of surface rights. During 2010, the Company staked an additional 16,630 hectares of mining rights at Quebradillas, which created a 69,867 hectare contiguous block of mining rights surrounding the La Parrilla mining operations.
There is a net smelter royalty (NSR) agreement of 1.5% of sales revenue associated with the Quebradillas Mine, with a maximum payable of US$2.5 million. The Company has an option to purchase the NSR at any time for an amount of US$2.0 million. For the quarter ended September 30, 2010, the Company paid royalties of $18,254 (US$17,568) ($40,917 or US$37,285 for the quarter ended September 30, 2009). For the nine months ended September 30, 2010, the Company paid royalties of $85,641 or US$82,699 ($119,489 or US$102,131 for nine months ended September 30, 2009). The sum of total royalties paid to date for the Quebradillas NSR is presently US$287,063.
(c) San Martin Silver Mine, Jalisco State
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,841 hectares of mineral rights, approximately 1,300 hectares of surface rights surrounding the mine, and another 104 hectares of surface rights where the 900 tonne per day cyanidation mill, flotation circuit, mine buildings and administrative offices are located. The Company owns 100% of the San Martin Silver Mine.
(d) Del Toro Silver Mine, Zacatecas State
The Del Toro Silver Mine is located 60 km to the southeast of the Companys La Parrilla Silver Mine and consists of 393 contiguous hectares of mining claims and 129 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro Silver Mine consists of two old silver mines, the San Juan and Perseverancia mines, which are approximately one kilometre apart. The Company owns 100% of the San Juan and Perseverancia mines.
In July 2008, the Company acquired 46 hectares of mining rights (Fatima) for US$387,500 in option payments due between 2008 and 2010. The Company paid US$62,500 in July 2010 bringing the total paid to US$225,000. The remaining US$162,500 of option payments are due by December 2010. All other option payments have been made.
(e) Real de Catorce Silver Project, San Luis Potosi State
The Real de Catorce Silver Project is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares. The Company owns 100% of the Real de Catorce Silver Project. Upon commencement of commercial production on the property, the Company agreed to pay an amount of US$200,000 to a previous owner. The property is subject to a 3% net smelter royalty (3% NSR), of which 1.75% may be acquired for a price of US$250,000 per each 0.25% increment, if paid prior to March 15, 2014. If paid between March 16, 2014 and March 15, 2019, the option price would be US$300,000 per each 0.25% increment.
Notes Page 5 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
7. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
(e) Real de Catorce Silver Project, San Luis Potosi State (continued)
In addition, the Company has agreed to acquire the surface rights forming part of the property, including the buildings located thereon and covering the location of the previous mining operations, in consideration for a single payment of US$1.0 million to be made in December 2010.
The Company has also agreed to make a payment of US$200,000 on December 10, 2010 for all technical and geological information collected over the area.
(f) Future Mineral Property Options
Future mineral property options are due as follows:
US$ | |||
Del Toro Silver Mine (d) | 162,500 | ||
Real de Catorce Silver Project (e) | 1,200,000 | ||
Total Future Option Payments | 1,362,500 |
8. VENDOR LIABILITY AND INTEREST AND RESTRICTED CASH
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53.4 million. The purchase price was payable in three instalments (50%, 25% and 25%) to the then majority interest shareholder of First Silver (the Majority Shareholder). The first instalment was paid upon closing on May 30, 2006. The second instalment was paid on May 30, 2007. The third and final instalment of $13.3 million due on May 30, 2008 was withheld by the Company.
In November 2007, an action was commenced by the Company and its acquired subsidiary First Silver against the Majority Shareholder (the Defendant) who was previously a director, President and Chief Executive Officer of First Silver. The Company and First Silver allege in their action that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable. At the present time, the trial is scheduled to commence in the Supreme Court of British Columbia on February 21, 2011.
In March 2008, the Defendant filed a Counterclaim against the Company for unpaid amounts and interest of $14.9 million, and this action was secured by a $14.5 million Letter of Credit posted in Court by First Majestic. The Company recorded these amounts as Restricted Cash as at March 31, 2009. In July 2009, an Order was granted by the Court, with the consent of all parties, under which the Defendant obtained a judgment in the amount of $14.9 million. The Company agreed to pay out $14.3 million from the posted Letter of Credit to the Defendants lawyers trust account (the Trust Funds) in partial payment of the Judgment. The remaining funds from the Letter of Credit were paid out to the Company. The Consent Order requires that the Trust Funds be held in trust pending the outcome of the Companys action. If the trial has not commenced by June 30, 2011, the Trust Funds can be released to the Defendant, unless otherwise ordered by the court. These funds would be accessible to the Company in the event of a favourable outcome to the litigation.
Notes Page 6 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
9. DEBT FACILITIES
(a) Pre-Payment Facility
In August 2009, a subsidiary of the parent company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, US$1.5 million was advanced against the Companys lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable in lead concentrate shipments with minimum monthly instalments of US$250,000. The repayment of the credit facility is guaranteed by the parent company.
During 2010, the pre-payment facility was extended for two consecutive six-month periods. As at September 30, 2010, after delivering monthly quotas of lead concentrates and payment of interest charges, the Company had a remaining balance payable on the pre-payment facility of $1,302,089 (US$1,250,000).
(b) FIFOMI Loan Facilities
In October 2009, the Company entered into an agreement with the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI) for two loan facilities, a capital asset loan and a working capital loan, totalling $4.3 million (53.8 million Mexican pesos). Funds from these loans were used for the completion of the 3,500 tonnes per day cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $3.7 million (47.1 million Mexican pesos), had interest at the Mexican interbank rate (4.5%) plus 7.51% per annum and was repayable over a 60-month period. The working capital loan, for up to $0.6 million (6.7 million Mexican pesos), had interest at the Mexican interbank rate plus 7.31% per annum and was a 90-day revolving loan. The loans were secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine.
During the quarter ended September 2010, the Company repaid $2.7 million of the capital asset loan in advance. At September 30, 2010, the balance owing was reduced to $1.4 million (16.8 million Mexican pesos). In October 2010, the Company also repaid the remaining $1.4 million of FIFOMI loan facilities to completely extinguish the debt. The early repayment has released the Companys security and all guarantees relating to the FIFOMI loans (Note 20(iv)).
The following is a summary of the debt facilities as at September 30, 2010:
September 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Pre-payment Facility | 1,302,089 | 450,940 | ||||
FIFOMI Loan Facilities | 1,390,077 | 4,309,159 | ||||
2,692,165 | 4,760,099 | |||||
Less: current portion | (2,692,165 | ) | (1,546,612 | ) | ||
Long-term Portion of Debt Facilities | - | 3,213,487 |
Notes Page 7 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
10. DEPOSITS ON LONG-TERM ASSETS
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
September 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Deposit on services | 9,463 | - | ||||
Deposit on equipment for La Encantada | 164,961 | 2,876,717 | ||||
Deposit on equipment for La Parrilla | 1,430,212 | 1,429,702 | ||||
1,604,636 | 4,306,419 |
11. SHARE CAPITAL
(a) Capital Stock
Authorized unlimited number of common shares without par value
Issued | Nine Months Ended September 30, 2010 | Year Ended December 31, 2009 | ||||||||||
Shares | $ | Shares | $ | |||||||||
Balance - beginning of the period | 92,648,744 | 244,241,006 | 73,847,810 | 196,648,345 | ||||||||
Issued during the period | ||||||||||||
For cash: | ||||||||||||
Exercise of options | 1,131,625 | 3,571,844 | 36,250 | 68,838 | ||||||||
Exercise of warrants | 47,500 | 156,750 | 50,000 | 165,000 | ||||||||
Public offering of units (i) | - | - | 8,487,576 | 18,840,890 | ||||||||
Private placements (ii) | - | - | 4,167,478 | 9,051,069 | ||||||||
For debt settlements (iii) | - | - | 1,191,852 | 2,741,260 | ||||||||
For Normabec acquisition (iv) | - | - | 4,867,778 | 16,696,479 | ||||||||
Transfer of contributed surplus for stock options and warrants exercised | - | 1,277,536 | - | 29,125 | ||||||||
Balance - end of the period | 93,827,869 | 249,247,136 | 92,648,744 | 244,241,006 |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,689,648, of which $18,840,890 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one common share at a price of $3.50 expiring on March 5, 2011. |
Notes Page 8 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
(ii) |
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011, and 334,239 warrants expire on September 16, 2011. Finders fees in the amount of $101,016 and 50,000 warrants were paid regarding a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. |
Notes Page 9 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
11. SHARE CAPITAL (continued)
(a) Capital Stock (continued)
(iii) |
In August and September 2009, the Company settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a value of $2.30 per share. |
|
(iv) |
On November 13, 2009, the Company issued 4,867,778 common shares at a value of $3.43 per share in connection with the acquisition of Normabec. |
(b) Stock Options
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the grant date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the periods ended September 30, 2010 and December 31, 2009 are as follows:
Nine Months Ended September 30, 2010 | Year Ended December 31, 2009 | |||||||||||
Weighted Average | Weighted Average | |||||||||||
Exercise Price | Exercise Price | |||||||||||
Number of Shares | ($) | Number of Shares | ($) | |||||||||
Balance, beginning of the period | 8,603,750 | 3.50 | 6,862,500 | 3.84 | ||||||||
Granted | 560,000 | 3.81 | 2,842,500 | 2.88 | ||||||||
Exercised | (1,131,625 | ) | 3.16 | (36,250 | ) | 1.90 | ||||||
Forfeited or expired | (566,250 | ) | 4.63 | (1,065,000 | ) | 4.11 | ||||||
Balance, end of the period | 7,465,875 | 3.49 | 8,603,750 | 3.50 |
Notes Page 10 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
11. SHARE CAPITAL (continued)
(b) Stock Options (continued)
The following table summarizes both the stock options outstanding and those that are exercisable at September 30, 2010:
Price | Options | Options | ||
$ | Outstanding | Exercisable | Expiry Dates | |
4.45 | 365,000 | 365,000 | October 30, 2010 | |
4.34 | 25,000 | 25,000 | November 1, 2010 | |
4.34 | 40,000 | 40,000 | December 5, 2010 | |
4.42 | 50,000 | 50,000 | February 20, 2011 | |
4.65 | 100,000 | 100,000 | March 25, 2011 | |
4.02 | 100,000 | 100,000 | May 15, 2011 | |
4.30 | 450,000 | 450,000 | June 19, 2011 | |
4.67 | 80,000 | 80,000 | July 4, 2011 | |
4.15 | 245,000 | 245,000 | July 28, 2011 | |
3.62 | 320,000 | 320,000 | August 28, 2011 | |
1.60 | 100,000 | 100,000 | October 8, 2011 | |
1.27 | 100,000 | 100,000 | October 17, 2011 | |
4.32 | 245,000 | 245,000 | December 6, 2011 | |
4.41 | 400,000 | 400,000 | December 22, 2011 | |
5.00 | 155,000 | 155,000 | February 7, 2012 | |
2.03 | 635,000 | 457,500 | May 7, 2012 | |
4.65 | 25,000 | 25,000 | June 20, 2012 | |
2.62 | 27,500 | 12,500 | September 16, 2012 | |
2.96 | 25,000 | 12,500 | October 28, 2012 | |
4.34 | 925,000 | 925,000 | December 5, 2012 | |
3.52 | 517,500 | 247,500 | December 7, 2012 | |
3.70 | 490,250 | 232,750 | December 15, 2012 | |
3.56 | 200,000 | 100,000 | February 2, 2013 | |
3.15 | 25,000 | 12,500 | March 19, 2013 | |
3.98 | 100,000 | 50,000 | May 13, 2013 | |
3.74 | 75,000 | 18,750 | May 15, 2013 | |
3.94 | 10,000 | 2,500 | June 3, 2013 | |
4.47 | 50,000 | 12,500 | June 28, 2013 | |
4.04 | 100,000 | 25,000 | August 9, 2013 | |
3.62 | 100,000 | 100,000 | August 28, 2013 | |
1.44 | 240,000 | 240,000 | November 10, 2013 | |
1.56 | 450,000 | 450,000 | December 17, 2013 | |
2.03 | 358,125 | 242,500 | May 7, 2014 | |
2.32 | 12,500 | 9,375 | June 15, 2014 | |
3.70 | 325,000 | 150,000 | December 15, 2014 | |
7,465,875 | 6,100,875 | |||
Subsequent to September 30, 2010, a total of 1,191,500 options were exercised for gross proceeds of $4,026,125.
Notes Page 11 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
11. SHARE CAPITAL (continued)
(b) Stock Options (continued)
During the nine months ended September 30, 2010, the Company granted stock options to officers and employees to purchase 560,000 shares (September 30, 2009 1,347,500 shares) of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, the fair value of stock options granted during the nine month period was $843,000 of which $390,457 was expensed in the current period and $452,543 will be amortized over the remaining vesting period of the stock options.
The weighted average fair value of each stock option granted during the nine months ended September 30, 2010 was $1.51 (2009 - $0.97) . The fair value of stock options is estimated using the Black-Scholes Option Pricing Model with the following assumptions:
Nine Months Ended | Nine Months Ended | |||||
September 30, 2010 | September 30, 2009 | |||||
Risk-free interest rate | 1.4% | 0.9% | ||||
Estimated volatility | 81.7% | 80.6% | ||||
Expected life | 1.5 years | 2.4 years | ||||
Expected dividend yield | 0% | 0% |
The Black-Scholes option pricing model requires the use of the above noted estimates and assumptions including the expected volatility of share prices. Changes in these underlying assumptions can materially affect the fair value estimates, therefore, the Black-Scholes model does not necessarily provide an accurate measure of the ongoing actual fair value of the Companys stock options.
(c) Share Purchase Warrants
The changes in share purchase warrants for the nine months ended September 30, 2010, and the year ended December 31, 2009, are as follows:
Nine Months Ended September 30, 2010 | Year Ended December 31, 2009 | |||||||||||
Weighted Average | Weighted Average | |||||||||||
Exercise Price | Exercise Price | |||||||||||
Number of Shares | ($) | Number of Shares | ($) | |||||||||
Balance, beginning of the period | 11,357,465 | 5.04 | 5,078,791 | 6.99 | ||||||||
Issued | - | - | 6,638,492 | 3.66 | ||||||||
Exercised | (47,500 | ) | 3.30 | (50,000 | ) | 3.30 | ||||||
Cancelled or expired | (5,029,938 | ) | 7.06 | (309,818 | ) | 7.69 | ||||||
Balance, end of the period | 6,280,027 | 3.44 | 11,357,465 | 5.04 |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35.0%, expected life of 2 years, and expected dividend yield of 0%) and as a result $848,758 was credited to contributed surplus. |
Notes Page 12 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
11. SHARE CAPITAL (continued)
(c) Share Purchase Warrants (continued)
(ii) |
On August 20, 2009, the Company issued 1,799,500 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 3,499,000 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years, and expected dividend yield of 0%) and as a result $328,047 was credited to contributed surplus. |
(iii) |
On September 16, 2009, the Company issued 334,239 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 668,478 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years, and expected dividend yield of 0%) and as a result $60,953 was credited to contributed surplus. |
(iv) |
On November 13, 2009, in connection with the acquisition of Normabec, the Company issued 118,527 warrants exercisable at a price of $9.11 per share expiring on December 13, 2009, and 142,438 warrants exercisable at a price of $9.11 per share expiring on January 2, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.26%, volatility of 67%, expected life of 0.1 year, and expected dividend yield of 0%). No value was credited to contributed surplus. These warrants expired unexercised. |
The following table summarizes the share purchase warrants outstanding at September 30, 2010:
Exercise Price | Warrants | |
$ | Outstanding | Expiry Dates |
3.50 | 4,243,788 | March 5, 2011 |
3.30 | 1,714,500 | August 20, 2011 |
3.30 | 321,739 | September 16, 2011 |
6,280,027 |
(d) Share Capital to be Issued
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc., First Majestic and First Silver entered into a business combination agreement whereby First Majestic agreed to acquire the remaining 36.25% minority interest in First Silver. At September 30, 2010, prior shareholders of First Silver had not yet exchanged 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic, resulting in a remaining value of shares to be issued of $276,495.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
Notes Page 13 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
12. REVENUES
Details of the components of net revenue are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
$ | $ | $ | $ | |||||||||
Combined revenue - silver doré bars, concentrates, coins and ingots | 37,011,157 | 17,715,392 | 94,023,522 | 53,183,047 | ||||||||
Less: intercompany eliminations | (935,135 | ) | (869,506 | ) | (4,212,406 | ) | (3,093,428 | ) | ||||
Consolidated gross revenue | 36,076,022 | 16,845,886 | 89,811,116 | 50,089,619 | ||||||||
Less: refining, smelting, net of intercompany eliminations | (1,622,326 | ) | (2,440,169 | ) | (6,246,636 | ) | (7,146,631 | ) | ||||
Less: metal deductions, net of intercompany eliminations | (988,131 | ) | (680,914 | ) | (2,918,016 | ) | (1,806,436 | ) | ||||
Net revenue | 33,465,565 | 13,724,803 | 80,646,464 | 41,136,552 |
The La Encantada mill expansion project achieved commercial stage of production on April 1, 2010. Sales incurred during the pre-operating period were recorded as a reduction of capital costs and are excluded from sales revenue. As a result, sales of $4,718,618 (2009 - $nil) in connection with the sale of 262,403 silver equivalent ounces of precipitates during the quarter ended March 31, 2010 have been excluded from the above net revenue table.
13. SEGMENTED INFORMATION
The Company has three operating segments located in Mexico, one retail market segment in Canada and one corporate segment with locations in Canada and Mexico. The San Martin operations consist of the San Martin Silver Mine, the San Martin property and the Jalisco Group of Properties. The La Parrilla operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Three Months Ended September 30, 2010 | ||||||||||||||||||
Corporate and | ||||||||||||||||||
San Martin | La Parrilla | La Encantada | Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 5,185,215 | 7,839,967 | 20,065,835 | 1,217,552 | (843,004 | ) | 33,465,565 | |||||||||||
Cost of sales | 2,979,301 | 3,382,684 | 7,686,500 | 1,332,222 | (1,162,934 | ) | 14,217,773 | |||||||||||
Depletion, depreciation and amortization, and accretion of ARO | 592,663 | 661,169 | 1,124,357 | - | - | 2,378,189 | ||||||||||||
Mine operating earnings (loss) | 1,613,251 | 3,796,114 | 11,254,978 | (114,670 | ) | 319,930 | 16,869,603 | |||||||||||
General and administrative | - | - | - | - | 2,519,385 | 2,519,385 | ||||||||||||
Stock-based compensation | - | - | - | - | 584,059 | 584,059 | ||||||||||||
Interest expense (income) | 214,719 | 2,552,486 | 1,287,979 | - | (4,631,156 | ) | (575,972 | ) | ||||||||||
Other expense (income) and foreign exchange | 184,351 | 160,274 | (196,918 | ) | - | 391,281 | 538,988 | |||||||||||
Income tax expense (recovery) | 207,242 | 1,030,641 | 4,241,648 | - | (1,955,160 | ) | 3,524,371 | |||||||||||
Net income (loss) | 1,006,939 | 52,713 | 5,922,269 | (114,670 | ) | 3,411,521 | 10,278,772 | |||||||||||
Capital expenditures | 1,877,603 | 2,653,930 | 4,102,156 | - | 171,887 | 8,805,576 | ||||||||||||
Total assets | 110,116,190 | 67,421,732 | 75,582,162 | - | 39,770,613 | 292,890,697 |
Notes Page 14 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
13. SEGMENTED INFORMATION (continued)
Three Months Ended September 30, 2009 | ||||||||||||||||||
Corporate and | ||||||||||||||||||
San Martin | La Parrilla | La Encantada | Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 4,718,691 | 5,759,291 | 3,385,341 | 656,660 | (795,180 | ) | 13,724,803 | |||||||||||
Cost of sales | 2,959,383 | 2,774,983 | 2,499,113 | 586,286 | (765,378 | ) | 8,054,387 | |||||||||||
Depletion, depreciation and amortization, and accretion of ARO | 494,702 | 629,454 | 396,563 | - | - | 1,520,719 | ||||||||||||
Mine operating earnings (loss) | 1,264,606 | 2,354,854 | 489,665 | 70,374 | (29,802 | ) | 4,149,697 | |||||||||||
General and administrative | - | - | - | - | 1,724,437 | 1,724,437 | ||||||||||||
Stock-based compensation | - | - | - | - | 505,847 | 505,847 | ||||||||||||
Interest expense (income) | 49,425 | 43,671 | 115,306 | - | 114,643 | 323,045 | ||||||||||||
Other expense (income) and foreign exchange | 234,675 | 388,289 | 908,709 | - | (1,155,599 | ) | 376,074 | |||||||||||
Income tax (recovery) expense | (15,639 | ) | 143,549 | (67,837 | ) | - | (681,402 | ) | (621,329 | ) | ||||||||
Net income (loss) | 996,145 | 1,779,345 | (466,513 | ) | 70,374 | (537,728 | ) | 1,841,623 | ||||||||||
Capital expenditures | 1,837,554 | 1,918,056 | 9,856,121 | - | 32,010 | 13,643,741 | ||||||||||||
Total assets | 105,384,737 | 57,579,107 | 52,969,873 | - | 8,826,808 | 224,760,525 |
Nine Months Ended September 30, 2010 | ||||||||||||||||||
Corporate and | ||||||||||||||||||
San Martin | La Parrilla | La Encantada | Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 16,260,482 | 21,104,327 | 42,850,858 | 4,199,072 | (3,768,275 | ) | 80,646,464 | |||||||||||
Cost of sales | 9,006,892 | 9,504,546 | 17,594,528 | 3,916,554 | (3,396,143 | ) | 36,626,377 | |||||||||||
Depletion, depreciation and amortization, and accretion of ARO | 2,056,732 | 1,905,729 | 2,781,672 | - | - | 6,744,133 | ||||||||||||
Mine operating earnings (loss) | 5,196,858 | 9,694,052 | 22,474,658 | 282,518 | (372,132 | ) | 37,275,954 | |||||||||||
General and administrative | - | - | - | - | 6,912,850 | 6,912,850 | ||||||||||||
Stock-based compensation | - | - | - | - | 1,928,202 | 1,928,202 | ||||||||||||
Interest expense (income) | 873,321 | 7,719,288 | 4,172,008 | - | (12,094,940 | ) | 669,677 | |||||||||||
Other expense (income) and foreign exchange | 611,255 | 243,495 | (399,514 | ) | - | (954,281 | ) | (499,045 | ) | |||||||||
Income tax expense (recovery) | 648,897 | 1,014,687 | 6,003,062 | - | (1,584,059 | ) | 6,082,587 | |||||||||||
Net income (loss) | 3,063,385 | 716,582 | 12,699,102 | 282,518 | 5,420,096 | 22,181,683 | ||||||||||||
Capital expenditures | 3,272,082 | 5,149,099 | 12,827,518 | - | 490,373 | 21,739,072 | ||||||||||||
Total assets | 110,116,190 | 67,421,732 | 75,582,162 | - | 39,770,613 | 292,890,697 |
Nine Months Ended September 30, 2009 | ||||||||||||||||||
Corporate and | ||||||||||||||||||
San Martin | La Parrilla | La Encantada | Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 14,302,897 | 14,901,581 | 11,511,799 | 3,658,741 | (3,238,466 | ) | 41,136,552 | |||||||||||
Cost of sales | 9,019,559 | 8,912,772 | 7,572,042 | 3,449,456 | (3,140,761 | ) | 25,813,068 | |||||||||||
Depletion, depreciation and amortization, and accretion of ARO | 1,700,523 | 2,021,010 | 1,233,993 | - | - | 4,955,526 | ||||||||||||
Mine operating earnings (loss) | 3,582,815 | 3,967,799 | 2,705,764 | 209,285 | (97,705 | ) | 10,367,958 | |||||||||||
General and administrative | - | - | - | - | 5,656,753 | 5,656,753 | ||||||||||||
Stock-based compensation | - | - | - | - | 2,203,394 | 2,203,394 | ||||||||||||
Interest expense (income) | 128,629 | 165,644 | 219,867 | - | 498,036 | 1,012,176 | ||||||||||||
Other expense (income) and foreign exchange | 375,874 | 10,389 | 667,252 | - | (1,001,709 | ) | 51,806 | |||||||||||
Income tax expense (recovery) | (68,934 | ) | 37,805 | (93,496 | ) | - | (2,249,282 | ) | (2,373,907 | ) | ||||||||
Net income (loss) | 3,147,246 | 3,753,961 | 1,912,141 | 209,285 | (5,204,897 | ) | 3,817,736 | |||||||||||
Capital expenditures | 2,961,596 | 5,003,771 | 20,954,415 | - | 163,854 | 29,083,636 | ||||||||||||
Total assets | 105,384,737 | 57,579,107 | 52,969,873 | - | 8,826,808 | 224,760,525 |
Notes Page 15 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
14. CAPITAL LEASE OBLIGATIONS
In 2007 and 2008, the Company completed lease financings for $14.1 million (US$11.2 million) of mining equipment. The Company paid 50% prior to the arrival of the equipment, and financed the remaining 50% in quarterly payments over a period of 24 months at 9% interest over the term of the lease. In March 2009, the Company refinanced the balance of $3.6 million (US$2.9 million) to be paid over 24 monthly payments commencing in February 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.
In January 2009, the Company completed additional lease financing arrangements for plant equipment, committing the Company to payments of $2.6 million (US$2.0 million) over a period of 36 months with monthly payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances, plus an additional 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
In September 2010, the Company entered into a lease financing arrangement for $2.1 million (US$2.1 million) of mining equipment. The Company paid 15% prior to delivery of the equipment, and financed the remaining 85% over a period of 48 months at an interest rate of 7.9% .
The following is a schedule of future minimum lease payments under the capital leases as at September 30, 2010:
September 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
2010 Gross lease payments | 632,542 | 2,235,960 | ||||
2011 Gross lease payments | 1,209,342 | 684,364 | ||||
2012 Gross lease payments | 671,720 | 139,309 | ||||
2013 Gross lease payments | 534,035 | - | ||||
2014 Gross lease payments | 356,023 | - | ||||
3,403,662 | 3,059,633 | |||||
Less: interest | (380,136 | ) | (251,997 | ) | ||
Total payments, net of interest | 3,023,526 | 2,807,636 | ||||
Less: current portion | (1,422,368 | ) | (2,139,352 | ) | ||
Capital Lease Obligation - long term portion | 1,601,158 | 668,284 |
15. ASSET RETIREMENT OBLIGATIONS
Nine Months Ended | Year Ended | |||||
September 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Balance, beginning of the period | 4,336,088 | 5,304,369 | ||||
Effect of change in estimates | - | (877,834 | ) | |||
Interest accretion | 281,806 | 445,090 | ||||
Effect of translation of foreign currencies | 132,527 | (535,537 | ) | |||
Balance, end of the period | 4,750,421 | 4,336,088 |
Notes Page 16 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
15. ASSET RETIREMENT OBLIGATIONS (continued)
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | September 30, 2010 | December 31, 2009 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2020 | 1,988,998 | 1,815,518 | ||||||
La Parrilla Silver Mine | 2025 | 1,093,685 | 998,293 | ||||||
San Martin Silver Mine | 2019 | 1,667,738 | 1,522,277 | ||||||
4,750,421 | 4,336,088 |
During the year ended December 31, 2009, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $6.1 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $1.6 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.0 million of the obligation relates to the San Martin Silver Mine, and $2.5 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
16. OTHER LONG TERM LIABILITIES
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the fully agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the advance received from the bank, but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $776,191 (December 31, 2009 - $753,657).
In September 2010, the Company entered into an agreement to acquire an additional 15 hectares of surface rights at Quebradillas for total consideration of $348,710 (4.2 million Mexican pesos), of which $39,277 (476,000 Mexican pesos) was paid upfront and the remaining $309,433 (3.8 million Mexican pesos) is payable over 25 monthly instalments of $12,377 (150,000 Mexican pesos). At September 30, 2010, the long-term portion of this liability was $167,792.
17. CONTINGENT LIABILITIES
Due to the size, complexity and nature of the Companys operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, these matters will not have a material effect on the consolidated financial statements of the Company.
18. COMMITMENTS
The Company is obligated to make certain mining property option payments as described in Note 7, in connection with the acquisition of its mineral property interests.
Notes Page 17 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited) |
18. COMMITMENTS (continued)
The Company has office lease and annual operating costs commitments as follows:
Year | $ | ||
2010 | 57,900 | ||
2011 | 231,600 | ||
2012 | 57,900 | ||
Total | 347,400 |
The Company provided a deposit of one month of rent equaling $20,151.
As at September 30, 2010, the Company is committed to construction contracts of approximately $0.4 million (US$0.4 million) (December 31, 2009 - $2.1 million or US$2.0 million) relating to the completion of the induction furnaces installation project at the La Encantada Mine.
The Company is committed to making severance payments in the amount of approximately $2.1 million, (December 31, 2009 - $1.9 million), subject to certain adjustments, to four officers in the event of a change of control of the Company.
19. NON-CASH FINANCING AND INVESTING ACTIVITIES
20. SUBSEQUENT EVENTS
Subsequent to September 30, 2010:
i) |
A total of 1,191,500 options and 56,000 warrants were exercised for gross proceeds of $4,211,125. |
|
ii) |
A total of 2,500 options were cancelled. |
|
iii) |
500 common shares were issued as part of the acquisition of First Reserve Silver Inc. These shares were recorded against the shares to be issued on the Companys balance sheet at September 30, 2010 (refer to note 11(d)). |
|
iv) |
In October 2010, the Company elected to advance pay the remaining portion of its FIFOMI loan facilities of $1.4 million (16.8 million Mexican pesos) thereby extinguishing all remaining FIFOMI loan facilities and releasing the Companys security and removing all guarantees relating to the FIFOMI Loans. |
Notes Page 18 |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE QUARTER ENDED JUNE 30, 2010 |
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as plan, expect, forecast, project, intend, believe, anticipate, outlook and other similar words, or statements that certain events or conditions may or will occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Companys Annual Information Form under the heading Risk Factors. The Company undertakes no obligation to update forward-looking statements if circumstances or managements estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (First Majestic or the Company) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR and FR.WT.B, respectively. The common shares are also quoted on the OTCQX in the U.S. under the symbol FRMSF and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol FMV. Silver producing operations of the Company are carried out through three operating mines: the La Encantada, La Parrilla, and San Martin Silver Mines.
The following Managements Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2009. Additional information on the Company, including the Companys Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM), First Silver Reserve Inc. (First Silver) and Normabec Mining Resources Ltd. (Normabec) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada), Majestic Services S.A. de C.V. (Majestic Services), Minera Real Bonanza, S.A. de C.V. (MRB) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (Servicios). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation in which it is involved as the plaintiff, described herein in the Liquidity section.
QUALIFIED PERSON S
Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the independent Qualified Person for the Company, and Ramon Davila, the Companys Chief Operating Officer was recently certified as a Qualified Person. Leonel Lopez has reviewed the technical information reported in the National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine. Ramon Davila has reviewed this MD&A for QP technical disclosures. All National Instrument 43-101 technical reports can be found on the Companys website at www.firstmajestic.com or on SEDAR at www.sedar.com.
Suite 1805, 925 West Georgia Street, Vancouver, B.C., Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873| Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP.
MANAGEMENTS DISCUSSION
& ANALYSIS
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of August 13, 2010, unless otherwise stated.
SECOND QUARTER 2010 HIGHLIGHTS
Generated Gross Revenue of $31,799,382, a 102% increase over the second quarter of 2009.
Generated Net Revenue of $28,963,285, a 122% increase over the second quarter of 2009.
Recognized Mine Operating Earnings of $13,054,305, a 679% increase over the second quarter of 2009.
Net Income after taxes was $8,887,116, a 757% increase over the second quarter of 2009.
Basic Earnings per Share were $0.10, a 900% increase over the corresponding period in 2009.
Increased production by 73% to 1,656,165 silver equivalent ounces.
Increased sales by 51% to 1,623,844 silver equivalent ounces.
Realized an average selling price of US$18.68 per ounce of silver, which is 48% higher than the second quarter of 2009.
Reduced Total Cash Costs per ounce by 10% from Q2-2009 to US$8.20 for Q2-2010.
Reduced Direct Cash Costs per ounce by 2% from Q2-2009 to US$6.16 for Q2-2010.
Results of Operations
Consolidated gross revenue (prior to smelting and refining charges and metal deductions) for the quarter ended June 30, 2010 was $31.8 million (US$30.3 million) compared to $15.8 million (US$13.5 million) for the quarter ended June 30, 2009 for an increase of $16.0 million or 102%. Compared to the first quarter ended March 31, 2010, consolidated gross revenue increased by $9.9 million or 45%. The increase in revenues in the second quarter of 2010 is primarily attributable to a 25% increase in silver ounces sold compared to the first quarter ended March 31, 2010. The increase in ounces sold is due to the launch of the new cyanidation plant at the La Encantada Silver Mine and improving operating levels at the La Parrilla Silver Mine which combined to contribute a 86% increase in silver production when compared to the second quarter of 2009.
In the second quarter of 2010, the Company sold 1,623,844 ounces of silver equivalent at an average price of $19.58 per ounce (US$18.68) compared to 1,073,129 ounces in the second quarter of 2009 at an average price of $14.70 per ounce (US$12.60), representing an increase of 51% in shipments over the same quarter in 2009 and a 25% increase over the first quarter of 2010. In the first quarter of 2010, the Company sold 1,298,659 ounces of silver equivalents at an average price of $16.89 (US$16.23) per ounce.
Production of silver, excluding any equivalents from gold or lead, increased by 9% over the prior quarter and 86% compared to the second quarter of 2009. The Company produced 1,538,798 ounces of silver in the current quarter, 1,409,825 ounces of silver in the first quarter of 2010 (commercial and non-commercial production), and 827,720 ounces in the second quarter of 2009. In the second quarter of 2010, 93% of First Majestics revenue resulted from the sale of pure silver making it the purest silver producer relative to its peers.
The new plant at La Encantada achieved commercial production on April 1, 2010. The design of the new plant allows for the production of silver doré bars which are generally 93-97% silver with small amounts of lead, gold and other metals making up the balance of the contents of these bars. During the second quarter, smelting furnaces were installed, allowing for the discontinuation of concentrate production. The economic differences are significant and are beginning to reflect in the financial numbers. Management completed a review of the
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economics of lead production and concluded that, due to the relatively small amount of lead produced historically and current lead prices, ore was more valuable if processed directly through cyanidation rather than being floated, and thus the flotation circuit was shut down in June 2010. As a result of the discontinuation of flotation, concentrate production decreased in the second quarter and lead as a byproduct decreased by 41% to 1,494,548 pounds. The economics of switching from concentrate production to doré production resulted in a savings of smelting and refining costs at La Encantada of approximately US$2.61 per ounce of silver in the second quarter of 2010, and a savings of US$1.10 per silver ounce for consolidated operations in the second quarter of 2010. The new La Encantada cyanidation plant achieved average throughput of approximately 2,900 tonnes per day in the second quarter. This average throughput is expected to increase in the third quarter.
Total commercial production for the second quarter of 2010 increased by 22% compared to the first quarter of 2010. Total production (commercial and non-commercial) for the second quarter of 2010 increased 2% from the prior quarter and 73% from the same quarter of the prior year to 1,656,165 ounces of silver equivalents consisting of 1,538,798 ounces of silver, 541 ounces of gold and 1,494,548 pounds of lead. This compares to the 957,936 ounces of silver equivalents produced in the second quarter of 2009, which consisted of 827,720 ounces of silver, 746 ounces of gold, 1,493,162 pounds of lead, and compares with production in the first quarter of 1,619,403 ounces of silver equivalents consisting of 1,409,825 ounces of silver, 857 ounces of gold and 2,542,071 pounds of lead.
Net sales revenue (after smelting and refining charges and metals deductions) for the quarter ended June 30, 2010 was $29.0 million, an increase of 122% compared to $13.0 million for the second quarter of 2009. Net sales revenue for the quarter ended June 30, 2010 increased by 59% compared to $18.2 million in the first quarter of 2010. Smelting and refining charges and metal deductions decreased to 9% of gross revenue in the second quarter of 2010 compared to 17% of gross revenue in the second quarter of 2009, due to a shift in the production mix toward silver doré which is a benefit from the new cyanidation plant at La Encantada. Average smelting charges for doré in the second quarter of 2010 were US$0.60 per silver ounce as compared to US$4.79 per silver ounce for concentrates.
The Company generated net income of $8.9 million in the second quarter of 2010, or earnings per common share (EPS) of $0.10 compared to a net income in the second quarter of 2009 of $1.0 million or EPS of $0.01. Net income for the second quarter of 2010 included non-cash stock-based compensation expense of $0.6 million and an income tax provision of $1.4 million. In the first quarter of 2010, net income was $3.0 million resulting in EPS of $0.03. If the revenues and expenses of the new plant were deemed commercial in the first quarter (recorded as income rather than capital), an additional $2.3 million of capitalized profits would have increased EPS in the first quarter upwards to $0.06.
Direct cash costs per ounce of silver (a non-GAAP measure) for the second quarter of 2010 were US$6.16, compared to US$6.31 per ounce of silver in the second quarter of 2009 and US$4.94 per ounce of silver in the first quarter of 2010. The cost increase was attributed to an increase in the peso relative to the US dollar, as well as an increase in electricity and diesel costs compared to previous quarters.
Total cash costs per ounce (including smelting, refining, metal deductions, transportation and other selling costs, and byproduct credits, which is a non-GAAP measure) for the second quarter of 2010 was US$8.20 per ounce of silver compared to US$9.15 per ounce of silver in the second quarter of 2009 and US$8.11 per ounce in the first quarter of 2010.
Mine operating earnings for the second quarter of 2010 increased by 679% to $13.1 million, compared to mine operating earnings of $1.7 million for the second quarter of 2009, and are associated with an increase in net revenue during the second quarter of 2010. When compared to the first quarter of 2010, mine operating earnings increased by 78% from $7.4 million to $13.1 million.
Operating income increased by 907%, or $11.2 million, to $10.0 million for the quarter ended June 30, 2010, from an operating loss of $1.2 million for the quarter ended June 30, 2009, due to the 51% increase in ounces sold and the 51% increase in average US$ revenue per ounce of silver sold. When compared to the first quarter of 2010, operating income increased by 114% from $4.7 million to $10.0 million.
During the quarter ended June 30, 2010, the Company invested $2.6 million in its mineral properties and a further $3.0 million in additions to plant and equipment on a cash basis. This compares to $3.2 million invested in its
-3-
mineral properties and a further $5.9 million in additions to plant and equipment on a cash basis in the second quarter ended June 30, 2009. When compared to the first quarter of 2010, the Company invested $3.4 million in mineral properties and a further $1.4 million in additions to plant and equipment on a cash basis.
The material subsidiaries, mines, mills and properties in Mexico are as follows:
Subsidiaries | Mine and Mill | Exploration Properties |
First Majestic Plata, S.A. de C.V.
|
La Parrilla Silver Mine
Del Toro Silver Mine |
La Parrilla properties
Del Toro properties |
Minera El Pilón, S.A. de C.V.
|
San Martin Silver Mine
|
San Martin property
Jalisco Group of Properties |
Minera La Encantada, S.A. de C.V. | La Encantada Silver Mine | La Encantada property |
Minera Real Bonanza, S.A. de C.V. | Real de Catorce Silver Project | Real de Catorce property |
Majestic Services, S.A. de C.V.
(a labour services company) |
(services for all of the above)
|
(services for all of the above)
|
Corporación First Majestic, S.A. de C.V.
(holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) |
(holding company for First
Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) |
(holding company for First
Majestic Plata,
Minera El Pilon, Minera La Encantada and Majestic Services) |
Certain financial results in this MD&A, regarding operations and cash costs are presented in the Mine Operating Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars for comparative purposes. U.S. dollar results are translated using the U.S. dollar rates on the dates which the transactions occurred.
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MINING OPERATING RESULTS
Quarter Ended June 30, |
CONSOLIDATED FIRST MAJESTIC
RESULTS |
|||
2010 | 2009 | |||
404,350 | 204,873 | Ore processed/tonnes milled (4) | 741,460 | 420,920 |
224 | 189 | Average silver grade (g/tonne) | 223 | 206 |
53% | 66% | Recovery (%) | 55% | 63% |
1,538,798 | 827,720 | Commercial silver ounces produced | 2,687,430 | 1,757,683 |
- | - | Pre-commercial silver ounces produced (4) | 261,193 | - |
1,538,798 | 827,720 | Total silver ounces produced (4) | 2,948,623 | 1,757,683 |
541 | 746 | Gold ounces produced (4) | 1,398 | 1,237 |
38,555 | 49,857 | Equivalent ounces from gold (4) | 98,245 | 83,340 |
1,494,548 | 1,493,162 | Pounds of lead produced (4) | 4,036,618 | 3,321,901 |
78,814 | 80,359 | Equivalent ounces from lead (4) | 228,701 | 157,030 |
1,656,165 | 957,936 | Total production - ounces silver equivalent (4) | 3,275,569 | 1,998,053 |
1,656,165 | 957,936 | Total commercial production - ounces silver equivalent | 3,013,613 | 1,998,053 |
1,623,844 | 1,073,129 | Ounces of silver equivalents sold (1) | 2,922,503 | 2,069,724 |
$8.20 | $9.15 | Total US cash cost per ounce (2) | $8.16 | $8.33 |
$6.16 | $6.31 | Direct US cash cost per ounce (2) | $5.47 | $5.58 |
5,063 | 4,918 | Underground development (m) | 10,163 | 9,529 |
3,090 | 363 | Diamond drilling (m) | 3,399 | 5,411 |
$29.11 | $31.49 | Total US production cost per tonne (3) | $32.78 | $29.47 |
Quarter Ended June 30, |
LA
ENCANTADA
RESULTS |
|||
2010 | 2009 | |||
264,552 | 68,481 | Ore processed/tonnes milled (4) | 459,302 | 145,037 |
248 | 237 | Average silver grade (g/tonne) | 244 | 273 |
44% | 50% | Recovery (%) | 46% | 51% |
921,078 | 263,321 | Commercial silver ounces produced | 1,383,507 | 648,297 |
- | - | Pre-commercial silver ounces produced (4) | 261,193 | - |
921,078 | 263,321 | Silver ounces produced (4) | 1,644,700 | 648,297 |
13 | - | Gold ounces produced (4) | 25 | - |
897 | - | Equivalent ounces from gold (4) | 1,669 | - |
549,461 | 569,712 | Pounds of lead produced (4) | 2,095,246 | 1,472,084 |
28,249 | 28,109 | Equivalent ounces from lead (4) | 119,062 | 65,828 |
950,223 | 291,430 | Total production - ounces of silver equivalent (4) | 1,765,431 | 714,125 |
950,223 | 291,430 | Total commercial production - ounces silver equivalent | 1,503,475 | 714,125 |
889,676 | 289,753 | Ounces of silver equivalents sold | 1,465,899 | 707,970 |
$7.57 | $11.59 | Total US cash cost per ounce (2) | $7.91 | $9.21 |
$6.17 | $7.14 | Direct US cash cost per ounce (2) | $5.22 | $5.23 |
1,964 | 2,230 | Underground development (m) | 3,997 | 4,327 |
1,898 | - | Diamond drilling (m) | 1,898 | 2,397 |
$23.34 | $30.28 | Total US production cost per tonne (3) | $26.95 | $27.33 |
-5-
Quarter Ended June 30, |
LA
PARRILLA
RESULTS |
|||
2010 | 2009 | |||
75,271 | 63,548 | Ore processed/tonnes milled | 148,714 | 129,454 |
205 | 196 | Average silver grade (g/tonne) | 209 | 193 |
76% | 81% | Recovery (%) | 75% | 74% |
375,465 | 324,972 | Silver ounces produced | 750,911 | 593,301 |
100 | 221 | Gold ounces produced | 219 | 371 |
9,955 | 14,408 | Equivalent ounces from gold | 21,038 | 25,252 |
945,087 | 923,450 | Pounds of lead produced | 1,941,372 | 1,849,817 |
50,565 | 52,250 | Equivalent ounces from lead | 109,639 | 91,202 |
435,983 | 391,630 | Total production - ounces of silver equivalent | 881,588 | 709,754 |
429,773 | 423,674 | Ounces of silver equivalents sold | 874,985 | 724,855 |
$8.38 | $7.93 | Total US cash cost per ounce (2) | $8.44 | $8.32 |
$4.25 | $4.72 | Direct US cash cost per ounce (2) | $4.48 | $4.95 |
1,780 | 1,982 | Underground development (m) | 3,484 | 3,787 |
- | - | Diamond drilling (m) | 37 | 2,038 |
$37.34 | $34.55 | Total US production cost per tonne (3) | $38.64 | $33.19 |
Quarter Ended June 30, |
SAN MARTIN
RESULTS |
Year to Date June 30, | ||
2010 | 2009 | |||
64,527 | 72,844 | Ore processed/tonnes milled | 133,444 | 146,430 |
150 | 138 | Average silver grade (g/tonne) | 166 | 150 |
78% | 74% | Recovery (%) | 78% | 73% |
242,255 | 239,427 | Silver ounces produced | 553,012 | 516,086 |
428 | 525 | Gold ounces produced | 1,154 | 866 |
27,703 | 35,449 | Equivalent ounces from gold | 75,538 | 58,088 |
269,958 | 274,876 | Total production - ounces of silver equivalent | 628,550 | 574,174 |
286,297 | 319,424 | Ounces of silver equivalents sold | 633,274 | 597,163 |
$10.30 | $8.12 | Total US cash cost per ounce (2) | $8.39 | $7.23 |
$9.03 | $7.54 | Direct US cash cost per ounce (2) | $7.41 | $6.76 |
1,319 | 707 | Underground development (m) | 2,682 | 1,414 |
1,192 | 363 | Diamond drilling (m) | 1,464 | 976 |
$43.13 | $29.97 | Total US production cost per tonne (3) | $40.91 | $28.31 |
(1) |
Includes 18,098 ounces in the quarter ended June 30, 2010 and (51,655) ounces for the year to date ended June 30, 2010 (after adjustments for intercompany eliminations) sold as coins, ingots and bullion from Canadian operations and minesite transfers. |
(2) |
The Company reports non-GAAP measures which include direct costs per tonne and total cash cost (including smelting and refining charges) and direct cash cost (total cash cost less smelting and refining costs) per ounce of payable silver, in order to manage and evaluate operating performance at each of the Companys mines. These measures, established by the Gold Institute (Production Cost Standards, November 1999), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP on page 7 and 8. |
(3) |
Total US production cost per tonne includes mining, processing and direct overhead at the mill site and does not include smelting and refining, transportation and other selling costs. |
(4) |
The La Encantada mill expansion project achieved commercial production effective April 1, 2010. During the pre-commercial stage, the tables above included the production from the mill expansion, however, average silver grade, recovery, total US cash cost per ounce, direct US cash cost per ounce and total US production cost per tonne were based on production excluding pre-commercial stage production of 261,957 silver equivalent ounces during the quarter ended March 31, 2010. |
-6-
RECONCILIATION OF COST OF SALES TO CASH COSTS
FOR
THE QUARTER AND YEAR ENDED JUNE 30, 2010 AND 2009
Cash cost per ounce is a measure developed by precious metals companies in an effort to provide a comparable standard; however, there can be no assurance that our reporting of this non-GAAP measure is similar to that reported by other mining companies. Cash costs per ounce is a measure used by the Company to manage and evaluate operating performance at each of the Companys operating mining units, and is widely reported in the silver mining industry as a benchmark for performance, but does not have a standardized meaning. To facilitate a better understanding of these measures as calculated by the Company, we have provided a detailed reconciliation of these measures to our cost of sales, as reported in our Consolidated Statements of Income. Direct cash costs consist of total cash costs less smelting, refining, transportation and other selling costs.
-7-
Note 1 The table above does not include 261,957 silver ounces of pre-commercial production from the La Encantada mill expansion project during the quarter ended March 31, 2010, which were produced at a cost of $2,444,393 (US$2,348,346).
-8-
Three Months Ended June 30, 2010 | Year to Date June 30, 2010 | ||||||||||
INVENTORY RECONCILIATION: | San Martin | La Parrilla | La Encantada | Vancouver | Total | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Opening stockpile inventory | OZ EQ | 10,926 | 110,956 | 32,897 | - | 154,779 | 7,443 | 116,539 | 39,713 | - | 163,695 |
Increase (reduction) of stockpile | OZ EQ | (8,844) | (36,474) | 87,447 | - | 42,129 | (5,361) | (42,057) | 80,631 | - | 33,213 |
Transfer from pre-commerical stage | OZ EQ | - | - | 191,598 | - | 191,598 | - | - | 191,598 | - | 191,598 |
Ending stockpile inventory | OZ EQ | 2,082 | 74,482 | 311,942 | - | 388,506 | 2,082 | 74,482 | 311,942 | - | 388,506 |
Opening in process inventory | OZ EQ | 19,419 | 19,989 | 22,256 | 61,664 | 21,241 | 22,521 | 50,077 | - | 93,839 | |
Transfer from pre-commerical stage | OZ EQ | - | - | 37,277 | - | 37,277 | - | - | 37,277 | - | 37,277 |
Inventory adjustments | OZ EQ | 10,141 | 20,435 | 9,870 | 40,446 | 8,319 | 17,903 | (17,951) | - | 8,271 | |
Ending in process inventory | OZ EQ | 29,560 | 40,424 | 69,403 | - | 139,387 | 29,560 | 40,424 | 69,403 | - | 139,387 |
Opening finished goods inventory | OZ EQ | 28,428 | 15,049 | 4,204 | - | 47,681 | 25,249 | 12,040 | - | - | 37,289 |
Production - silver equivalent ounces | OZ EQ | 269,958 | 435,985 | 950,223 | - | 1,656,166 | 628,549 | 881,588 | 1,503,475 | - | 3,013,612 |
Shipments - silver equivalent ounces | OZ EQ | (286,297) | (429,773) | (889,677) | - | (1,605,747) | (633,274) | (874,985) | (1,465,900) | - | (2,974,159) |
Transfer from pre-commerical stage | OZ EQ | - | - | 2,351 | - | 2,351 | - | - | 2,351 | - | 2,351 |
Inventory adjustments | OZ EQ | (8,912) | (20,037) | (15,966) | - | (44,915) | (17,347) | (17,419) | 11,209 | - | (23,557) |
Ending finished goods inventory | OZ EQ | 3,177 | 1,224 | 51,135 | - | 55,536 | 3,177 | 1,224 | 51,135 | - | 55,536 |
Total ending inventory before transfers | OZ EQ | 98,674 | 116,130 | 432,480 | - | 647,284 | 237,656 | 116,130 | 432,480 | - | 786,266 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 89,324 | 89,324 | - | - | 36,880 | 36,880 | |
Transfers to coins, ingots and bullion inventory | OZ EQ | (63,855) | - | - | 63,855 | - | (202,837) | - | - | 202,837 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (10,693) | (10,693) | - | - | - | (27,832) | (27,832) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (81,953) | (81,953) | - | - | - | (151,352) | (151,352) |
Total inventory, all stages and products | OZ EQ | 34,819 | 116,130 | 432,480 | 60,533 | 643,962 | 34,819 | 116,130 | 432,480 | 60,533 | 643,962 |
Value of ending inventory | CDN$ | 367,152 | 569,633 | 1,374,092 | 522,692 | 2,833,569 | 367,152 | 569,633 | 1,374,092 | 522,692 | 2,833,569 |
Value of ending inventory - Cdn$ per oz | CDN$ | 10.54 | 4.91 | 3.18 | 8.63 | 4.40 | 10.54 | 4.91 | 3.18 | 8.63 | 4.40 |
Exchange rate at period end | 1.0606 | 1.0606 | 1.0606 | 1.0606 | 1.0606 | 1.0606 | 1.0606 | 1.0606 | 1.0606 | 1.0606 | |
Value of ending inventory - US$ per oz | US$ | 9.94 | 4.62 | 3.00 | 8.14 | 4.15 | 9.94 | 4.62 | 3.00 | 8.14 | 4.15 |
Three Month Ended June 2010 | Year to Date June 2010 | ||||||||||
Cost of Sales Reconciliation | San Martin | La Parrilla | La Encantada | Vancouver | Total | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Cash Cost | US$ | 2,496,442 | 3,144,575 | 6,973,186 | - | 12,614,203 | 4,642,368 | 6,339,926 | 10,944,349 | - | 21,926,643 |
Inventory changes | US$ | 47,970 | (18,740) | (738,950) | - | (709,720) | (39,076) | (101,951) | (563,025) | - | (704,052) |
Byproduct credits | US$ | 594,543 | 1,214,600 | 491,995 | - | 2,301,138 | 1,357,760 | 2,372,972 | 1,793,350 | - | 5,524,082 |
Smelting and refining | US$ | (176,149) | (1,418,320) | (1,100,507) | - | (2,694,976) | (287,166) | (2,730,225) | (3,315,277) | - | (6,332,668) |
Royalties | US$ | - | 15,654 | - | - | 15,654 | - | 40,974 | - | - | 40,974 |
Profit sharing | US$ | 156,815 | - | 720,703 | - | 877,518 | 156,815 | - | 720,703 | - | 877,518 |
Other | US$ | (310) | (1,851) | 2,151 | - | (10) | (181) | 12 | 3,986 | - | 3,817 |
Cost of sales - Calculated | US$ | 3,119,311 | 2,935,918 | 6,348,578 | - | 12,403,807 | 5,830,520 | 5,921,708 | 9,584,086 | - | 21,336,314 |
Average CDN/US Exchange Rate | 0.9744 | 0.9753 | 0.9722 | - | 0.9735 | 0.9673 | 0.9673 | 0.9673 | - | 0.9673 | |
Booked Cost of Sales | CDN$ | 3,201,270 | 3,010,188 | 6,529,912 | - | 12,741,370 | 6,027,591 | 6,121,862 | 9,908,028 | - | 22,057,481 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | 693,377 | 693,377 | - | - | - | 351,123 | 351,123 |
Total Cost of Sales as Reported | CDN$ | 3,201,270 | 3,010,188 | 6,529,912 | 693,377 | 13,434,747 | 6,027,591 | 6,121,862 | 9,908,028 | 351,123 | 22,408,604 |
Note 1 Net of intercompany eliminations of $1,603,960 for the quarter ended March 31, 2010 and $629,250 for the quarter ended June 30, 2010.
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REVIEW OF MINING OPERATING RESULTS
The production for the second quarter of 2010 consisted of 1,656,165 ounces of silver equivalent representing an increase of 73% compared to 957,936 ounces of silver equivalent produced in the second quarter of 2009, and an increase of 2% compared to 1,619,403 ounces of silver equivalent (including commercial and pre-commercial production) in the first quarter of 2010.
Production in the second quarter of 2010 consisted of 1,538,798 ounces of silver, an increase of 9% compared to the first quarter of 2010, and an increase of 86% compared to the second quarter of 2009. A total of 1,494,548 pounds of lead was produced, representing a decrease of 41% compared to the first quarter of 2010, and is a consistent level compared to the second quarter of 2010. Gold production in the second quarter of 2010 was 541 ounces, representing a decrease of 37% compared to the first quarter of 2010 and a decrease of 27% compared to the second quarter of 2009.
The ore processed during the second quarter of 2010 at the Company's three operating silver mines: the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine; amounted to 404,350 tonnes which is an increase of 20% from the first quarter of 2010 and an increase of 97% compared to the second quarter of 2009. Contained in this measure of ore processed is the 155,665 tonnes of tailings from the old tailings dam at Mineral La Encantada.
The average silver head grade in the second quarter of 2010 for the three mines decreased to 224 grams per tonne (g/t) silver compared to 253 g/t silver in the first quarter of 2010 but increased from the 189 g/t in the second quarter of 2009.
With the launch of the new processing plant at La Encantada which incorporates a mixture of old tailings with fresh ore, will be an expectation that the old tailings which average 150 g/t of silver, will have an effect of lowering recoveries and the average grade of ore processed. Total combined recoveries of silver at the Companys three plants was 53% in the second quarter of 2010 compared to 66% in the first quarter of 2010 and second quarter of 2009.
A total of 5,063 metres of underground development was completed in the second quarter of 2010 compared to 5,100 metres completed in the first quarter of 2010. This program is important as it provides access to new areas within the different mines and prepares the mines for continuing growth of silver production.
A total of 3,090 metres of diamond drilling was completed in the second quarter of 2010 compared to 308 metres drilled in the first quarter of 2010 and consisted of definition drilling to assist in mining activity, resource upgrading and exploration at the Companys three mines as well as a drilling program is presently underway at the La Esperanza area at the San Martin mine. A total of 363 metres were drilled in the second quarter of 2009.
MINE UPDATES
La Encantada Silver Mine, Coahuila, Mexico
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz, is 225 kilometres away via a combination of paved and unpaved roads. The La Encantada Silver Mine consists of 3,500 tonnes per day (tpd) cyanidation plant, a 1,000 tpd flotation plant, all related facilities and infrastructure, including a mining camp with 180 houses, administrative offices, and a private airstrip. The Company owns 100% of the La Encantada Silver Mine.
During the second quarter of 2010, the new 3,500 tpd mill achieved commercial production with an average throughput of 2,908 tpd during the quarter. Management announced in a news release that the new cyanidation plant was commercially operating effective April 1, 2010. Starting in the second quarter, all revenues and costs will be treated as normal course operations and recorded in the Companys income statement rather than being
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capitalized as pre-production as was required in accordance with GAAP in the first quarter of 2010. The plant has been operating at full production levels since July 1, 2010, producing silver at a rate of over four million ounces of silver doré annually. To date, the Company has spent approximately $41.4 million (US$40.1 million) on the new cyanidation plant. Commencing with commercial operation of the new plant, the Company must begin to depreciate this asset over the remaining life of the asset. The depreciation expense associated with the new plant in the quarter ended June 30, 2010 was $669,452.
The new plant is now virtually complete with the only task remaining being the installation of the Induction Furnaces. The Company has fabricated its own gas furnaces to smelt the precipitated silver into doré bars until the new furnaces arrive and are installed along with a screw conveyor system. This plant is currently producing silver doré which are being shipped regularly to the refinery and as a result third party smelting and refining charges have decreased from US$3.63 per ounce in the second quarter of 2009 to their current level of US$0.90 per ounce.
With the cyanidation plant operating at close to full capacity and lead prices at relatively low levels, management decided to suspend production of lead concentrate at the flotation circuit and to pass the fresh ore directly to the new cyanidation plant after grinding the ore. Mineral economics were reviewed and it was concluded that the additional fresh ore was more valuable being processed directly through cyanidation rather than being processed through flotation prior to cyanidation. With the sole focus on silver doré production, we expect continued dramatically reduced smelting and refining costs at the La Encantada mine. The flotation circuit will be maintained in operating condition, in the event that lead prices increase in the future, so that lead concentrate production could be resumed.
Tonnes milled in the second quarter of 2010 increased to 264,552 tonnes compared to 194,750 tonnes in the first quarter of 2010, an increase of 36%. The average head grade was 248 g/t in the second quarter of 2010, representing a decrease of 32% when compared to 366 g/t in the first quarter of 2010 and an increase of 5% compared to the 237 g/t in the second quarter of 2009. Silver recovery in the second quarter of 2010 was 44% which is lower than the 56% achieved in the first quarter of 2010 and 50% in the second quarter of 2009. Recoveries decreased due to the start up process and fine tunning of the cyanidation mill associated with the halting of production through the flotation circuit and the direct feed of all material through the cyanidation plant.
A total of 950,223 equivalent ounces of silver were produced during the second quarter of 2010, which represents an increase of 17% compared to 815,209 equivalent ounces of silver (commericial and pre-commercial production) produced in first quarter of 2010 and an increase of 226% compared to the 291,430 equivalent ounces of silver produced in the second quarter of 2009. Silver production consisted of 921,078 ounces of silver, representing an increase of 27% compared with the 723,622 ounces (commercial and pre-commercial) produced in the first quarter of 2010 and an increase of 250% compared with the 263,321 ounces produced in the second quarter of 2009. Lead production for the second quarter of 2010 was 549,461 pounds which was decrease of 996,324 pounds or 64% compared to the first quarter of 2010 and a decrease of 20,251 or 4% compared to the second quarter of 2009.
Underground mine development consisted of 1,964 metres completed in the second quarter of 2010 compared to 2,033 metres of development completed in the first quarter of 2010, representing a decrease of 3%. This program focused on improving haulage and logistics for ore and waste that is transported by trucks from the mine, from several targets including the San Javier/Milagros Breccias, Azul y Oro including the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. The purpose of the ongoing underground development program is to prepare for increased production in 2010 and to confirm additional Reserves and Resources.
A total of 1,898 metres of diamond drilling was completed in the second quarter of 2010 compared to no drilling in the first quarter of 2010.
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La Parrilla Silver Mine, Durango, Mexico
The La Parrilla Silver Mine is a connected group of producing underground operations consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings including the San Marcos and the Quebradillas mines, located approximately 65 kilometres southeast of the city of Durango, Mexico. La Parrilla includes an 850 tpd mill consisting of two parallel 425 tpd cyanidation and flotation circuits, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company leases 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
Tonnes milled at La Parrilla were 75,271 tonnes in the second quarter of 2010, representing an increase of 2% when compared with the 73,443 tonnes milled in the first quarter of 2010, but an increase of 18% when compared with the 63,548 tonnes milled in the second quarter of 2009. The average head grade for the second quarter of 2010 was 205 g/t and was 8 g/t lower than the first quarter of 2010 and 9 g/t higher than the second quarter of 2010. Recoveries of silver in the second quarter was 76% and was consistent with the first quarter of 2010 and a 5% decrease from the 81% recovery in the second quarter of 2009.
Total silver production was 435,983 equivalent ounces of silver in the second quarter of 2010. This was a decrease of 9,619 equivalent ounces of silver or 2% compared to the first quarter of 2010 but an increase of 44,354 equivalent ounces of silver or 11% compared to the second quarter of 2009. The composition of the silver equivalent production in the second quarter of 2010 included 375,465 ounces of silver, 100 ounces of gold and 945,087 pounds of lead. This compares with 375,446 ounces of silver, 119 ounces of gold, 996,286 pounds of lead produced in the first quarter of 2010 and 324,972 ounces of silver, 221 ounces of gold, 923,450 pounds of lead in the second quarter of 2009.
A total of 1,780 metres of underground development was completed in the second quarter of 2010, compared to 1,704 metres in the first quarter of 2010. No diamond drilling was completed in the second quarter of 2010 compared to 37 metres in first quarter of 2010.
Development in the lower levels 8 and 9 of the Rosarios and La Rosa vein continued during the quarter providing access to Reserves and Resources that are going to be produced in the second half of the year. Also, access to level 10 was reached through a ramp which is providing further reserves and upgrading the indicated and inferred resources of the lower part of the Rosarios/La Rosa vein.
At the Quebradillas area, development was focused on the Q25 ore body which was indicated from a previous program of diamond drilling, having developed at strike and the upper part of the ore body for more than 80 metres. The access to this ore body will provide ore for the future production of zinc concentrates at the La Parrilla flotation plant. In July 2010 a modification was made to the flotation circuit to convert from bulk to selective concentrate production, and the circuit is now producing zinc and lead concentrates.
San Martin Silver Mine, Jalisco, Mexico
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 900 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings, infrastructure and offices are located. The Company owns 100% of the San Martin Silver Mine. The mill has historically produced 100% of its production in the form of doré. In early 2008, a 500 tpd flotation circuit was assembled to take advantage of the large sulphide resource at this mine, however, due to low base metal prices and high costs of smelting concentrates, the circuit was placed in care and maintenance pending further capital investment to complete it when the economics improve.
Tonnes milled at the San Martin mine were 64,527 tonnes in the second quarter of 2010, representing a decrease of 6% when compared to the 68,917 tonnes milled in the first quarter of 2010 and decrease of 11% when
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compared to the 72,844 tonnes milled in the second quarter of 2010. The average head grade was 150 g/t in the second quarter of 2010, representing a decrease of 17% when compared to the 181 g/t in the first quarter of 2010 and an increase of 9% when compared to the 138 g/t in the second quarter of 2009.
Recoveries of silver in the second quarter of 2010 were consistent with the 78% achieved in the first quarter of 2010 and increased from the 74% achieved in the second quarter of 2009. Total production of 269,958 ounces of silver equivalent in the second quarter of 2010 was 25% lower than the 358,591 equivalent ounces of silver produced in the first quarter of 2010 and 2% lower than the 274,876 equivalent ounces of silver produced in the second quarter of 2009. The equivalent ounces of silver in the second quarter of 2010 consisted of 242,255 ounces of silver and 428 ounces of gold. This compares to 310,757 ounces of silver and 726 ounces of gold produced in the first quarter of 2010 and 239,427 ounces of silver and 525 ounces of gold in the second quarter of 2009.
During the second quarter of 2010, a total of 1,319 metres of underground development was completed compared to 1,363 metres in the first quarter of 2010. In addition, 1,192 metres of diamond drilling was completed in the second quarter of 2010 compared to 272 metres in the first quarter of 2010.
Exploration via short hole drilling into the footwall and hanging wall has shown success with the discovery of the new San Pedro area in 2009. This underground drilling program is continuing and is anticipated to result in structures similar to the San Pedro area and to continually provide additional oxide resources. The 2009 surface exploration program defined the new La Esperanza vein which runs parallel to the Zuloaga vein and has high anomalous samples from 100 to 250 grams per tonne of Ag on surface. The access road to this newly discovered vein began in the first quarter and is expected to be completed before summer. The diamond drilling program in the La Esperanza area is a high priority target, with drilling in progress through July and August and into the second half of 2010.
Del Toro Silver Mine, Zacatecas, Mexico
The Del Toro Silver Mine is located 60 km to the southeast of the Companys La Parrilla Silver Mine and consists of 392 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart.
The Del Toro Silver Mine is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings.
In January 2010 the Change of Use of Land Permit for a new Flotation Plant was approved by the SEMARNAT. This permit was the last permit required to commence construction of a new operation expected later this year. All necessary permits for the construction of a 1,000 tpd flotation mill were granted by the Mexican authorities in Q4 2009 and Q1 2010. No immediate plans are in place to commence construction, however the Company anticipates a decision later in 2010. The Company is proceeding with developing a 1,250 metres ramp into the lower levels of the Del Toro to assist its planning process for this mine.
Real de Catorce Silver Project, San Luis Potosi, Mexico
The Real de Catorce Silver Project was acquired on November 13, 2009, through the acquisition of Normabec. As a result of the acquisition of Normabec, the Company owns 100% of the Real de Catorce Silver Project. The Real de Catorce mine is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares, with historical production of 230 million ounces between 1773 and 1990.
After the acquisition on November 13, 2009 of the historically famous Real de Catorce silver mine, the Company completed all of the transfer of ownership of the mining claims and the Mexican subsidiary Minera Real Bonanza. The Company is now preparing a plan to reconfirm the geologic information and to map out the future development activities in this very large silver mining district.
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EXPLORATION PROPERTY UPDATES Jalisco Group of Properties, Jalisco, Mexico
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, Mexico. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued as the Company focuses its capital investment on other higher priority projects, namely the Del Toro Silver Mine and Real de Catorce Silver Project.
RESULTS OF OPERATIONS
Three Months ended June 30, 2010 compared to Three Months ended June 30, 2009.
For the Quarter Ended | ||||||||
June 30, 2010 | June 30, 2009 | |||||||
$ | $ | |||||||
Gross revenue | 31,799,382 | 15,779,596 | (1 ) | |||||
Net revenue | 28,963,285 | 13,024,877 | (2 ) | |||||
Cost of sales | 13,434,747 | 9,459,868 | (3 ) | |||||
Depreciation, depletion and amortization | 2,380,032 | 1,772,464 | (4 ) | |||||
Accretion of reclamation obligation | 94,201 | 117,171 | ||||||
Mine operating earnings | 13,054,305 | 1,675,374 | (5 ) | |||||
General and administrative | 2,406,842 | 2,114,312 | (6 ) | |||||
Stock-based compensation | 643,964 | 800,808 | (7 ) | |||||
3,050,806 | 2,915,120 | |||||||
Operating income | 10,003,499 | (1,239,746 | ) | (8 ) | ||||
Interest and other expenses | (683,210 | ) | (404,765 | ) | (9 ) | |||
Investment and other income | 635,082 | 222,173 | (10 ) | |||||
Foreign exchange gain (loss) | 344,075 | 840,958 | (11 ) | |||||
Income before taxes | 10,299,446 | (581,380 | ) | |||||
Income tax expense - current | 45,411 | 113,532 | ||||||
Income tax (recovery) - future | 1,366,919 | (1,731,328 | ) | |||||
Income tax expense (recovery) | 1,412,330 | (1,617,796 | ) | (12 ) | ||||
Net income for the quarter | 8,887,116 | 1,036,416 | (13 ) | |||||
Notes:
1. |
Consolidated gross revenue (prior to smelting and refining and metal deductions) for the quarter ended June 30, 2010 was $31,799,382 or $19.58 (US$18.68) per ounce compared to $15,779,596 or $14.70 (US$12.60) per ounce for the quarter ended June 30, 2009 for an increase of $16,019,786 or 102%. The increase in the second quarter of 2010 is attributable to a 51% increase in equivalent silver ounces as the new La Encantada processing plant began commercial sales on April 1, 2010; as well, a 48% increase in US$ silver prices in the current quarter compared to the second quarter of 2009. In addition, there were foreign exchange effects due to the strength of the Canadian dollar compared to the U.S. dollar during the period compared to the same period in 2009 which had a negative effect on revenue of 14% as the shipments are valued in U.S. dollars. |
2. |
Net revenue for the three months ended June 30, 2010 increased by $15,938,408 or 122% to $28,963,285 from $13,024,877 in the second quarter of 2009, due to the same increases that affected consolidated gross revenue in the second quarter of 2010. In addition, lower smelting and refining charges per ounce (9% of gross revenue compared to 17% in the second quarter of 2009) contributed to the increase in net revenue in the second quarter of 2010. |
3. |
Cost of sales increased by $3,974,879 or 42%, to $13,434,747 in the second quarter of 2010 from $9,459,868 in the same quarter of 2009. This increase in cost of sales was accomplished while increasing the equivalent |
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silver ounces sold by 51% from the quarter ended June 30, 2009. In the second quarter of 2010, the Company processed higher grade ore than the comparative period in 2009. |
|
4. |
Depreciation, depletion and amortization has increased by $607,568 or 34% to $2,380,032 in the second quarter of 2010 from $1,772,464 in the same quarter of 2009, due primarily to the additional $669,452 of depreciation and amortization related to the new La Encantada mill that shifted into commercial stage effective April 1, 2010, starting the depreciation and amortization expenses in this period. |
5. |
Mine operating earnings increased by $11,378,931 or 679% to $13,054,305 for the quarter ended June 30, 2010 compared to $1,675,374 for the same quarter in the prior year. This is primarily due to the $15,938,408 increase in net revenue and offset by the higher cost of sales and depreciation, depletion and amortization expenses during the second quarter of 2010. |
6. |
General and administrative expenses increased by $292,530 or 14% compared to the prior year primarily due to an aggressive investor relations compaign and a small increase in salaries and benefits. |
7. |
Stock-based compensation decreased by $156,844 or 20% due to fewer options vesting in the second quarter of 2010. |
8. |
Operating income increased by $11,243,245 or 907% to $10,003,499 for the quarter ended June 30, 2010 compared to an operating loss of $1,239,746 for the quarter ended June 30, 2009, due to the increase in mine operating earnings associated with higher production levels and higher silver prices. |
9. |
During the quarter ended June 30, 2010, interest and other expenses increased by $278,445 or 69% to $683,210 compared to $404,765 for the quarter ended June 30, 2009 and is primarily due to interest charges relating to the debt facilities with FIFOMI for the completion of the MLE cyanidation plant and the pre- payment facility associated with the advances for the sale of lead concentrates. Also, the current quarter includes an assessment of $230,308 by the Mexican tax authorities relating to import duties from the years 1996 to 2004. |
10. |
Investment and other income increased by $412,909 or 186% compared to the same quarter in the prior year. The increase is primarily attributed to the realized gain of $634,501 recorded on the silver futures and a gain of $15,499 on disposal of marketable securities during the second quarter of 2010. |
11. |
The Company experienced a foreign exchange gain of $344,075 in the quarter ended June 30, 2010 compared to a foreign exchange gain of $840,958 in the quarter ended June 30, 2009 due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar. |
12. |
During the quarter ended June 30, 2010, the Company recorded an income tax expense of $1,412,330 compared to a recovery of $1,617,796 in the quarter ended June 30, 2009, and this is reflective of earnings and would consist primarily of non-cash future income taxes arising from temporary timing differences and utilization of tax loss carryforwards. The Company has sufficient tax loss carryforwards to offset the current taxable earnings in the period. |
13. |
As a result of the foregoing, net income for the quarter ended June 30, 2010 was $8,887,116 or basic earnings per share of $0.10 compared to a net income of $1,036,416 or $0.01 per common share in the quarter ended June 30, 2009, for an increase of $7,850,700 or 757% compared to the same period in the prior year. |
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Six Months ended June 30, 2010 compared to Six Months ended June 30, 2009.
For the Six Months Ended | ||||||||
June 30, 2010 | June 30, 2009 | |||||||
$ | $ | |||||||
Gross revenue | 53,735,094 | 33,243,733 | (1 ) | |||||
Net revenue | 47,180,899 | 27,411,749 | (2 ) | |||||
Cost of sales | 22,408,604 | 17,758,681 | (3 ) | |||||
Depreciation, depletion and amortization | 4,178,023 | 3,201,598 | (4 ) | |||||
Accretion of reclamation obligation | 187,921 | 233,210 | ||||||
Mine operating earnings | 20,406,351 | 6,218,260 | (5 ) | |||||
General and administrative | 4,393,465 | 3,932,315 | (6 ) | |||||
Stock-based compensation | 1,344,143 | 1,697,548 | (7 ) | |||||
5,737,608 | 5,629,863 | |||||||
Operating income | 14,668,743 | 588,397 | (8 ) | |||||
Interest and other expenses | (1,245,649 | ) | (764,971 | ) | (9 ) | |||
Investment and other income | 621,933 | 512,017 | (10 ) | |||||
Foreign exchange gain (loss) | 416,100 | (111,908 | ) | (11 ) | ||||
Income before taxes | 14,461,127 | 223,535 | ||||||
Income tax expense - current | 63,972 | 171,582 | ||||||
Income tax (recovery) - future | 2,494,244 | (1,924,160 | ) | |||||
Income tax expense (recovery) | 2,558,216 | (1,752,578 | ) | (12 ) | ||||
Net income for the period | 11,902,911 | 1,976,113 | (13 ) | |||||
Earnings per share - basic | 0.13 | 0.02 | ||||||
1. |
Gross revenue (prior to smelting and refining charges and metal deductions) for the six month period ended June 30, 2010 was $53,735,094 compared to $33,243,733 for the six month period ended June 30, 2009 for an increase of $20,491,361 or 62%. A 41% increase in silver equivalent ounces sold in the first half of 2010, compared to the first half of 2009, contributed to this increase. Silver prices were higher in 2010 than the comparative period in 2009, however, the stronger Canadian dollar compared to the U.S. dollar offset a portion of the favourable increase in gross revenue as silver shipments are valued in U.S dollars and translated into Canadian dollars for financial statement presentation. The average gross revenue per ounce sold on a consolidated basis was Cdn$18.39(US$17.78) per ounce for the six months ended June 30, 2010 compared to Cdn$16.06 (US$13.32) per ounce for the six months ended June 30, 2009, and compared to the Comex average of US$17.63 for the same period. |
2. |
Net revenue for the six months ended June 30, 2010 increased by $19,769,150 or 72%, from $27,411,749 in the first half of 2009 to $47,180,899 in the first half of 2010. Smelting and refining charges and metal deductions decreased from 18% to 12% of consolidated gross revenue during the six-month period ended June 30, 2010 compared to the six months ended June 30, 2009, and reflects the reductions in smelting and refining charges related to sales of silver doré and precipitates compared to silver concentrates. |
3. |
Cost of sales increased by $4,649,923 or 26% from $17,758,681 to $22,408,604 for the six months ended June 30, 2010. Total equivalent ounces of silver sold for six months ended June 30, 2010, was 2,922,503 ounces whereas for the six months ended June 30, 2009, the total equivalent ounces of silver sold was 2,069,724 ounces, for an increase of 852,779 equivalent ounces or 41%. |
4. |
Depreciation, depletion and amortization has increased by $976,425 or 30% to $4,178,023 in the six months ended June 30, 2010 compared to $3,201,598 in the six months ended June 30, 2009 and is primarily attributed to an additional $669,452 of depreciation expenses of the new processing plant at the La Encantada mine which achieved commercial production status effective April 1, 2010, and which requires the commencement of depreciation and amortization. Additional tonnage milled in the La Encantada cyanidation plant has increased depletion expense by $208,176 for the period. Also, in the six months ended |
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June 30 2009, the San Martin mine extracted less tonnage from reserves, and more tonnage was extracted from areas outside of reserves which had an impact on the depletion expense in the same period in 2009. |
|
5. |
Mine operating earnings increased by $14,188,091 or 228% to $20,406,351 for the six month period ended June 30, 2010 compared to $6,218,260 for the same period in prior year. This is primarily due to the $19,769,150 increase in net revenue and offset by the higher cost of sales and depreciation, depletion and amortization expense during the six months ended June 30, 2010. |
6. |
General and administrative expenses increased by $461,150 or 12% in the six months ended June 30, 2010 compared to the same period in the prior year and is primarily due to the small increase in salaries and benefits and an aggressive program of investor relations. |
7. |
Stock-based compensation decreased by $353,405 or 21% due to fewer stock options vesting in the six months ended June 30, 2010 compared to the prior year. |
8. |
Operating income increased by $14,080,346 or 2,393%, from $588,397 for the period ended June 30, 2009 to $14,668,743 for the period ended June 30, 2010. The increase is attributable to the $14,188,091 increase of mine operating earnings, and $353,405 reduction in stock-based compensation but it was partially offset by an increase of $461,150 in general and administration expenses. |
9. |
Interest and other expenses increased by $480,678 or 63% in the six month period ended June 30, 2010 compared to the prior year and is primarily attributed to additional interest on capital leases and financing cost relating to advance payments on silver shipments. |
10. |
Investment and other income increased by $109,916 or 21% and is primarily attributed to an increase in realized gains on silver futures. |
11. |
There was a foreign exchange gain of $416,100 for the six month period ended June 30, 2010, compared to a loss of $111,908 in the six month period ended June 30, 2009, due to the effect of a weakening U.S. dollar on outstanding U.S. dollar denominated liabilities. |
12. |
During the six months ended June 30, 2010, the Company recorded an income tax expense of $2,558,216 compared to a tax recovery of $1,752,578 in the six months ended June 30, 2009 and is reflective of earnings and would consist primarily of non-cash future income taxes arising from temporary timing differences and utilization of tax loss carryforwards. In 2009, the recovery was also attributed to a Canadian dollar equivalent of $542,906 for the adjusted tax deductibility of energy expenses which increased the tax loss carryforwards. |
13. |
Net income for the six months ended June 30, 2010 was $11,902,911 or $0.13 per common share (basic) compared to net income of $1,976,113 or $0.01 per common share in 2009, for an increase of $9,926,798 or 502%. |
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SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the most recent eight quarters.
|
Quarter |
Net sales revenues $ |
Net income (loss) after taxes $ |
Basic and
diluted net income (loss) per common share $ |
Stock-based compensation (8) $ |
Note |
Year ended December 31, 2010
|
Q2 | 28,963,285 | 8,887,116 | 0.10 | 643,964 | 1 |
Q1 | 18,217,614 | 3,015,795 | 0.03 | 700,179 | 2 | |
Year ended December 31, 2009 |
Q4 | 18,374,117 | 2,492,488 | 0.03 | 1,099,386 | 3 |
Q3 | 13,724,803 | 1,841,623 | 0.02 | 505,847 | 4 | |
Q2 | 13,024,877 | 1,036,416 | 0.01 | 800,808 | 5 | |
Q1 | 14,386,872 | 939,698 | 0.01 | 896,739 | 6 | |
Year ended December 31, 2008
|
Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | 7 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 |
Notes:
1. |
In the quarter ended June 30, 2010, net sales increased by $10,745,671 compared to the quarter ended March 31, 2010 and was primarily due to an increase of 325,185 equivalent ounces of silver sold (after intercompany eliminations) in the second quarter of 2010 compared to the first quarter of 2010. In the first quarter of 2010, pre-commercial sales were not included as equivalent ounces sold but instead were credited to the capitalization of the La Encantada mill expansion project. The net sales and net income was positively affected by an increase of the average gross revenue per ounce realized of $19.58 (US$18.68) in the quarter ended June 30, 2010 compared to $16.89(US$16.23) in the quarter ended March 31, 2010. |
2. |
In the quarter ended March 31, 2010, net sales revenue was comparable to the quarter ended December 31, 2009. The Company sold an additional 153,097 equivalent ounces of silver (after intercompany eliminations) in the first quarter of 2010 compared to the fourth quarter of 2009; however, the average gross revenue per ounce realized was $16.89 (US$16.23) in the quarter ended March 31, 2010 compared to $18.71 (US$17.72) in the quarter ended December 31, 2009; an average effect of $1.82 per ounce or 10% (not including the $2.3 million profit from pre-commercial sales). |
3. |
In the quarter ended December 31, 2009, net sales revenue increased due to increasing silver prices. The average gross revenue per ounce of silver realized increased to US$17.72 in the quarter ended December 31, 2009, compared to US$15.07 in the prior quarter ended September 30, 2009. |
4. |
In the quarter ended September 30, 2009, net sales revenue increased due to rising prices. The average gross revenue per ounce of silver realized was US$15.07 in the quarter ended September 30, 2009, increasing from US$12.60 in the prior quarter ended June 30, 2009. |
5. |
In the quarter ended June 30, 2009, net sales revenue decreased due to losses on final settlements for which provisional payments had already been received in the prior quarter. |
6. |
In the quarter ended March 31, 2009, a stronger U.S. dollar compared to the Canadian dollar accounted for the increase of revenue. Although silver prices were lower in the first quarter of 2009, the average gross revenue per ounce sold was Cdn$17.52 (US$14.07) per ounce on a consolidated basis for the three-month period ended March 31, 2009. Also contributing to an increase in net sales is $1,194,452 from the sale of coins, ingots and bullion in the three months ended March 31, 2009. |
7. |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metal settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross |
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revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million relating to net U.S. monetary liabilities in the fourth quarter of 2008. |
|
8. |
Stock-based Compensation - the net income (losses) are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
Revenues In Accordance With Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net sum of invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including associated metal by-products of gold, lead and zinc, after having deducted refining and smelting charges and metal deductions, and after elimination of the intercompany shipments of silver being minted into coins, ingots and bullion products. The following is an analysis of the gross revenues prior to refining and smelting charges and metal deductions, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP in Canadian and US currencies. Gross revenues are divided by shipped ounces of silver to calculate the average realized price per ounce of silver sold.
At March 31, 2010, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore sales receipts in the quarter ended March 31, 2010 of $4,718,618 in connection with the sale of 262,403 silver equivalent ounces of precipitates during the pre-operating period was not recorded as a sales revenues but instead was recorded as a reduction of capital in the construction in progress account. As at March 31, 2010, total cash receipts of $5,663,086 was in the connection with the sale of 316,680 silver equivalent ounces of precipitates during the pre-operating period since inauguration of the plant. Effective April 1, 2010, the cyanidation plant was considered to have reached a commercial stage of production and all sales were included in the above table.
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LIQUIDITY
At June 30, 2010, the Company had working capital of $14.4 million and cash and cash equivalents of $15.9 million compared to working capital of $4.8 million and cash and cash equivalents of $5.9 million at December 31, 2009. Working capital increased by $9.6 million as a result of $12.5 million generated from operating activities, consisting of an increase in inventory by $2.0 million primarily attributed to the La Encantada cyanidation plant for various stages of mineral inventory and the warehouse inventory, and an increase of $0.8 million in prepaid expenses and other relating to advances to suppliers and contractors. Accounts payable and accrued liabilities increased by $3.7 million due to timing of payments to vendors and accrual of the employee profit sharing plan as per Mexican government legislation . The current portion of debt facilities increased by $0.5 million, relating to the increase in the pre-payment facility the Company has drawn relating to the lead concentrates compared to as at December 31, 2009. Also, the current portion of capital leases decreased by $0.8 million due to payments during the period.
During the quarter ended June 30, 2010 the Company invested $2.6 million into the acquisition, exploration and development of its mineral properties and a further $3.0 million in additions to plant and equipment
The Company is accumulating cash in treasury to restore funds which were consumed during the completion of the La Encantada processing plant project.
Funds surplus to the Companys short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there are no restrictions on the ability of the Company to use these funds to meet its obligations. The Company has no exposure to and has not invested in any asset backed commercial paper securities.
The Company is assessing its continuing expansion plans and the associated funds requirements but is deferring any new financings until its plans have reached a definitive stage.
2010 OUTLOOK
This section of the MD&A provides managements production and costs forecasts for 2010. These are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
The Company recently completed a revision of its budget expectations for the second half of 2010. Based on this detailed review of costs and production, it is believed that the Company is likely to achieve its production target of 6.3 million silver ounces (6.9 million ounces of silver equivalents) in 2010. The Company is also continuing to review opportunities to maximize its profit per ounce of silver while continuing to find efficiencies which will lower its costs and compensate for higher fuel and energy costs and a stronger Mexican currency relative to the US dollar. These efforts are being made with an attempt to reduce total US$ cash costs per ounce, maximizing average US$ gross revenue per ounce in order to continue to improve operating income through the second half of 2010.
OFF-BALANCE SHEET ARRANGEMENTS
At June 30, 2010, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the consolidated financial statements and the related notes. Derivative instruments are carried at fair value.
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RELATED PARTY TRANSACTIONS
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties. During the quarter ended June 30, 2010, there were no significant transactions with related parties.
PROPOSED TRANSACTIONS
Other than as disclosed herein, the board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
CONTRACTUAL OBLIGATIONS
The Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1 to 3 | 4 to 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 1,741,271 | $ | 1,372,510 | $ | 368,761 | $ | - | $ | - | |||||
FIFOMI Loan Facilities | 4,298,774 | 1,417,759 | 1,728,598 | 1,152,417 | - | ||||||||||
Trafigura Prepayment Facility | 627,681 | 627,681 | - | - | - | ||||||||||
Real de Catorce Payments (1) | 1,272,720 | 1,272,720 | - | - | - | ||||||||||
Purchase Obligations (2) | 95,000 | 95,000 | - | - | - | ||||||||||
Asset Retirement Obligations | 4,660,588 | - | - | - | 4,660,588 | ||||||||||
Accounts Payable and Accrued Liabilities | 14,917,025 | 14,917,025 | - | - | - | ||||||||||
Total Contractual Obligations | $ | 27,613,059 | $ | 19,702,695 | $ | 2,097,359 | $ | 1,152,417 | $ | 4,660,588 |
(1) |
Contract commitments to acquire surface rights and geological information relating to the Real de Catorce Project. |
(2) |
Contract commitments for construction materials and equipment for the La Encantada mill expansion project. |
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for the year ended December 31, 2009. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
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Carrying Values of Property, Plant and Equipment and Other Mineral Property Interests
The Company reviews and evaluates its mineral properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and/or development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The Company completed an impairment review of its properties at December 31, 2009. The estimates used by management were subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest components of the Companys assets and, as such, the amortization of these assets has a significant effect on the Companys financial statements. On the commencement of commercial production, depletion of each mining property is provided on the unit-of-production basis using estimated reserves and resources expected to be converted to reserves as the depletion basis. The mining plant and equipment and other capital assets are depreciated, following the commencement of commercial production, over their expected economic lives using the unit-of-production method. Capital projects in progress are not depreciated until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets.
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and decommissioning related to its mining properties. The Company, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future obligations from mine closure activities. Since the obligations are dependent on the laws and regulations of the country in which the mines operate, the requirements could change resulting from amendments in those laws and regulations relating to environmental protection and other legislation affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the
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liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at June 30, 2010.
Income Taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantially enacted, as applicable, income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling it on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Co-incident with the tax consolidation, Mexico introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in Mexico. Management has reviewed its IETU obligations and its consolidated tax position at June 30, 2010, and management assessed whether the Company is more likely than not to benefit from these tax losses prior to recording a benefit from the tax losses.
In December 2009, Mexico introduced tax consolidation reform tax rules which, effective January 2010, would require companies to begin the recapture of the benefits of tax consolidation within five years of receiving the benefit, and phased in over a five year period. First Majestics first tax deferral benefit from consolidation was realized in 2008, and as such the benefit of tax consolidation would be recaptured from 2013 to 2018. Numerous companies in Mexico are challenging the legality of these regressive tax reforms. It is unlikely that the outcome of these challenges will be determinable for several years.
Other changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
Stock-Based Compensation
The Company uses the Black-Scholes Option Pricing Model . Option pricing models require the input of subjective assumptions including the expected price volatility. Changes in the input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide an accurate single measure of the actual fair value of the Companys stock options granted during the year.
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FUTURE ACCOUNTING CHANGES
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has adopted these new standards for the period ended June 30, 2010.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In February 2008, the CICA announced that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011. The Company will be required to begin reporting under IFRS for the quarter ending March 31, 2011, and will be required to prepare a revised opening balance sheet as at January 1, 2010, and provide information that conforms to IFRS for comparative periods presented.
The Company has developed an IFRS changeover plan which addresses the key areas such as accounting policies, financial reporting, disclosure controls and procedures, information systems, education and training and other business activities.
The Company commenced its IFRS conversion project during the second quarter of 2009 and has established a conversion plan and an IFRS project team. The IFRS conversion project is comprised of three phases: i) project planning, scoping and preliminary impact analysis; ii) detailed diagnostics and evaluation of financial impacts, selection of accounting policies, and design of operational and business processes; and iii) implementation and review.
The Company is in the second phase of its conversion plan and has completed a detailed analysis of the standards, including the evaluation of policy choices for those standards that may have an impact on its financial statements, business processes and systems.
Management is in the process of quantifying the expected material differences between lFRS and the current accounting treatment under Canadian GAAP. Differences with respect to recognition, measurement, presentation and disclosure of financial information are expected in key accounting areas. The Company cannot reasonably determine the full impact that adopting IFRS would have on its financial statements at this time. As a result, it is unable to quantify the impact of adopting IFRS on the financial statements as at June 30, 2010.
The Company is continuing to monitor developments in standards and interpretations of standards and industry practices. Due to anticipated changes to IFRS and International Accounting Standards prior to the adoption of IFRS, managements plan is subject to change based on new facts and circumstances that arise.
The following list, though not exhaustive, identifies some of the changes in key accounting policies due to the adoption of IFRS:
Standards | Difference from GAAP | Potential Impact |
Presentation and disclosure | IFRS requires significantly more disclosure than Canadian GAAP for certain standards. In addition, classification and presentation may be different for some balance sheet items. | The increased disclosure requirements will cause the Company to change financial reporting processes to ensure the appropriate data is collected. The Company is analyzing the impact of classification and presentation changes. |
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Standards | Difference from GAAP | Potential Impact |
First time Adoption of IFRS (IFRS 1) | IFRS 1 provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions in certain areas to the general requirement for full retrospective application of IFRS. With regards to the IFRS transition, the Company continues to analyze the optional exemptions available under IFRS 1. | The adoption of certain exemptions will impact the January 1, 2010 opening balance sheet adjustments. The Company continues to assess the appropriateness of the accounting policies applied under IFRS both at the time of transition and following transition. |
Property, Plant and Equipment (IAS 16) | IFRS requires all significant components of property, plant and equipment (PPE) to be amortized according to their individual useful lives as determined in accordance with IFRS. IAS 16 permits the revaluation of PPE to fair value. | Potentially material components within processing plants will have shorter useful lives than the entire plant, requiring increased amortization expenses. |
Impairment of Long-lived Assets (IAS 36) | IFRS requires the assessment of asset impairment to be based on comparing the carrying amount to the recoverable amount using discounted cashflows while GAAP only requires discounting if the carrying value of assets exceeds the undiscounted cash flows. IFRS also requires the reversal of any previous asset impairments, excluding goodwill, where circumstances have changed. GAAP prohibits the reversal of impairment losses. | The differences in methodology may result in asset impairments upon transition to IFRS. The Company is currently assessing the potential impact on long-lived assets which may require further writedowns relating to impairments. |
Asset Retirement Obligations (IAS 37) | Differences include the basis of estimation for undiscounted cashflows, the discount rate used, the frequency of liability remeasurement, and recognition of a liability when a constructive obligation exists. | IFRS 1 provides an exemption which allows the Company to recognize reclamation and closure costs obligations, estimate costs of the related mining properties using risk free rates, and recalculating depreciation and depletion of assets at fair value as at January 1, 2010. |
Income Taxes (subject to adoption at transition of a revised IAS 12 standard) | Recognition and measurement criteria for deferred tax assets and liabilities may differ. | Deferred tax assets may be derecognized at transition. This standard is in-transition since IAS 12 was withdrawn in November 2009 and the AcSB will adopt the converged standard at changeover to IFRS. The Company is assessing the changes but the changes are not likely significant. |
Functional Currency (IAS 21) | IAS 21 requires the Company to determine the translation differences in accordance with IFRS from the date on which a subsidiary was formed or acquired. | IFRS 1 provides an exemption that allows a Company to reset its cumulative translation account to zero at the date of transition, with the balance being transferred to opening retained earnings. |
Business Combinations (IFRS 3) | Under GAAP, the new HB section 1582 is effective January 1, 2011 to converge with IFRS and early adoption is permitted. | Early adoption of HB section 1582 is permitted, and the Company plans to early adopt this section for the year ended December 31, 2010. IFRS 1 will allow IFRS rules for business combinations on a prospective basis rather than re-stating all business combinations. |
Leases (IAS 17) | IFRS classifies leases as either financing or operating leases and classification depends on whether substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred from the lessor to the lessee, and is made at the inception of the lease. There are no quantitative thresholds similar to GAAP. | The Company is developing internal indicators to assist in lease classification under IFRS. |
Borrowing Costs (IAS 23) | IAS 23 does not allow the expensing of borrowing costs, to the extent they are directly attributable to acquisition, production and construction of a qualifying asset. | IFRS 1 allows companies to capitalize borrowing costs relating to all qualifying assets prospectively on adoption. |
Stock-based Compensation (IFRS 2) | Under Canadian GAAP, obligations for cash payments under stock-based compensation plans are accrued using the intrinsic method, compared to the fair value method under IFRS. | While the carrying value of each reporting period will be different under IFRS, the cumulative expense recognized over the life of the instrument will be the same. The Company will adopt this change prospectively using the IFRS 1 exemption for share units that vest prior to January 1, 2010. |
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Other important considerations during the IFRS transition are the following:
Internal control over financial reporting (ICFR) for all accounting policy changes identified, the Company will assess the impact on the ICFR design and effectiveness implications and will ensure that all changes in accounting policies include the appropriate additional controls and procedures for future IFRS reporting requirements.
Disclosure controls and procedures (DC&P) for all accounting policy changes identified an assessment of DC&P design and effectiveness implication will be analyzed to address any issues with respect to DC&P during IFRS transition.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management has been remediating internal controls since 2009, and is proceeding on a course of strengthening internal controls in accounting systems in Mexico and Canada. The risk of material error is mitigated by extensive management reviews of financial and operating reports, account reconciliations and analyses in both Mexico and Canada, as well as monthly audit committee reviews. Significant progress on managements remediation plan has been achieved, and management expects the remainder of its current plan to be completed by the end of 2010.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in Mexico, however these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at June 30, 2010.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company may be found on or in:
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE SIX MONTHS ENDED |
June 30, 2010 (UNAUDITED) |
MANAGEMENTS COMMENTS ON
UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements of the
Company have been prepared by and are the
responsibility of the Companys
management.
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED BALANCE SHEETS |
AS AT JUNE 30, 2010 AND DECEMBER 31, 2009 |
(Unaudited, expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
CONTINGENT LIABILITIES (Note
17)
COMMITMENTS (Note 18)
SUBSEQUENT EVENTS (Note 21)
APPROVED BY THE BOARD OF DIRECTORS
Keith Neumeyer (signed) | Director | Douglas Penrose (signed) | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF INCOME |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars, except share amounts) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
$ | $ | $ | $ | |||||||||
Revenues (Note 12) | 28,963,285 | 13,024,877 | 47,180,899 | 27,411,749 | ||||||||
Cost of sales | 13,434,747 | 9,459,868 | 22,408,604 | 17,758,681 | ||||||||
Depletion, depreciation and amortization | 2,380,032 | 1,772,464 | 4,178,023 | 3,201,598 | ||||||||
Accretion of reclamation obligation (Note 15) | 94,201 | 117,171 | 187,921 | 233,210 | ||||||||
Mine operating earnings | 13,054,305 | 1,675,374 | 20,406,351 | 6,218,260 | ||||||||
General and administrative | 2,406,842 | 2,114,312 | 4,393,465 | 3,932,315 | ||||||||
Stock-based compensation | 643,964 | 800,808 | 1,344,143 | 1,697,548 | ||||||||
3,050,806 | 2,915,120 | 5,737,608 | 5,629,863 | |||||||||
Operating income (loss) | 10,003,499 | (1,239,746 | ) | 14,668,743 | 588,397 | |||||||
Interest and other expenses | (683,210 | ) | (404,765 | ) | (1,245,649 | ) | (764,971 | ) | ||||
Investment and other income | 635,082 | 222,173 | 621,933 | 512,017 | ||||||||
Foreign exchange gain (loss) | 344,075 | 840,958 | 416,100 | (111,908 | ) | |||||||
Income (loss) before taxes | 10,299,446 | (581,380 | ) | 14,461,127 | 223,535 | |||||||
Income tax expense - current | 45,411 | 113,532 | 63,972 | 171,582 | ||||||||
Income tax expense (recovery) - future | 1,366,919 | (1,731,328 | ) | 2,494,244 | (1,924,160 | ) | ||||||
1,412,330 | (1,617,796 | ) | 2,558,216 | (1,752,578 | ) | |||||||
NET INCOME FOR THE PERIOD | 8,887,116 | 1,036,416 | 11,902,911 | 1,976,113 | ||||||||
EARNINGS PER COMMON SHARE | ||||||||||||
BASIC | $ | 0.10 | $ | 0.01 | $ | 0.13 | $ | 0.02 | ||||
DILUTED | $ | 0.09 | $ | 0.01 | $ | 0.13 | $ | 0.02 | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
BASIC | 92,804,715 | 82,341,636 | 92,758,113 | 79,387,259 | ||||||||
DILUTED | 95,076,336 | 99,426,674 | 94,421,176 | 96,472,297 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS) |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars, except share amounts) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Comprehensive | Total | |||||||||||||||||||||||
Share Capital | Contributed | Income (Loss) | AOCI | |||||||||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and Deficit | Total | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | |||||||||||||
Net income | - | - | - | - | - | 1,976,113 | 1,976,113 | 1,976,113 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 124,630 | - | 124,630 | 124,630 | ||||||||||||||||
Unrealized gain on marketable securities | - | - | - | - | 750 | - | 750 | 750 | ||||||||||||||||
Total comprehensive income | 2,101,493 | 2,101,493 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 6,250 | 7,938 | - | - | - | - | - | 7,938 | ||||||||||||||||
Public offering, net of issue costs (Note 11(a)(i)) | 8,487,576 | 18,837,183 | - | 848,758 | - | - | - | 19,685,941 | ||||||||||||||||
Stock option expense, net of deferred compensation | - | - | - | 1,697,548 | - | - | - | 1,697,548 | ||||||||||||||||
Transfer of contributed surplus upon exercise of stock options | - | 2,950 | - | (2,950 | ) | - | - | - | - | |||||||||||||||
Balance at June 30, 2009 | 82,341,636 | 215,496,416 | 276,495 | 25,840,614 | (23,091,010 | ) | (37,500,770 | ) | (60,591,780 | ) | 181,021,745 | |||||||||||||
Balance at December 31, 2009 | 92,648,744 | 244,241,006 | 276,495 | 27,808,671 | (40,238,914 | ) | (33,166,658 | ) | (73,405,572 | ) | 198,920,600 | |||||||||||||
Net income | - | - | - | - | - | 11,902,911 | 11,902,911 | 11,902,911 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 5,146,526 | - | 5,146,526 | 5,146,526 | ||||||||||||||||
Unrealized gain on marketable securities | - | - | - | - | 107,850 | - | 107,850 | 107,850 | ||||||||||||||||
Total comprehensive income | 17,157,287 | 17,157,287 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 277,500 | 622,436 | - | - | - | - | - | 622,436 | ||||||||||||||||
Exercise of warrants | 25,000 | 82,500 | - | - | - | - | - | 82,500 | ||||||||||||||||
Stock option expense during the period | - | - | - | 1,355,248 | - | - | - | 1,355,248 | ||||||||||||||||
Transfer of contributed surplus upon exercise of stock options and warrants | - | 232,302 | - | (232,302 | ) | - | - | - | - | |||||||||||||||
Balance at June 30, 2010 | 92,951,244 | 245,178,244 | 276,495 | 28,931,617 | (34,984,538 | ) | (21,263,747 | ) | (56,248,285 | ) | 218,138,071 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries which primarily affects the mining interests, except for the unrealized gain on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars) |
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
$ | $ | $ | $ | |||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income for the period | 8,887,116 | 1,036,416 | 11,902,911 | 1,976,113 | ||||||||
Adjustment for items not affecting cash | ||||||||||||
Depletion, depreciation and amortization | 2,380,032 | 1,772,464 | 4,178,023 | 3,201,598 | ||||||||
Stock-based compensation | 643,964 | 800,808 | 1,344,143 | 1,697,548 | ||||||||
Accretion of reclamation obligation | 94,201 | 117,171 | 187,921 | 233,210 | ||||||||
Other income from derivative financial instruments | (634,501 | ) | (212,380 | ) | (646,810 | ) | (479,197 | ) | ||||
Loss (gain) on sale of marketable securities | (15,969 | ) | - | 24,501 | - | |||||||
Future income tax provision (recovery) | 1,366,919 | (1,731,481 | ) | 2,494,244 | (1,949,967 | ) | ||||||
Unrealized foreign exchange loss (gain) and other | 505,866 | (1,310,042 | ) | 52,117 | (1,004,365 | ) | ||||||
13,227,628 | 472,956 | 19,537,050 | 3,674,940 | |||||||||
Net change in non-cash working capital items | ||||||||||||
Decrease (increase) in accounts receivable and other receivables | (637,300 | ) | (662,399 | ) | (218,943 | ) | (266,919 | ) | ||||
Decrease (Increase) in inventories | (1,912,605 | ) | 2,192,939 | (1,988,599 | ) | 1,656,806 | ||||||
Decrease (increase) in prepaid expenses and other | (122,081 | ) | (1,722,418 | ) | (393,220 | ) | (2,202,403 | ) | ||||
Increase (decrease) in accounts payable and accrued liabilities | 1,963,958 | (496,077 | ) | 1,459,600 | (2,834,288 | ) | ||||||
Decrease in unearned revenue | (105,632 | ) | (336,122 | ) | (135,290 | ) | (68,250 | ) | ||||
Increase (decrease) in taxes payable | 88,689 | (14,851 | ) | 146,613 | (172,875 | ) | ||||||
Decrease in vendor liability on mineral property | - | (370,521 | ) | - | (721,081 | ) | ||||||
12,502,657 | (936,493 | ) | 18,407,211 | (934,070 | ) | |||||||
INVESTING ACTIVITIES | ||||||||||||
Additions to plant and equipment (net of accruals) | (3,034,609 | ) | (5,888,016 | ) | (4,388,141 | ) | (7,473,675 | ) | ||||
Expenditures on mineral property interests (net of accruals) | (2,580,792 | ) | (3,174,554 | ) | (5,990,412 | ) | (5,022,028 | ) | ||||
Realized gain on derivative financial instruments | 1,076,805 | - | 646,810 | - | ||||||||
Proceeds from sale of marketable securities | 38,641 | - | 68,171 | - | ||||||||
Net proceeds from pre-commercial operation | - | - | 2,101,124 | - | ||||||||
Decrease (increase) of deposits on long term assets | (33,839 | ) | 380,708 | (498,170 | ) | - | ||||||
Investment in marketable securities | - | - | (25,000 | ) | - | |||||||
Decrease in silver futures contract deposits | - | 281,335 | - | 969,628 | ||||||||
Increase in restricted cash securitizing vendor liability | - | - | - | (545,522 | ) | |||||||
(4,533,794 | ) | (8,400,527 | ) | (8,085,618 | ) | (12,071,597 | ) | |||||
FINANCING ACTIVITIES | ||||||||||||
Issuance of common shares and warrants, net of issue costs | 530,438 | (19,798 | ) | 704,938 | 19,693,879 | |||||||
Payment of capital lease obligations | (493,887 | ) | (678,606 | ) | (1,153,455 | ) | (1,061,074 | ) | ||||
Prepayment facility, net of repayments | (249,326 | ) | - | 498,828 | - | |||||||
Payment of debt facilities | (432,152 | ) | - | (432,152 | ) | - | ||||||
(644,927 | ) | (698,404 | ) | (381,841 | ) | 18,632,805 | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 7,323,936 | (10,035,424 | ) | 9,939,752 | 5,627,138 | |||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH HELD IN FOREIGN CURRENCY | 48,112 | 5,891 | 20,841 | 6,145 | ||||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD | 8,478,338 | 33,086,939 | 5,889,793 | 17,424,123 | ||||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | 15,850,386 | 23,057,406 | 15,850,386 | 23,057,406 | ||||||||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | ||||||||||||
Cash | 10,824,836 | 8,487,949 | 10,824,836 | 8,487,949 | ||||||||
Short term deposits | 5,025,550 | 83,698 | 5,025,550 | 83,698 | ||||||||
Restricted cash | - | 14,485,759 | - | 14,485,759 | ||||||||
15,850,386 | 23,057,406 | 15,850,386 | 23,057,406 | |||||||||
Interest paid | 163,890 | 233,402 | 408,051 | 275,770 | ||||||||
Income taxes paid | 32,055 | - | 322,870 | - | ||||||||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 19) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
1. | DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS |
First Majestic Silver Corp. (the Company or First Majestic) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR and FR.WT.B, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Companys ability to continue as a going concern is dependent on the price of silver in global commodity markets, and on maintaining profitable operations or obtaining sufficient funds from alternative sources as required to augment operations and for ongoing capital developments. If the Company were unable to continue as a going concern, material adjustments may be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. | BASIS OF PRESENTATION |
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP). These interim financial statements do not contain all the information required by GAAP for annual financial statements and should be read in conjunction with the Companys latest audited consolidated financial statements for the year ended December 31, 2009.
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM), First Silver Reserve Inc. (First Silver) and Normabec Mining Resources Ltd. (Normabec) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada), Majestic Services S.A. de C.V. (Majestic Services), Minera Real Bonanza, S.A. de C.V. (MRB) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (Servicios). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 8. Intercompany balances and transactions are eliminated on consolidation.
3. | SIGNIFICANT CHANGES IN ACCOUNTING POLICIES |
Change in Accounting Policy and Future Accounting Pronouncements
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has adopted these new standards for the period ended June 30, 2010 and it has not had a material impact on the Company.
International Financial Reporting Standards (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five-year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is January 1, 2011, and relates to interim and annual financial statements on or after January 1, 2011. The transition will require the restatement for comparative purposes of amounts reported by the Company for all reporting periods beginning after January 1, 2010.
Notes Page 1 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
4. | OTHER RECEIVABLES |
Details of the components of other receivables are as follows:
June 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Value added taxes recoverable | 2,045,641 | 4,066,074 | ||||
Other taxes and value added taxes on accounts payable | 4,200,517 | 2,072,442 | ||||
Loan receivable from supplier | 316,677 | 478,824 | ||||
Interest receivable and other | 192,679 | 6,860 | ||||
6,755,514 | 6,624,200 |
5. | INVENTORIES |
Inventories consist of the following:
June 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Silver coins and bullion including in process shipments | 522,692 | 273,262 | ||||
Finished product - doré and concentrates | 430,990 | 343,990 | ||||
Ore in process | 1,026,003 | 463,549 | ||||
Stockpile | 853,884 | 387,836 | ||||
Materials and supplies | 2,967,489 | 2,343,823 | ||||
5,801,058 | 3,812,460 |
The amounts of inventory recognized as expenses during the period are equivalent to the cost of sales for the respective periods.
6. | PREPAID EXPENSES AND OTHER |
Details of prepaid expenses and other are as follows:
June 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Prepayments to suppliers and contractors | 1,514,311 | 865,298 | ||||
Deposits | 250,627 | 215,036 | ||||
Marketable securities | 485,557 | 387,425 | ||||
2,250,495 | 1,467,759 |
Notes Page 2 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
7. | MINING INTERESTS AND PLANT AND EQUIPMENT |
Mining interests and plant and equipment, net of accumulated depreciation, depletion and amortization, are as follows:
June 30, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
Depreciation, | Depreciation, | |||||||||||||||||
Depletion and | Net Book | Depletion and | Net Book | |||||||||||||||
Cost | Amortization | Value | Cost | Amortization | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Mining properties | 192,959,326 | 18,875,052 | 174,084,274 | 183,585,673 | 17,185,500 | 166,400,173 | ||||||||||||
Plant and equipment | 78,886,829 | 11,103,571 | 67,783,258 | 69,026,387 | 8,637,857 | 60,388,530 | ||||||||||||
271,846,155 | 29,978,623 | 241,867,532 | 252,612,060 | 25,823,357 | 226,788,703 |
A summary of the net book value of mining properties is as follows:
June 30, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
Depletion | Depletion | |||||||||||||||||
and | Net Book | and | Net Book | |||||||||||||||
Cost | Amortization | Value | Cost | Amortization | Value | |||||||||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||||||||
Producing properties | ||||||||||||||||||
La Encantada (a) | 15,148,790 | 3,040,538 | 12,108,252 | 13,055,900 | 2,886,830 | 10,169,070 | ||||||||||||
La Parrilla (b) | 25,232,160 | 3,480,989 | 21,751,171 | 22,371,850 | 3,009,041 | 19,362,809 | ||||||||||||
San Martin (c) | 40,526,307 | 12,353,525 | 28,172,782 | 38,902,227 | 11,289,629 | 27,612,598 | ||||||||||||
80,907,257 | 18,875,052 | 62,032,205 | 74,329,977 | 17,185,500 | 57,144,477 | |||||||||||||
Exploration properties | ||||||||||||||||||
La Encantada (a) | 2,679,019 | - | 2,679,019 | 2,467,451 | - | 2,467,451 | ||||||||||||
La Parrilla (b) | 7,886,775 | - | 7,886,775 | 7,625,168 | - | 7,625,168 | ||||||||||||
San Martin (c) | 68,705,647 | - | 68,705,647 | 65,931,244 | - | 65,931,244 | ||||||||||||
Del Toro (d) | 12,290,066 | - | 12,290,066 | 11,855,627 | - | 11,855,627 | ||||||||||||
Real de Catorce (e) | 20,490,562 | - | 20,490,562 | 21,376,206 | - | 21,376,206 | ||||||||||||
112,052,069 | - | 112,052,069 | 109,255,696 | - | 109,255,696 | |||||||||||||
192,959,326 | 18,875,052 | 174,084,274 | 183,585,673 | 17,185,500 | 166,400,173 |
Notes Page 3 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
(1) | |
7. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
A summary of plant and equipment is as follows:
June 30, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
La Encantada Silver Mine | 49,929,614 | 3,093,139 | 46,836,475 | 42,001,694 | 1,954,699 | 40,046,995 | ||||||||||||
La Parrilla Silver Mine | 18,089,330 | 4,655,955 | 13,433,375 | 17,228,300 | 3,792,818 | 13,435,482 | ||||||||||||
San Martin Silver Mine | 10,822,899 | 3,347,154 | 7,475,745 | 9,751,407 | 2,889,290 | 6,862,117 | ||||||||||||
Real de Catorce Silver Project | 44,986 | 7,323 | 37,663 | 44,986 | 1,050 | 43,936 | ||||||||||||
Used in Mining Operations | 78,886,829 | 11,103,571 | 67,783,258 | 69,026,387 | 8,637,857 | 60,388,530 | ||||||||||||
Corporate office equipment | 989,307 | 468,134 | 521,173 | 767,782 | 358,501 | 409,281 | ||||||||||||
79,876,136 | 11,571,705 | 68,304,431 | 69,794,169 | 8,996,358 | 60,797,811 |
Details of plant and equipment and corporate office equipment by specific assets are as follows:
June 30, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Land | 2,288,811 | - | 2,288,811 | 2,279,494 | - | 2,279,494 | ||||||||||||
Automobile | 600,723 | 247,428 | 353,295 | 401,056 | 204,920 | 196,136 | ||||||||||||
Buildings | 10,666,721 | 825,005 | 9,841,716 | 5,918,355 | 578,177 | 5,340,178 | ||||||||||||
Machinery and equipment | 61,483,133 | 9,296,977 | 52,186,156 | 26,154,678 | 7,311,470 | 18,843,208 | ||||||||||||
Computer equipment | 886,972 | 387,689 | 499,283 | 560,018 | 279,783 | 280,235 | ||||||||||||
Office equipment | 623,764 | 618,173 | 5,591 | 577,215 | 460,070 | 117,145 | ||||||||||||
Leasehold improvements | 320,304 | 196,433 | 123,871 | 320,304 | 161,938 | 158,366 | ||||||||||||
Construction in progress (1)(2) | 3,005,708 | - | 3,005,708 | 33,583,049 | - | 33,583,049 | ||||||||||||
79,876,136 | 11,571,705 | 68,304,431 | 69,794,169 | 8,996,358 | 60,797,811 |
(1) |
Construction in progress includes $633,902 relating to La Encantada, $442,456 relating to La Parrilla and $1,929,350 relating to San Martin (December 31, 2009 - $31,283,949 relating to La Encantada, $535,604 relating to La Parrilla and $1,763,496 relating to San Martin). |
(2) |
On April 1, 2010, the La Encantada mill expansion project achieved commercial stage of production. Prior to April 1, 2010, the net amount of revenues less production costs of $2,770,596 (December 31, 2009 - $496,371) in connection with the sale of 316,680 silver equivalent ounces (December 31, 2009 54,277 silver equivalent ounces) of precipitates during the pre- operating period from November 19, 2009 to March 31, 2010 were offset to construction in progress. The net proceeds on the sale of silver precipitates for the quarter ended March 31, 2010 was $2,274,225, relating to 262,403 pre-commercial ounces of silver produced in the quarter ended March 31, 2010. |
Notes Page 4 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
7. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
(a) | La Encantada Silver Mine, Coahuila State |
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz, is 225 km away via a combination of paved and unpaved road. The La Encantada Silver Mine consists of a 3,500 tonnes per day cyanidation plant, a 1,000 tonnes per day flotation plant, an airstrip, and a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine. On April 1, 2010, the mill expansion project achieved commercial stage production and all revenues and costs from that date are recorded in the mine operating earnings. During the six month period ended June 30, 2010, $8.3 million in expenditures were capitalized at La Encantada in connection with the mill expansion project.
(b) | La Parrilla Silver Mine, Durango State |
The La Parrilla Silver Mine is a system of connected underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 km southeast of the city of Durango, in the State of Durango, Mexico. Located at the mine are: mining equipment, a 425 tonnes per day cyanidation plant, a 425 tonnes per day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
There is a net smelter royalty (NSR) agreement of 1.5% of sales revenue associated with the Quebradillas Mine, with a maximum payable of US$2.5 million. The Company has an option to purchase the NSR at any time for an amount of US$2.0 million. For the six month period ended June 30, 2010, the Company paid US$65,131 (six month ended June 30, 2009 - US$64,846) relating to royalties. The sum of royalties paid under the Quebradillas NSR is presently US$269,495.
(c) | San Martin Silver Mine, Jalisco State |
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface rights surrounding the mine, and another 104 hectares of surface rights where the 900 tonnes per day cyanidation mill, flotation circuit, mine buildings and administrative offices are located. The Company owns 100% of the San Martin Silver Mine.
(d) | Del Toro Silver Mine, Zacatecas State |
The Del Toro Silver Mine is located 60 km to the southeast of the Companys La Parrilla Silver Mine and consists of 392 contiguous hectares of mining claims and 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro Silver Mine consolidates two old silver mines, the San Juan and Perseverancia mines, which are approximately one kilometre apart. The Company owns 100% of the San Juan and Perseverancia mines. The US$225,000 option payments due in 2010, of which US$62,500 was paid in June 2010, relate to a new land acquisition of 50 hectares. All other option payments have been made.
Notes Page 5 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
7. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
(e) | Real de Catorce Silver Project, San Luis Potosi State |
The Real de Catorce Silver Project is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares. The Company owns 100% of the Real de Catorce Silver Project. Upon commencement of commercial production on the property, the Company has agreed to pay an amount of US$200,000 to a previous owner. The property is subject to a 3% net smelter return royalty, of which 1.75% may be acquired in increments of 0.25% for a price of US$250,000 per increment for the first five years from the date of the first payment and at a price of US$300,000 per increment for the following five years.
In addition, the Company has agreed to acquire the surface rights forming part of the property, including the buildings located thereon and covering the location of the previous mining operations, in consideration for a single payment of US$1.0 million to be made in December 2010.
The Company has also agreed to make a payment of US$200,000 on December 10, 2010 for all technical and geological information collected over the area. Such payment is not related to the acquisition of the mining concessions or the surface rights and buildings agreement.
(f) | Future Mineral Property Options |
Future mineral property options are due as follows:
US$ | |||
Del Toro Silver Mine (d) | 162,500 | ||
Real de Catorce Silver Project (e) | 1,200,000 | ||
Total Future Option Payments | 1,362,500 |
8. | VENDOR LIABILITY AND INTEREST AND RESTRICTED CASH |
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53.4 million. The purchase price was payable in three instalments (50%, 25% and 25%) to the then majority interest shareholder of First Silver (the Majority Shareholder). The first instalment was paid upon closing on May 30, 2006. The second instalment was paid on May 30, 2007. The third and final instalment of $13.3 million due on May 30, 2008 was withheld by the Company.
In November 2007, an action was commenced by the Company and its acquired subsidiary First Silver against the Majority Shareholder (the Defendant) who was previously a director, President and Chief Executive Officer of First Silver. The Company and First Silver allege in their action that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable. At the present time, the trial is scheduled to commence in the Supreme Court of British Columbia on February 21, 2011.
Notes Page 6 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
8. | VENDOR LIABILITY AND INTEREST AND RESTRICTED CASH (continued) |
In March 2008, the Defendant filed a Counterclaim against the Company for unpaid amounts and interest of $14.9 million, and this action was secured by a $14.5 million Letter of Credit posted in Court by First Majestic. The Company recorded these amounts as Restricted Cash as at March 31, 2009. In July 2009, an Order was granted by the Court, with the consent of all parties, under which the Defendant obtained a judgment in the amount of $14.9 million. The Company agreed to pay out $14.3 million from the posted Letter of Credit to the Defendants lawyers trust account (the Trust Funds) in partial payment of the Judgment. The remaining funds from the Letter of Credit were paid out to the Company. The Consent Order requires that the Trust Funds be held in trust pending the outcome of the Companys action. If the trial has not commenced by June 30, 2011, the Trust Funds can be released to the Defendant, unless otherwise ordered by the court. These funds would be accessible to the Company in the event of a favourable outcome to the litigation.
9. |
DEBT FACILITIES |
(a) |
Pre-Payment Facility |
In August 2009, a subsidiary of the parent company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, $1.6 million (US$1.5 million) was advanced against the Companys lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required. The repayment of the credit facility is guaranteed by the parent company.
On February 28, 2010, this agreement was amended to provide an additional six-month pre-payment facility of up to $1.6 million (US$1.5 million). A total of $1.6 million (US$1.5 million) was drawn on this pre-payment facility. As at June 30, 2010, after delivering monthly quotas of lead concentrates and payments of interest charges, the Company had a remaining balance payable on the pre-payment facility of $627,681 (US$591,817).
(b) | FIFOMI Loan Facilities |
In October 2009, the Company entered into an agreement with the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI) for two loan facilities, a capital asset loan and a working capital loan, totalling 53.8 million Mexican pesos (CAD$4.3 million). Funds from these loans were used for the completion of the 3,500 tonnes per day cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to 47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% per annum and is repayable over a 60-month period. The working capital loan, for up to 6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% per annum and is a 90-day revolving loan. The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine. At June 30, 2010, the balance owing was 52.0 million Mexican pesos (CAD$4.3 million) of which 17.2 million Mexican pesos (CAD$2.0 million) was classified as current.
The following is a summary of the debt facilities as at June 30, 2010:
Notes Page 7 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
$CAD | |||
Pre-payment Facility | 627,681 | ||
FIFOMI Loan Facilities | 4,298,774 | ||
4,926,455 | |||
Less: current portion | (2,045,440 | ) | |
Long-term Portion of Debt Facilities | 2,881,015 |
Notes Page 8 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
10. | DEPOSITS ON LONG-TERM ASSETS |
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
June 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Deposit on services | 2,396 | - | ||||
Deposit on equipment for La Encantada | 496,212 | 2,876,717 | ||||
Deposit on equipment for La Parrilla | 1,472,989 | 1,429,702 | ||||
1,971,597 | 4,306,419 |
11. | SHARE CAPITAL |
(a) | Authorized unlimited number of common shares without par value |
Issued | Six Months Ended June 30, 2010 | Year Ended December 31, 2009 | |||||||||||
Shares | $ | Shares | $ | ||||||||||
Balance - beginning of the period | 92,648,744 | 244,241,006 | 73,847,810 | 196,648,345 | |||||||||
Issued during the period | |||||||||||||
For cash: | |||||||||||||
Exercise of options | 277,500 | 622,436 | 36,250 | 68,838 | |||||||||
Exercise of warrants | 25,000 | 82,500 | 50,000 | 165,000 | |||||||||
Public offering of units (i) | - | - | 8,487,576 | 18,840,890 | |||||||||
Private placements (ii) | - | - | 4,167,478 | 9,051,069 | |||||||||
For debt settlements (iii) | - | - | 1,191,852 | 2,741,260 | |||||||||
For Normabec acquisition (iv) | - | - | 4,867,778 | 16,696,479 | |||||||||
Transfer of contributed surplus for stock options and warrants exercised | - | 232,302 | - | 29,125 | |||||||||
Balance - end of the period | 92,951,244 | 245,178,244 | 92,648,744 | 244,241,006 |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,689,648, of which $18,840,890 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one common share at a price of $3.50 expiring on March 5, 2011. |
(ii) |
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011, and 334,239 warrants expire on September 16, 2011. Finders fees in the amount of $101,016 and 50,000 warrants were paid regarding a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. |
Notes Page 9 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL (continued) |
(iii) |
In August and September 2009, the Company settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a value of $2.30 per share. |
|
|
(iv) |
On November 13, 2009, the Company issued 4,867,778 common shares at a value of $3.43 per share in connection with the acquisition of Normabec. |
|
|
(b) | Stock Options |
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the periods ended June 30, 2010 and December 31, 2009 are as follows:
Six Months Ended June 30, 2010 | Year Ended December 31, 2009 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |||||||||||||
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |||||||||||||
Balance, beginning of the period | 8,603,750 | 3.50 | 2.4 years | 6,862,500 | 3.84 | 2.8 years | ||||||||||||
Granted | 460,000 | 3.77 | 3.0 years | 2,842,500 | 2.88 | 3.6 years | ||||||||||||
Exercised | (277,500 | ) | 2.24 | 1.6 years | (36,250 | ) | 1.90 | 2.5 years | ||||||||||
Forfeited or expired | (428,750 | ) | 4.80 | 0.5 years | (1,065,000 | ) | 4.11 | 0.7 years | ||||||||||
Balance, end of the period | 8,357,500 | 3.23 | 2.1 years | 8,603,750 | 3.50 | 2.4 years |
Notes Page 10 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
The following table summarizes both the stock options outstanding and those that are exercisable at June 30, 2010:
Price | Options | Options | ||
$ | Outstanding | Exercisable | Expiry Dates | |
4.17 | 100,000 | 100,000 | August 8, 2010 | |
3.72 | 30,000 | 30,000 | September 24, 2010 | |
3.98 | 20,000 | 20,000 | October 17, 2010 | |
4.45 | 495,000 | 495,000 | October 30, 2010 | |
4.34 | 25,000 | 25,000 | November 1, 2010 | |
4.34 | 200,000 | 200,000 | December 5, 2010 | |
4.42 | 50,000 | 50,000 | February 20, 2011 | |
4.65 | 100,000 | 100,000 | March 25, 2011 | |
4.19 | 20,000 | 20,000 | April 26, 2011 | |
4.02 | 100,000 | 100,000 | May 15, 2011 | |
4.30 | 450,000 | 450,000 | June 19, 2011 | |
4.67 | 90,000 | 90,000 | July 4, 2011 | |
4.15 | 275,000 | 275,000 | July 28, 2011 | |
3.62 | 495,000 | 495,000 | August 28, 2011 | |
1.60 | 100,000 | 100,000 | October 8, 2011 | |
1.27 | 100,000 | 100,000 | October 17, 2011 | |
4.32 | 245,000 | 245,000 | December 6, 2011 | |
4.41 | 400,000 | 400,000 | December 22, 2011 | |
5.00 | 155,000 | 155,000 | February 7, 2012 | |
2.03 | 635,000 | 476,250 | May 7, 2012 | |
4.65 | 25,000 | 25,000 | June 20, 2012 | |
2.62 | 60,000 | 30,000 | September 16, 2012 | |
2.96 | 25,000 | 12,500 | October 28, 2012 | |
4.34 | 925,000 | 925,000 | December 5, 2012 | |
3.52 | 540,000 | 270,000 | December 7, 2012 | |
3.70 | 522,500 | 261,250 | December 15, 2012 | |
3.56 | 200,000 | 50,000 | February 2, 2013 | |
3.15 | 25,000 | 6,250 | March 19, 2013 | |
3.98 | 100,000 | 25,000 | May 13, 2013 | |
4.64 | 75,000 | 18,750 | June 2, 2013 | |
3.94 | 10,000 | 2,500 | June 3, 2013 | |
4.47 | 50,000 | 12,500 | June 28, 2013 | |
3.62 | 100,000 | 100,000 | August 28, 2013 | |
1.44 | 240,000 | 240,000 | November 10, 2013 | |
1.56 | 550,000 | 550,000 | December 17, 2013 | |
2.03 | 462,500 | 346,875 | May 7, 2014 | |
2.32 | 12,500 | 9,375 | June 15, 2014 | |
3.70 | 350,000 | 175,000 | December 15, 2014 | |
8,357,500 | 6,986,250 |
During the six months ended June 30, 2010, the Company granted stock options to an officer and several employees to purchase 460,000 shares (six months ended June 30, 2009 1,275,000 shares) of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, the fair value of stock options granted during the six month period was $680,000 of which $252,486 was expensed in the current period and $427,514 was deferred and will be amortized over the remaining vesting period of the stock options.
Notes Page 11 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
The weighted average fair value of each stock option granted during the past six months was $1.43 (2009 - $1.14) . The fair value of stock options is estimated using the Black-Scholes Option Pricing Model with the following assumptions:
Six Months Ended | Six Months Ended | |
June 30, 2010 | June 30, 2009 | |
Risk-free interest rate | 1.4% | 0.9% |
Es timated volatility | 82.6% | 80.3% |
Expected life | 1.4 years | 2.4 years |
Expected dividend yield | 0% | 0% |
Option pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide an accurate measure of the actual fair value of the Companys stock options.
(c) | Share Purchase Warrants |
The changes in share purchase warrants for the six months ended June 30, 2010, and the year ended December 31, 2009, are as follows:
Six Months Ended June 30, 2010 | Year Ended December 31, 2009 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average Term to | Number of | Exercise Price | Average Term to | |||||||||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||||||||
Balance, beginning of the period | 11,357,465 | 5.04 | 0.8 years | 5,078,791 | 6.99 | 1.2 years | ||||||||||||
Issued | - | - | - | 6,638,492 | 3.66 | 2.1 years | ||||||||||||
Exercised | (25,000 | ) | 3.30 | 1.6 years | (50,000 | ) | 3.30 | 1.7 years | ||||||||||
Cancelled or expired | (5,029,938 | ) | 7.06 | - | (309,818 | ) | 7.69 | - | ||||||||||
Balance, end of the period | 6,302,527 | 3.43 | 0.8 years | 11,357,465 | 5.04 | 0.8 years |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35.0%, expected life of 2 years, and expected dividend yield of 0%) and as a result $848,758 was credited to contributed surplus. |
(ii) |
On August 20, 2009, the Company issued 1,799,500 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 3,499,000 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years, and expected dividend yield of 0%) and as a result $328,047 was credited to contributed surplus. |
(iii) |
On September 16, 2009, the Company issued 334,239 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 668,478 units. |
Notes Page 12 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years, and expected dividend yield of 0%) and as a result $60,953 was credited to contributed surplus.
Notes Page 13 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL (continued) |
(c) | Share Purchase Warrants (continued) |
(iv) |
On November 13, 2009, in connection with the acquisition of Normabec, the Company issued 118,527 warrants exercisable at a price of $9.11 per share expiring on December 13, 2009, and 142,438 warrants exercisable at a price of $9.11 per share expiring on January 2, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.26%, volatility of 67%, expected life of 0.1 year, and expected dividend yield of 0%). No value was credited to contributed surplus. These warrants expired unexercised. |
The following table summarizes the share purchase warrants outstanding at June 30, 2010:
Exercise Price | Warrants | |||||
$ | Outstanding | Expiry Dates | ||||
3.50 | 4,243,788 | March 5, 2011 | ||||
3.30 | 1,724,500 | August 20, 2011 | ||||
3.30 | 334,239 | September 16, 2011 | ||||
6,302,527 |
(d) | Share Capital to be Issued |
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc., First Majestic and First Silver entered into a business combination agreement whereby First Majestic agreed to acquire the remaining 36.25% minority interest in First Silver. At June 30, 2010, prior shareholders of First Silver had not yet exchanged 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic, resulting in a remaining value of shares to be issued of $276,495.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
12. | REVENUES |
Details of the components of net revenue are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
$ | $ | $ | $ | |||||||||
Combined revenue - silver doré bars, concentrates, coins and ingots | 32,841,120 | 18,003,518 | 57,012,365 | 35,467,655 | ||||||||
Less: intercompany eliminations | (1,041,738 | ) | (2,223,922 | ) | (3,277,271 | ) | (2,223,922 | ) | ||||
Consolidated gross revenue | 31,799,382 | 15,779,596 | 53,735,094 | 33,243,733 | ||||||||
Less: refining, smelting, net of intercompany eliminations | (1,887,793 | ) | (2,165,720 | ) | (4,624,310 | ) | (4,706,462 | ) | ||||
Less: metal deductions, net of intercompany eliminations | (948,304 | ) | (588,999 | ) | (1,929,885 | ) | (1,125,522 | ) | ||||
Net revenue | 28,963,285 | 13,024,877 | 47,180,899 | 27,411,749 |
The La Encantada mill expansion project achieved commercial stage of production on April 1, 2010. Sales incurred during the pre-operating period were recorded as a reduction of capital costs and are excluded from sales revenue. As a result, sales of $4,718,618 (2009 - $nil) in connection with the sale of 262,403 silver equivalent ounces of precipitates during the quarter ended March 31, 2010 were excluded from the above table.
Notes Page 14 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
13. | SEGMENTED INFORMATION |
The Company has three operating segments located in Mexico, one retail market segment in Canada and one corporate segment with locations in Canada and Mexico. The San Martin operations consist of the San Martin Silver Mine, the San Martin property and the Jalisco Group of Properties. The La Parrilla operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Three Months Ended June 30, 2010 | ||||||||||||||||||
Corporate and | ||||||||||||||||||
San Martin | La Parrilla | La Encantada | Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 5,511,981 | 7,100,001 | 15,633,775 | 1,648,899 | (931,371 | ) | 28,963,285 | |||||||||||
Cost of sales | 3,201,270 | 3,010,188 | 6,529,912 | 1,322,626 | (629,249 | ) | 13,434,747 | |||||||||||
Depletion, depreciation and amortization, and accretion of ARO | 623,700 | 596,002 | 1,254,531 | - | - | 2,474,233 | ||||||||||||
Mine operating earnings (loss) | 1,687,011 | 3,493,811 | 7,849,332 | 326,273 | (302,122 | ) | 13,054,305 | |||||||||||
General and administrative | - | - | - | - | 2,406,842 | 2,406,842 | ||||||||||||
Stock-based compensation | - | - | - | - | 643,964 | 643,964 | ||||||||||||
Interest expense (income) | 274,906 | 2,536,640 | 1,349,205 | - | (3,187,114 | ) | 973,637 | |||||||||||
Other expense (income) and foreign | - | |||||||||||||||||
exchange | (127,735 | ) | (276,609 | ) | 438,660 | - | (1,303,900 | ) | (1,269,584 | ) | ||||||||
Income tax expense (recovery) | 268,181 | 116,836 | 779,191 | - | 248,122 | 1,412,330 | ||||||||||||
Net income (loss) | 1,271,659 | 1,116,944 | 5,282,276 | 326,273 | 889,964 | 8,887,116 | ||||||||||||
Capital expenditures | 774,169 | 1,134,124 | 4,092,667 | - | 211,851 | 6,212,811 | ||||||||||||
Total assets | 109,125,407 | 64,068,493 | 72,640,351 | - | 31,580,187 | 277,414,438 |
Three Months Ended June 30, 2009 | ||||||||||||||||||
Corporate and | ||||||||||||||||||
San Martin | La Parrilla | La Encantada | Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 5,128,241 | 5,206,431 | 2,678,133 | 1,807,629 | (1,795,557 | ) | 13,024,877 | |||||||||||
Cost of sales | 3,326,950 | 3,436,485 | 2,588,633 | 1,779,193 | (1,671,393 | ) | 9,459,868 | |||||||||||
Depletion, depreciation and amortization, and accretion of ARO | 701,235 | 775,918 | 412,482 | - | - | 1,889,635 | ||||||||||||
Mine operating earnings (loss) | 1,100,056 | 994,028 | (322,982 | ) | 28,436 | (124,164 | ) | 1,675,374 | ||||||||||
General and administrative | - | - | - | - | 2,114,312 | 2,114,312 | ||||||||||||
Stock-based compensation | - | - | - | - | 800,808 | 800,808 | ||||||||||||
Interest expense (income) | 45,143 | 66,600 | 52,526 | - | 178,537 | 342,806 | ||||||||||||
Other expense (income) and foreign | ||||||||||||||||||
exchange | (118,373 | ) | (670,022 | ) | (470,142 | ) | - | 257,365 | (1,001,172 | ) | ||||||||
Income tax (recovery) expense | 121,398 | (58,486 | ) | (599,696 | ) | - | (1,081,012 | ) | (1,617,796 | ) | ||||||||
Net income (loss) | 1,051,888 | 1,655,936 | 694,330 | 28,436 | (2,394,174 | ) | 1,036,416 | |||||||||||
Capital expenditures | 874,235 | 1,903,461 | 6,419,379 | - | 131,485 | 9,328,560 | ||||||||||||
Total assets | 118,788,430 | 62,249,122 | 49,559,957 | - | 22,489,594 | 253,087,103 |
Notes Page 15 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
13. | SEGMENTED INFORMATION (continued) |
Six Months Ended June 30, 2010 | ||||||||||||||||||
Corporate and | ||||||||||||||||||
San Martin | La Parrilla | La Encantada | Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 11,075,267 | 13,264,360 | 22,785,023 | 2,981,520 | (2,925,271 | ) | 47,180,899 | |||||||||||
Cost of sales | 6,027,591 | 6,121,862 | 9,908,028 | 2,584,332 | (2,233,209 | ) | 22,408,604 | |||||||||||
Depletion, depreciation and amortization, and accretion of ARO | 1,464,069 | 1,244,560 | 1,657,315 | - | - | 4,365,944 | ||||||||||||
Mine operating earnings (loss) | 3,583,607 | 5,897,938 | 11,219,680 | 397,188 | (692,062 | ) | 20,406,351 | |||||||||||
General and administrative | - | - | - | - | 4,393,465 | 4,393,465 | ||||||||||||
Stock-based compensation | - | - | - | - | 1,344,143 | 1,344,143 | ||||||||||||
Interest expense (income) | 658,602 | 5,166,802 | 2,884,029 | (7,463,784 | ) | 1,245,649 | ||||||||||||
Other expense (income) and foreign | ||||||||||||||||||
exchange | 426,904 | 83,221 | (202,596 | ) | - | (1,345,562 | ) | (1,038,033 | ) | |||||||||
Income tax expense (recovery) | 441,655 | (15,954 | ) | 1,761,414 | - | 371,101 | 2,558,216 | |||||||||||
Net income (loss) | 2,056,446 | 663,869 | 6,776,833 | 397,188 | 2,008,575 | 11,902,911 | ||||||||||||
Capital expenditures | 1,394,479 | 2,495,169 | 8,725,362 | - | 318,486 | 12,933,496 | ||||||||||||
Total assets | 109,125,407 | 64,068,493 | 72,640,351 | - | 31,580,187 | 277,414,438 |
Six Months Ended June 30, 2009 | ||||||||||||||||||
Corporate and | ||||||||||||||||||
San Martin | La Parrilla | La Encantada | Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 9,584,207 | 9,142,290 | 8,126,458 | 3,002,081 | (2,443,287 | ) | 27,411,749 | |||||||||||
Cost of sales | 6,060,176 | 6,137,789 | 5,072,929 | 2,863,170 | (2,375,383 | ) | 17,758,681 | |||||||||||
Depletion, depreciation and amortization, and accretion of ARO | 1,205,822 | 1,391,556 | 837,430 | - | - | 3,434,808 | ||||||||||||
Mine operating earnings (loss) | 2,318,209 | 1,612,945 | 2,216,099 | 138,911 | (67,904 | ) | 6,218,260 | |||||||||||
General and administrative | - | - | - | - | 3,932,315 | 3,932,315 | ||||||||||||
Stock-based compensation | - | - | - | - | 1,697,548 | 1,697,548 | ||||||||||||
Interest expense (income) | 79,204 | 121,972 | 104,561 | - | 383,393 | 689,130 | ||||||||||||
Other expense (income) and foreign | ||||||||||||||||||
exchange | 141,199 | (377,899 | ) | (241,457 | ) | - | 153,889 | (324,268 | ) | |||||||||
Income tax expense (recovery) | (53,295 | ) | (105,744 | ) | (25,659 | ) | - | (1,567,880 | ) | (1,752,578 | ) | |||||||
Net income (loss) | 2,151,101 | 1,974,616 | 2,378,654 | 138,911 | (4,667,169 | ) | 1,976,113 | |||||||||||
Capital expenditures | 1,567,128 | 3,789,716 | 12,342,385 | - | 146,301 | 17,845,530 | ||||||||||||
Total assets | 118,788,430 | 62,249,122 | 49,559,957 | - | 22,489,594 | 253,087,103 |
Notes Page 16 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
14. | CAPITAL LEASE OBLIGATIONS |
In 2007 and 2008, the Company completed lease financings for $14.1 million (US$11.2 million) of mining equipment. The Company paid 50% prior to the arrival of the equipment, and financed the remaining 50% in quarterly payments over a period of 24 months at 9% interest over the term of the lease. In March 2009, the Company refinanced the balance of $3.6 million (US$2.9 million) to be paid over 24 monthly payments commencing in February 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.
In January 2009, the Company completed additional lease financing arrangements with an equipment vendor, committing the Company to payments of $2.6 million (US$2.0 million) over a period of 36 months with monthly payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances, plus an additional 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
The following is a schedule of future minimum lease payments under the capital leases as at June 30, 2010:
June 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
2010 Gross lease payments | 1,031,969 | 2,235,960 | ||||
2011 Gross lease payments | 690,615 | 684,364 | ||||
2012 Gross lease payments | 140,581 | 139,309 | ||||
1,863,165 | 3,059,633 | |||||
Less: interest | (121,894 | ) | (251,997 | ) | ||
Total payments, net of interest | 1,741,271 | 2,807,636 | ||||
Less: current portion | (1,372,510 | ) | (2,139,352 | ) | ||
Capital Lease Obligation - long term portion | 368,761 | 668,284 |
15. | ASSET RETIREMENT OBLIGATIONS |
Six Months Ended | Year Ended | |||||
June 30, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Balance, beginning of the period | 4,336,088 | 5,304,369 | ||||
Effect of change in estimates | - | (877,834 | ) | |||
Interest accretion | 187,921 | 445,090 | ||||
Effect of translation of foreign currencies | 136,579 | (535,537 | ) | |||
Balance, end of the period | 4,660,588 | 4,336,088 |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | June 30, 2010 | December 31, 2009 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2020 | 1,951,506 | 1,815,518 | ||||||
La Parrilla Silver Mine | 2025 | 1,073,070 | 998,293 | ||||||
San Martin Silver Mine | 2019 | 1,636,012 | 1,522,277 | ||||||
Balance, end of the period | 4,660,588 | 4,336,088 |
Notes Page 17 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
15. | ASSET RETIREMENT OBLIGATIONS (continued) |
During the year ended December 31, 2009, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $6.1 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $1.7 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.0 million of the obligation relates to the San Martin Silver Mine, and $2.5 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
16. | OTHER LONG TERM LIABILITIES |
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the fully agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the advance received from the bank, but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $774,970 (December 31, 2009 - $753,657).
17. | CONTINGENT LIABILITIES |
Due to the size, complexity and nature of the Companys operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, these matters will not have a material effect on the consolidated financial statements of the Company.
18. | COMMITMENTS |
The Company is obligated to make certain mining property option payments as described in Note 7, in connection with the acquisition of its mineral property interests.
The Company has office lease commitments of $116,880 per annum in 2010 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at June 30, 2010, the Company is committed to construction contracts of approximately $0.1 million (US$0.1 million) (December 31, 2009 - $2.1 million or US$2.0 million) relating to the completion of the smelting furnaces installation project at La Encantada, which is expected to be completed in the third quarter of 2010.
As a result of the acquisition of Normabec, the Company is committed to make a US$1.0 million payment in December 2010 to acquire surface rights forming part of the Real de Catorce Project. It is also committed to make a payment of US$200,000 in December 2010 for technical and geological information collected over the Real de Catorce area.
The Company is committed to making severance payments in the amount of approximately $2.0 million, (December 31, 2009 - $1.9 million), subject to certain adjustments, to four officers in the event of a change of control of the Company.
Notes Page 18 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2010 AND 2009 (Unaudited) |
19. | NON-CASH FINANCING AND INVESTING ACTIVITIES |
20. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the classifications used in the current years presentation.
21. | SUBSEQUENT EVENTS |
Subsequent to June 30, 2010:
(a) |
A total of 37,500 options with exercise prices ranging from $3.62 to $4.67 were cancelled; |
(b) |
A total of 100,000 options with an exercise price of $4.17 expired unexercised; |
(c) |
A total of 100,000 options were granted with an exercise price of $4.04 and an expiry date of August 9, 2013. |
Notes Page 19 |
|
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE QUARTER ENDED MARCH 31, 2010 |
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as plan, expect, forecast, project, intend, believe, anticipate, outlook and other similar words, or statements that certain events or conditions may or will occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Companys Annual Information Form under the heading Risk Factors. The Company undertakes no obligation to update forward-looking statements if circumstances or managements estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (First Majestic or the Company) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR and FR.WT.B, respectively. The common shares are also quoted on the OTCQX in the U.S. under the symbol FRMSF and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol FMV. Silver producing operations of the Company are carried out through three operating mines: the La Encantada, La Parrilla, and San Martin Silver Mines.
The following Managements Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2009. Additional information on the Company, including the Companys Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM), First Silver Reserve Inc. (First Silver) and Normabec Mining Resources Ltd. (Normabec) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada), Majestic Services S.A. de C.V. (Majestic Services), Minera Real Bonanza, S.A. de C.V. (MRB) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (Servicios). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation which it is involved as the plaintiff, described herein in the Liquidity section.
QUALIFIED PERSON S
Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the Qualified Person for the Company and has reviewed the technical information reported in the National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine. All National Instrument 43-101 technical reports can be found on the Companys website at www.firstmajestic.com or on SEDAR at www.sedar.com.
Suite 1805, 925 West Georgia Street, Vancouver, B.C., Canada V6C
3L2
Phone: 604.688.3033 | Fax: 604.639. 8873| Toll Free: 1.866.529.2807 |
Email: info@firstmajestic.com
www.firstmajestic.com
FIRST MAJESTIC SILVER CORP.
MANAGEMENTS
DISCUSSION & ANALYSIS
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of May 12, 2010, unless otherwise stated.
FINANCIAL PERFORMANCE AND HIGHLIGHTS
-2-
The subsidiaries, mines, mills and properties in Mexico are as follows:
Subsidiaries | Mine and Mill | Exploration Properties |
First Majestic Plata, S.A. de C.V. |
La Parrilla Silver Mine
Del Toro Silver Mine |
La Parrilla properties
Del Toro properties |
Minera El Pilón, S.A. de C.V. | San Martin Silver Mine |
San Martin property
Jalisco Group of Properties |
Minera La Encantada, S.A. de C.V. | La Encantada Silver Mine | La Encantada property |
Minera Real Bonanza, S.A. de C.V. | Real de Catorce Silver Project | Real de Catorce property |
Majestic Services, S.A. de C.V.
(a labour services company) |
(services for all of the above)
|
(services for all of the above)
|
Servicios Minero-Metalurgicos y Industriales, S.A. de C.V. | (inactive Normabec services company) | (inactive services company) |
Corporación First Majestic, S.A. de C.V.
|
(holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) | (holding company for First Majestic Plata, Minera El Pilon, Minera La Encantada and Majestic Services) |
Certain financial results in this MD&A, regarding operations and cash costs are presented in the Mine Operating Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars. U.S. dollar results are translated using the U.S. dollar rates on the dates which the transactions occurred.
-3-
MINING OPERATING RESULTS
CONSOLIDATED FIRST MAJESTIC RESULTS | Quarter Ended March 31, | |
2010 | 2009 | |
Ore processed/tonnes milled (4) | 337,110 | 216,047 |
Average silver grade (g/tonne) | 253 | 222 |
Recovery (%) | 66% | 60% |
Commercial silver ounces produced | 1,148,632 | 929,964 |
Pre-commercial silver ounces produced (4) | 261,193 | - |
Total silver ounces produced (4) | 1,409,825 | 929,964 |
Gold ounces produced (4) | 857 | 491 |
Equivalent ounces from gold (4) | 59,690 | 33,483 |
Pounds of lead produced (4) | 2,542,071 | 1,828,739 |
Equivalent ounces from lead (4) | 149,887 | 76,668 |
Total production - ounces silver equivalent (4) | 1,619,403 | 1,040,117 |
Total commercial production - ounces silver equivalent | 1,357,446 | 1,040,117 |
Ounces of silver equivalents sold (1) | 1,298,659 | 996,595 |
US cash cost per ounce (2) | $8.11 | $7.60 |
Direct US cash cost per ounce (2) | $4.94 | $4.94 |
Underground development (m) | 5,100 | 4,610 |
Diamond drilling (m) | 308 | 5,048 |
Total US production cost per tonne (3) | $43.80 | $32.72 |
LA ENCANTADA RESULTS | Quarter Ended March 31, | |
2010 | 2009 | |
Ore processed/tonnes milled (4) | 194,750 | 76,556 |
Average silver grade (g/tonne) | 366 | 305 |
Recovery (%) | 56% | 51% |
Commercial silver ounces produced | 462,429 | 384,976 |
Pre-commercial silver ounces produced (4) | 261,193 | - |
Silver ounces produced (4) | 723,622 | 384,976 |
Gold ounces produced (4) | 12 | - |
Equivalent ounces from gold (4) | 772 | - |
Pounds of lead produced (4) | 1,545,785 | 902,372 |
Equivalent ounces from lead (4) | 90,813 | 37,719 |
Total production - ounces of silver equivalent (4) | 815,209 | 422,695 |
Total commercial production - ounces silver equivalent | 553,252 | 422,695 |
Ounces of silver equivalents sold | 576,223 | 418,217 |
US cash cost per ounce (2) | $8.59 | $7.59 |
Direct US cash cost per ounce (2) | $3.80 | $3.92 |
Underground development (m) | 2,033 | 2,097 |
Diamond drilling (m) | - | 2,397 |
Total US production cost per tonne (3) | $56.53 | $38.17 |
-4-
LA PARRILLA RESULTS | Quarter Ended March 31, | |
2010 | 2009 | |
Ore processed/tonnes milled | 73,443 | 65,905 |
Average silver grade (g/tonne) | 213 | 191 |
Recovery (%) | 75% | 66% |
Silver ounces produced | 375,446 | 268,329 |
Gold ounces produced | 119 | 150 |
Equivalent ounces from gold | 11,083 | 10,844 |
Pounds of lead produced | 996,286 | 926,367 |
Equivalent ounces from lead | 59,074 | 38,949 |
Total production - ounces of silver equivalent | 445,603 | 318,124 |
Ounces of silver equivalents sold | 445,212 | 301,181 |
US cash cost per ounce (2) | $8.51 | $8.79 |
Direct US cash cost per ounce (2) | $5.02 | $5.22 |
Underground development (m) | 1,704 | 1,806 |
Diamond drilling (m) | 37 | 2,038 |
Total US production cost per tonne (3) | $43.51 | $35.79 |
SAN MARTIN RESULTS | Quarter Ended March 31, | |
2010 | 2009 | |
Ore processed/tonnes milled | 68,917 | 73,586 |
Average silver grade (g/tonne) | 181 | 163 |
Recovery (%) | 78% | 72% |
Silver ounces produced | 310,757 | 276,659 |
Gold ounces produced | 726 | 341 |
Equivalent ounces from gold | 47,835 | 22,639 |
Total production - ounces of silver equivalent | 358,591 | 299,298 |
Ounces of silver equivalents sold | 346,977 | 277,197 |
US cash cost per ounce (2) | $6.91 | $6.46 |
Direct US cash cost per ounce (2) | $6.55 | $6.08 |
Underground development (m) | 1,363 | 707 |
Diamond drilling (m) | 272 | 613 |
Total US production cost per tonne (3) | $31.14 | $24.30 |
(1) |
Includes (69,753) ounces in the quarter ended March 31, 2010 (after adjustments for intercompany eliminations) sold as coins, ingots and bullion from Canadian operations and minesite transfers. |
(2) |
The Company reports non-GAAP measures which include direct costs per tonne and cash cost (including smelting and refining charges) and direct cash cost (cash cost less smelting and refining charges) per ounce of payable silver, in order to manage and evaluate operating performance at each of the Companys mines. These measures, established by the Gold Institute (Production Cost Standards, November 1999), are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP on page 7. |
(3) |
Production costs per tonne include smelter charges. |
(4) |
At March 31, 2010, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore the net margin of $2.3 million (Net Revenue of $4.7 million less Costs of Sales of $2.4 million) in connection with the sale of 262,403 silver ounces of precipitates during the pre-operating period was recorded as a reduction of construction in progress during the quarter ended March 31, 2010. The tables above include the production from the mill expansion, however average silver grade, recovery, US cash cost per ounce, direct US cash cost per ounce and total US production cost per tonne are based on production excluding pre - commercial stage production of 261,957 silver equivalent ounces during the quarter ended March 31, 2010. |
-5-
RECONCILIATION OF COST OF SALES TO CASH COSTS
FOR THE
QUARTER ENDED MARCH 31, 2010 AND 2009
Cash cost per ounce is a measure developed by precious metals companies in an effort to provide a comparable standard; however, there can be no assurance that our reporting of this non-GAAP measure is similar to that reported by other mining companies. Cash costs per ounce is a measure used by the Company to manage and evaluate operating performance at each of the Companys operating mining units, and is widely reported in the silver mining industry as a benchmark for performance, but does not have a standardized meaning. To facilitate a better understanding of these measures as calculated by the Company, we have provided a detailed reconciliation of these measures to our cost of sales, as reported in our Consolidated Statements of Income. Direct cash costs consists of cash costs less smelting and refining charges.
Note 1 The table above does not include 261,957 silver ounces of pre-commercial production from the La Encantada mill expansion project during the quarter ended March 31, 2010, which were produced at a cost of $2,444,393 (US$2,348,346).
-6-
INVENTORY RECONCILIATION (See Note 1): |
For the Quarter Ended March 31, 2010 | |||||
San Martin | La Parrilla | La Encantada | Vancouver | Total | ||
Opening stockpile inventory | OZ EQ | 7,443 | 116,539 | 39,713 | - | 163,695 |
Reduction of stockpile | OZ EQ | 3,483 | (5,583) | (6,816) | - | (8,916) |
Ending stockpile inventory | OZ EQ | 10,926 | 110,956 | 32,897 | - | 154,779 |
Opening in process inventory | OZ EQ | 21,241 | 22,521 | 50,077 | - | 93,839 |
Inventory adjustments | OZ EQ | (1,822) | (2,532) | (27,821) | - | (32,175) |
Ending in process inventory | OZ EQ | 19,419 | 19,989 | 22,256 | - | 61,664 |
Opening finished goods inventory | OZ EQ | 25,249 | 12,040 | - | - | 37,289 |
Production - silver equivalent ounces | OZ EQ | 358,591 | 445,603 | 553,252 | - | 1,357,446 |
Shipments - silver equivalent ounces | OZ EQ | (346,977) | (445,212) | (576,223) | - | (1,368,412) |
Inventory adjustments | OZ EQ | (8,435) | 2,618 | 27,175 | - | 21,358 |
Ending finished goods inventory | OZ EQ | 28,428 | 15,049 | 4,204 | - | 47,681 |
Total ending inventory before transfers | OZ EQ | 197,755 | 145,994 | 59,357 | - | 403,106 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 36,880 | 36,880 |
Transfers to coins, ingots and bullion inventory | OZ EQ | (138,982) | - | - | 138,982 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (17,139) | (17,139) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (69,399) | (69,399) |
Total inventory, all stages and products | OZ EQ | 58,773 | 145,994 | 59,357 | 89,324 | 353,448 |
Value of ending inventory - (Note 1) | CDN$ | 418,354 | 543,278 | 177,207 | 666,139 | 1,804,978 |
Value of ending inventory - Cdn$ per oz | CDN$ | 7.12 | 3.72 | 2.99 | 7.46 | 5.11 |
Average exchange rate - Q1 2010 | 1.0409 | 1.0409 | 1.0409 | 1.0409 | 1.0409 | |
Value of ending inventory - US$ per oz | US$ | 6.84 | 3.58 | 2.87 | 7.16 | 4.91 |
Note 1 - The inventory reconciliation above consists of silver coins, bullion, doré, concentrates, ore in process and stockpile but excludes materials and supplies. The tables above do not include 261,957 silver equivalent ounces of pre-commercial production from the La Encantada mill expansion project during the quarter ended March 31, 2010.
Cost of Sales Reconciliation | Quarter Ended March 31, 2010 | |||||
San Martin | La Parrilla | La Encantada | Vancouver | Total | ||
Cash Cost | US$ | 2,145,925 | 3,195,351 | 3,971,162 | - | 9,312,438 |
Inventory changes | US$ | (87,046) | (83,211) | 175,925 | - | 5,668 |
By-product credits | US$ | 763,217 | 1,158,372 | 1,301,355 | - | 3,222,944 |
Smelting and refining | US$ | (111,017) | (1,311,905) | (2,214,770) | - | (3,637,692) |
Royalties | US$ | - | 25,320 | - | - | 25,320 |
Other | US$ | 129 | 1,863 | 1,835 | - | 3,827 |
Cost of sales - Calculated | US$ | 2,711,208 | 2,985,790 | 3,235,507 | - | 8,932,505 |
Average CDN/US Exchange Rate | 0.95927 | 0.95954 | 0.95778 | - | 0.95882 | |
Booked Cost of Sales | CDN$ | 2,826,321 | 3,111,674 | 3,378,116 | - | 9,316,111 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | (342,254) | (342,254) |
Total Cost of Sales as Reported | CDN$ | 2,826,321 | 3,111,674 | 3,378,116 | (342,254) | 8,973,857 |
Note 1 - Net of intercompany eliminations of $1,603,960 for the quarter ended March 31, 2010.
-7-
REVIEW OF MINING OPERATING RESULTS
The total silver equivalent production for the first quarter of 2010 consisted of 1,619,403 ounces of silver equivalent (includes commercial and pre-commercial production) representing an increase of 30% compared to 1,249,568 ounces of silver equivalent produced in the fourth quarter of 2009 and an increase of 56% compared to 1,040,117 ounces of silver equivalent produced in first quarter of 2009. The pre-commercial production of 261,957 equivalent ounces of silver was capitalized, and commercial production in the quarter ended March 31, 2010 was 1,357,446 ounces of silver equivalents.
Production in the first quarter of 2010 consisted of 1,409,825 ounces of silver, an increase of 28% compared to the fourth quarter of 2009, and an increase of 52% compared to the first quarter of 2009. A total of 2,542,071 pounds of lead was produced, representing an increase of 61% compared to the fourth quarter of 2009 and an increase of of 39% compared to the first quarter of 2009. Gold produced in the first quarter of 2010 was 857 ounces, representing a increase of 22% compared to the fourth quarter of 2009 and an increase of 75% compared to the first quarter of 2009.
The ore processed during the first quarter of 2010 at the Company's three operating silver mines: the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine; amounted to 337,110 tonnes which is an increase of 34% from the fourth quarter of 2009 and an increase of 56% compared to the first quarter of 2009.
The average silver head grade in the first quarter of 2010 for the three mines increased to 253 grams per tonne (“g/t”) silver compared to 235 g/t silver in the fourth quarter of 2009 and 222 g/t in the first quarter of 2009.
Total combined recoveries of silver at the Company’s three mills was 66% in the first quarter of 2010 compared to 65% in the fourth quarter of 2009 and 60% in the first quarter of 2009.
A total of 5,100 metres of underground development was completed in the first quarter of 2010 compared to 5,266 metres completed in the fourth quarter of 2009. This program is important as it provides access to new areas within the different mines and prepares the mines for continuing growth of silver production.
A total of 308 metres of diamond drilling was completed in the first quarter of 2010 compared to 1,031 metres drilled in the fourth quarter of 2009, and 5,048 metres drilled in the first quarter of 2009.
MINE UPDATES
La Encantada Silver Mine, Coahuila, Mexico
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz, is 225 kilometres away via paved and unpaved roads. The La Encantada Silver Mine consists of 3,500 tonnes per day (“tpd”) cyanidation plant, a 1,000 tpd flotation plant, all related facilities and infrastructure, including a mining camp with 180 houses, administrative offices, and a private airstrip. The Company owns 100% of the La Encantada Silver Mine.
During the first quarter of 2010, the new 3,500 tpd mill continued the ramp up process with the mill achieving increasing production during the quarter to the current throughput of approximately 2,700 tpd. Management announced in a news release that the new cyanidation plant was deemed commercially operating effective April 1, 2010. Therefore, all production, revenues and operating costs associated with the new mill were capitalized in the first quarter. Effective April 1, 2010, all revenues and costs will be treated as normal course operations and recorded in the Company’s income statement rather than being capitalized as pre-production or pre-operating. It is anticipated that full capacity will be achieved near the end of the second quarter of 2010. At full capacity, the new La Encantada cyanidation operation is expected to produce an additional four million ounces of silver in doré form annually. To date, the Company has spent approximately $38.2 million (US$37.6 million) on the new cyanidation plant, or $35.9 million (US$35.3 million) after adjusting for pre-operating revenues and expenses.
-8-
The new plant is now 98% complete with the only item remaining being the delivery and installation of the ‘Induction Furnaces’. This plant is currently producing silver precipitates which are being shipped regularly to the smelter until the new induction furnaces are installed later this quarter. Once these furnaces are operating, the Company will be producing its own doré bars which will further reduce third party smelting and refining charges.
The last major items installed in the first quarter were the tailings filter-presses which are allowing for the recirculation of 84% of the water circulating in the system. These filters are some of the latest mining technologies available resulting in the Company setting an important standard for sustainable operational practices. The plant is using much less water than originally expected and much less than a traditional operation of this type. This state-of-the-art process is also opening the possibility for immediate reclamation to permanently rejuvenate open space.
The use of this filter press technology will play a central role in achieving superior operational performance in the areas of water use, cyanide use, land use and environmental impact. These three large heavy duty, 2 metre x 2 metre automatic filter presses are dewatering the tailings to 16% moisture levels resulting in substantial savings in pumping, cyanide consumption and power generation. Additionally, the remaining tailings cake is being dry-stacked which eliminates the need for conventional tailings ponds and promotes ongoing reclamation and re-vegetation of the area.
In addition to the completion of the new cyanidation plant, the flotation circuit at La Encantada was renovated with the installation of new flotation cells in the fourth quarter of 2009. The flotation circuit produces two products: a silver rich concentrate and a lead rich concentrate. The lead rich concentrate is presently being sold through an off-take agreement, whereas the silver concentrate is being introduced into the cyanidation circuit to enrich the silver content of the silver precipitates.
Fresh ore from the underground mine is being processed at a rate of 850 tpd, after which the silver concentrate is piped to the cyanidation process where it is mixed with old tailings. At full production, the blend will consist of one part fresh ore to three parts tailings at a rate of 2,650 tpd to total 3,500 tpd.
Tonnes milled in the first quarter of 2010 increased to 194,750 tonnes compared to 104,864 tonnes in the fourth quarter of 2009, an increase of 86%. Of the tonnes milled, 70,242 tonnes were of commercial production, and 124,508 tonnes were from old tailings. The average head grade was 366 g/t in the first quarter of 2010, representing an increase of 20% when compared to 305 g/t in both the first and fourth quarter of 2009. Silver recovery in the first quarter of 2010 was 56% which is slightly higher than the 51% achieved in the first and fourth quarter of 2009. Recoveries have improved due to the new flotation cells which were installed in early December to increase the recoveries. Tonnes milled in the first quarter of 2010 increased by 154% over the 76,556 tonnes milled in the first quarter of 2009.
A total of 815,209 equivalent ounces of silver were produced during the first quarter of 2010, which represents an increase of 87% compared to 435,845 equivalent ounces of silver produced in fourth quarter of 2009 and an increase of 93% compared to the 422,695 equivalent ounces of silver produced in the first quarter of 2009. Silver production consisted of 723,622 ounces of silver, representing an increase of 81% compared with the 399,810 ounces produced in the fourth quarter of 2009 and an increase of 88% compared with the 384,976 ounces produced in the first quarter of 2009. Lead production for the first quarter of 2010 was 1,545,785 pounds which was an increase of 1,008,984 pounds or 188% compared to the fourth quarter of 2009 and an increase of 902,372 or 71% compared to the first quarter of 2009. Of the total 815,209 equivalent ounces of production from Minera La Encantada in the first quarter, 553,252 equivalent ounces were from commercial production, as 261,957 silver ounces were pre-commercial ounces of precipitates from the new cyanidation plant.
Underground mine development consisted of 2,033 metres completed in the first quarter of 2010 compared to 2,251 metres of development completed in the fourth quarter of 2009, representing a decrease of 10%. This program focused on improving haulage and logistics for ore and waste that is transported by trucks out of the mine from several targets including the San Javier/Milagros Breccias, Azul y Oro including the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. The purpose of the ongoing underground development program is to prepare for increased production levels in 2010, to confirm additional Reserves and Resources, and for exploration and exploitation purposes going forward. Similar to the fourth quarter of 2009, no diamond drilling exploration was completed at La Encantada in the first quarter of 2010.
-9-
La Parrilla Silver Mine, Durango, Mexico
The La Parrilla Silver Mine is a group of producing underground operations consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings including the San Marcos and the Quebradillas mines, located approximately 65 kilometres southeast of the city of Durango, Mexico. La Parrilla includes an 850 tpd mill consisting of two parallel 425 tpd cyanidation and flotation circuits, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company leases 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
Tonnes milled at La Parrilla were 73,443 tonnes in the first quarter of 2010, representing an decrease of 3% when compared with the 75,475 tonnes milled in the fourth quarter of 2009, but an increase of 11% when compared with the 65,905 tonnes milled in the first quarter of 2009. The average head grade for the first quarter of 2010 was 213 g/t and was consistent with the fourth quarter of 2009 and compared to the 191 g/t in the first quarter of 2009. Recoveries of silver have increased to 75% in the first quarter of 2010 from 73% in the fourth quarter of 2009 and the 66% in the first quarter of 2009.
Total silver production was 445,603 equivalent ounces of silver in the first quarter of 2010. This was a decrease of 23,715 equivalent ounces of silver or 5% compared to the fourth quarter of 2009 but an increase of 127,479 equivalent ounces of silver or 40% compared to the first quarter of 2009. The composition of the silver equivalent production in the first quarter of 2010 included 375,446 ounces of silver, 119 ounces of gold and 996,286 pounds of lead. This compares with 395,761 ounces of silver, 151 ounces of gold, 1,038,018 pounds of lead produced in the fourth quarter of 2009 and 268,329 ounces of silver, 150 ounces of gold, 926,367 pounds of lead in the first quarter of 2009.
A total of 1,704 metres of underground development was completed in the first quarter of 2010, compared to 2,047 metres in the fourth quarter of 2009. Only 37 metres of diamond drilling was completed in the first quarter of 2010 compared to 114 metres in fourth quarter of 2009.
Development in the lower levels 8 and 9 of the Rosarios and La Rosa vein continued during the quarter providing access to reserves and resources that are going to be produced in the second half of the year, also the access to level 10 was initiated through a ramp which is expected to be completed in the second quarter, providing further reserves and upgrading the indicated and inferred resources of the lower part of the Rosarios/La Rosa vein.
At the Quebradillas area, the development was focused on the Q25 ore body which was indicated by a previous program of diamond drilling, having developed at strike, the upper part of the ore body for more than 80 metres. The access to this ore body will provide ore for the future production of zinc concentrates at the La Parrilla flotation plant.
San Martin Silver Mine, Jalisco, Mexico
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 950 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings, infrastructure and offices are located. The Company owns 100% of the San Martin Silver Mine. The mill has historically produced 100% doré bars and continues to do so. In early 2008, a 500 tpd flotation circuit was nearly completed to take advantage of the large sulphide resource at this mine, however, due to low base metal prices and high costs of smelting concentrates, the circuit was placed in care and maintenance pending further capital investment.
-10-
Tonnes milled at the San Martin mine were 68,917 tonnes in the first quarter of 2010, representing a slight decrease of 3% when compared to the 70,919 tonnes milled in the fourth quarter of 2009 and decrease of 6% when compared to the 73,586 tonnes milled in the first quarter of 2009. The average head grade was 181 g/t in the first quarter of 2010, representing a decrease of 2% when compared to the 184 g/t in the fourth quarter of 2009 and an increase of 11% when compared to the 163 g/t in the first quarter of 2009.
Recoveries of silver in the first quarter of 2010 increased to 78% from the 73% achieved in the fourth quarter of 2009 and from the 72% achieved in the first quarter of 2009. Total production of 358,591 ounces of silver equivalent in the first quarter of 2010 was 4% higher than the 344,405 equivalent ounces of silver produced in the fourth quarter of 2009 and 20% higher than the 299,298 equivalent ounces of silver produced in the first quarter of 2009. The equivalent ounces of silver in the first quarter of 2010 consisted of 310,757 ounces of silver and 726 ounces of gold. This compares to 308,269 ounces of silver and 545 ounces of gold produced in the fourth quarter of 2009 and 276,659 ounces of silver and 341 ounces of gold in the first quarter of 2009.
During the first quarter of 2010, a total of 1,363 metres of underground development was completed compared to 968 metres in the fourth quarter of 2009. In addition, 272 metres of diamond drilling was completed in the first quarter of 2010 compared to 917 metres in the fourth quarter of 2009.
Exploration via short hole drilling into the footwall and hanging wall has shown success with the discovery of the new San Pedro area in 2009. This underground drilling program is continuing and is anticipated to result in structures similar to the San Pedro area and to continually provide additional oxide resources. The 2009 surface exploration program defined the new La Esperanza vein which runs parallel to the Zuloaga vein and has high anomalous samples from 100 to 250 grams per tonne of Ag on surface. The access road to this newly discovered vein began in the first quarter and is expected to be completed before summer. This exploration is a high priority target which is scheduled to be drilled in the second half of 2010.
Del Toro Silver Mine, Zacatecas, Mexico
The Del Toro Silver Mine is located 60 km to the southeast of the Company’s La Parrilla Silver Mine and consists of 392 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately 1 kilometre apart.
The Del Toro Silver Mine is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings.
All necessary permits for the construction of a 1,000 tpd flotation mill were granted in Q4 2009 and Q1 2010 by the Mexican authorities. No immediate plans are in place to commence construction, however the Company anticipates a final decision to proceed later in 2010.
In January 2010 the “Change of Use of Land Permit” for a new Flotation Plant was approved by the SEMARNAT. This permit was the last permit required to commence construction of a new operation expected later this year.
Real de Catorce Silver Project, San Luis Potosi, Mexico
The Real de Catorce Silver Project was acquired on November 13, 2009, through the share acquisition of Normabec. The Real de Catorce mine is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares, with historical production of 230 million ounces between 1773 and 1990. As a result of the acquisition of Normabec, the Company owns 100% of the Real de Catorce Silver Project.
After the acquisition on November 13, 2009 of the historically famous Real de Catorce silver mine in the Mexican State of San Luis Potosi, the Company completed all the ownership transfer of the mining claims and the Mexican subsidiary Minera Real Bonanza. The Company is now preparing a plan to reconfirm the geologic information and to start the future activities in this very large silver mining district.
-11-
EXPLORATION PROPERTY UPDATES
Jalisco Group of Properties, Jalisco, Mexico
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, Mexico. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued as the Company focuses its capital investment on other higher priority projects.
RESULTS OF OPERATIONS
Three Months ended March 31, 2010 compared to Three Months ended March 31, 2009.
For the Three Months Ended | |||||||
March 31, 2010 | March 31, 2009 | ||||||
$ | $ | ||||||
Gross revenue | 21,935,712 | 17,464,137 | (1) | ||||
Net revenue | 18,217,614 | 14,386,872 | (2) | ||||
Cost of sales | 8,973,857 | 8,298,813 | (3) | ||||
Amortization and depreciation | 797,396 | 858,837 | |||||
Depletion | 1,000,595 | 570,295 | (4) | ||||
Accretion of reclamation obligation | 93,720 | 116,039 | |||||
Mine operating earnings | 7,352,046 | 4,542,888 | (5) | ||||
General and administrative | 1,986,623 | 1,818,005 | (6) | ||||
Stock-based compensation | 700,179 | 896,739 | (7) | ||||
2,686,802 | 2,714,744 | ||||||
Operating income | 4,665,244 | 1,828,144 | (8) | ||||
Interest and other expenses | (562,439 | ) | (360,206 | ) | (9) | ||
Investment and other income | 27,321 | 289,843 | (10) | ||||
Loss on disposal of marketable securities | (40,470 | ) | - | (11) | |||
Foreign exchange gain (loss) | 72,025 | (952,866 | ) | (12) | |||
Income before taxes | 4,161,681 | 804,915 | |||||
Income tax expense - current | 18,561 | 83,703 | |||||
Income tax (recovery) - future | 1,127,325 | (218,486 | ) | ||||
Income tax expense (recovery) | 1,145,886 | (134,783 | ) | (13) | |||
Net income for the quarter | 3,015,795 | 939,698 | (14) | ||||
Earnings per share - basic | 0.03 | 0.01 |
Notes:
(1) |
Consolidated gross revenue (prior to smelting and refining and metal deductions) for the quarter ended March 31, 2010 was $21,935,712 or $16.89 (US$16.23) per ounce compared to $17,464,137 or $17.52 (US$14.07) per ounce for the quarter ended March 31, 2009 for an increase of $4,471,575 or 26%. The increase in the first quarter of 2010 is attributable to a 30% increase in equivalent silver ounces sold; however, was offset by the foreign exchange effects due to the strength of the Canadian dollar compared to the U.S. dollar during the period which had a negative effect on revenue of 16% as the shipments are valued in U.S. dollars. |
(2) |
Net revenue for the three months ended March 31, 2010 increased by 3,830,742 or 27% to $18,217,614 from $14,386,872 in the first quarter of 2009, due to the same increases that affected consolidated gross revenue in the first quarter of 2010. In addition, lower smelting and refining charges per ounce of 1% contributed to the increase in net revenue in the first quarter of 2010. |
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(3) |
Cost of sales increased by $675,044 or 8%, to $8,973,857 in the first quarter of 2010 from $8,298,813 in the same quarter of 2009. This modest increase in cost of sales was accomplished while increasing the equivalent silver ounces sold by 30% from the quarter ended March 31, 2009. In the first quarter of 2010, the Company processed higher grade ore than the comparative period in 2009. |
(4) |
Depletion increased by $430,300 or 75% to $1,000,595 in the first quarter of 2010 from $570,295 in the same quarter of 2009, due to an increase in production from reserves at the San Martin Silver Mine compared to the prior year when more ore tonnage was extracted from areas outside reserves for which depletion was not recorded. |
(5) |
Mine operating earnings increased by $2,809,158 or 62% to $7,352,046 for the quarter ended March 31, 2010 compared to $4,542,888 for the same quarter in the prior year. This is primarily due to the $ 3,830,742 increase in net revenue and offset by the higher depletion expenses during the first quarter of 2010. |
(6) |
General and administrative expenses increased by $168,618 or 9% compared to the prior year primarily due to increases in salaries and benefits of $104,309 and investor relations of $144,420. Focus in the first quarter of 2009 was to preserve cash by reducing expenditures subsequent to the global economic crisis in the fall of 2008. Also, there was a decrease of $95,409 relating to audit fees in the first quarter of 2010 compared to the same period in 2009. |
(7) |
Stock-based compensation decreased by $196,560 or 22% due to fewer options vesting in the first quarter of 2010. |
(8) |
Operating income increased by $2,837,100 or 155% to $4,665,244 for the quarter ended March 31, 2010 compared to $1,828,144 for the quarter ended March 31, 2009, due to the increase in mine operating earnings. |
(9) |
During the quarter ended March 31, 2010, interest and other expenses increased by $202,233 or 56% to $562,439 compared to $360,206 for the quarter ended March 31, 2009 and is primarily due to interest charges relating to the debt facilities with FIFOMI for the completion of the MLE cyanidation plant and the pre-payment facility associated with the advances for the sale of lead concentrates. |
(10) |
Investment and other income decreased by $262,522 or 91% compared to the same quarter in the prior year as the cash and cash equivalents balances during the first quarter of 2009 was significantly higher than the current year as there were funds available relating to the restricted cash and the earlier stage of development of the La Encantada cyanidation plant. |
(11) |
During the quarter ended March 31, 2010, the Company sold marketable securities that were written down in 2009 and realized a loss on disposal on these investments of $40,470. |
(12) |
The Company experienced a foreign exchange gain of $72,025 in the quarter ended March 31, 2010 compared to a foreign exchange loss of $952,866 in the quarter ended March 31, 2009 due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar, and a weakening of the Mexican peso relative to the Canadian dollar. |
(13) |
During the quarter ended March 31, 2010, the Company recorded an income tax expense of $1,145,886 compared to a recovery of $134,783 in the quarter ended March 31, 2009, and this is attributed to the provision of current income taxes and the provision of future income taxes arising from temporary timing differences. |
(14) |
As a result of the foregoing, net income for the quarter ended March 31, 2010 was $3,015,795 or $0.03 per common share compared to a net income of $939,698 or $0.01 per common share in the quarter ended March 31, 2009 , for an increase of $2,076,097 compared to the same period in the prior year. This excludes the $2.3 million of profits which were capitalized due to the pre-commercial sales and were not included in mine operating earnings and net income. |
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SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the last eight quarters.
|
Quarter |
Net sales
revenues
$ |
Net income
(loss)
after
taxes
$ |
Basic and
diluted
net
income
(loss) per
common
share
$ |
Stock-based
compensation (8)
$ |
Note |
Year ended December 31, 2010 | Q1 | 18,217,614 | 3,015,795 | 0.03 | 700,179 | 1 |
Year ended December 31, 2009 | Q4 | 18,374,117 | 2,492,488 | 0.03 | 1,099,386 | 2 |
Q3 | 13,724,803 | 1,841,623 | 0.02 | 505,847 | 3 | |
Q2 | 13,024,877 | 1,036,416 | 0.01 | 800,808 | 4 | |
Q1 | 14,386,872 | 939,698 | 0.01 | 896,739 | 5 | |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | 6 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 | ||
Q2 | 11,436,889 | (296,956) | 0.00 | 670,616 | 7 |
Notes:
(1) |
In the quarter ended March 31, 2010, net sales revenue was comparable to the quarter ended December 31, 2009. The Company sold 153,097 equivalent ounces of silver (after intercompany eliminations) more in the first quarter of 2010 compared to the fourth quarter of 2009; however, the average gross revenue per ounce realized was $16.89 (US$16.23) in the quarter ended March 31, 2010 compared to $18.71 (US$17.72) in the quarter ended December 31, 2009; an average effect of $1.82 per ounce or 10% (does not include the $2.3 million profit from pre-commercial sales). |
(2) |
In the quarter ended December 31, 2009, net sales revenue increased due to increasing silver prices. The average gross revenue per ounce of silver realized increased to US$17.72 in the quarter ended December 31, 2009, compared to US$15.07 in the prior quarter ended September 30, 2009. |
(3) |
In the quarter ended September 30, 2009, net sales revenue increased due to rising prices. The average gross revenue per ounce of silver realized was US$15.07 in the quarter ended September 30, 2009, increasing from US$12.60 in the prior quarter ended June 30, 2009. |
(4) |
In the quarter ended June 30, 2009, net sales revenue decreased due to losses on final settlements for which provisional payments had already been received in the prior quarter. |
(5) |
In the quarter ended March 31, 2009, a stronger U.S. dollar compared to the Canadian dollar accounted for the increase of revenue. Although silver prices were lower in the first quarter of 2009, the average gross revenue per ounce sold was Cdn$17.52 (US$14.07) per ounce on a consolidated basis for the three-month period ended March 31, 2009. Also contributing to an increase in net sales is $1,194,452 from the sale of coins, ingots and bullion in the three months ended March 31, 2009. |
(6) |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metal settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million relating to net U.S. monetary liabilities in the fourth quarter of 2008. |
(7) |
In the quarter ended June 30, 2008, the Company had a revision to its smelting charges imposed, resulting in an incremental charge and reduction of net sales of $1.9 million (US$1,852,830) in the quarter. Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate. |
-14-
(8) |
Stock-based Compensation - the net income (losses) are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
Revenues Per Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net sum of invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including metal by-products of gold, lead and zinc, after having deducted refining and smelting charges and metal deductions, and intercompany shipments of coins, ingots and bullion products. The following analysis provides the gross revenues prior to refining and smelting charges and metal deductions, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP. Gross revenues are deducted by shipped ounces of equivalent silver to calculate the average realized price per ounce of silver sold.
Revenue Analysis |
For the Three Months Ended March 31, | |
2010
$ |
2009
$ |
|
MEXICO | ||
Gross revenues - silver dore bars and concentrates | 22,838,623 | 16,269,685 |
Less: refining and smelting charges | (2,769,290) | (2,540,742) |
Less: metal deductions | (1,000,409) | (536,523) |
Net revenue from silver dore and concentrates | 19,068,924 | 13,192,420 |
Equivalent ounces of silver sold | 1,368,412 | 996,595 |
Average gross revenue per ounce sold ($CDN) | 16.69 | 16.33 |
Average exchange rate in the period ($US/$CDN) | 1.0409 | 1.2453 |
Average gross revenue per ounce sold ($US) | 16.03 | 13.11 |
CANADA | ||
Gross revenues - silver coins, ingots and bullion | 1,332,622 | 1,194,452 |
Equivalent ounces of silver sold, from Mexican production | 69,229 | 67,620 |
Average gross revenue per ounce sold ($CDN) | 19.25 | 17.66 |
Average exchange rate in the period ($US/$CDN) | 1.0409 | 1.2453 |
Average gross revenue per ounce sold ($US) | 18.49 | 14.18 |
CONSOLIDATED | ||
Combined gross revenues - silver dore, concentrates, coins, ingots and bullion | 24,171,245 | 17,464,137 |
Less: intercompany eliminations | (2,235,533) | - |
Consolidated gross revenues - silver dore, concentrates, coins, ingots and bullion | 21,935,712 | 17,464,137 |
Less: refining and smelting charges, net of intercompany | (2,736,517) | (2,540,742) |
Less: metal deductions, net of intercompany | (981,581) | (536,523) |
Consolidated net revenue from silver dore, concentrates, coins, ingots and bullion | 18,217,614 | 14,386,872 |
Equivalent ounces of silver sold (after interco. eliminations) | 1,298,659 | 996,595 |
Average gross revenue per ounce sold ($CDN) | 16.89 | 17.52 |
Average exchange rate in the period ($CDN/$US) | 1.0409 | 1.2453 |
Average gross revenue per ounce sold ($US) | 16.23 | 14.07 |
Average market price of per ounce of silver per COMEX ($US) | 16.91 | 12.61 |
At March 31, 2010, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore sales receipts in the quarter ended March 31, 2010 of $4,718,618 in connection with the sale of 262,403 silver equivalent ounces of precipitates during the pre-operating period was not recorded as a sales revenues but instead was recorded as a reduction of capital in the construction in progress account. As at March 31, 2010, total cash receipts of $5,663,086 was in the connection with the sale of 316,680 silver equivalent ounces of precipitates during the pre-operating period since inauguration of the plant.
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LIQUIDITY
At March 31, 2010, the Company had working capital of $6.9 million and cash and cash equivalents of $8.5 million compared to working capital of $4.8 million and cash and cash equivalents of $5.9 million at December 31, 2009. Working capital increased by $2.1 million as a result of $5.5 million from operating activities, an increase of $1.3 million in accounts receivable due to shipments prior to period end and offset by a reduction of value added taxes recoverable or to be filed of $1.2 million as at March 31, 2010 compared to December 31, 2009 due primarily to the receipt of tax remittances from the tax authorities in Mexico. Prepaid expenses and other increased by $1.1 million primarily due to $0.4 million relating to prepayments to suppliers and contractors, $0.2 million in increases in the fair value of marketable securities and $0.4 million in derivative financial instruments. Accounts payable and accrued liabilities increased by $1.1 million due to timing of payments to vendors. The current portion of debt facilities increased by $1.1 million, relating to the additional six month pre-payment facility of $1.6 million, the Company has drawn relating to the lead concentrates. Also, the current portion of capital leases decreased by $0.5 million due to payments during the period.
During the quarter ended March 31, 2010 the Company invested $3.4 million on the acquisition, exploration and development of its mineral properties and a further $1.4 million in additions to plant and equipment. In late 2008, after achieving 300 million ounces of total Reserves and Resources, the Company took actions to reduce its rate of expenditure on exploration and development.
The Company expended approximately US$35.3 million over the past 21 months on its new processing plant at La Encantada, which is expected to increase capacity to 3,500 tpd and to add approximately four million ounces of production per year for the Company.
Funds surplus to the Company’s short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there are no restrictions on the ability of the Company to use these funds to meet its obligations. The Company has no exposure to and has not invested in any asset backed commercial paper securities.
2010 OUTLOOK
This section of the MD&A provides management’s production and costs forecasts for 2010. These are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
Silver production at the La Encantada Silver Mine consists of a 1,000 tpd flotation circuit which is currently producing a lead concentrate, as well as a 3,500 tpd cyanidation circuit which is producing a silver precipitate. Effective April 1, 2010, the new cyanidation plant was deemed to be commercially operating and all revenues and operating costs will be recorded in the Company’s income statement rather than being capitalized as preproduction or pre-operating costs which was the accounting treatment up to March 31, 2010. The plant produced pre-commercial silver precipitates at an average cash cost per ounce of US$10.30 after selling, smelting and refining charges of $1.80 (by-products are not payable) during the first quarter of 2010. The Company is expecting smelting and refining charges to reduce once the precipitates are smelted in the Company’s own furnaces prior to additional off-site refining. Induction furnaces are expected to arrive and be installed in May and June 2010.
OFF-BALANCE SHEET ARRANGEMENTS
At March 31, 2010, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the consolidated financial statements and the related notes. Derivative instruments are carried at fair value.
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RELATED PARTY TRANSACTIONS
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties. During the quarter ended March 31, 2010, there were no significant transactions with related parties.
PROPOSED TRANSACTIONS
Other than as disclosed herein, the board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
CONTRACTUAL OBLIGATIONS
The Companys liabilities have contractual maturities which are summarized below:
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 2,091,313 | $ | 1,661,858 | $ | 429,455 | $ | - | $ | - | |||||
FIFOMI Loan Facilities | 4,440,399 | 1,344,999 | 1,727,665 | 1,367,735 | - | ||||||||||
Trafigura Prepayment Facility | 1,287,075 | 1,287,075 | - | - | - | ||||||||||
Real de Catorce Payments (1) | 1,261,200 | 1,261,200 | - | - | - | ||||||||||
Purchase Obligations (2) | 838,414 | 838,414 | - | - | - | ||||||||||
Asset Retirement Obligations | 4,563,097 | - | - | - | 4,563,097 | ||||||||||
Accounts Payable and Accrued Liabilities | 12,303,719 | 12,303,719 | |||||||||||||
Total Contractual Obligations | $ | 26,785,217 | $ | 18,697,265 | $ | 2,157,120 | $ | 1,367,735 | $ | 4,563,097 |
(1) |
Contract commitments to acquire surface rights and geological information relating to the Real de Catorce Project. |
(2) |
Contract commitments for construction materials and equipment for the La Encantada mill expansion project. |
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for the year ended December 31, 2009. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
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Carrying Values of Property, Plant and Equipment and Other Mineral Property Interests
The Company reviews and evaluates its mineral properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and/or development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The Company completed an impairment review of its properties at December 31, 2009. The estimates used by management were subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Company’s investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest components of the Company’s assets and, as such, the amortization of these assets has a significant effect on the Company’s financial statements. On the commencement of commercial production, depletion of each mining property is provided on the unit-of-production basis using estimated reserves and resources expected to be converted to reserves as the depletion basis. The mining plant and equipment and other capital assets are depreciated, following the commencement of commercial production, over their expected economic lives using the unit-of-production method. Capital projects in progress are not depreciated until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets. There were no write-downs or impairment losses recorded at December 31, 2009, as a result of these impairment analyses at the Company’s operating mines.
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and decommissioning related to its mining properties. The Company, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future obligations from mine closure activities. Since the obligations are dependent on the laws and regulations of the country in which the mines operate, the requirements could change resulting from amendments in those laws and regulations relating to environmental protection and other legislation affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
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As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Company’s estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at March 31, 2010.
Income Taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantially enacted, as applicable, income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling it on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Co-incident with the tax consolidation, Mexico introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in Mexico. Management has reviewed its IETU obligations and its consolidated tax position at March 31, 2010, and management assessed whether the Company is “more likely than not” to benefit from these tax losses prior to recording a benefit from the tax losses.
In December 2009, Mexico introduced tax consolidation reform tax rules which, effective January 2010, would require companies to begin the recapture of the benefits of tax consolidation within five years of receiving the benefit, and phased in over a five year period. First Majestic’s first tax deferral benefit from consolidation was realized in 2008, and as such the benefit of tax consolidation would be recaptured from 2013 to 2018. Numerous companies in Mexico are challenging the legality of these regressive tax reforms. It is unlikely that the outcome of these challenges will be determinable for several years.
Other changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
Stock-Based Compensation
The Company uses the Black-Scholes Option Pricing Model . Option pricing models require the input of subjective assumptions including the expected price volatility. Changes in the input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide an accurate single measure of the actual fair value of the Company’s stock options granted during the year.
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FUTURE ACCOUNTING CHANGES
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has adopted these new standards for the period ended March 31, 2010.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In February 2008, the CICA announced that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011. The Company will be required to begin reporting under IFRS for the quarter ending March 31, 2011, and will be required to prepare an opening balance sheet and provide information that conforms to IFRS for comparative periods presented.
The Company has developed an IFRS changeover plan which addresses the key areas such as accounting policies, financial reporting, disclosure controls and procedures, information systems, education and training and other business activities.
The Company commenced its IFRS conversion project during the second quarter of 2009 and has established a conversion plan and an IFRS project team. The IFRS conversion project is comprised of three phases: i) project planning, scoping and preliminary impact analysis; ii) detailed diagnostics and evaluation of financial impacts, selection of accounting policies, and design of operational and business processes; and iii) implementation and review.
The Company is in the second phase of its conversion plan and has completed a detailed analysis of the standards, including the evaluation of policy choices for those standards that may have an impact on its financial statements, business processes and systems.
Management is in the process of quantifying the expected material differences between lFRS and the current accounting treatment under Canadian GAAP. Differences with respect to recognition, measurement, presentation and disclosure of financial information are expected in key accounting areas. The Company cannot reasonably determine the full impact that adopting IFRS would have on its financial statements at this time. As a result, it is unable to quantify the impact of adopting IFRS on the financial statements as at March 31, 2010.
The Company is continuing to monitor developments in standards and interpretations of standards and industry practices. Due to anticipated changes to IFRS and International Accounting Standards prior to the adoption of IFRS, managements plan is subject to change based on new facts and circumstances that arise.
The following list, though not exhaustive, identifies some of the changes in key accounting policies due to the adoption of IFRS:
Standards | Difference from GAAP | Potential Impact |
Presentation and disclosure | IFRS requires significantly more disclosure than Canadian GAAP for certain standards. In addition, classification and presentation may be different for some balance sheet items. | The increased disclosure requirements will cause the Company to change financial reporting processes to ensure the appropriate data is collected. The Company is analyzing the impact of classification and presentation changes. |
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Standards | Difference from GAAP | Potential Impact |
First time Adoption of IFRS (IFRS 1) | IFRS 1 provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions in certain areas to the general requirement for full retrospective application of IFRS. With regards to the IFRS transition, the Company continues to analyze the optional exemptions available under IFRS 1. | The adoption of certain exemptions will impact the January 1, 2010 opening balance sheet adjustments. The Company continues to assess the appropriateness of the accounting policies applied under IFRS both at the time of transition and following transition. |
Property, Plant and Equipment (IAS 16) | IFRS requires all significant components of property, plant and equipment (PPE) to be amortized according to their individual useful lives as determined in accordance with IFRS. IAS 16 permits the revaluation of PPE to fair value. | Potentially material components within processing plants will have shorter useful lives than the entire plant, requiring increased amortization expenses. |
Impairment of Long-lived Assets (IAS 36) | IFRS requires the assessment of asset impairment to be based on comparing the carrying amount to the recoverable amount using discounted cashflows while GAAP only requires discounting if the carrying value of assets exceeds the undiscounted cash flows. IFRS also requires the reversal of any previous asset impairments, excluding goodwill, where circumstances have changed. GAAP prohibits the reversal of impairment losses. | The differences in methodology may result in asset impairments upon transition to IFRS. The Company is currently assessing the potential impact on long-lived assets which may require further writedowns relating to impairments. |
Asset Retirement Obligations (IAS 37) | Differences include the basis of estimation for undiscounted cashflows, the discount rate used, the frequency of liability remeasurement, and recognition of a liability when a constructive obligation exists. | IFRS 1 provides an exemption which allows the Company to recognize reclamation and closure costs obligations, estimate costs of the related mining properties using risk free rates, and recalculating depreciation and depletion of assets at fair value as at January 1, 2010. |
Income Taxes (subject to adoption at transition of a revised IAS 12 standard) | Recognition and measurement criteria for deferred tax assets and liabilities may differ. | Deferred tax assets may be derecognized at transition. This standard is in -transition since IAS 12 was withdrawn in November 2009 and the AcSB will adopt the converged standard at changeover to IFRS. The Company is assessing the changes but the changes are not likely significant. |
Functional Currency (IAS 21) | IAS 21 requires the Company to determine the translation differences in accordance with IFRS from the date on which a subsidiary was formed or acquired. | IFRS 1 provides an exemption that allows a Company to reset its cumulative translation account to zero at the date of transition, with the balance being transferred to opening retained earnings. |
Business Combinations (IFRS 3) | Under GAAP, the new HB section 1582 is effective January 1, 2011 to converge with IFRS and early adoption is permitted. | Early adoption of HB section 1582 is permitted, and the Company plans to early adopt this section for the year ended December 31, 2010. IFRS 1 will allow IFRS rules for business combinations on a prospective basis rather than re-stating all business combinations. |
Leases (IAS 17) | IFRS classifies leases as either financing or operating leases and classification depends on whether substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred from the lessor to the lessee, and is made at the inception of the lease. There are no quantitative thresholds similar to GAAP. | The Company is developing internal indicators to assist in lease classification under IFRS. |
Borrowing Costs (IAS 23) | IAS 23 does not allow the expensing of borrowing costs, to the extent they are directly attributable to acquisition, production and construction of a qualifying asset. | IFRS 1 allows companies to capitalize borrowing costs relating to all qualifying assets prospectively on adoption. |
Stock-based Compensation (IFRS 2) | Under Canadian GAAP, obligations for cash payments under stock-based compensation plans are accrued using the intrinsic method, compared to the fair value method under IFRS. | While the carrying value of each reporting period will be different under IFRS, the cumulative expense recognized over the life of the instrument will be the same. The Company will adopt this change prospectively using the IFRS 1 exemption for share units that vest prior to January 1, 2010. |
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Other important considerations during the IFRS transition are the following:
Internal control over financial reporting (“ICFR”) – for all accounting policy changes identified, the Company will assess the impact on the ICFR design and effectiveness implications and will ensure that all changes in accounting policies include the appropriate additional controls and procedures for future IFRS reporting requirements.
Disclosure controls and procedures (“DC&P”) – for all accounting policy changes identified an assessment of DC&P design and effectiveness implication will be analyzed to address any issues with respect to DC&P during IFRS transition.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company’s officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Company’s management so that decisions can be made about timely disclosure of that information.
Management has been remediating internal controls since 2009, and is proceeding on a course of strengthening internal controls in accounting systems in Mexico and Canada. The risk of material error is mitigated by extensive management reviews of financial and operating reports, account reconciliations and analyses in both Mexico and Canada, as well as monthly audit committee reviews. Significant progress on management’s remediation plan has been achieved, and management expects the remainder of its current plan to be completed by the end of 2010.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in Mexico, however these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at March 31, 2010.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company may be found on or in:
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE THREE MONTHS ENDED |
MARCH 31, 2010 (UNAUDITED) |
MANAGEMENTS COMMENTS ON
UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements of the
Company have been prepared by and are the
responsibility of the Companys
management.
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED BALANCE SHEETS |
AS AT MARCH 31, 2010 AND DECEMBER 31, 2009 |
(Unaudited, expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
CONTINGENT LIABILITIES (Note
17)
COMMITMENTS (Note 18)
APPROVED BY THE BOARD OF DIRECTORS
Keith Neumeyer | Director | Douglas Penrose | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF INCOME |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars, except share amounts) |
March 31, 2010 | March 31, 2009 | |||||
$ | $ | |||||
Revenues (Note 12) | 18,217,614 | 14,386,872 | ||||
Cost of sales | 8,973,857 | 8,298,813 | ||||
Amortization and depreciation | 797,396 | 858,837 | ||||
Depletion | 1,000,595 | 570,295 | ||||
Accretion of reclamation obligation (Note 15) | 93,720 | 116,039 | ||||
Mine operating earnings | 7,352,046 | 4,542,888 | ||||
General and administrative | 1,986,623 | 1,818,005 | ||||
Stock-based compensation | 700,179 | 896,739 | ||||
2,686,802 | 2,714,744 | |||||
Operating income | 4,665,244 | 1,828,144 | ||||
Interest and other expenses | (562,439 | ) | (360,206 | ) | ||
Investment and other income | 27,321 | 289,843 | ||||
Loss on disposal of marketable securities | (40,470 | ) | - | |||
Foreign exchange gain (loss) | 72,025 | (952,866 | ) | |||
Income before taxes | 4,161,681 | 804,915 | ||||
Income tax expense - current | 18,561 | 83,703 | ||||
Income tax expense (recovery) - future | 1,127,325 | (218,486 | ) | |||
Income tax expense (recovery) | 1,145,886 | (134,783 | ) | |||
NET INCOME FOR THE PERIOD | 3,015,795 | 939,698 | ||||
EARNINGS PER COMMON SHARE | ||||||
BASIC | $ | 0.03 | $ | 0.01 | ||
DILUTED | $ | 0.03 | $ | 0.01 | ||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||
BASIC | 92,710,994 | 76,400,055 | ||||
DILUTED | 94,091,000 | 92,387,593 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS) |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars, except share amounts) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Comprehensive | Total | |||||||||||||||||||||||
Share Capital | Contributed | Income (Loss) | AOCI | |||||||||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and Deficit | Total | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | |||||||||||||
Net income | - | - | - | - | - | 939,698 | 939,698 | 939,698 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 799,151 | - | 799,151 | 799,151 | ||||||||||||||||
Unrealized gain on marketable s ecurities | - | - | - | - | 22,796 | - | 22,796 | 22,796 | ||||||||||||||||
Total comprehensive i ncome | 1,761,645 | 1,761,645 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 6,250 | 7,938 | - | - | - | - | - | 7,938 | ||||||||||||||||
Public offering, net of i ssue costs (Note 11(a)(i)) | 8,487,576 | 18,856,981 | - | 848,758 | - | - | - | 19,705,739 | ||||||||||||||||
Stock option expense, net of deferred compensation | - | - | - | 896,739 | - | - | - | 896,739 | ||||||||||||||||
Transfer of contributed surplus upon exercise of s tock options | - | 2,950 | - | (2,950 | ) | - | - | - | - | |||||||||||||||
Balance at March 31, 2009 | 82,341,636 | 215,516,214 | 276,495 | 25,039,805 | (22,394,443 | ) | (38,537,185 | ) | (60,931,628 | ) | 179,900,886 | |||||||||||||
Balance at December 31, 2009 | 92,648,744 | 244,241,006 | 276,495 | 27,808,671 | (40,238,914 | ) | (33,166,658 | ) | (73,405,572 | ) | 198,920,600 | |||||||||||||
Net income | - | - | - | - | - | 3,015,795 | 3,015,795 | 3,015,795 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 5,738,887 | - | 5,738,887 | 5,738,887 | ||||||||||||||||
Unrealized gain on marketable s ecurities | - | - | - | - | 220,368 | - | 220,368 | 220,368 | ||||||||||||||||
Total comprehensive i ncome | 8,975,050 | 8,975,050 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 50,000 | 92,000 | - | - | - | - | - | 92,000 | ||||||||||||||||
Exercise of warrants | 25,000 | 82,500 | - | - | - | - | - | 82,500 | ||||||||||||||||
Stock option expense during the period | - | - | - | 700,179 | - | - | - | 700,179 | ||||||||||||||||
Transfer of contributed surplus upon exercise of s tock options and warrants | - | 43,176 | - | (43,176 | ) | - | - | - | - | |||||||||||||||
Balance at March 31, 2010 | 92,723,744 | 244,458,682 | 276,495 | 28,465,674 | (34,279,659 | ) | (30,150,863 | ) | (64,430,522 | ) | 208,770,329 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries which primarily affects the mining interests, except for the unrealized gain on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 |
(Unaudited, expressed in Canadian dollars) |
March 31, 2010 | March 31, 2009 | |||||
$ | $ | |||||
OPERATING ACTIVITIES | ||||||
Net income for the period | 3,015,795 | 939,698 | ||||
Adjustment for items not affecting cash | ||||||
Depletion | 1,000,595 | 570,295 | ||||
Depreciation | 797,396 | 858,837 | ||||
Stock-based compensation | 700,179 | 896,739 | ||||
Accretion of reclamation obligation | 93,720 | 116,039 | ||||
Unrealized (gain) loss on futures contracts | (442,304 | ) | 850 | |||
Future income taxes | 1,127,325 | (218,486 | ) | |||
Other income from derivative financial instruments | - | (267,667 | ) | |||
Loss on sale of of marketable securities | 40,470 | - | ||||
Unrealized foreign exchange (gain) loss and other | (453,749 | ) | 305,677 | |||
5,879,427 | 3,201,982 | |||||
Net change in non-cash working capital items | ||||||
Decrease in accounts receivable and other receivables | 418,357 | 395,480 | ||||
Increase in inventories | (75,994 | ) | (536,133 | ) | ||
Increase in prepaid expenses and other | (271,139 | ) | (479,985 | ) | ||
Decrease in accounts payable and accrued liabilities | (504,358 | ) | (2,338,209 | ) | ||
(Decrease) Increase in unearned revenue | (29,658 | ) | 267,872 | |||
Increase (Decrease) in taxes receivable and payable | 57,924 | (158,024 | ) | |||
Decrease in vendor liability on mineral property | - | (350,560 | ) | |||
5,474,559 | 2,423 | |||||
INVESTING ACTIVITIES | ||||||
Expenditures on mineral property interests (net of accruals) | (3,409,620 | ) | (1,847,474 | ) | ||
Net proceeds from pre-commercial operations | 2,101,124 | - | ||||
Additions to plant and equipment (net of accruals and pre-commercial proceeds) | (1,353,532 | ) | (1,585,659 | ) | ||
Decrease in silver futures contract deposits | - | 688,293 | ||||
Investment in marketable securities | (25,000 | ) | - | |||
Proceeds from sale of marketable securities | 29,530 | |||||
Increase in deposits on long term assets and other | (464,331 | ) | (380,708 | ) | ||
Increase in restricted cash for vendor liability | - | (545,522 | ) | |||
(3,121,829 | ) | (3,671,070 | ) | |||
FINANCING ACTIVITIES | ||||||
Issuance of common shares and warrants, net of issue costs | 174,500 | 19,713,677 | ||||
Payment of capital lease obligations | (659,568 | ) | (382,468 | ) | ||
Prepayment facility, net of repayments | 748,154 | - | ||||
263,086 | 19,331,209 | |||||
INCREASE IN CASH AND CASH EQUIVALENTS | 2,615,816 | 15,662,562 | ||||
EFFECT OF EXCHANGE RATE ON CASH HELD IN FOREIGN CURRENCY | (27,271 | ) | 254 | |||
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD | 5,889,793 | 17,424,123 | ||||
CASH AND CASH EQUIVALENTS - END OF THE PERIOD | 8,478,338 | 33,086,939 | ||||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | - | |||||
Cash | 8,394,572 | 18,517,588 | ||||
Short-term deposits | 83,766 | 83,592 | ||||
Restricted cash (Note 8) | - | 14,485,759 | ||||
8,478,338 | 33,086,939 | |||||
Interest paid | 244,161 | 42,368 | ||||
Income taxes paid | - | - | ||||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 19) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
1. | DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS |
First Majestic Silver Corp. (the Company or First Majestic) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR and FR.WT.B, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Companys ability to continue as a going concern is dependent on the price of silver in global commodity markets, and on maintaining profitable operations or obtaining sufficient funds from alternative sources as required to augment operations and for ongoing capital developments. If the Company were unable to continue as a going concern, material adjustments may be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. | BASIS OF PRESENTATION |
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP). These interim financial statements do not contain all the information required by GAAP for annual financial statements and should be read in conjunction with the Companys latest audited consolidated financial statements for the year ended December 31, 2009.
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM), First Silver Reserve Inc. (First Silver) and Normabec Mining Resources Ltd. (Normabec) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada), Majestic Services S.A. de C.V. (Majestic Services), Minera Real Bonanza, S.A. de C.V. (MRB) and Servicios Minero-Metalurgicos e Industriales, S.A. de C.V. (Servicios). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 8. Intercompany balances and transactions are eliminated on consolidation.
Variable Interest Entities (VIEs) as defined by the Accounting Standards Board in Accounting Guideline 15 Consolidation of Variable Interest Entities are entities in which equity investors do not have the characteristics of a controlling financial interest or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIEs are subject to consolidation by the primary beneficiary who will absorb the majority of the entities expected losses and/or expected residual returns. The Company has determined that it has no VIEs.
3. | SIGNIFICANT CHANGES IN ACCOUNTING POLICIES |
Future Accounting Pronouncements
Business Combinations, Consolidations and Non-controlling interests
The CICA has approved new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). These new sections will be effective for years beginning on or after January 1, 2011, with early adoption permitted. Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The Company has adopted these new standards for the period ended March 31, 2010.
Notes Page 1 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
3. | SIGNIFICANT CHANGES IN ACCOUNTING POLICIES (continued) |
International Financial Reporting Standards (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five-year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is January 1, 2011, and relates to interim and annual financial statements on or after January 1, 2011. The transition will require the restatement for comparative purposes of amounts reported by the Company for all reporting periods beginning after January 1, 2010.
The Company has commenced planning its transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is continuing its diagnosis and impact assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. The Company will continue to monitor changes in IFRS during implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting.
4. | OTHER RECEIVABLES |
Details of the components of other receivables are as follows:
March 31, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Value added taxes recoverable | 3,098,482 | 4,066,074 | ||||
Other taxes and value added taxes on accounts payable | 1,825,000 | 2,072,442 | ||||
Loan receivable from supplier | 376,468 | 478,824 | ||||
Interest receivable and other | 7,392 | 6,860 | ||||
5,307,342 | 6,624,200 |
5. | INVENTORIES |
Inventories consist of the following:
March 31, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Silver coins and bullion i ncluding in process shipments | 666,139 | 273,262 | ||||
Finished product - doré and concentrates | 366,681 | 343,990 | ||||
Ore i n process | 328,963 | 463,549 | ||||
Stockpile | 443,195 | 387,836 | ||||
Materials and s upplies | 2,189,073 | 2,343,823 | ||||
3,994,051 | 3,812,460 |
The amounts of inventory recognized as expenses during the period are equivalent to the cost of sales for the respective periods.
Notes Page 2 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
6. | PREPAID EXPENSES AND OTHER |
Details of prepaid expenses and other are as follows:
March 31, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Prepayments to suppliers and contractors | 1,246,045 | 832,880 | ||||
Deposits | 243,037 | 215,036 | ||||
Marketable securities | 567,518 | 387,425 | ||||
Derivative financial instruments | 436,250 | - | ||||
Prepaid mineral rights | 41,507 | 32,418 | ||||
2,534,357 | 1,467,759 |
7. | MINING INTERESTS AND PLANT AND EQUIPMENT |
Mining interests and plant and equipment, net of accumulated depreciation and depletion, are as follows:
March 31, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
Depreciation | Depreciation | |||||||||||||||||
and | Net Book | and | Net Book | |||||||||||||||
Cost | Depletion | Value | Cost | Depletion | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Mining properties | 191,120,833 | 18,191,135 | 172,929,698 | 183,585,673 | 17,185,500 | 166,400,173 | ||||||||||||
Plant and equipment | 75,527,992 | 9,667,274 | 65,860,718 | 69,026,387 | 8,637,857 | 60,388,530 | ||||||||||||
266,648,825 | 27,858,409 | 238,790,416 | 252,612,060 | 25,823,357 | 226,788,703 |
A summary of the net book value of mining properties is as follows: |
March 31, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depletion | Value | Cost | Depletion | Value | |||||||||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||||||||
Producing properties | ||||||||||||||||||
La Encantada (a) | 14,459,318 | 3,032,992 | 11,426,326 | 13,055,900 | 2,886,830 | 10,169,070 | ||||||||||||
La Parrilla (b) | 24,059,052 | 3,249,990 | 20,809,062 | 22,371,850 | 3,009,041 | 19,362,809 | ||||||||||||
San Martin (c) | 40,111,820 | 11,908,153 | 28,203,667 | 38,902,227 | 11,289,629 | 27,612,598 | ||||||||||||
78,630,190 | 18,191,135 | 60,439,055 | 74,329,977 | 17,185,500 | 57,144,477 | |||||||||||||
Exploration properties | ||||||||||||||||||
La Encantada (a) | 2,502,732 | - | 2,502,732 | 2,467,451 | - | 2,467,451 | ||||||||||||
La Parrilla (b) | 7,880,206 | - | 7,880,206 | 7,625,168 | - | 7,625,168 | ||||||||||||
San Martin (c) (1) | 68,410,230 | - | 68,410,230 | 65,931,244 | - | 65,931,244 | ||||||||||||
Del Toro (d) | 12,295,213 | - | 12,295,213 | 11,855,627 | - | 11,855,627 | ||||||||||||
Real de Catorce (e) | 21,402,262 | - | 21,402,262 | 21,376,206 | - | 21,376,206 | ||||||||||||
112,490,643 | - | 112,490,643 | 109,255,696 | - | 109,255,696 | |||||||||||||
191,120,833 | 18,191,135 | 172,929,698 | 183,585,673 | 17,185,500 | 166,400,173 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
Notes Page 3 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
7. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
A summary of plant and equipment is as follows:
March 31, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
La Encantada Silver Mine | 47,382,393 | 2,215,382 | 45,167,011 | 42,001,694 | 1,954,699 | 40,046,995 | ||||||||||||
La Parrilla Silver Mine | 17,900,568 | 4,302,582 | 13,597,986 | 17,228,300 | 3,792,818 | 13,435,482 | ||||||||||||
San Martin Silver Mine | 10,200,045 | 3,145,130 | 7,054,915 | 9,751,407 | 2,889,290 | 6,862,117 | ||||||||||||
Real de Catorce Silver Project | 44,986 | 4,180 | 40,806 | 44,986 | 1,050 | 43,936 | ||||||||||||
Used in Mining Operations | 75,527,992 | 9,667,274 | 65,860,718 | 69,026,387 | 8,637,857 | 60,388,530 | ||||||||||||
Corporate office equipment | 897,346 | 409,617 | 487,729 | 767,782 | 358,501 | 409,281 | ||||||||||||
76,425,338 | 10,076,891 | 66,348,447 | 69,794,169 | 8,996,358 | 60,797,811 |
Details of plant and equipment and corporate office equipment by specific assets are as follows:
March 31, 2010 | December 31, 2009 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Land | 2,288,642 | - | 2,288,642 | 2,279,494 | - | 2,279,494 | ||||||||||||
Automobile | 435,964 | 233,206 | 202,758 | 401,056 | 204,920 | 196,136 | ||||||||||||
Buildings | 6,142,110 | 647,253 | 5,494,857 | 5,918,355 | 578,177 | 5,340,178 | ||||||||||||
Machinery and equipment | 27,240,669 | 8,200,495 | 19,040,174 | 26,154,678 | 7,311,470 | 18,843,208 | ||||||||||||
Computer equipment | 616,018 | 333,651 | 282,367 | 560,018 | 279,783 | 280,235 | ||||||||||||
Office equipment | 711,410 | 483,100 | 228,310 | 577,215 | 460,070 | 117,145 | ||||||||||||
Leasehold improvements | 320,304 | 179,186 | 141,118 | 320,304 | 161,938 | 158,366 | ||||||||||||
Construction in progress (1)(2) | 38,670,221 | - | 38,670,221 | 33,583,049 | - | 33,583,049 | ||||||||||||
76,425,338 | 10,076,891 | 66,348,447 | 69,794,169 | 8,996,358 | 60,797,811 |
(1) |
Construction in progress includes $36,395,805 relating to La Encantada, $419,824 relating to La Parrilla and $1,854,592 relating to San Martin (December 31, 2009 - $31,283,949 relating to La Encantada, $535,604 relating to La Parrilla and $1,763,496 relating to San Martin). |
(2) |
At March 31, 2010, the La Encantada mill expansion project had not achieved a commercial stage of production, therefore the net amount of revenues less production costs of $2,770,596 (December 31, 2009 - $496,371) in connection with the sale of 316,680 silver equivalent ounces (December 31, 2009 54,277 silver equivalent ounces) of precipitates during the pre- operating period from November 19, 2009 to March 31, 2010 were offset to construction in progress. The net proceeds on the sale of silver precipitates for the quarter ended March 31, 2010 was $2,274,225, relating to 262,403 pre-commercial ounces of silver produced in the current quarter. |
Mineral property options paid and future option payments in U.S. dollars are due as follows:
Notes Page 4 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
Del Toro | |||
Note 7(d) | |||
US$ | |||
Paid as at December 31, 2009 | 5,987,500 | ||
Payable in 2010 | 225,000 | ||
Total Current and Future Option Payments | 6,212,500 |
7. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
(a) | La Encantada Silver Mine, Coahuila State |
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz, is 225 km away via paved and unpaved road. The La Encantada Silver Mine consists of a 3,500 tonnes per day cyanidation plant, a 1,000 tonnes per day flotation plant, an airstrip, and a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine. During the quarter ended March 31, 2010, $5.9 million in expenditures were incurred at La Encantada and classified as construction in progress at March 31, 2010 as the plant has not yet achieved commercial production levels.
(b) | La Parrilla Silver Mine, Durango State |
The La Parrilla Silver Mine is a system of connected underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 km southeast of the city of Durango, in the State of Durango, Mexico. Located at the mine are: mining equipment, a 425 tonnes per day cyanidation plant, a 425 tonnes per day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine.
There is a net smelter royalty (NSR) agreement of 1.5% of sales revenue associated with the Quebradillas Mine, with a maximum payable of US$2.5 million. The Company has an option to purchase the NSR at any time for an amount of US$2.0 million. For the quarter ended March 31, 2010, the Company paid US$43,870 (quarter ended March 31, 2009 - US$36,086) relating to royalties. The sum of royalties paid under the Quebradillas NSR is presently US$248,233.
(c) | San Martin Silver Mine, Jalisco State |
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface rights surrounding the mine, and another 104 hectares of surface rights where the 950 tonnes per day cyanidation mill, flotation circuit, mine buildings and administrative offices are located. The Company owns 100% of the San Martin Silver Mine.
(d) | Del Toro Silver Mine, Zacatecas State |
The Del Toro Silver Mine is located 60 km to the southeast of the Companys La Parrilla Silver Mine and consists of 392 contiguous hectares of mining claims and 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro Silver Mine consolidates two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart. The Company owns 100% of the Perseverancia Silver Mine. The US$225,000 option payments due in 2010 relate to a new land acquisition of 50 hectares. All other option payments have been made.
Notes Page 5 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
(e) | Real de Catorce Silver Project, San Luis Potosi State |
The Real de Catorce Silver Project is located 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The Real de Catorce property consists of 22 mining concessions covering 6,327 hectares. The Company owns 100% of the Real de Catorce Silver Project. Upon commencement of commercial production on the property, the Company has agreed to pay an amount of US$200,000 to a previous owner. The property is subject to a 3% net smelter return royalty, of which 1.75% may be acquired in increments of 0.25% for a price of US$250,000 per increment for the first five years from the date of the first payment and at a price of US$300,000 per increment for the following five years.
Notes Page 6 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
7. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
(e) | Real de Catorce Silver Project, San Luis Potosi State (continued) |
In addition, the Company has agreed to acquire the surface rights forming part of the property, including the buildings located thereon and covering the location of the previous mining operations, in consideration for a single payment of US$1.0 million to be made in December 2010.
The Company has also agreed to make a payment of US$200,000 on December 10, 2010 for all technical and geological information collected over the area. Such payment is not related to the acquisition of the mining concessions or the surface rights and buildings agreement.
8. | VENDOR LIABILITY AND INTEREST AND RESTRICTED CASH |
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53.4 million. The purchase price was payable in three instalments (50%, 25% and 25%) to the then majority interest shareholder of First Silver (the Majority Shareholder). The first instalment was paid upon closing on May 30, 2006. The second instalment was paid on May 30, 2007. The third and final instalment of $13.3 million due on May 30, 2008 was withheld by the Company.
In November 2007, an action was commenced by the Company and its acquired subsidiary First Silver against the Majority Shareholder (the Defendant) who was previously a director, President and Chief Executive Officer of First Silver. The Company and First Silver allege in their action that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable. At the present time, the trial is scheduled to commence in the Supreme Court of British Columbia on February 21, 2011.
In March 2008, the Defendant filed a Counterclaim against the Company for unpaid amounts and interest of $14.9 million, and was secured by a $14.5 million Letter of Credit posted in Court by First Majestic. The Company recorded these amounts as Restricted Cash as at March 31, 2009. In July 2009, an Order was granted by the Court, with the consent of all parties, under which the Defendant obtained a judgment in the amount of $14.9 million. The Company agreed to pay out $14.3 million from the posted Letter of Credit to the Defendants lawyers trust account (the Trust Funds) in partial payment of the Judgment. The remaining funds from the Letter of Credit were paid out to the Company. The Consent Order requires that the Trust Funds be held in trust pending the outcome of the Companys action. If the trial has not commenced by June 30, 2011, the Trust Funds can be released to the Defendant, unless otherwise ordered by the court. These funds would be accessible to the Company in the event of a favourable outcome to the litigation.
9. | DEBT FACILITIES |
(a) | Pre-Payment Facility |
In August 2009, a subsidiary of the parent company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, $1.6 million (US$1.5 million) was advanced against the Companys lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required. The repayment of the credit facility is guaranteed by the parent company.
Notes Page 7 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
9. | DEBT FACILITIES (continued) |
(a) | Pre-Payment Facility (continued) |
On February 28, 2010, this agreement was amended to provide an additional six-month pre-payment facility of up to $1.6 million (US$1.5 million). A total of $1.6 million (US$1.5 million) was drawn on this pre-payment facility. As at March 31, 2010, after delivering monthly quotas of lead concentrates and payments of interest charges, the Company had a remaining balance payable on the pre-payment facility of $1,287,075 (US$1,255,489).
(b) | FIFOMI Loan Facilities |
In October 2009, the Company entered into an agreement with the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI) for two loan facilities, a capital asset loan and a working capital loan, totalling 53.8 million Mexican pesos (CAD$4.3 million). Funds from these loans were used for the completion of the 3,500 tonnes per day cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to 47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% per annum and is repayable over a 60-month period. The working capital loan, for up to 6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% per annum and is a 90-day revolving loan. The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine. At March 31, 2010, the balance owing was 53.8 million Mexican pesos (CAD$4.4 million) of which $1.3 million was classified as current.
The following is a summary of the debt facilities as at March 31, 2010:
$CAD | |||
Pre-payment Facility | 1,287,075 | ||
FIFOMI Loan Facilities | 4,440,399 | ||
5,727,474 | |||
Less: current portion | (2,632,074 | ) | |
Long-term Portion of Debt Facilities | 3,095,400 |
10. | DEPOSITS ON LONG-TERM ASSETS |
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
March 31, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Deposit on equipment at La Encantada | 464,331 | 2,876,717 | ||||
Deposit on equipment at La Parrilla | 1,409,629 | 1,429,702 | ||||
1,873,960 | 4,306,419 |
Notes Page 8 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL |
(a) | Authorized unlimited number of common shares without par value |
Issued | Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | |||||||||||
Shares | $ | Shares | $ | ||||||||||
Balance - beginning of the period | 92,648,744 | 244,241,006 | 73,847,810 | 196,648,345 | |||||||||
Issued during the period | |||||||||||||
For cash: | |||||||||||||
Exercise of options | 50,000 | 92,000 | 36,250 | 68,838 | |||||||||
Exercise of warrants | 25,000 | 82,500 | 50,000 | 165,000 | |||||||||
Public offering of units (i) | - | - | 8,487,576 | 18,840,890 | |||||||||
Private placements (ii) | - | - | 4,167,478 | 9,051,069 | |||||||||
For debt settlements (iii) | - | - | 1,191,852 | 2,741,260 | |||||||||
For Normabec a cquisition (iv) | - | - | 4,867,778 | 16,696,479 | |||||||||
Transfer of contributed surplus for stock options and warrants exercised | - | 43,176 | - | 29,125 | |||||||||
Balance - end of the period | 92,723,744 | 244,458,682 | 92,648,744 | 244,241,006 |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,689,648, of which $18,840,890 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one common share at a price of $3.50 expiring on March 5, 2011. |
(ii) |
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011, and 334,239 warrants expire on September 16, 2011. Finders fees in the amount of $101,016 and 50,000 warrants were paid regarding a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. |
(iii) |
In August and September 2009, the Company settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a value of $2.30 per share. |
(iv) |
On November 13, 2009, the Company issued 4,867,778 common shares at a value of $3.43 per share in connection with the acquisition of Normabec. |
Notes Page 9 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options |
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the periods ended March 31, 2010 and December 31, 2009 are as follows:
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |||||||||||||
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |||||||||||||
Balance, beginning of the period | 8,603,750 | 3.50 | 2.4 years | 6,862,500 | 3.84 | 2.8 years | ||||||||||||
Granted | 225,000 | 3.51 | 3.0 years | 2,842,500 | 2.88 | 3.6 years | ||||||||||||
Exercised | (50,000 | ) | 1.84 | 2.2 years | (36,250 | ) | 1.90 | 2.5 years | ||||||||||
Forfeited or expired | (200,000 | ) | 5.50 | 0.0 years | (1,065,000 | ) | 4.11 | 0.7 years | ||||||||||
Balance, end of the period | 8,578,750 | 3.46 | 2.3 years | 8,603,750 | 3.50 | 2.4 years |
Notes Page 10 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
The following table summarizes both the stock options outstanding and those that are exercisable at March 31, 2010:
Price | Options | Options | ||
$ | Outstanding | Exercisable | Expiry Dates | |
4.64 | 75,000 | 75,000 | June 1, 2010 | |
4.17 | 100,000 | 100,000 | August 8, 2010 | |
3.72 | 30,000 | 30,000 | September 24, 2010 | |
3.98 | 20,000 | 20,000 | October 17, 2010 | |
4.45 | 530,000 | 530,000 | October 30, 2010 | |
4.34 | 25,000 | 25,000 | November 1, 2010 | |
4.34 | 200,000 | 200,000 | December 5, 2010 | |
4.42 | 50,000 | 50,000 | February 20, 2011 | |
4.65 | 100,000 | 100,000 | March 25, 2011 | |
4.19 | 20,000 | 20,000 | April 26, 2011 | |
4.02 | 100,000 | 100,000 | May 15, 2011 | |
4.30 | 450,000 | 450,000 | June 19, 2011 | |
4.67 | 120,000 | 120,000 | July 4, 2011 | |
4.15 | 300,000 | 300,000 | July 28, 2011 | |
3.62 | 565,000 | 565,000 | August 28, 2011 | |
1.60 | 200,000 | 150,000 | October 8, 2011 | |
1.27 | 106,250 | 75,000 | October 17, 2011 | |
4.32 | 245,000 | 245,000 | December 6, 2011 | |
4.41 | 400,000 | 400,000 | December 22, 2011 | |
5.00 | 155,000 | 155,000 | February 7, 2012 | |
2.03 | 692,500 | 346,250 | May 7, 2012 | |
4.65 | 25,000 | 25,000 | June 20, 2012 | |
2.62 | 60,000 | 30,000 | September 16, 2012 | |
2.96 | 25,000 | 6,250 | October 28, 2012 | |
3.38 | 25,000 | 6,250 | November 5, 2012 | |
4.34 | 925,000 | 925,000 | December 5, 2012 | |
3.52 | 560,000 | 140,000 | December 7, 2012 | |
3.70 | 535,000 | 133,750 | December 15, 2012 | |
3.56 | 200,000 | 50,000 | February 2, 2013 | |
3.15 | 25,000 | 6,250 | March 19, 2013 | |
3.62 | 100,000 | 100,000 | August 28, 2013 | |
1.44 | 240,000 | 180,000 | November 10, 2013 | |
1.56 | 550,000 | 412,500 | December 17, 2013 | |
2.03 | 462,500 | 231,250 | May 7, 2014 | |
2.32 | 12,500 | 6,250 | June 15, 2014 | |
3.70 | 350,000 | 87,500 | December 15, 2014 | |
8,578,750 | 6,396,250 |
During the three months ended March 31, 2010, the Company granted stock options to an officer and an employee to purchase 225,000 shares (three months ended March 31, 2009 nil) of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, the fair value of stock options granted during this quarter was $348,000, of which $112,115 was expensed in the current period and $235,885 was deferred and will be amortized over the remaining vesting period of the stock options.
Notes Page 11 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
The weighted average fair value of each stock option granted during the past three months was $1.55 (2009 - $nil). The fair value of stock options is estimated using the Black-Scholes Option Pricing Model with the following assumptions:
Three Months | ||
Three Months Ended | Ended March 31, | |
March 31, 2010 | 2009 | |
Risk-free interest rate | 1.2% | 2.4% |
Es timated volatility | 93.3% | 64.9% |
Expected life | 1.5 years | 2.4 years |
Expected dividend yield | 0% | 0% |
Option pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide an accurate measure of the actual fair value of the Companys stock options.
(c) | Share Purchase Warrants |
The changes in share purchase warrants for the three months ended March 31, 2010, and the year ended December 31, 2009, are as follows:
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average Term to | Number of | Exercise Price | Average Term to | |||||||||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||||||||
Balance, beginning of the period | 11,357,465 | 5.04 | 0.8 years | 5,078,791 | 6.99 | 1.2 years | ||||||||||||
Issued | - | 0.00 | 0.0 years | 6,638,492 | 3.66 | 2.1 years | ||||||||||||
Exercised | (25,000 | ) | 3.30 | 1.6 years | (50,000 | ) | 3.30 | 1.7 years | ||||||||||
Cancelled or expired | (5,029,938 | ) | 7.06 | 0.0 years | (309,818 | ) | 7.69 | 0.0 years | ||||||||||
Balance, end of the period | 6,302,527 | 3.43 | 1.1 years | 11,357,465 | 5.04 | 0.8 years |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35.0%, expected life of 2 years, and expected dividend yield of 0%) and as a result $848,758 was credited to contributed surplus. |
|
|
(ii) |
On August 20, 2009, the Company issued 1,799,500 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 3,499,000 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years, and expected dividend yield of 0%) and as a result $328,047 was credited to contributed surplus. |
|
|
(iii) |
On September 16, 2009, the Company issued 334,239 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 668,478 units. |
Notes Page 12 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years, and expected dividend yield of 0%) and as a result $60,953 was credited to contributed surplus.
Notes Page 13 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
11. | SHARE CAPITAL (continued) |
(c) | Share Purchase Warrants (continued) |
(iv) |
On November 13, 2009, in connection with the acquisition of Normabec, the Company issued 118,527 warrants exercisable at a price of $9.11 per share expiring on December 13, 2009, and 142,438 warrants exercisable at a price of $9.11 per share expiring on January 2, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.26%, volatility of 67%, expected life of 0.1 year, and expected dividend yield of 0%). No value was credited to contributed surplus. These warrants expired unexercised. |
The following table summarizes the share purchase warrants outstanding at March 31, 2010:
Exercise Price | Warrants | |||||
$ | Outstanding | Expiry Dates | ||||
3.50 | 4,243,788 | March 5, 2011 | ||||
3.30 | 1,724,500 | August 20, 2011 | ||||
3.30 | 334,239 | September 16, 2011 | ||||
6,302,527 |
(d) | Share Capital to be Issued |
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc., First Majestic and First Silver entered into a business combination agreement whereby First Majestic agreed to acquire the remaining 36.25% minority interest in First Silver. At March 31, 2010, prior shareholders of First Silver had not yet exchanged 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic, resulting in a remaining value of shares to be issued of $276,495.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
12. | REVENUE |
Details of the components of net revenue are as follows:
Three Months Ended March 31, | ||||||
2010 | 2009 | |||||
$ | $ | |||||
Combined revenue - silver doré bars, concentrates, coins and ingots | 24,171,245 | 17,464,137 | ||||
Less: intercompany eliminations | (2,235,533 | ) | - | |||
Consolidated gross revenue | 21,935,712 | 17,464,137 | ||||
Less: refining and smelting charges, net of intercompany eliminations | (2,736,517 | ) | (2,540,742 | ) | ||
Less: metal deductions, net of intercompany eliminations | (981,581 | ) | (536,523 | ) | ||
Net revenue | 18,217,614 | 14,386,872 |
At March 31, 2010, the La Encantada mill expansion project had not achieved a commercial stage of production; therefore, cash receipts in the quarter ended March 31, 2010 were $4,718,618 in connection with the sale of 262,403 silver equivalent ounces of precipitates in the current quarter. These receipts during the pre-operating period were not recorded as sales revenues and excluded from the above table and instead were recorded as a reduction of capital costs in construction in progress (Note 7).
Notes Page 14 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
13. | SEGMENTED INFORMATION |
The Company has three operating segments located in Mexico, one retail market segment in Canada and one corporate segment with locations in Canada and Mexico. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Three Months Ended March 31, 2010 | ||||||||||||||||||
First Majestic | Corporate | |||||||||||||||||
El Pilon | Plata | La Encantada | and Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 5,563,286 | 6,164,359 | 7,151,248 | 1,332,621 | (1,993,900 | ) | 18,217,614 | |||||||||||
Cost of sales | 2,826,321 | 3,111,674 | 3,378,116 | 1,261,706 | (1,603,960 | ) | 8,973,857 | |||||||||||
Amortization, depreciation and accretion | 225,581 | 410,726 | 254,809 | - | - | 891,116 | ||||||||||||
Depletion | 614,788 | 237,832 | 147,975 | - | - | 1,000,595 | ||||||||||||
Mine operating earnings (loss) | 1,896,596 | 2,404,127 | 3,370,348 | 70,915 | (389,940 | ) | 7,352,046 | |||||||||||
General and administrative | - | - | - | - | 1,986,623 | 1,986,623 | ||||||||||||
Stock-based compensation | - | - | - | - | 700,179 | 700,179 | ||||||||||||
Net interest, other income (expense) and foreign exchange | (938,335 | ) | (2,989,992 | ) | (893,568 | ) | - | 4,318,332 | (503,563 | ) | ||||||||
Income tax expense (recovery) | 173,474 | (132,790 | ) | 982,223 | - | 122,979 | 1,145,886 | |||||||||||
Net income (loss) | 784,787 | (453,075 | ) | 1,494,557 | 70,915 | 1,118,611 | 3,015,795 | |||||||||||
Capital expenditures | 620,310 | 1,361,045 | 5,058,837 | - | 106,635 | 7,146,827 | ||||||||||||
Total assets | 107,478,840 | 63,772,320 | 67,141,967 | - | 26,557,078 | 264,950,205 |
Three Months Ended March 31, 2009 | ||||||||||||||||||
First Majestic | Corporate | |||||||||||||||||
El Pilon | Plata | La Encantada | and Other | |||||||||||||||
operations | operations | operations | Coin Sales | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 4,455,966 | 3,935,858 | 5,448,325 | 1,194,452 | (647,729 | ) | 14,386,872 | |||||||||||
Cost of sales | 2,733,227 | 2,701,303 | 2,484,297 | 1,083,976 | (703,990 | ) | 8,298,813 | |||||||||||
Amortiza tion, depreciation and accretion | 253,147 | 464,758 | 256,971 | - | - | 974,876 | ||||||||||||
Depletion | 251,440 | 150,878 | 167,977 | - | - | 570,295 | ||||||||||||
Mine operating earnings (loss) | 1,218,152 | 618,919 | 2,539,080 | 110,476 | 56,261 | 4,542,888 | ||||||||||||
General and administrative | - | - | - | - | 1,818,005 | 1,818,005 | ||||||||||||
Stock-based compensation | - | - | - | - | 896,739 | 896,739 | ||||||||||||
Net interest, other income (expense) and foreign exchange | (293,633 | ) | (347,495 | ) | (280,720 | ) | - | (101,381 | ) | (1,023,229 | ) | |||||||
Income tax (recovery) expense | (174,693 | ) | (47,258 | ) | 574,037 | - | (486,869 | ) | (134,783 | ) | ||||||||
Net income (loss) | 1,099,212 | 318,682 | 1,684,323 | 110,476 | (2,272,995 | ) | 939,698 | |||||||||||
Capital expenditures | 692,893 | 1,886,255 | 5,923,006 | - | 14,816 | 8,516,970 | ||||||||||||
Total assets | 118,179,765 | 59,759,240 | 40,700,384 | - | 34,997,007 | 253,636,396 |
Notes Page 15 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
14. | CAPITAL LEASE OBLIGATIONS |
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for $14.1 million (US$11.2 million) of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. On March 13, 2009, the Company executed a restructuring agreement for the balance of $3.6 million (US$2.9 million) payable to the equipment lease vendor, to be paid over 24 monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.
On January 12, 2009, the Company executed two additional financing arrangements with an equipment vendor, committing the Company to total payments of approximately $2.6 million (US$2.0 million) representing the purchase price plus interest with terms of 36 monthly lease payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
The following is a schedule of future minimum lease payments under the capital leases as at March 31, 2010:
$US | $CAD | |||||
2010 Gross lease payments | 1,432,402 | 1,454,748 | ||||
2011 Gross lease payments | 651,155 | 661,313 | ||||
2012 Gross lease payments | 132,549 | 134,616 | ||||
2,216,106 | 2,250,677 | |||||
Less: interest | (156,916 | ) | (159,364 | ) | ||
Total payments, net of interest | 2,059,190 | 2,091,313 | ||||
Less: current portion | (1,636,331 | ) | (1,661,858 | ) | ||
Capital Lease Obligation | 422,859 | 429,455 |
15. | ASSET RETIREMENT OBLIGATIONS |
Three Months Ended | Year Ended | |||||
March 31, 2010 | December 31, 2009 | |||||
$ | $ | |||||
Balance, beginning of the period | 4,336,088 | 5,304,369 | ||||
Effect of change in estimates | - | (877,834 | ) | |||
Interest accretion | 93,720 | 445,090 | ||||
Effect of translation of foreign currencies | 133,289 | (535,537 | ) | |||
Balance, end of the period | 4,563,097 | 4,336,088 |
Asset retirement obligations allocated by mineral properties are as follows:
Notes Page 16 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
Anticipated | March 31, 2010 | December 31, 2009 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2020 | 1,910,565 | 1,815,518 | ||||||
La Parrilla Silver Mine | 2025 | 1,050,558 | 998,293 | ||||||
San Martin Silver Mine | 2019 | 1,601,974 | 1,522,277 | ||||||
4,563,097 | 4,336,088 |
Notes Page 17 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
15. | ASSET RETIREMENT OBLIGATIONS (continued) |
During the year ended December 31, 2009, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $6.1 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $1.7 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.0 million of the obligation relates to the San Martin Silver Mine, and $2.5 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
16. | OTHER LONG TERM LIABILITIES |
In 1992, El Pilon entered into a contract with a Mexican bank, whereby the bank committed to advance cash to El Pilon in exchange for silver to be delivered in future instalments. The bank failed to advance the fully agreed amount, and El Pilon therefore refused to deliver the silver. El Pilon sued the bank for breach of contract. The Company believes it will retain the advance received from the bank, but the ultimate outcome is uncertain. The aggregate potential liability including interest and penalties amounts to $776,611 (December 31, 2009 - $753,657).
17. | CONTINGENT LIABILITIES |
Due to the size, complexity and nature of the Companys operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, these matters will not have a material effect on the consolidated financial statements of the Company.
18. | COMMITMENTS |
The Company is obligated to make certain mining property option payments as described in Note 7, in connection with the acquisition of its mineral property interests.
The Company has office lease commitments of $116,880 per annum in 2010 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at March 31, 2010, the Company is committed to construction contracts of approximately $0.8 million (US$0.8 million) (December 31, 2009 - $2.1 million or US$2.0 million) relating to the La Encantada mill expansion project which is currently in the final stage of completion.
As a result of the acquisition of Normabec, the Company is committed to make a US$1.0 million payment in December 2010 to acquire surface rights forming part of the Real de Catorce Project. It is also committed to make a payment of US$200,000 in December 2010 for technical and geological information collected over the Real de Catorce area.
The Company is committed to making severance payments in the amount of approximately $2.0 million, (December 31, 2009 - $1.9 million), subject to certain adjustments, to four officers in the event of a change of control of the Company.
Notes Page 18 |
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2010 AND 2009 (Unaudited) |
19. | NON-CASH FINANCING AND INVESTING ACTIVITIES |
Three Months Ended March 31, | ||||||
2010 | 2009 | |||||
$ | $ | |||||
NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||
Fair value of warrants upon completion of public offering | - | 848,758 | ||||
Transfer of contributed surplus upon exercise of stock options and warrants | 43,176 | 2,950 | ||||
Assets acquired by capital lease | - | 2,259,380 |
20. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform to the classifications used in the current years presentation.
21. | SUBSEQUENT EVENTS |
Subsequent to March 31, 2010:
(a) |
A total of 22,500 options were exercised for proceeds of $45,675; and |
(b) |
On April 27, 2010, a total of 40,000 options were cancelled consisting of 10,000 options at a price of $4.45 per share expiring on October 30, 2010; 10,000 options at a price of $3.62 per share expiring on August 28, 2011 and 20,000 options at a price of $3.52 per share expiring on December 7, 2012. |
Notes Page 19 |
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE QUARTER ENDED SEPTEMBER 30, 2009 |
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as plan, expect, forecast, project, intend, believe, anticipate, outlook and other similar words, or statements that certain events or conditions may or will occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Companys Annual Information Form under the heading Risk Factors. The Company undertakes no obligation to update forward-looking statements if circumstances or managements estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (First Majestic or the Company) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR, FR.WT.A and FR.WT.B, respectively. The common shares are also quoted on the OTCQX in the U.S. under the symbol FRMSF and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol FMV. Silver producing operations of the Company are carried out through three operating mines: the La Parrilla, La Encantada, and San Martin mines.
The following Managements Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2008. Additional information on the Company, including the Companys Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM) and First Silver Reserve Inc (First Silver), as well as the indirect wholly owned subsidiaries of CFM: First Majestic Plata, S.A. de C.V. (FM Plata), Mineral El Pilón, S.A. de C.V. (El Pilón), Minera La Encantada, S.A. de C.V. (La Encantada) and Majestic Services, S.A. de C.V. (Majestic Services). Our sole Canadian subsidiary, First Silver, underwent a wind up and distribution of assets and liabilities in December 2007; however, First Silver has not been dissolved pending the outcome of litigation in which it is involved as the plaintiff, described herein in the Liquidity section.
QUALIFIED PERSON S
Unless otherwise indicated, Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the Qualified Person for the Company and has reviewed the technical information herein. National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine can be found on the Companys web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
Suite 1805, 925 West Georgia Street, Vancouver, B.C., Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639-8873| Toll Free: 1.866.529.2807 | Email: acctg@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP.
MANAGEMENTS DISCUSSION
& ANALYSIS
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of November 12, 2009, unless otherwise stated.
FINANCIAL PERFORMANCE AND HIGHLIGHTS
Consolidated gross revenue for the third quarter ended September 30, 2009, prior to smelting and refining charges and metal deductions, increased 22% to $16.8 million (US$15.4 million) compared to $13.9 million (US$13.3 million) in the third quarter of 2008, and $15.8 million (US$13.5 million) in the second quarter of 2009.
Total production for the quarter ended September 30, 2009 was 1,089,481 ounces of silver equivalents consisting of 935,996 ounces of silver, 732 ounces of gold, 1,690,354 pounds of lead and 8,913 pounds of zinc. This compares to the 840,918 ounces of silver equivalents produced in the quarter ended September 30, 2008, which consisted of 719,399 ounces of silver, 536 ounces of gold and 1,518,271 pounds of lead. Total production for the quarter ended June 30, 2009 was 957,936 ounces of silver equivalents which included 827,720 ounces of silver, 746 ounces of gold and 1,493,162 pounds of lead.
In the third quarter ended September 30, 2009, the Company sold 1,018,417 silver equivalent ounces including 38,088 ounces of coins, ingots and bullion, with a combined average price of $16.54 (US$15.07) per ounce compared to 850,461 equivalent ounces of silver (with no coin sales) in the quarter ended September 30, 2008 at an average price of $16.29 (US$15.64) per ounce and 1,073,129 equivalent ounces, with 103,867 ounces of coins, ingots and bullion (none in 2008), at a combined average price of $14.70 per ounce (US$12.60) in the second quarter ended June 30, 2009. The average spot price of silver in the third quarter of 2009 was US$14.69 per ounce compared to US$15.09 per ounce in the third quarter of 2008, and US$13.76 per ounce in the second quarter ended June 30, 2009.
Sales revenue (after smelting and refining charges and metals deductions) for the quarter ended September 30, 2009 was $13.7 million, an increase of 27% compared to $10.8 million for the quarter ended September 30, 2008. Smelting and refining charges and metal deductions decreased to 19% of gross revenue in the third quarter ended September 30, 2009 compared to 22% in the third quarter ended September 30, 2008 but increased slightly from 17% of gross revenue in the second quarter ended June 30, 2009. Average smelting charges for doré in the quarter ended September 30, 2009 were US$0.54 per equivalent silver ounce whereas for concentrates they were US$4.34 per equivalent silver ounce.
The Company generated net income of $1.8 million or $0.02 per common share for the quarter ended September 30, 2009 compared to a net loss of $0.4 million or $(0.01) per common share for the quarter ended September 30, 2008, and a net income of $1.0 million or $0.01 per common share for the second quarter ended June 30, 2009. The net income for this quarter was after recording non-cash stock-based compensation expense of $0.5 million, a foreign exchange loss of $0.4 million, and an income tax recovery of $0.6 million.
Direct cash costs per ounce of silver for the quarter ended September 30, 2009 decreased to US$5.56 per ounce of silver, compared to US$7.65 per ounce of silver for the quarter ended September 30, 2008. During the quarter ended September 30, 2009, the Companys operations achieved operational efficiencies including reductions in production costs per tonne and cash costs per ounce. Direct cash costs for the quarter ended June 30, 2009 and the nine months ended September 30, 2009 were US$6.31 per ounce and US$5.58 per ounce, respectively.
Mine operating earnings for the quarter ended September 30, 2009 increased 141% to $4.1 million, an increase of $2.4 million, compared to mine operating earnings of $1.7 million for the quarter ended September 30, 2008, and mine operating earnings of $1.7 million for the quarter ended June 30, 2009.
The Company had operating income of $1.9 million for the third quarter ended September 30, 2009 compared to an operating loss of $0.8 million for the quarter ended September 30, 2008, an increase of $2.8 million or 329%. The operating loss for the second quarter ended June 30, 2009 was $1.2 million.
-1-
During the third quarter of 2009, the commissioning process was initiated at the new process plant at the La Encantada Silver Mine and is expected to conclude during the fourth quarter. Once completed, this new plant will have a capacity of 3,500 tonnes per day (tpd) and will be producing over four million ounces of silver annually.
Total capitalized construction in progress at La Encantada at September 30, 2009 consisted of $24.4 million (US$21.7 million) with a further $2.7 million (U$2.5 million) advanced to contractors for equipment.
During the quarter ended September 30, 2009, the Company invested $4.1 million in its mineral properties, including $1.7 million in Mineral La Encantada, $1.8 million in La Parrilla and $0.6 million in San Martin, and a further $6.9 million in additions to plant and equipment on a cash basis. This compares to $11.3 million invested in its mineral properties, and a further $8.5 million in additions to plant and equipment in the quarter ended September 30, 2008. $3.2 million was invested in mineral properties, and a further $5.9 million in additions to plant and equipment in the second quarter ended June 30, 2009.
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011 and 334,239 warrants expire on September 16, 2011. Finder's fee in the amount of $101,016 and 50,000 warrants were paid in respect to a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. The net proceeds of the offering are being used for general working capital purposes.
During the third quarter of 2009, the Company reduced current liabilities by $19.1 million by (1) derecognizing $14.3 million pursuant to a consent order with respect to the vendor liability and interest relating to the acquisition of First Silver. The consent order requires that the $14.3 million be held in trust pending the outcome of litigation. These funds will be accessible to the Company in the event of a favourable outcome to the litigation; (2) settling certain other current liabilities amounting to $2.7 million by the issuance of 1,191,852 common shares of the Company at a value of $2.30 per share; and (3) through reductions of accounts payable and accrued liabilities by $2.1 million;
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, US$1.5 million was advanced against the Companys lead production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required.
In September 2009, First Majestic agreed to acquire Normabec Mining Resources Ltd. (Normabec). The acquisition will be an all-share transaction by way of plan of arrangement (the "Arrangement"). The agreement provides that First Majestic will acquire Normabec in exchange for the issuance directly to Normabec's shareholders of 0.060425 First Majestic shares for each Normabec common share outstanding. Normabec's primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí State, Mexico. The proposed Arrangement was approved by Normabec shareholders on November 6, 2009, received court approvals on November 9, 2009, and is expected to close on November 13, 2009.
In October 2009, the Company entered into an agreement for two loan facilities totaling $53.8 million Mexican pesos (CAD$4.3 million) from the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI). Funds from these loans will be used for the completion of the 3,500 tpd cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% per annum and is repayable over a 60-month period. The working capital loan, for up to $6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% per annum and is a 90-day revolving loan.
-2-
The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine.
-3-
The subsidiaries, mines, mills and properties in Mexico are as follows:
Certain financial results in this MD&A, regarding operations and cash costs are presented in the Mine Operating Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars. U.S. dollar results are translated using the U.S. dollar rates on the dates which the transactions occurred.
-4-
MINING OPERATING RESULTS
Quarter Ended September 30, |
CONSOLIDATED
FIRST MAJESTIC
RESULTS |
|||
2009 | 2008 | |||
215,459 | 170,298 | Ore processed/tonnes milled | 636,379 | 542,691 |
205 | 196 | Average silver grade (g/tonne) | 208 | 282 |
66% | 67% | Recovery (%) | 63% | 55% |
935,996 | 719,399 | Silver ounces produced | 2,693,679 | 2,724,578 |
732 | 536 | Gold ounces produced | 1,969 | 1,258 |
57,503 | 31,034 | Equivalent ounces from gold | 140,843 | 69,175 |
1,690,354 | 1,518,271 | Pounds of lead produced | 5,012,255 | 5,363,719 |
95,112 | 90,485 | Equivalent ounces from lead | 252,142 | 342,363 |
8,913 | - | Pounds of zinc produced | 8,913 | 401,297 |
870 | - | Equivalent ounces from zinc | 870 | 22,979 |
1,089,481 | 840,918 | Total production - ounces silver equiv. | 3,087,535 | 3,159,095 |
1,018,417 | 850,461 | Ounces of silver equivalents sold (1) | 3,088,141 | 2,767,122 |
$5.56 | $7.65 | Total US cash cost per ounce (2) (3) | $5.58 | $5.70 |
6,597 | 8,876 | Underground development (m) | 16,126 | 22,045 |
1,017 | 26,666 | Diamond drilling (m) | 6,428 | 57,246 |
$37.53 | $49.42 | Total US production cost per tonne (3) | $35.71 | $45.27 |
Quarter Ended September 30, |
LA
ENCANTADA
RESULTS |
||||
2009 | 2008 | ||||
68,481 | 62,406 | Ore processed/tonnes milled | 213,518 | 178,481 | |
256 | 244 | Average silver grade (g/tonne) | 268 | 367 | |
48% | 62% | Recovery (%) | 50% | 48% | |
268,973 | 287,668 | Silver ounces produced | 917,270 | 1,014,813 | |
- | - | Gold ounces produced | - | - | |
- | - | Equivalent ounces from gold | - | - | |
536,454 | 777,099 | Pounds of lead produced | 2,008,538 | 2,117,312 | |
27,717 | 46,927 | Equivalent ounces from lead | 93,545 | 131,406 | |
- | - | Pounds of zinc produced | - | - | |
- | - | Equivalent ounces from zinc | - | - | |
296,690 | 334,595 | Total production - ounces of silver equiv. | 1,010,815 | 1,146,219 | |
300,003 | 321,910 | Ounces of silver equivalents sold | 1,007,973 | 1,092,142 | |
$7.29 | $3.52 | Total US cash cost per ounce (2) (3) | $5.84 | $3.50 | |
3,637 | 2,232 | Underground development (m) | 7,964 | 5,388 | |
- | 2,662 | Diamond drilling (m) | 2,397 | 5,941 | |
$46.51 | $47.78 | Total US production cost per tonne (3) | $42.89 | $51.69 | |
(1)
(2) (3) |
Includes (46,183) ounces in the third quarter ended
September 30, 2009 and (5,905) ounces in the nine months ended September
30, 2009 (after adjustments for intercompany eliminations) sold as
coins, ingots and bullion from Canadian operations.
|
-5-
Quarter Ended September 30, |
LA
PARRILLA
RESULTS |
|||
2009 | 2008 | |||
72,988 | 51,822 | Ore processed/tonnes milled | 202,442 | 179,771 |
218 | 213 | Average silver grade (g/tonne) | 211 | 300 |
74% | 65% | Recovery (%) | 71% | 57% |
378,680 | 241,128 | Silver ounces produced | 971,981 | 985,525 |
123 | 275 | Gold ounces produced | 494 | 567 |
17,189 | 15,999 | Equivalent ounces from gold | 42,441 | 31,485 |
1,153,900 | 737,908 | Pounds of lead produced | 3,003,717 | 3,082,015 |
67,395 | 43,334 | Equivalent ounces from lead | 158,597 | 199,341 |
8,913 | - | Pounds of zinc produced | 8,913 | - |
870 | - | Equivalent ounces from zinc | 870 | - |
464,134 | 300,461 | Total production - ounces of silver equiv. | 1,173,889 | 1,216,352 |
445,044 | 319,900 | Ounces of silver equivalents sold | 1,169,899 | 1,092,142 |
$3.65 | $9.51 | Total US cash cost per ounce (1) (2) | $4.44 | $4.99 |
1,941 | 4,347 | Underground development (m) | 5,728 | 8,900 |
530 | 18,160 | Diamond drilling (m) | 2,568 | 37,276 |
$38.07 | $56.13 | Total US production cost per tonne (2) | $38.11 | $43.46 |
Quarter Ended September 30, |
SAN MARTIN
RESULTS |
Year to Date September 30, | |||
2009 | 2008 | ||||
73,990 | 56,071 | Ore processed/tonnes milled | 220,420 | 184,440 | |
145 | 127 | Average silver grade (g/tonne) | 148 | 185 | |
84% | 89% | Recovery (%) | 76% | 66% | |
288,343 | 190,603 | Silver ounces produced | 804,429 | 724,240 | |
609 | 261 | Gold ounces produced | 1,475 | 691 | |
40,314 | 15,035 | Equivalent ounces from gold | 98,402 | 37,690 | |
- | 3,265 | Pounds of lead produced | - | 164,393 | |
- | 224 | Equivalent ounces from lead | - | 11,616 | |
- | - | Pounds of zinc produced | - | 401,297 | |
- | - | Equivalent ounces from zinc | - | 22,979 | |
328,657 | 205,862 | Total production - ounces of silver equiv. | 902,831 | 796,524 | |
319,553 | 208,651 | Ounces of silver equivalents sold | 916,174 | 582,838 | |
$6.46 | $11.54 | Total US cash cost per ounce (1) (2) | $6.65 | $9.76 | |
1,020 | 2,297 | Underground development (m) | 2,434 | 7,757 | |
486 | 5,844 | Diamond drilling (m) | 1,462 | 14,029 | |
$28.66 | $45.04 | Total US production cost per tonne (2) | $26.56 | $40.82 | |
(1)
(2) |
The Company reports non-GAAP measures which
include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable
silver (prior
to smelting charge) and smelting charges per ounce of
silver in order to manage and evaluate operating performance at each of
the
Companys mines. These measures are widely used in the silver
mining industry as a benchmark for performance, but do not have a
standardized meaning, and are not GAAP measures. See Reconciliation to
GAAP below.
Cash Costs do not include smelting; production costs per tonne include smelter charges. |
-6-
Reconciliation of Cash Costs to GAAP |
Three Months Ended
September 30, 2009 |
Three Months Ended
September 30, 2008 |
|||||||
San Martin | La Parrilla | La Encantada | Total | San Martin | La Parrilla | La Encantada | Total | ||
DIRECT MINING EXPENSES(MMI) | US$ | 2,244,322 | 2,523,098 | 2,175,762 | 6,943,182 | 2,945,664 | 3,087,046 | 2,097,866 | 8,130,576 |
PROFIT SHARING | US$ | 53,874 | - | - | 53,874 | - | - | (234,538) | (234,538) |
OTHER SELLING COSTS (TRANSPORT, ETC.) | US$ | 103,454 | 117,861 | 111,564 | 332,879 | 11,933 | 49,792 | 50,248 | 111,973 |
THIRD PARTY SMELTING | US$ | 260,825 | 1,395,590 | 1,224,079 | 2,880,494 | 326,178 | 615,287 | 1,968,496 | 2,909,961 |
BYPRODUCT CREDITS (Note 1) | US$ | (487,540) | (1,257,511) | (326,260) | (2,071,311) | (758,098) | (843,345) | (1,134,791) | (2,736,234) |
LESS PROFIT SHARING | US$ | (53,874) | - | - | (53,874) | - | - | 234,538 | 234,538 |
TOTAL CASH COSTS | US$ | 2,121,061 | 2,779,038 | 3,185,145 | 8,085,244 | 2,525,677 | 2,908,780 | 2,981,819 | 8,416,276 |
CASH COST PER OUNCE PRODUCED | US$/OZ | 7.36 | 7.34 | 11.84 | 8.64 | 13.25 | 12.06 | 10.37 | 11.70 |
SMELTING/REFINING/TRANSPORTATION | |||||||||
COST PER OUNCE | US$/OZ | (0.90) | (3.69) | (4.55) | (3.08) | (1.71) | (2.55) | (6.85) | (4.05) |
DIRECT MINING EXPENSES CASH COST | US$/OZ | 6.46 | 3.65 | 7.29 | 5.56 | 11.54 | 9.51 | 3.52 | 7.65 |
TONNES PRODUCED | TONNES | 73,990 | 72,988 | 68,481 | 215,459 | 56,071 | 51,822 | 62,406 | 170,299 |
OUNCES OF SILVER PRODUCED | OZ | 288,343 | 378,680 | 268,973 | 935,996 | 190,603 | 241,128 | 287,668 | 719,399 |
OUNCES OF SILVER EQ PRODUCED | OZ EQ | 40,315 | 85,453 | 27,717 | 153,485 | 15,259 | 59,333 | 46,927 | 121,519 |
TOTAL OZ OF SILVER EQ PRODUCED | OZ EQ | 328,658 | 464,133 | 296,690 | 1,089,481 | 205,862 | 300,461 | 334,595 | 840,918 |
MINING | $/Tonne | 11.47 | 15.17 | 12.98 | 13.21 | 23.07 | 27.16 | 12.93 | 20.60 |
MILLING | $/Tonne | 13.35 | 14.93 | 11.91 | 13.43 | 18.43 | 26.26 | 7.78 | 16.91 |
INDIRECT | $/Tonne | 5.51 | 4.46 | 6.88 | 5.59 | 11.03 | 6.15 | 12.91 | 10.23 |
DIRECT CASH COST | $/Tonne | 30.33 | 34.56 | 31.77 | 32.23 | 52.53 | 59.57 | 33.62 | 47.74 |
SELLING AND TRANSPORT COSTS | $/Tonne | 1.40 | 1.61 | 1.63 | 1.54 | 0.21 | 0.96 | 0.81 | 0.66 |
SMELTING AND REFINING COSTS | $/Tonne | 3.53 | 19.12 | 17.87 | 13.37 | 5.82 | 11.87 | 31.54 | 17.09 |
BY PRODUCT CREDITS | $/Tonne | (6.59) | (17.23) | (4.76) | (9.61) | (13.52) | (16.27) | (18.18) | (16.07) |
DIRECT COST PER TONNE | $/Tonne | 28.66 | 38.07 | 46.51 | 37.53 | 45.04 | 56.13 | 47.78 | 49.42 |
MINING | $/Oz. | 2.94 | 2.92 | 3.31 | 3.04 | 6.79 | 5.84 | 2.81 | 4.88 |
MILLING | $/Oz. | 3.43 | 2.88 | 3.03 | 3.09 | 5.42 | 5.64 | 1.69 | 4.00 |
INDIRECT | $/Oz. | 1.41 | 0.86 | 1.75 | 1.29 | 3.24 | 1.32 | 2.80 | 2.42 |
DIRECT CASH COST | $/Oz. | 7.78 | 6.66 | 8.09 | 7.42 | 15.45 | 12.80 | 7.29 | 11.30 |
SELLING AND TRANSPORT COSTS | $/Oz. | 0.36 | 0.31 | 0.41 | 0.36 | 0.06 | 0.21 | 0.17 | 0.16 |
SMELTING AND REFINING COSTS | $/Oz. | 0.90 | 3.69 | 4.55 | 3.08 | 1.71 | 2.55 | 6.84 | 4.04 |
BY PRODUCT CREDITS | $/Oz. | (1.69) | (3.32) | (1.21) | (2.21) | (3.98) | (3.50) | (3.94) | (3.80) |
CASH COST PER OUNCE | $/Oz. | 7.36 | 7.34 | 11.84 | 8.64 | 13.25 | 12.06 | 10.37 | 11.70 |
Note 1: The Company changed its estimates regarding provisional sales in the period causing by-product credits at La Encantada to increase US$464,088 in the quarter ended September 30, 2008.
-7-
Reconciliation of Cash Costs to GAAP |
Year to Date
September 30, 2009 |
Year to Date
September 30, 2008 |
|||||||
San Martin | La Parrilla | La Encantada | Total | San Martin | La Parrilla | La Encantada | Total | ||
DIRECT MINING EXPENSES(MMI) | US$ | 6,389,839 | 6,819,153 | 6,139,467 | 19,348,459 | 7,894,996 | 8,406,011 | 5,382,419 | 21,683,426 |
PROFIT SHARING | US$ | 53,874 | - | 59,120 | 112,994 | - | - | - | - |
OTHER SELLING COSTS (TRANSPORT, ETC.) | US$ | 308,898 | 306,285 | 339,688 | 954,871 | 80,202 | 175,410 | 189,596 | 445,208 |
THIRD PARTY SMELTING | US$ | 506,118 | 3,398,200 | 3,807,575 | 7,711,893 | 460,437 | 2,897,843 | 5,678,251 | 9,036,531 |
BYPRODUCT CREDITS (Note 1) | US$ | (1,350,144) | (2,807,457) | (1,127,776) | (5,285,377) | (907,079) | (3,665,790) | (2,023,928) | (6,596,797) |
LESS PROFIT SHARING | US$ | (53,874) | - | (59,120) | (112,994) | - | - | - | - |
TOTAL CASH COSTS | US$ | 5,854,711 | 7,716,181 | 9,158,954 | 22,729,846 | 7,528,556 | 7,813,474 | 9,226,338 | 24,568,368 |
CASH COST PER OUNCE PRODUCED | US$/OZ | 7.28 | 7.94 | 9.99 | 8.44 | 10.40 | 7.93 | 9.09 | 9.02 |
SMELTING/REFINING/TRANSPORTATION
COST PER OUNCE |
US$/OZ |
(0.63) |
(3.50) |
(4.15) |
(2.86) |
(0.64) |
(2.94) |
(5.60) |
(3.32) |
DIRECT MINING EXPENSES CASH COST | US$/OZ | 6.65 | 4.44 | 5.84 | 5.58 | 9.76 | 4.99 | 3.49 | 5.70 |
TONNES PRODUCED | TONNES | 220,420 | 202,441 | 213,518 | 636,379 | 184,440 | 179,771 | 178,481 | 542,692 |
OUNCES OF SILVER PRODUCED | OZ | 804,428 | 971,980 | 917,270 | 2,693,678 | 724,239 | 985,526 | 1,014,813 | 2,724,578 |
OUNCES OF SILVER EQ PRODUCED | OZ EQ | 98,403 | 201,908 | 93,545 | 393,856 | 72,394 | 239,432 | 137,376 | 449,202 |
TOTAL OZ OF SILVER EQ PRODUCED | OZ EQ | 902,831 | 1,173,888 | 1,010,814 | 3,087,533 | 796,633 | 1,224,958 | 1,152,189 | 3,173,780 |
MINING | $/Tonne | 10.75 | 13.37 | 12.83 | 12.28 | 19.66 | 18.29 | 10.73 | 16.27 |
MILLING | $/Tonne | 12.85 | 15.65 | 9.90 | 12.75 | 12.58 | 22.33 | 6.00 | 13.65 |
INDIRECT | $/Tonne | 5.39 | 4.66 | 6.02 | 5.37 | 10.62 | 6.20 | 13.47 | 10.09 |
DIRECT CASH COST | $/Tonne | 28.99 | 33.68 | 28.75 | 30.40 | 42.86 | 46.82 | 30.20 | 40.01 |
SELLING AND TRANSPORT COSTS | $/Tonne | 1.40 | 1.51 | 1.59 | 1.50 | 0.43 | 0.98 | 1.06 | 0.82 |
SMELTING AND REFINING COSTS | $/Tonne | 2.30 | 16.79 | 17.83 | 12.12 | 2.50 | 16.12 | 31.81 | 16.65 |
BY PRODUCT CREDITS | $/Tonne | (6.13) | (13.87) | (5.28) | (8.31) | (4.92) | (20.39) | (11.34) | (12.16) |
DIRECT COST PER TONNE | $/Tonne | 26.56 | 38.11 | 42.89 | 35.71 | 40.82 | 43.46 | 51.69 | 45.27 |
MINING | $/Oz. | 2.95 | 2.79 | 2.99 | 2.90 | 5.01 | 3.34 | 1.89 | 3.24 |
MILLING | $/Oz. | 3.52 | 3.26 | 2.31 | 3.01 | 3.20 | 4.07 | 1.06 | 2.72 |
INDIRECT | $/Oz. | 1.48 | 0.97 | 1.40 | 1.27 | 2.70 | 1.13 | 2.37 | 2.01 |
DIRECT CASH COST | $/Oz. | 7.95 | 7.02 | 6.70 | 7.18 | 10.92 | 8.54 | 5.31 | 7.97 |
SELLING AND TRANSPORT COSTS | $/Oz. | 0.38 | 0.32 | 0.37 | 0.35 | 0.11 | 0.18 | 0.19 | 0.16 |
SMELTING AND REFINING COSTS | $/Oz. | 0.63 | 3.50 | 4.15 | 2.86 | 0.64 | 2.94 | 5.59 | 3.32 |
BY PRODUCT CREDITS | $/Oz. | (1.68) | (2.89) | (1.23) | (1.96) | (1.25) | (3.72) | (1.99) | (2.42) |
CASH COST PER OUNCE | $/Oz. | 7.28 | 7.94 | 9.99 | 8.44 | 10.40 | 7.93 | 9.09 | 9.02 |
Note 1: The Company changed its estimates regarding provisional sales in the period causing by-product credits at La Encantada to increase US$464,088 in the quarter ended September 30, 2008.
-8-
Three months ended September 30, 2009 | ||||||
INVENTORY RECONCILIATION (See Note 1): | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Opening stockpile inventory | OZ EQ | 28,023 | 81,262 | 40,023 | - | 149,308 |
Reduction of stockpile | OZ EQ | (15,488) | 7,105 | (6,524) | - | (14,907) |
Ending stockpile inventory | OZ EQ | 12,535 | 88,367 | 33,499 | - | 134,401 |
Opening in process inventory | OZ EQ | 14,166 | 10,840 | - | - | 25,006 |
Inventory adjustments | OZ EQ | (796) | 821 | - | - | 25 |
Ending in process inventory | OZ EQ | 13,370 | 11,661 | - | - | 25,031 |
Opening finished goods inventory | OZ EQ | 11,596 | 16,134 | 46,941 | - | 74,671 |
Production - silver equivalent ounces | OZ EQ | 328,657 | 464,133 | 296,690 | - | 1,089,480 |
Shipments - silver equivalent ounces | OZ EQ | (319,553) | (445,044) | (300,003) | - | (1,064,600) |
Purchased material for processing | OZ EQ | 2,517 | 3,808 | - | - | 6,325 |
Inventory adjustments | OZ EQ | (16,350) | (2,906) | 664 | - | (18,592) |
Ending finished goods inventory | OZ EQ | 6,867 | 36,125 | 44,292 | - | 87,284 |
Total ending inventory before transfers | OZ EQ | 95,159 | 136,153 | 77,791 | - | 309,103 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 17,119 | 17,119 |
Transfers to coins, ingots and bullion inventory | OZ EQ | (62,387) | - | - | 62,387 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (3,633) | (3,633) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (38,088) | (38,088) |
Total inventory, all stages and products | OZ EQ | 32,772 | 136,153 | 77,791 | 37,785 | 284,501 |
Value of ending inventory - (Note 1) | CDN$ | 204,766 | 670,955 | 561,931 | 323,469 | 1,761,121 |
Value of ending inventory - Cdn$ per oz | CDN$ | 6.25 | 4.93 | 7.22 | 8.56 | 6.19 |
Average exchange rate - Q3 2009 | 1.0974 | 1.0974 | 1.0974 | 1.0974 | 1.0974 | |
Value of ending inventory - US$ per oz | US$ | 5.69 | 4.49 | 6.58 | 7.80 | 5.64 |
Year to date September 30, 2009 | ||||||
INVENTORY RECONCILIATION (See Note 1): | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Opening stockpile inventory | OZ EQ | 147,932 | 193,165 | 88,555 | - | 429,652 |
Reduction of stockpile | OZ EQ | (135,397) | (104,798) | (55,056) | - | (295,251) |
Ending stockpile inventory | OZ EQ | 12,535 | 88,367 | 33,499 | - | 134,401 |
Opening in process inventory | OZ EQ | 13,992 | 8,524 | - | - | 22,516 |
Inventory adjustments | OZ EQ | (622) | 3,137 | - | - | 2,515 |
Ending in process inventory | OZ EQ | 13,370 | 11,661 | - | - | 25,031 |
Opening finished goods inventory | OZ EQ | 33,276 | 20,368 | 48,111 | - | 101,755 |
Production - silver equivalent ounces | OZ EQ | 902,831 | 1,173,887 | 1,010,820 | - | 3,087,538 |
Shipments - silver equivalent ounces | OZ EQ | (916,174) | (1,169,899) | (1,007,973) | - | (3,094,046) |
Inventory adjustments | OZ EQ | (13,066) | 11,769 | (6,666) | - | (14,437) |
Ending finished goods inventory | OZ EQ | 6,867 | 36,125 | 44,292 | - | 80,810 |
Total ending inventory before transfers | OZ EQ | 243,279 | 136,153 | 77,791 | - | 457,223 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 42,453 | 42,453 |
Transfers to coins, ingots and bullion inventory | OZ EQ | (210,507) | - | - | 210,507 | - |
Adjustment due to refining, smelting and other | OZ EQ | - | - | - | (5,600) | (5,600) |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (209,575) | (209,575) |
Total inventory, all stages and products | OZ EQ | 32,772 | 136,153 | 77,791 | 37,785 | 284,501 |
Value of ending inventory - (Note 1) | CDN$ | 204,766 | 670,955 | 561,931 | 323,469 | 1,761,121 |
Value of ending inventory - Cdn$ per oz | CDN$ | 6.25 | 4.93 | 7.22 | 8.56 | 6.19 |
Average exchange rate - Q3 2009 | 1.0974 | 1.0974 | 1.0974 | 1.0974 | 1.0974 | |
Value of ending inventory - US$ per oz | US$ | 5.69 | 4.49 | 6.58 | 7.80 | 5.64 |
Note 1 - The inventory reconciliation above consists of silver coins, bullion, doré, concentrates, ore in process and stockpile but excludes materials and supplies.
-9-
Three Months ended September 30, 2009 | ||||||
Cost of Sales Reconciliation | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Cash Cost | US$ | 2,121,061 | 2,779,038 | 3,185,145 | - | 8,085,244 |
Inventory changes | US$ | 55,280 | (93,860) | (12,302) | - | (50,882) |
Byproduct credits | US$ | 487,540 | 1,257,511 | 326,260 | - | 2,071,311 |
Smelting and refining | US$ | (260,825) | (1,395,590) | (1,224,079) | - | (2,880,494) |
Other | US$ | 290,359 | 80,732 | 97,819 | 468,910 | |
Cost of sales - Calculated | US$ | 2,693,415 | 2,627,831 | 2,372,843 | - | 7,694,089 |
Average CDN/US Exchange Rate | 0.91013 | 0.94697 | 0.94947 | - | 0.93449 | |
Booked Cost of Sales | CDN$ | 2,959,383 | 2,774,983 | 2,499,113 | - | 8,233,479 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | (179,092) | (179,092) |
Total Cost of Sales as Reported | CDN$ | (179,092) | 8,054,387 |
Year to Date September 30, 2009 | ||||||
Cost of Sales Reconciliation | San Martin | La Parrilla | La Encantada | Vancouver | Total | |
Cash Cost | US$ | 5,854,711 | 7,716,182 | 9,158,954 | - | 22,729,847 |
Inventory changes | US$ | 849,454 | 156,540 | (46,132) | - | 959,862 |
Byproduct credits | US$ | 1,350,144 | 2,807,457 | 1,127,776 | - | 5,285,377 |
Smelting and refining | US$ | (506,118) | (3,398,200) | (3,807,575) | - | (7,711,893) |
Other | US$ | 180,526 | 447,293 | 90,513 | - | 718,332 |
Cost of sales - Calculated | US$ | 7,728,717 | 7,729,272 | 6,523,536 | - | 21,981,525 |
Average CDN/US Exchange Rate | 0.85688 | 0.86721 | 0.86153 | - | 0.86187 | |
Booked Cost of Sales | CDN$ | 9,019,559 | 8,912,772 | 7,572,042 | - | 25,504,373 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | 308,695 | 308,695 |
Total Cost of Sales as Reported | CDN$ | 308,695 | 25,813,068 |
Note 1 - Net of intercompany eliminations of $528,329 for the third quarter ended September 30, 2009 and $2,903,712 for the year to date ended September 30, 2009.
-10-
REVIEW OF MINING OPERATING RESULTS
The total silver production for the third quarter of 2009 consisted of 1,089,481 ounces of silver equivalents representing an increase of 131,545 ounces or 14% compared to the 957,936 ounces of silver equivalents produced in the second quarter of 2009 and an increase of 248,563 ounces of silver equivalents or 30% compared to the 840,918 ounces of silver equivalents in the third quarter of 2008.
Silver production in the third quarter of 2009 was 935,996 ounces of silver, representing an increase of 108,276 ounces of silver or 13% compared to the second quarter of 2009 and an increase of 216,597 ounces of silver or 30% compared to the third quarter of 2008. In the third quarter of 2009, 1,690,354 pounds of lead were produced, representing an increase of 197,192 pounds or 13% compared to the second quarter of 2009 and an increase of 172,083 pounds or 11% compared to the third quarter of 2008. Gold produced in the third quarter of 2009 was 732 ounces, representing a decrease of 14 ounces or 2% compared to the second quarter of 2009 and an increase of 196 ounces or 37% compared to the third quarter of 2008.
The ore processed during the quarter at the Company's three operating silver mines: the La Parrilla Silver Mine, the San Martin Silver Mine and the La Encantada Silver Mine; amounted to 215,459 tonnes which is an increase of 10,586 tonnes or 5% over the second quarter of 2009 and 45,161 tonnes or 27% over the third quarter of 2008 during which time a very heavy rainy season led to operational difficulties at all of the Companys operations.
The average silver head grade in the quarter for the three mines increased to 205 g/t silver compared to 189 g/t silver in the second quarter of 2009 and 196 g/t in the third quarter of 2008.
Total combined recoveries of silver at the Companys three mills remained at 66% in the third quarter of 2009 compared to 66% in the second quarter of 2009 and 67% in the third quarter of 2008.
A total of 6,597 meters of underground development was completed in the third quarter of 2009 compared to 4,918 metres completed in the second quarter of 2009. This program is important as it provides access to new areas within the different mines and prepares the mines for continued growth of silver production. A total of 1,017 meters of diamond drilling was completed in the third quarter of 2009 compared to 363 metres drilled in the second quarter of 2009.
MINE UPDATES
La Encantada Silver Mine, Coahuila, Mexico
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest city, Melchor Muzquiz, is 225 kilometres away via 45 kilometres of gravel road and 180 kilometres of paved road. The La Encantada mine consists of a 1,000 tpd flotation plant, and other related facilities, including a mining camp with 180 houses, administrative offices, and a private airstrip. The Company owns 100% of the La Encantada Silver Mine.
During the third quarter of 2009, the commissioning process was initiated at the new process plant at the La Encantada Silver Mine and is expected to conclude during the fourth quarter. Once completed, this new plant will have a capacity of 3,500 tpd and will be producing over four million ounces of silver annually. To date, the Company has spent approximately $27.1 million (US$24.3 million) on the new cyanidation plant.
Tonnes milled in the third quarter of 2009 remained consistent with 68,481 tonnes milled in the second quarter of 2009. The average head grade was 256 grams per tonne (g/t) in the third quarter of 2009, representing an increase of 19 g/t or 8% when compared to 237 g/t in the second quarter of 2009 and an increase of 12 g/t or 5% when compared to the 244 g/t in the third quarter of 2008. Silver recovery in the third quarter of 2009 was 48% which is comparable with the 50% achieved in the second quarter of 2009 but represents a decrease of 23% when compared to the 62% achieved in the third quarter of 2008. The low recoveries were caused by high manganese content in the ore from the Azul y Oro and Buenos Aires areas. Until the new 3,500 tpd cyanidation plant is completed, metallurgical recoveries are only expected to increase modestly.
-11-
A total of 296,690 equivalent ounces of silver were produced during the third quarter of 2009, which is comparable to the 291,430 equivalent ounces of silver produced in the second quarter of 2009 but represents a decrease of 37,905 equivalent ounces of silver or 11% when compared to the 334,595 equivalent ounces of silver produced in the third quarter of 2008. Silver production consisted of 268,973 ounces of silver, representing a modest increase of 2% compared with the 263,321 ounces produced in the second quarter of 2009 and a decrease of 7% compared with the 287,668 ounces produced in the third quarter of 2008. Lead production for the third quarter of 2009 was 536,454 pounds, representing a decrease of 33,258 pounds or 6% compared to 569,712 pounds of lead produced in the second quarter of 2009 and a decrease of 240,645 pounds or 31% compared to the 777,099 pounds of lead produced in the third quarter of 2008.
Underground mine development consisted of 3,637 metres completed in the third quarter of 2009 compared to 2,230 metres of development completed in the second quarter of 2009, representing an increase of 63%. This program focused on several targets including the San Javier/Milagros Breccias, Azul y Oro, improved transportation and logistics out of the mine, the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. The purpose of the ongoing underground development program is to prepare for increased production levels in 2009, to confirm additional Reserves and Resources, and for exploration and exploitation purposes going forward. No exploration diamond drilling was completed at La Encantada in the third quarter of 2009.
La Parrilla Silver Mine, Durango, Mexico
The La Parrilla Silver Mine is a group of producing underground mines consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings including the San Marcos and the Quebradillas mines, located approximately 65 kilometres southeast of the city of Durango, Mexico. La Parrilla includes an 850 tpd mill consisting of parallel 425 tpd cyanidation and flotation circuits, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
Tonnes milled at La Parrilla were 72,988 tonnes in the third quarter of 2009, representing an increase of 9,440 tonnes or 15%, when compared with the 63,548 tonnes milled in the second quarter of 2009 and an increase of 21,166 tonnes or 41%, when compared with the 51,822 tonnes milled in the third quarter of 2008. The average head grade increased significantly to 218 g/t from 196 g/t in the second quarter of 2009 and from 213 g/t in the third quarter of 2008. Recoveries of silver decreased to 74% in the third quarter of 2009, compared to 81% in the second quarter of 2009, but this represented an increase when compared to the 65% achieved in the third quarter of 2008.
Total silver production increased to 464,134 equivalent ounces of silver in the third quarter of 2009. This represents an increase of 19% or 72,504 equivalent ounces of silver compared to the 391,630 ounces of silver equivalent produced in the second quarter of 2009 and an increase of 54% or 163,673 equivalent ounces of silver when compared to the 300,461 ounces of silver equivalent produced in the third quarter of 2008. The composition of the silver equivalent production in the third quarter of 2009 included 378,680 ounces of silver, 123 ounces of gold, 1,153,900 pounds of lead and 8,913 pounds of zinc. This compares with 324,972 ounces of silver, 221 ounces of gold and 923,450 pounds of lead in the second quarter of 2009 and 241,128 ounces of silver, 275 ounces of gold and 737,908 pounds of lead in the third quarter of 2008.
A total of 1,941 metres of underground development was completed in the third quarter of 2009, compared to 1,982 metres in the second quarter of 2009. 530 metres of diamond drilling was completed in the third quarter of 2009 while no diamond drilling was completed in the second quarter of 2009.
-12-
San Martin Silver Mine, Jalisco, Mexico
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 1,000 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine. The mill has historically produced 100% doré bars and continues to do so. In early 2008, a 500 tpd flotation circuit was completed to take advantage of the large sulphide Resource at this mine, however, due to low base metal prices and high costs of smelting concentrates this circuit is presently not being operated.
During the quarter the Company has been exploring and developing a new area at the San Martin mine, referred to as the San Pedro area located in the footwall of the Zuloaga vein, which is resulting in higher ore grades and additional tonnage being fed to the mill. During the fourth quarter, additional development is planned in order to define the extent of this new area.
Tonnes milled at the San Martin mine were 73,990 tonnes in the third quarter of 2009, representing a slight increase when compared to the 72,844 tonnes milled in the second quarter of 2009 and an increase of 32% when compared to the 56,071 tonnes milled in the third quarter of 2008. The average head grade was 145 g/t in the third quarter of 2009, representing an increase of 5% when compared to the 138 g/t in the second quarter of 2009 and an increase of 14% when compared to the 127 g/t in the third quarter of 2008.
Recoveries of silver in the third quarter of 2009 increased to 84%, from 74% achieved in the second quarter of 2009, however this was a slight decrease from the 89% achieved in the third quarter of 2008. Total production of 328,657 ounces of silver equivalent in the third quarter of 2009 was 20% higher than the 274,876 equivalent ounces of silver produced in the second quarter of 2009 and 60% higher than the 205,862 equivalent ounces of silver produced in the third quarter of 2008. The equivalent ounces of silver in the third quarter of 2009 consisted of 288,343 ounces of silver and 609 ounces of gold. This compares to 239,427 ounces of silver and 525 ounces of gold produced in the second quarter of 2009 and 190,603 ounces of silver, 261 ounces of gold and 3,265 pounds of lead produced in the third quarter of 2008.
During the third quarter of 2009, a total of 486 metres of diamond drilling was completed. This compares to 363 metres drilled in the second quarter of 2009.
During the third quarter of 2009, a total of 1,020 metres of underground development was completed, representing a slight increase to the 707 metres completed in the second quarter of 2009.
Del Toro Silver Mine, Zacatecas, Mexico
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of 320 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines; the Perseverancia and San Juan mines which are approximately 1 kilometre apart.
The Del Toro Silver Mine is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings.
Presently, permitting is underway for the construction of a new mill at Del Toro. Assuming all permitting is completed in 2009 and funds are available for this project, a new 500 tpd mill is anticipated to be operating towards the end of 2010.
-13-
EXPLORATION PROPERTY UPDATES
Cuitaboca Silver Project, Sinaloa, Mexico
The Company has an option to purchase a 100% interest in the Cuitaboca Silver Project, consisting of 5,134 hectares located in the State of Sinaloa, Mexico, which contains at least six well known veins with sulphide mineralization carrying high grade silver. The veins within the property are known as the La Lupita, Los Sapos, Chapotal, Colateral-Jesus Maria, Mojardina and Santa Eduwiges. In October 2008, in an effort to reduce costs, the Company halted its activities at the Cuitaboca project. Further exploration and development consisting of 2,000 metres of direct drifting along the vein and a diamond drill program at both the Colateral and Mojardina veins is being deferred until funds can be allocated to this project. Road construction for access to the La Lupita, Los Sapos, Chapotal, and Santa Eduwiges veins was also deferred. There is a US$275,000 option payment due on November 25, 2009 and the Company intends to meet this commitment.
Jalisco Group of Properties, Jalisco, Mexico
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, Mexico. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued pending an improvement in market conditions.
RESULTS OF OPERATIONS
Three Months ended September 30, 2009 compared to Three Months ended September 30, 2008.
For the Quarter Ended | ||||||||
September 30, 2009 | September 30, 2008 | |||||||
$ | $ | |||||||
Gross Revenue | 16,845,886 | 13,853,479 | (1) | |||||
Net Revenue | 13,724,803 | 10,817,211 | (2) | |||||
Cost of sales | 8,054,387 | 7,977,801 | (3) | |||||
Amortization and depreciation | 786,518 | 455,028 | (4) | |||||
Depletion | 628,801 | 623,746 | ||||||
Accretion of reclamation obligation | 105,400 | 41,088 | ||||||
Mine operating earnings | 4,149,697 | 1,719,548 | (5) | |||||
General and administrative | 1,724,437 | 1,521,567 | (6) | |||||
Stock-based compensation | 505,847 | 1,035,864 | (7) | |||||
2,230,284 | 2,557,431 | |||||||
Operating income (loss) | 1,919,413 | (837,883 | ) | (8) | ||||
Interest and other expenses | (337,208 | ) | (223,639 | ) | (9) | |||
Investment and other income | 85,748 | 331,929 | (10) | |||||
Foreign exchange (loss) gain | (447,659 | ) | 72,816 | (11) | ||||
Income (loss) before taxes | 1,220,294 | (656,777 | ) | |||||
Income tax (recovery) - current | 274,327 | (519,549 | ) | |||||
Income tax (recovery) - future | (895,656 | ) | 237,017 | |||||
Income tax (recovery) expense | (621,329 | ) | (282,532 | ) | (12) | |||
NET INCOME (LOSS) FOR THE QUARTER | 1,841,623 | (374,245 | ) | (13) | ||||
EARNINGS (LOSS) PER SHARE - BASIC | 0.02 | (0.01 | ) | |||||
-14-
1. |
Consolidated gross revenue (prior to smelting and refining and metal deductions) for the quarter ended September 30, 2009 was $16,845,886 or $16.54 (US$15.07) per ounce compared to $13,853,479 or $16.29 (US$15.64) per ounce for the quarter ended September 30, 2008 for an increase of $2,992,407, or 22%. A 20% increase in equivalent silver ounces sold in the current quarter contributed to the increase. |
2. |
Net revenue for the three months ended September 30, 2009 increased by $2,907,592 or 27% to $13,724,803, from $10,817,211 in the third quarter of 2008, due to the increase in the silver ounces sold and the lower smelting and refining charges from two new smelting and refining agreements entered into in February and May 2009. |
3. |
Cost of sales increased by only $76,586 or less than 1%, to $8,054,387 in the third quarter of 2009 from $7,977,801 in the same quarter of 2008. This modest increase in cost of sales was accomplished while increasing the equivalent silver ounces sold by 20% from the quarter ended September 30, 2008. In the third quarter of 2009, the Company achieved operational efficiencies including reductions in production costs per tonne and cash costs per ounce. Also, in the third quarter of 2008, the Companys operations in Mexico were negatively impacted by an extremely wet and stormy rainy season and this led to the higher operating costs. |
4. |
Amortization and depreciation increased by $331,490 or 73%, to $786,518 in the third quarter of September 2009 from $455,028 in the same quarter of 2008, due to the higher level of depreciable assets in the current quarter including assets acquired by capital lease in the fourth quarter of 2008 and in 2009. |
5. |
Mine operating earnings increased by $2,430,149 or 141% to $4,149,697 for the quarter ended September 30, 2009 from $1,719,548 for the same quarter in the prior year. This is primarily due to the $2,907,592 increase in net revenue. |
6. |
General and administrative expenses increased by $202,870 or 13% compared to the prior year due to higher legal fees, professional fees and directors fees in the current quarter. |
7. |
Stock-based compensation decreased by $530,017 or 51% due to fewer new option grants and fewer options vesting in the quarter ended September 30, 2009. |
8. |
Operating income increased by $2,757,296 or 329% to $1,919,413 for the quarter ended September 30, 2009, from an operating loss of $837,883 for the quarter ended September 30, 2008, due to the increase in mine operating earnings and reduced stock-based compensation. |
9. |
Interest and other expenses increased by $113,569 or 51% in the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008. The increase is primarily attributed to additional interest on capital leases, interest on outstanding property payments relating to the Quebradillas Mine at La Parrilla and financing cost relating to advance payments on silver shipments. |
10. |
Investment and other income decreased by $246,181 or 74% due to declining interest rates on short-term investments. |
11. |
The foreign exchange loss increased to $447,659 in the quarter ended September 30, 2009 from a foreign exchange gain of $72,816 in the quarter ended September 30, 2008 due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar, and a weakening of the Mexican peso relative to the Canadian dollar. |
12. |
During the quarter ended September 30, 2009, the Company recorded an income tax recovery of $621,329 compared to a recovery of $282,532 in the quarter ended September 30, 2008, and this is attributed to the recovery of future income taxes arising from the reversal of temporary timing differences and additional tax loss carryforwards compared to 2008. |
13. |
As a result of the foregoing, net income for the quarter ended September 30, 2009 was $1,841,623 or $0.02 per common share compared to a net loss of $374,245 or $0.01 per common share in the quarter ended September 30, 2008, for an increase of $2,215,868. |
-15-
Nine Months ended September 30, 2009 compared to Nine Months ended September 30, 2008.
For the Nine Months Ended | ||||||||
September 30, 2009 | September 30, 2008 | |||||||
$ | $ | |||||||
Gross Revenue | 50,089,619 | 44,390,294 | (1) | |||||
Net Revenue | 41,136,552 | 35,218,282 | (2) | |||||
Cost of sales | 25,813,068 | 22,124,612 | (3) | |||||
Amortization and depreciation | 2,588,908 | 2,119,459 | (4) | |||||
Depletion | 2,028,008 | 2,208,952 | (5) | |||||
Accretion of reclamation obligation | 338,610 | 136,930 | (6) | |||||
Mine operating earnings | 10,367,958 | 8,628,329 | ||||||
General and administrative | 5,656,753 | 5,753,772 | (7) | |||||
Stock-based compensation | 2,203,394 | 2,814,696 | (8) | |||||
7,860,147 | 8,568,468 | |||||||
Operating income | 2,507,811 | 59,861 | (9) | |||||
Interest and other expenses | (1,102,179 | ) | (789,338 | ) | (10) | |||
Investment and other income | 597,764 | 1,113,379 | (11) | |||||
Foreign exchange (loss) gain | (559,567 | ) | 605,850 | (12) | ||||
Income before taxes | 1,443,829 | 989,752 | ||||||
Income tax - current | 445,910 | 186,385 | ||||||
Income tax (recovery) - future | (2,819,817 | ) | 409,245 | |||||
Income tax (recovery) expense | (2,373,907 | ) | 595,630 | (13) | ||||
NET INCOME FOR THE PERIOD | 3,817,736 | 394,122 | (14) | |||||
EARNINGS PER SHARE - BASIC | 0.05 | 0.01 | ||||||
1. |
Gross revenue (prior to smelting and refining and metal deductions) for the nine month period ended September 30, 2009 was $50,089,619 compared to $44,390,294 for the nine month period ended September 30, 2008 for an increase of $5.7 million or 13%. A 12% increase in silver equivalent ounces sold in the first nine months of 2009, compared to the first nine months of 2008, contributed to this increase. Total equivalent ounces of silver sold for the nine months ended September 30, 2009, was 3,088,141 ounces whereas for the nine months ended September 30, 2008, the total equivalent ounces of silver sold was 2,762,357 ounces, for an increase of 325,784 equivalent ounces of silver. |
2. |
Net revenue for the nine months ended September 30, 2009 increased by $5.9 million or 17%, from $35,218,282 in the nine months ended September 30, 2008 to $41,136,552 in the nine months ended September 30, 2009. Smelting and refining charges and metal deductions were reduced by 2% during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, and reflects the reductions in smelting and refining charges related to two new smelting and refining agreements entered into in February and May 2009 for doré and concentrate smelting. Net revenue in the current year to date period also included the incremental revenue of $657,324 from the sales of coins, ingots and bullion to consumers and individual retail investors over the Companys website. |
3. |
Cost of sales increased by $3.7 million or 17% from $22,124,612 to $25,813,068 for the nine months ended September 30, 2009 due to a 12% increase in the equivalent ounces of silver sold. |
4. |
Amortization and depreciation increased by $469,449 or 22%, to $2,588,908 for the nine months ended September 30, 2009 from $2,119,459 for the nine months ended September 30, 2008, due to the higher level of depreciable assets in the current year including assets acquired by capital lease in the fourth quarter of 2008 and in 2009. |
5. |
Depletion expense decreased by $180,944 or 8% to $2,028,008 in the nine months ended September 30, 2009 compared to $2,208,952 for the nine months ended September 30, 2008 and is primarily related to the San Martin mine as less tonnage was extracted from reserves, and more tonnage was extracted from areas outside of reserves. |
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6. |
Accretion of reclamation obligations has increased by $201,680, from $136,930 in the nine months ended September 30, 2008 to $338,610 in the nine months ended September 30, 2009, due to the updated cost estimates for reclamation activities as determined in late 2008. |
7. |
General and administrative expenses decreased by $97,019 or 2% due to reductions in advertising and promotion, travel and office costs. |
8. |
Stock-based compensation decreased by $611,302 or 22% due to fewer new option grants and fewer options vesting in the current year-to-date period. |
9. |
Operating income increased by $2,447,950 or 4,089%, from $59,861 for the period ended September 30, 2008 to $2,507,811 for the period ended September 30, 2009. The increase is attributable to the $1,739,629 increase of mine operating earnings, as well as reductions of $97,019 and $611,302 on general and administrative expenses and stock-based compensation, respectively. |
10. |
Interest and other expenses increased by $312,841 or 40% in the nine month period ended September 30, 2009 compared to the prior year and is primarily attributed to additional interest on capital leases, interest on outstanding property payments relating to the Quebradillas Mine at La Parrilla and financing cost relating to advance payments on silver shipments. |
11. |
Investment and other income decreased by $515,615 or 46%. Interest rates on short-term investments continued to decline in the first nine months of 2009 but this was offset by gains of $556,880 that were realized on derivative financial instruments. |
12. |
There was a foreign exchange loss of $559,567 for the nine month period ended September 30, 2009, compared to a gain of $605,850 in the nine month period ended September 30, 2008, due to the devaluation of net monetary assets denominated in U.S. dollars related to a weakening of the U.S. dollar compared to the Canadian dollar, and a weakening of the Mexican peso relative to the Canadian dollar. |
13. |
During the nine months ended September 30, 2009, the Company recorded an income tax recovery of $2,373,907 compared to a tax expense of $595,630 in the nine months ended September 30, 2008. This is attributed to the recovery of future income taxes arising from the reversal of temporary timing differences and additional tax loss carryforwards compared to 2008. Included in the current recovery is a Canadian dollar equivalent of $542,906 for the adjusted tax deductibility of energy expenses which has increased the tax loss carryforwards. |
14. |
As a result of the foregoing, net income for the nine months ended September 30, 2009 was $3,817,736 or $0.05 per common share (basic) compared to net income of $394,122 or $0.01 per common share for the nine months ended September 30, 2008, for an increase of $3.4 million. |
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SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the last eight quarters.
|
Quarter |
Net sales revenues $ |
Net income (loss) after taxes $ |
Basic and
diluted net income (loss) per common share $ |
Stock based compensation (1) $ |
Note |
Year ended December 31, 2009 | Q3 | 13,724,803 | 1,841,623 | 0.02 | 505,847 | 2 |
Q2 | 13,024,877 | 1,036,416 | 0.01 | 800,808 | 3 | |
Q1 | 14,386,872 | 939,698 | 0.01 | 896,739 | 4 | |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | 5 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 | ||
Q2 | 11,436,889 | (296,956) | 0.00 | 670,616 | 6 | |
Q1 | 12,964,182 | 1,065,323 | 0.02 | 1,108,216 | ||
Year ended December 31, 2007 | Q4 | 11,631,477 | (1,292,631) | (0.03) | 1,446,821 |
Notes:
(1) |
Stock-based Compensation - the net losses are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
(2) |
In the quarter ending September 30, 2009, net sales revenue increased due to rising silver prices. The average gross revenue per ounce of silver realized was US$15.07 in the quarter ended September 30, 2009, increasing from US$12.60 in the prior quarter ended June 30, 2009. |
(3) |
In the quarter ended June 30, 2009, net sales revenue decreased due to losses on final settlements for which provisional payments had already been received in the prior quarter. |
(4) |
In the quarter ended March 31, 2009, a stronger U.S. dollar compared to the Canadian dollar accounted for the increase of revenue. Although silver prices were lower in the first quarter of 2009, the average gross revenue per ounce sold was Cdn$17.52 (US$14.07) per ounce on a consolidated basis for the three-month period ended March 31, 2009. Also contributing to an increase in net sales is $1,194,452 from the sale of coins, ingots and bullion in the three months ended March 31, 2009. |
(5) |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metal settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million relating to net U.S. monetary liabilities in the fourth quarter of 2008. |
(6) |
In the quarter ended June 30, 2008, the Company had a revision to its smelting charges imposed, resulting in an incremental charge and reduction of net sales of $1.9 million (US$1,852,830) in the quarter. Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate. |
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Revenues Per Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net sum of invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including metal by-products of gold, lead and zinc, after having deducted refining and smelting charges and metal deductions, and intercompany shipments of coins, ingots and bullion products. The following analysis provides the gross revenues prior to refining and smelting charges and metal deductions, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP. Gross revenues are deducted by shipped ounces of equivalent silver to calculate the average realized price per ounce of silver sold.
Revenue Analysis |
Quarter Ended
September 30, |
Year to Date
September 30, |
||
2009
$ |
2008
$ |
2009
$ |
2008
$ |
|
MEXICO | ||||
Gross revenues - silver dore bars and concentrates | 17,058,732 | 13,853,479 | 49,524,306 | 44,390,294 |
Less: refining and smelting charges | (2,475,509) | (2,515,592) | (7,181,971) | (7,662,158) |
Less: metal deductions | (716,255) | (520,675) | (1,841,777) | (1,509,854) |
Net revenue from silver dore and concentrates | 13,866,968 | 10,817,212 | 40,500,558 | 35,218,282 |
Equivalent ounces of silver sold | 1,064,600 | 850,461 | 3,094,046 | 2,762,357 |
Average gross revenue per ounce sold ($CDN) | 16.02 | 16.29 | 16.01 | 16.07 |
Average exchange rate in the period ($US/$CDN) | 1.0974 | 1.0418 | 1.1700 | 1.0186 |
Average gross revenue per ounce sold ($US) | 14.60 | 15.64 | 13.68 | 15.78 |
CANADA | ||||
Gross revenues - silver coins, ingots and bullion | 656,660 | - | 3,658,741 | - |
Equivalent ounces of silver sold, from Mexican production | 38,088 | - | 209,575 | - |
Average gross revenue per ounce sold ($CDN) | 17.24 | - | 17.46 | - |
Average exchange rate in the period ($US/$CDN) | 1.0974 | - | 1.1700 | - |
Average gross revenue per ounce sold ($US) | 15.71 | - | 14.92 | - |
CONSOLIDATED | ||||
Combined gross revenues - silver dore, concentrates, coins, ingots and bullion | 17,715,392 | 13,853,479 | 53,183,047 | 44,390,294 |
Less: intercompany eliminations | (869,506) | - | (3,093,428) | - |
Consolidated gross revenues - silver dore, concentrates, coins, ingots and bullion | 16,845,886 | 13,853,479 | 50,089,619 | 44,390,294 |
Less: refining and smelting charges, net of intercompany | (2,440,169) | (2,515,592) | (7,146,631) | (7,662,158) |
Less: metal deductions, net of intercompany | (680,914) | (520,675) | (1,806,436) | (1,509,854) |
Consolidated net revenue from silver dore, concentrates, coins, ingots and bullion | 13,724,803 | 10,817,212 | 41,136,552 | 35,218,282 |
Equivalent ounces of silver sold (after interco. eliminations) | 1,018,417 | 850,461 | 3,088,141 | 2,762,357 |
Average gross revenue per ounce sold ($CDN) | 16.54 | 16.29 | 16.22 | 16.07 |
Average exchange rate in the period ($CDN/$US) | 1.0974 | 1.0418 | 1.1700 | 1.0186 |
Average gross revenue per ounce sold ($US) | 15.07 | 15.64 | 13.86 | 15.78 |
Average market price of per ounce of silver per LBMA.ORG.UK ($US) | 14.69 | 15.09 | 13.69 | 16.60 |
LIQUIDITY
At September 30, 2009, the Company had working capital of $6.0 million and cash and cash equivalents of $8.2 million compared to a working capital deficiency of $1.0 million and cash and cash equivalents of $17.4 million at December 31, 2008. Working capital increased primarily as a result of a $18.7 million reduction of current liabilities (which includes $2,741,260 settled through the issuance of shares as further described below) and a $9.3 million reduction in cash and cash equivalents.
On July 16, 2009, the Company derecognized $14.3 million pursuant to a consent order with respect to the vendor liability and interest relating to the acquisition of First Silver. The consent order requires that the $14.3 million be held in trust pending the outcome of litigation. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.
In August and September 2009, the Company also settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a deemed value of $2.30 per share.
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In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011 and 334,239 warrants expire on September 16, 2011. Finder's fee in the amount of $101,016 and 50,000 warrants were paid in respect to a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. The net proceeds of the offering are being used for general working capital purposes.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,685,276, of which $18,836,518 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The Company is using $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine and the remainder for general working capital. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. During the nine months ended September 30, 2009, the Company also received $7,938 pursuant to the exercise of 6,250 stock options.
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters issuing 8,500,000 units at an issue price of $5.35 per unit for net proceeds to the Company of $42,881,471, of which $40,144,471 was allocated to the common shares, $2,380,000 was allocated to the warrants and $357,000 was allocated to the underwriters warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring March 25, 2010. In addition, the Company received $1,398,566 pursuant to the exercise of 436,650 stock options and $31,875 pursuant to the exercise of 7,500 warrants during the nine months ended September 30, 2008.
During the nine months ended September 30, 2009, the Company invested $9.1 million (September 30, 2008 -$23.8 million) on the acquisition, exploration and development of its mineral properties and a further $14.4 million (September 30, 2008 - $14.5 million) on plant and equipment. In late 2008, the Company took actions to reduce its rate of spending on exploration and development expenditures. Although the Company has expended approximately US$24.3 million to date on its capital expansion at La Encantada, the capital expansion is expected to be a total of US$27.5 million and to increase capacity to 3,500 tonnes per day.
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, US$1.5 million was advanced against the Companys lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required.
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In October 2009, the Company entered into an agreement for two loan facilities totaling $53.8 million Mexican pesos (CAD$4.3 million) from the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI). Funds from this loan will be used for the completion of the new 3,500 tpd cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% and is repayable over a 60-month period. The working capital loan, for up to $6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% and is a 90-day revolving loan. The loans will be secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine.
-21-
Funds surplus to the Companys short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to liquidity risk and there are no restrictions on the ability of the Company to use these funds to meet its obligations. The Company has no exposure to and has not invested in any asset backed commercial paper securities.
OFF-BALANCE SHEET ARRANGEMENTS
At September 30, 2009, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the consolidated financial statements and the related notes.
RELATED PARTY TRANSACTIONS
During the period ended September 30, 2009, the Company:
a) |
incurred $213,281 for the nine month period ended September, 2009 and $65,533 for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $197,359; quarter ended September 30, 2008 - $77,086) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
|
b) |
incurred $211,733 for the nine month period ended September 30, 2009 and $65,271 for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $215,624; quarter ended June 30, 2008 - $76,519) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
|
c) |
incurred $1,269,751 of service fees during the nine month period September 30, 2009 and $nil for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $6,618,301; quarter ended September 30, 2008 - $2,411,178) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $165,227 was unpaid as at September 30, 2009 (September 30, 2008 - $3,075,105). This relationship was terminated in February 2009. |
|
d) |
Incurred $nil for the nine month period ended September 30, 2009 (nine months ended September 30, 2008 - $7,365) to a director of the Company as finders fees upon the completion of certain option agreements relating to Del Toro. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
PROPOSED TRANSACTIONS
Proposed Acquisition of Normabec Mining Resources Ltd.
In September 2009, First Majestic agreed to acquire Normabec Mining Resources Ltd. (Normabec) via entering into a definitive agreement. The acquisition will be an all-share transaction by way of plan of arrangement (the "Arrangement").
-22-
The agreement provides that First Majestic will acquire Normabec in exchange for the issuance directly to Normabec's shareholders of 0.060425 First Majestic shares for each Normabec common share outstanding (the "Exchange Ratio"). In addition to Normabec's shareholders receiving shares in First Majestic, they will also receive shares in a newly formed public company ("Newco") which will hold Normabec's interest in the Pitt Gold Property (and all other Quebec mineral interests currently held by Normabec) which will continue to be managed by the existing Normabec management. Subsequent to the completion of the Arrangement, First Majestic will invest, via a private placement, $300,000 in this public company which will represent approximately 10% of Newco.
Normabec's primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí state, Mexico.
The proposed Arrangement was approved by Normabec shareholders on November 6, 2009, received court approvals on November 9, 2009, and is expected to close on November 13, 2009.
Other than as disclosed herein, the board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
CONTRACTUAL OBLIGATIONS
The Companys liabilities have contractual maturities which are summarized below;
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 3,382,276 | $ | 2,200,451 | $ | 1,181,825 | $ | - | $ | - | |||||
Purchase Obligations (1) | 5,970,275 | 5,970,275 | - | - | - | ||||||||||
Debt Facility (2) | 1,431,112 | 1,431,112 | |||||||||||||
Vendor Liability on Mineral Property (3) | 297,461 | 297,461 | - | - | - | ||||||||||
Total Contractual Obligations (4) | $ | 11,081,124 | $ | 9,899,299 | $ | 1,181,825 | $ | - | $ | - |
(1) |
Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project (US$5.6 million). |
(2) |
Debt fa cility that was advanced against the lead concentrate production from the La Parrilla Silver Mine. |
(3) |
Vendor liability on mineral property on the Quebradillas Mine at La Parrilla. |
(4) |
Amounts above do not include payments related to the Company's future asset retirement obligations (see Note 17), nor do they include accounts payable and accrued liabilities of $11.7 million. |
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
-23-
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for the year ended December 31, 2008. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
Carrying Values of Property, Plant and Equipment and Other Mineral Property Interests
The Company reviews and evaluates its mineral properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and/or development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The Company completed an impairment review of its properties at December 31, 2008. The estimates used by management were subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest components of the Companys assets and, as such, the amortization of these assets has a significant effect on the Companys financial statements. On the commencement of commercial production, depletion of each mining property is provided on the unit-of-production basis using estimated reserves and resources expected to be converted to reserves as the depletion basis. The mining plant and equipment and other capital assets are depreciated, following the commencement of commercial production, over their expected economic lives using the unit-of-production method. Capital projects in progress are not depreciated until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets.
-24-
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and decommissioning related to its mining properties. The Company, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future obligations from mine closure activities. Since the obligations are dependent on the laws and regulations of the county in which the mines operate, the requirements could change resulting from amendments in those laws and regulations relating to environmental protection and other legislation affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at September 30, 2009.
Income Taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantially enacted, as applicable, income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling it on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Co-incident with the tax consolidation, Mexico introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in Mexico. Management has reviewed its IETU obligations and its consolidated tax position at September 30, 2009, and management assessed whether the Company is more likely than not to benefit from these tax losses prior to recording a benefit from the tax losses.
Changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
-25-
Stock-Based Compensation
The Company uses the Black-Scholes Option Pricing Model . Option pricing models require the input of subjective assumptions including the expected price volatility. Changes in the input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide an accurate single measure of the actual fair value of the Companys stock options granted during the year.
FUTURE ACCOUNTING CHANGES
The Company has assessed new and revised accounting pronouncements that have been issued but that are not yet effective and determined that the following may have a significant impact on the Company.
The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009. The Company has determined there is no impact on its consolidated financial statements.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management reviewed internal controls in detail in 2008 and noted weaknesses in internal controls related to education and adoption of new automated internal controls in Mexico proposed when its new accounting information systems were adopted in the first quarter of 2008. The risk of material error is mitigated by extensive management review of financial reports and various account reconciliations and analyses in both Mexico and Canada. Management is continuing to rely significantly on substantive testing and detailed analyses in parallel with establishing detailed controls over the new systems in order to mitigate specific weaknesses while ensuring the fair presentation of its financial statements. During the quarter, significant progress on the remediation plan has been achieved and management expects the remainder of its current plan to be completed by the end of the year.
-26-
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in Mexico but these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at September 30, 2009.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is presently undergoing a diagnostic assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. While the effects of IFRS have not yet been fully determined, the Company has identified several key areas where it is likely to be impacted by accounting policy changes, including the accounting for Property, Plant and Equipment, Asset Retirement Obligations and Business Combinations. Further detailed analysis of these areas is underway, and no decisions have yet been made with regard to accounting policy choices.
A more detailed review of the impact of IFRS on the Companys consolidated financial statements, and other areas of the Company is in progress and is expected to be completed by the end of 2009. The Company will continue to monitor changes in IFRS during the implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting. There will be changes in accounting policies related to the adoption of IFRS and these changes may materially impact the Companys financial statements in the future.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company may be found on or in:
-27-
CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE NINE MONTHS ENDED |
SEPTEMBER 30, 2009 (UNAUDITED) |
MANAGEMENTS COMMENTS ON
UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements of the
Company have been prepared by and are the
responsibility of the Companys
management.
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED BALANCE SHEETS |
AS AT SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
(Expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Note 18)
APPROVED BY THE BOARD OF DIRECTORS
(signed) Keith Neumeyer | Director | (signed) Douglas Penrose | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF INCOME (LOSS) |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars, except share amounts) |
Three Months ended September 30, | Nine Months ended September 30, | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
$ | $ | $ | $ | |||||||||
Revenue (Note 13) | 13,724,803 | 10,817,211 | 41,136,552 | 35,218,282 | ||||||||
Cost of sales | 8,054,387 | 7,977,801 | 25,813,068 | 22,124,612 | ||||||||
Amortization and depreciation | 786,518 | 455,028 | 2,588,908 | 2,119,459 | ||||||||
Depletion | 628,801 | 623,746 | 2,028,008 | 2,208,952 | ||||||||
Accretion of reclamation obligation | 105,400 | 41,088 | 338,610 | 136,930 | ||||||||
Mine operating earnings | 4,149,697 | 1,719,548 | 10,367,958 | 8,628,329 | ||||||||
General and administrative | 1,724,437 | 1,521,567 | 5,656,753 | 5,753,772 | ||||||||
Stock-based compensation | 505,847 | 1,035,864 | 2,203,394 | 2,814,696 | ||||||||
2,230,284 | 2,557,431 | 7,860,147 | 8,568,468 | |||||||||
Operating income (loss) | 1,919,413 | (837,883 | ) | 2,507,811 | 59,861 | |||||||
Interest and other expenses | (337,208 | ) | (223,639 | ) | (1,102,179 | ) | (789,338 | ) | ||||
Investment and other income | 85,748 | 331,929 | 597,764 | 1,113,379 | ||||||||
Foreign exchange (loss) gain | (447,659 | ) | 72,816 | (559,567 | ) | 605,850 | ||||||
Income (loss) before taxes | 1,220,294 | (656,777 | ) | 1,443,829 | 989,752 | |||||||
Income tax (recovery) - current | 274,327 | (519,549 | ) | 445,910 | 186,385 | |||||||
Income tax (recovery) - future | (895,656 | ) | 237,017 | (2,819,817 | ) | 409,245 | ||||||
Income tax (recovery) expense | (621,329 | ) | (282,532 | ) | (2,373,907 | ) | 595,630 | |||||
NET INCOME (LOSS) FOR THE PERIOD | 1,841,623 | (374,245 | ) | 3,817,736 | 394,122 | |||||||
EARNINGS (LOSS) PER COMMON SHARE | ||||||||||||
BASIC | $ | 0.02 | $ | (0.01 | ) | $ | 0.05 | $ | 0.01 | |||
DILUTED | $ | 0.02 | $ | (0.01 | ) | $ | 0.04 | $ | - | |||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
BASIC | 84,347,213 | 73,839,538 | 81,058,745 | 62,527,430 | ||||||||
DILUTED | 103,503,490 | 91,309,778 | 100,215,022 | 79,997,670 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS) |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars, except share amounts) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Comprehensive | Total | |||||||||||||||||||||||
Share capital | Contributed | Income (Loss) | AOCI | |||||||||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and deficit | Total | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | |||||||||||||
Net income | - | - | - | - | - | 394,122 | 394,122 | 394,122 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 7,431,319 | - | 7,431,319 | 7,431,319 | ||||||||||||||||
Unrealized loss on marketable securities | - | - | - | - | (391,000 | ) | - | (391,000 | ) | (391,000 | ) | |||||||||||||
Total comprehensive income | 7,434,441 | 7,434,441 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 436,650 | 1,762,556 | - | (363,990 | ) | - | - | - | 1,398,566 | |||||||||||||||
Exercise of warrants | 7,500 | 31,875 | - | - | - | - | - | 31,875 | ||||||||||||||||
First Silver arrangement | 1,861,500 | 9,009,660 | (9,009,660 | ) | - | - | - | - | - | |||||||||||||||
Public offering, net of issue costs (Note 12(a)(iv)) | 8,500,000 | 40,144,471 | - | 2,666,135 | - | - | - | 42,810,606 | ||||||||||||||||
Stock option expense during the period | - | - | - | 2,814,696 | - | - | - | 2,814,696 | ||||||||||||||||
Balance at September 30, 2008 | 73,847,810 | 196,648,345 | 276,495 | 22,431,842 | (8,145,888 | ) | (33,937,977 | ) | (42,083,865 | ) | 177,272,817 | |||||||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | |||||||||||||
Net income | - | - | - | - | - | 3,817,736 | 3,817,736 | 3,817,736 | ||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | (18,472,214 | ) | - | (18,472,214 | ) | (18,472,214 | ) | |||||||||||||
Unrealized gain on marketable securities | - | - | - | - | 20,500 | - | 20,500 | 20,500 | ||||||||||||||||
Total comprehensive loss | (14,633,978 | ) | (14,633,978 | ) | ||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 6,250 | 10,888 | - | (2,950 | ) | - | - | - | 7,938 | |||||||||||||||
Public offering, net of issue costs (Note 12(a)(i)) | 8,487,576 | 18,836,518 | - | 848,758 | - | - | - | 19,685,276 | ||||||||||||||||
Private placements, net of i ssue costs (Note 12(a)(ii)) | 4,167,478 | 9,051,069 | - | 389,000 | - | - | - | 9,440,069 | ||||||||||||||||
Debt settlements (Note 12(a)(iii)) | 1,191,852 | 2,741,260 | - | - | - | - | - | 2,741,260 | ||||||||||||||||
Stock option expense during the period | - | - | - | 2,203,394 | - | - | - | 2,203,394 | ||||||||||||||||
Balance at September 30, 2009 | 87,700,966 | 227,288,080 | 276,495 | 26,735,460 | (41,668,104 | ) | (35,659,147 | ) | (77,327,251 | ) | 176,972,784 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries which primarily affects the mining interests, except for the unrealized gain of $20,500 (2008 - unrealized loss of $391,000) on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
1. | DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS |
First Majestic Silver Corp. (the Company or First Majestic) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR, FR.WT.A and FR.WT.B, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Companys ability to continue as a going concern is dependent primarily on the price of silver in global commodity markets, and on maintaining sustained, profitable operations and/or obtaining funds from other sources as required for capital developments. If the Company were unable to continue as a going concern, material adjustments would be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. | BASIS OF PRESENTATION |
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP) with respect to the preparation of interim financial information. Accordingly, they do not include all the information and disclosures required by Canadian GAAP in the preparation of annual financial statements. Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with GAAP have been omitted. The accounting policies, used in preparation of the accompanying unaudited interim consolidated financial statements, are the same as those described in our most recent annual consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results for the entire year. These interim financial statements should be read in conjunction with the Companys latest audited consolidated financial statements for the year ended December 31, 2008.
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM) and First Silver Reserve Inc. (First Silver) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada) and Majestic Services S.A. de C.V. (Majestic Services). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 9. Intercompany balances and transactions are eliminated on consolidation.
The financial statements of Mexican subsidiaries are translated to Canadian dollars using the current rate method and translation losses and gains are recorded as a separate component of accumulated other comprehensive income.
1
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
3. | CHANGES IN SIGNIFICANT ACCOUNTING POLICIES |
The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted.
International Financial Reporting Standards (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined.
4. | RESTRICTED CASH |
On July 22, 2008, the Company secured its outstanding vendor liability (Note 9) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. In addition, a further $545,522 was paid into the Supreme Court of British Columbia in January 2009 and the Letter of Credit increased to a total Restricted Cash balance of $14,485,759. On July 16, 2009, the Company agreed to a consent order whereby $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder of First Silver. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust by legal counsel pending the outcome of the litigation. At December 31, 2008, the cash was not available for general corporate purposes. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.
5. | OTHER RECEIVABLES |
Details of the components of other receivables are as follows:
September 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Value added taxes recoverable | 5,520,587 | 6,109,943 | ||||
Other taxes recoverable | 102,918 | 406,536 | ||||
Interest receivable | 4,996 | 188,111 | ||||
Advances to employees | 130,002 | 67,240 | ||||
Advances to suppliers | 474,121 | 440,863 | ||||
6,232,624 | 7,212,693 |
2
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
6. | INVENTORIES |
Inventories consist of the following:
September 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Silver coins and bullion including in process shipments | 323,469 | 572,149 | ||||
Finished product - doré and concentrates | 755,177 | 1,017,769 | ||||
Ore in process | 166,431 | 196,169 | ||||
Stockpile | 516,044 | 1,631,625 | ||||
Materials and supplies | 1,602,570 | 1,523,628 | ||||
3,363,691 | 4,941,340 |
7. | PREPAID EXPENSES AND OTHER |
Details of prepaid expenses and other are as follows:
September 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Advances to suppliers and contractors | 1,898,731 | 1,380,509 | ||||
Deposits | 224,620 | 252,941 | ||||
Marketable securities | 70,875 | 50,375 | ||||
Derivative financial instruments | 113,012 | 490,431 | ||||
2,307,238 | 2,174,256 |
8. | MINING INTERESTS AND PLANT AND EQUIPMENT |
Expenditures incurred on mining interests, net of accumulated depreciation and depletion, are as follows:
September 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
depreciation | depreciation | |||||||||||||||||
and | Net Book | and | Net Book | |||||||||||||||
Cost | depletion | Value | Cost | depletion | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Mining properties | 160,985,262 | 16,464,798 | 144,520,464 | 167,130,756 | 14,436,791 | 152,693,965 | ||||||||||||
Plant and equipment | 61,434,723 | 7,804,139 | 53,630,584 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||||||||
222,419,985 | 24,268,937 | 198,151,048 | 215,402,188 | 20,580,843 | 194,821,345 |
3
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
A summary of the net book value of mining properties is as follows:
September 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depletion | Value | Cost | Depletion | Value | |||||||||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||||||||
Producing properties | ||||||||||||||||||
La Encantada (a) | 11,076,403 | 2,718,943 | 8,357,460 | 8,922,466 | 2,276,963 | 6,645,503 | ||||||||||||
La Parrilla (b) | 20,479,317 | 2,648,129 | 17,831,188 | 18,644,777 | 2,038,223 | 16,606,554 | ||||||||||||
San Martin (c) | 35,549,870 | 11,097,726 | 24,452,144 | 36,803,283 | 10,121,605 | 26,681,678 | ||||||||||||
67,105,590 | 16,464,798 | 50,640,792 | 64,370,526 | 14,436,791 | 49,933,735 | |||||||||||||
Exploration properties | ||||||||||||||||||
La Encantada (a) | 3,266,126 | - | 3,266,126 | 2,858,043 | - | 2,858,043 | ||||||||||||
La Parrilla (b) | 8,355,437 | - | 8,355,437 | 8,722,897 | - | 8,722,897 | ||||||||||||
San Martin (c) (1) | 68,176,278 | - | 68,176,278 | 77,582,247 | - | 77,582,247 | ||||||||||||
Del Toro (d) | 11,641,929 | - | 11,641,929 | 11,881,557 | - | 11,881,557 | ||||||||||||
Cuitaboca (e) | 2,439,902 | - | 2,439,902 | 1,715,486 | - | 1,715,486 | ||||||||||||
93,879,672 | - | 93,879,672 | 102,760,230 | - | 102,760,230 | |||||||||||||
160,985,262 | 16,464,798 | 144,520,464 | 167,130,756 | 14,436,791 | 152,693,965 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
A summary of plant and equipment is as follows:
September 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
La Encantada Silver Mine | 35,112,511 | 1,734,091 | 33,378,420 | 19,541,421 | 1,221,301 | 18,320,120 | ||||||||||||
La Parrilla Silver Mine | 16,981,477 | 3,388,731 | 13,592,746 | 18,590,746 | 2,568,373 | 16,022,373 | ||||||||||||
San Martin Silver Mine | 9,340,735 | 2,681,317 | 6,659,418 | 10,139,265 | 2,354,378 | 7,784,887 | ||||||||||||
Us ed in Mining Operations | 61,434,723 | 7,804,139 | 53,630,584 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||||||||
Corporate office equipment | 736,114 | 339,313 | 396,801 | 712,525 | 229,475 | 483,050 | ||||||||||||
62,170,837 | 8,143,452 | 54,027,385 | 48,983,957 | 6,373,527 | 42,610,430 |
Details of plant and equipment and corporate office equipment by specific assets are as follows:
September 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Land | 2,269,421 | - | 2,269,421 | 2,302,273 | - | 2,302,273 | ||||||||||||
Automobile | 375,178 | 183,110 | 192,068 | 427,817 | 140,703 | 287,114 | ||||||||||||
Buildings | 5,867,189 | 523,623 | 5,343,566 | 6,250,748 | 399,982 | 5,850,766 | ||||||||||||
Machinery and equipment | 25,597,220 | 6,582,891 | 19,014,329 | 27,744,171 | 5,053,326 | 22,690,845 | ||||||||||||
Computer equipment | 511,613 | 260,256 | 251,357 | 566,511 | 239,162 | 327,349 | ||||||||||||
Office equipment | 553,378 | 448,881 | 104,497 | 600,413 | 447,405 | 153,008 | ||||||||||||
Leasehold improvements | 320,304 | 144,691 | 175,613 | 320,304 | 92,949 | 227,355 | ||||||||||||
Construction in progress (1) | 26,676,534 | - | 26,676,534 | 10,771,720 | - | 10,771,720 | ||||||||||||
62,170,837 | 8,143,452 | 54,027,385 | 48,983,957 | 6,373,527 | 42,610,430 |
(1) |
Construction in progress includes $24,436,753 relating to La Encantada, $523,770 relating to La Parrilla and $1,716,011 relating to San Martin. |
4
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
Mineral property options paid and future option payments in U.S. dollars are due as follows:
Del Toro | Cuitaboca | ||||||||
Note 8(d) | Note 8(e) | Total | |||||||
(US$) | (US$) | (US$) | |||||||
Paid as at September 30, 2009 | 5,925,000 | 1,175,000 | 7,100,000 | ||||||
Payable November 25, 2009 | - | 275,000 | 275,000 | ||||||
Payable December 6, 2009 | 62,500 | - | 62,500 | ||||||
Payable before December 31, 2009 | 62,500 | 275,000 | 337,500 | ||||||
Payable in 2010 and beyond | 225,000 | 1,050,000 | 1,275,000 | ||||||
Total Future Option Payments | 287,500 | 1,325,000 | 1,612,500 |
(a) | La Encantada Silver Mine, Coahuila State |
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz de Boquillas del Cármen, is 45 kilometres away via unpaved road. The La Encantada Silver Mine consists of a 1,000 tonnes per day flotation plant, an airstrip, and other facilities, including a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.
The Company is in the final stages of constructing a 3,500 tonne per day cyanidation plant at La Encantada which began commissioning in August 2009 and is expected to be fully commissioned by the end of 2009.
(b) | La Parrilla Silver Mine, Durango State |
The La Parrilla Silver Mine is a system of connecting underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 kilometres southeast of the city of Durango, in Durango state Mexico. Located at the mine are: mining equipment, a 425 tonne-per-day cyanidation plant, a 425 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
In 2008, the Company amended payment terms to an optionor regarding the outstanding payments as at December 31, 2008 on the Quebradillas Mine. In regards to the aggregate of US$749,000 which was previously payable in 2008, the Company has agreed to make a series of payments in 2009 totaling US$1,121,160 which includes interest at an annualized fixed rate of 4.5% . During the nine months ended September 30, 2009, the Company made payments totaling US$855,021 (of which US$209,009 related to interest) pursuant to the amended agreements.
There is a net smelter royalty agreement (NSR) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. For the period ended September 30, 2009, the Company paid US$102,131 (December 31, 2008 US$69,000) relating to royalties.
5
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS AND PLANT AND EQUIPMENT (continued) |
(c) | San Martin Silver Mine, Jalisco State |
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface rights where the 950 tonnes per day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.
(d) | Del Toro Silver Mine, Zacatecas State |
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of 320 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart.
The Company owns 100% of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package.
(e) | Cuitaboca Silver Project, Sinaloa State |
The Cuitaboca Silver Project, located in Sinaloa State, Mexico, consists of an option to acquire a 5,134 hectare land package. This option was acquired in May 2006 through the acquisition of First Silver and its wholly owned subsidiary, El Pilon.
The Company entered into an option agreement in November 2004 with Consorcio Minero Latinamericano, S.A. de C.V., a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims covering 3,718 hectares located in Sinaloa State, Mexico. To purchase the claims, the Company needs to pay US$2,500,000 in staged cash payments through November, 2010 (US$1,175,000 paid as at September 30, 2009). A 2.5% NSR on the claims may be purchased at any time during the term of the agreement or for a period of 12 months thereafter for an additional US$500,000.
9. | VENDOR LIABILITY AND INTEREST |
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53,365,519. The purchase price was payable to the majority shareholder of First Silver (the Majority Shareholder) in three instalments. The first instalment of $26,682,759, for 50% of the purchase price, was paid upon closing on May 30, 2006. An additional 25% instalment of $13,341,380 was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum was payable quarterly on the outstanding vendor balance.
In November 2007, an action was commenced by the Company and First Silver against the Majority Shareholder who previously was a director, President & Chief Executive Officer of First Silver. The Company and First Silver allege that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
6
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
9. | VENDOR LIABILITY AND INTEREST (continued) |
Pending resolution of the litigation set out above, the Company had withheld payments of interest due to the previous Majority Shareholder on scheduled interest payment dates of November 30, 2007, February 29, 2008 and May 30, 2008, as well as payment of the final instalment of $13,341,380 due May 30, 2008, the combined amounts totalling $13,940,237. On July 22, 2008, the Company posted an irrevocable Letter of Credit with the Supreme Court of British Columbia pending the court outcome which is not anticipated for at least one year or until such litigation has been resolved. In January 2009, a further $545,522 was paid into the Supreme Court of British Columbia for additional interest payments and was added to the Letter of Credit posted to the Supreme Court of British Columbia.
On July 16, 2009, the Company agreed to a consent order with the prior Majority Shareholder, with respect to the $14,485,759 posted by a Letter of Credit securing the vendor liability and interest. Pursuant to the order, $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.
10. | DEBT FACILITY |
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, US$1.5 million was advanced against the Companys lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required. The repayment of the credit facility is guaranteed by the parent company.
A total of US$1.5 million was drawn down and at September 30, 2009, the balance was US$1,314,767 after shipments were deducted and US$13,125 was payable for interest.
11. | DEPOSITS ON LONG-TERM ASSETS |
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
September 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Deposit on equipment at La Encantada | 2,671,267 | 1,986,517 | ||||
Deposit on equipment at La Parrilla | 1,360,200 | - | ||||
4,031,467 | 1,986,517 |
7
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
12. | SHARE CAPITAL |
(a) | Authorized unlimited number of common shares without par value |
Issued | Nine months ended September 30, 2009 | Year ended December 31, 2008 | ||||||||||
Shares | $ | Shares | $ | |||||||||
Balance - beginning of the period | 73,847,810 | 196,648,345 | 63,042,160 | 145,699,783 | ||||||||
Issued during the period | ||||||||||||
For cash: | ||||||||||||
Exercise of options | 6,250 | 7,938 | 436,650 | 1,398,566 | ||||||||
Exercise of warrants | - | - | 7,500 | 31,875 | ||||||||
Public offering of units (i) (iv) | 8,487,576 | 18,836,518 | 8,500,000 | 40,144,471 | ||||||||
Private placements (ii) | 4,167,478 | 9,051,069 | - | - | ||||||||
For debt s ettlements (iii) | 1,191,852 | 2,741,260 | - | - | ||||||||
For First Silver Arrangement | - | - | 1,861,500 | 9,009,660 | ||||||||
Transfer of contributed surplus for stock options exercised | - | 2,950 | - | 363,990 | ||||||||
Balance - end of the period | 87,700,966 | 227,288,080 | 73,847,810 | 196,648,345 |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,685,276, of which $18,836,518 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 expiring on March 5, 2011. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. |
|
|
(ii) |
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011, and 334,239 warrants expire on September 16, 2011. Finders fees in the amount of $101,016 and 50,000 warrants were paid regarding a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. |
|
|
(iii) |
In August and September 2009, the Company settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a value of $2.30 per share. |
8
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
12. | SHARE CAPITAL (continued) |
(iv) |
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 units at an issue price of $5.35 per unit for net proceeds to the Company of $42,881,471, of which $40,144,471 was allocated to the common shares, $2,380,000 was allocated to the warrants and $357,000 was allocated to the underwriters warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 warrants at a price of $0.56 per warrant. The underwriters did not exercise their option to purchase any option shares, but did acquire the 637,500 warrants (see Note 12(c)). |
(b) | Stock Options |
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the 2008 Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the nine months ended September 30, 2009 and the year ended December 31, 2008 are as follows:
Nine Months Ended September 30, 2009 | Year Ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |||||||||||||
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |||||||||||||
Balance, beginning of the period | 6,862,500 | 3.84 | 2.78 years | 5,892,500 | 4.04 | 2.75 years | ||||||||||||
Granted | 1,347,500 | 2.06 | 3.71 years | 2,672,500 | 2.93 | 3.67 years | ||||||||||||
Exercised | (6,250 | ) | 1.27 | 2.78 years | (436,650 | ) | 3.20 | 0.51 years | ||||||||||
Forfeited or expired | (312,500 | ) | 4.04 | 1.54 years | (1,265,850 | ) | 3.05 | 0.45 years | ||||||||||
Balance, end of the period | 7,891,250 | 3.53 | 2.28 years | 6,862,500 | 3.84 | 2.78 years |
9
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
12. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
The following table summarizes both the stock options outstanding and those that are exercisable at September 30, 2009:
Price | Options | Options | |||||||
$ | Outstanding | Exercisable | Expiry Dates | ||||||
4.32 | 575,000 | 575,000 | December 6, 2009 | ||||||
5.50 | 200,000 | 200,000 | February 1, 2010 | ||||||
4.64 | 75,000 | 75,000 | June 1, 2010 | ||||||
4.17 | 100,000 | 100,000 | August 8, 2010 | ||||||
3.72 | 30,000 | 30,000 | September 24, 2010 | ||||||
3.98 | 20,000 | 20,000 | October 17, 2010 | ||||||
4.45 | 545,000 | 545,000 | October 30, 2010 | ||||||
4.34 | 50,000 | 50,000 | November 1, 2010 | ||||||
4.42 | 25,000 | 25,000 | November 12, 2010 | ||||||
4.34 | 200,000 | 200,000 | December 5, 2010 | ||||||
4.42 | 50,000 | 50,000 | February 20, 2011 | ||||||
4.65 | 100,000 | 100,000 | March 25, 2011 | ||||||
4.19 | 20,000 | 15,000 | April 26, 2011 | ||||||
4.02 | 100,000 | 75,000 | May 15, 2011 | ||||||
4.30 | 450,000 | 450,000 | June 19, 2011 | ||||||
4.67 | 120,000 | 90,000 | July 4, 2011 | ||||||
4.15 | 300,000 | 225,000 | July 28, 2011 | ||||||
3.62 | 635,000 | 476,250 | August 28, 2011 | ||||||
1.60 | 200,000 | 100,000 | October 8, 2011 | ||||||
1.27 | 118,750 | 56,250 | October 17, 2011 | ||||||
4.32 | 245,000 | 245,000 | December 6, 2011 | ||||||
4.41 | 400,000 | 400,000 | December 22, 2011 | ||||||
5.00 | 155,000 | 155,000 | February 7, 2012 | ||||||
2.03 | 790,000 | 197,500 | May 7, 2012 | ||||||
4.65 | 25,000 | 25,000 | June 20, 2012 | ||||||
2.40 | 12,500 | 3,125 | August 10, 2012 | ||||||
2.62 | 60,000 | 15,000 | September 16, 2012 | ||||||
4.34 | 925,000 | 925,000 | December 5, 2012 | ||||||
3.62 | 100,000 | 75,000 | August 28, 2013 | ||||||
1.44 | 240,000 | 120,000 | November 10, 2013 | ||||||
1.56 | 550,000 | 275,000 | December 17, 2013 | ||||||
2.03 | 462,500 | 115,625 | May 7, 2014 | ||||||
2.32 | 12,500 | 3,125 | June 15, 2014 | ||||||
7,891,250 | 6,011,875 |
During the nine months ended September 30, 2009, the Company granted stock options to directors, officers and employees to purchase 1,347,500 shares of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, $2,203,394 has been recorded as an expense in the nine months ended September 30, 2009 relating to all stock options.
The fair value of stock options granted is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
10
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
12. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
Nine Months ended | Nine Months ended | |
September 30, 2009 | September 30, 2008 | |
Risk-free interest rate | 0.9% | 2.9% |
Estimated volatility | 80.6% | 53.8% |
Expected life | 2.4 years | 1.9 years |
Expected dividend yield | 0% | 0% |
Option pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide an accurate measure of the actual fair value of the Companys stock options.
(c) | Share Purchase Warrants |
The changes in share purchase warrants for the nine months ended September 30, 2009 and the year ended December 31, 2008 are as follows:
Nine months ended September 30, 2009 | Year ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average Term to | Number of | Exercise Price | Average Term to | |||||||||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||||||||
Balance, beginning of the period | 5,078,791 | 6.99 | 1.19 years | 5,845,240 | 5.66 | 0.89 years | ||||||||||||
Issued (i) (ii) (iii) (iv) (v) | 6,377,527 | 3.43 | 2.00 years | 4,887,500 | 7.00 | 2.00 years | ||||||||||||
Exercised | - | 0.00 | 0.00 years | (7,500 | ) | 4.25 | 0.86 years | |||||||||||
Cancelled or expired | (191,291 | ) | 6.81 | 0.00 years | (5,646,449 | ) | 5.62 | 0.00 years | ||||||||||
Balance, end of the period | 11,265,027 | 4.98 | 1.11 years | 5,078,791 | 6.99 | 1.19 years |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35.0%, expected life of 2 years and expected dividend yield of 0%) and $848,758 was credited to contributed surplus. |
(ii) |
On August 20, 2009, the Company issued 1,799,500 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 3,499,000 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years and expected dividend yield of 0%) and $328,047 was credited to contributed surplus. |
(iii) |
On September 16, 2009, the Company issued 334,239 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 668,478 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years and expected dividend yield of 0%) and $60,953 was credited to contributed surplus. |
11
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
12. | SHARE CAPITAL (continued) |
(c) | Share Purchase Warrants (continued) |
(iv) |
On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2,380,000 was credited to contributed surplus. |
(v) |
On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus. |
The following table summarizes the share purchase warrants outstanding at September 30, 2009:
Exercise Price | Warrants | |||||
$ | Outstanding | Expiry Dates | ||||
7.00 | 4,887,500 | March 25, 2010 | ||||
3.50 | 4,243,788 | March 5, 2011 | ||||
3.30 | 1,799,500 | August 20, 2011 | ||||
3.30 | 334,239 | September 16, 2011 | ||||
11,265,027 |
(d) | Share Capital to be Issued |
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc. and the San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic.
At September 30, 2009, the prior shareholders of First Silver had yet to exchange the remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic resulting in a remaining balance of shares to be issued of $276,495.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
12
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
13. | REVENUE |
Details of the components of revenue are as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
$ | $ | $ | $ | |||||||||
Combined revenue - silver doré bars, concentrates, coins and ingots | 17,715,392 | 13,853,479 | 53,183,047 | 44,390,294 | ||||||||
Less: intercompany eliminations | (869,506 | ) | - | (3,093,428 | ) | - | ||||||
Consolidated gross revenue | 16,845,886 | 13,853,479 | 50,089,619 | 44,390,294 | ||||||||
Less: refining and smelting charges, net of intercompany eliminations | (2,440,169 | ) | (2,515,593 | ) | (7,146,631 | ) | (7,662,158 | ) | ||||
Less: metal deductions, net of intercompany eliminations | (680,914 | ) | (520,675 | ) | (1,806,436 | ) | (1,509,854 | ) | ||||
Net revenue | 13,724,803 | 10,817,211 | 41,136,552 | 35,218,282 |
14. | RELATED PARTY TRANSACTIONS |
During the period ended September 30, 2009, the Company:
a) |
incurred $213,281 for the nine month period ended September, 2009 and $65,533 for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $197,359; quarter ended September 30, 2008 - $77,086) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
|
b) |
incurred $211,733 for the nine month period ended September 30, 2009 and $65,271 for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $215,624; quarter ended September 30, 2008 - $76,519) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
|
c) |
incurred $1,269,751 of service fees during the nine month period September 30, 2009 and $nil for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $6,618,301; quarter ended September 30, 2008 - $2,411,178) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $165,227 was unpaid as at September 30, 2009 (September 30, 2008 - $3,075,105). This relationship was terminated in February 2009. |
|
d) |
incurred $nil for the nine month period ended September 30, 2009 (nine months ended September 30, 2008 - $7,365) to a director of the Company as finders fees upon the completion of certain option agreements relating to Del Toro. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
13
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
15. | SEGMENTED INFORMATION |
The Company considers that it has three operating segments all of which are located in Mexico, and one corporate segment with locations in Canada and Mexico. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property, the Cuitaboca Silver Project and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Three months ended September 30, 2009 | |||||||||||||||
First Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 4,718,691 | 5,759,291 | 3,385,341 | (138,520 | ) | 13,724,803 | |||||||||
Cost of sales | 2,959,383 | 2,774,983 | 2,499,113 | (179,092 | ) | 8,054,387 | |||||||||
Amortization, depreciation and accretion | 233,101 | 398,615 | 260,202 | - | 891,918 | ||||||||||
Depletion | 261,601 | 230,839 | 136,361 | - | 628,801 | ||||||||||
Mine operating earnings | 1,264,606 | 2,354,854 | 489,665 | 40,572 | 4,149,697 | ||||||||||
General and administrative | - | - | - | 1,724,437 | 1,724,437 | ||||||||||
Stock-based compensation | - | - | - | 505,847 | 505,847 | ||||||||||
Net interest, other income (expense) and foreign exchange | (284,100 | ) | (431,960 | ) | (1,024,015 | ) | 1,040,956 | (699,119 | ) | ||||||
Income tax expense (recovery) | (15,639 | ) | 143,549 | (67,837 | ) | (681,402 | ) | (621,329 | ) | ||||||
Net income (loss) | 996,145 | 1,779,345 | (466,513 | ) | (467,354 | ) | 1,841,623 | ||||||||
Capital expenditures | 1,837,554 | 1,918,056 | 9,856,121 | 32,010 | 13,643,741 | ||||||||||
Total assets | 105,384,737 | 57,579,107 | 52,969,873 | 8,826,808 | 224,760,525 |
Three months ended September 30, 2008 | |||||||||||||||
First Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 3,588,564 | 4,138,741 | 3,360,423 | (270,517 | ) | 10,817,211 | |||||||||
Cost of sales | 3,253,495 | 2,861,629 | 2,133,194 | (270,517 | ) | 7,977,801 | |||||||||
Amortization, depreciation and accretion | 424,080 | (44,733 | ) | 83,320 | 33,449 | 496,116 | |||||||||
Depletion | 359,679 | 97,789 | 166,278 | - | 623,746 | ||||||||||
Mine operating earnings (loss) | (448,690 | ) | 1,224,056 | 977,631 | (33,449 | ) | 1,719,548 | ||||||||
General and administrative | - | - | - | 1,521,567 | 1,521,567 | ||||||||||
Stock-based compensation | - | - | - | 1,035,864 | 1,035,864 | ||||||||||
Net interest, other income (expense) and foreign exchange | (752,680 | ) | (1,540,785 | ) | (7,872 | ) | 2,482,443 | 181,106 | |||||||
Income tax (recovery) expense | 475,250 | (683,293 | ) | (1,164,753 | ) | 1,090,264 | (282,532 | ) | |||||||
Net income (loss) | (1,676,620 | ) | 366,564 | 2,134,512 | (1,198,701 | ) | (374,245 | ) | |||||||
Capital expenditures | 2,980,550 | 5,575,209 | 9,143,135 | 28,506 | 17,727,400 | ||||||||||
Total a ssets | 130,472,670 | 61,756,284 | 29,037,518 | 31,371,230 | 252,637,702 |
14
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
15. | SEGMENTED INFORMATION (continued) |
Nine months ended September 30, 2009 | |||||||||||||||
First | |||||||||||||||
Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 14,302,897 | 14,901,581 | 11,511,799 | 420,275 | 41,136,552 | ||||||||||
Cost of sales | 9,019,559 | 8,912,772 | 7,572,042 | 308,695 | 25,813,068 | ||||||||||
Amortization, depreciation and accretion | 724,401 | 1,411,104 | 792,013 | - | 2,927,518 | ||||||||||
Depletion | 976,122 | 609,906 | 441,980 | - | 2,028,008 | ||||||||||
Mine operating earnings | 3,582,815 | 3,967,799 | 2,705,764 | 111,580 | 10,367,958 | ||||||||||
General and administrative | - | - | - | 5,656,753 | 5,656,753 | ||||||||||
Stock-based compensation | - | - | - | 2,203,394 | 2,203,394 | ||||||||||
Net interest, other income (expense) and foreign exchange | (504,503 | ) | (176,033 | ) | (887,119 | ) | 503,673 | (1,063,982 | ) | ||||||
Income tax (recovery) expense | (68,934 | ) | 37,805 | (93,496 | ) | (2,249,282 | ) | (2,373,907 | ) | ||||||
Net income (loss) | 3,147,246 | 3,753,961 | 1,912,141 | (4,995,612 | ) | 3,817,736 | |||||||||
Capital expenditures | 2,961,596 | 5,003,771 | 20,954,415 | 163,854 | 29,083,636 | ||||||||||
Total assets | 105,384,737 | 57,579,107 | 52,969,873 | 8,826,808 | 224,760,525 |
Nine months ended September 30, 2008 | |||||||||||||||
First | |||||||||||||||
Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 9,141,672 | 13,194,466 | 13,152,661 | (270,517 | ) | 35,218,282 | |||||||||
Cost of sales | 7,511,173 | 8,689,128 | 6,194,828 | (270,517 | ) | 22,124,612 | |||||||||
Amortiza tion, depreciation and accretion | 923,353 | 859,744 | 376,307 | 96,985 | 2,256,389 | ||||||||||
Depletion | 1,108,659 | 516,635 | 583,658 | - | 2,208,952 | ||||||||||
Mine operating earnings (loss) | (401,513 | ) | 3,128,959 | 5,997,868 | (96,985 | ) | 8,628,329 | ||||||||
General and administrative | - | - | - | 5,753,772 | 5,753,772 | ||||||||||
Stock-based compensation | - | - | - | 2,814,696 | 2,814,696 | ||||||||||
Net interest, other income (expense) and foreign exchange | (583,668 | ) | (859,539 | ) | (31,791 | ) | 2,404,889 | 929,891 | |||||||
Income tax expense | 37,411 | 67,593 | 5,683 | 484,943 | 595,630 | ||||||||||
Net income (loss) | (1,022,592 | ) | 2,201,827 | 5,960,394 | (6,745,507 | ) | 394,122 | ||||||||
Capital expenditures | 9,901,475 | 18,654,249 | 12,787,627 | 49,011 | 41,392,362 | ||||||||||
Total assets | 130,472,670 | 61,756,284 | 29,037,518 | 31,371,230 | 252,637,702 |
15
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
16. | CAPITAL LEASE OBLIGATIONS |
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for $14.1 million (US$11.2 million) of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. On March 13, 2009, the Company executed a restructuring agreement for the balance of $3.6 million (US$2.9 million) payable to the equipment lease vendor, to be paid over 24 monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.
On January 12, 2009, the Company executed two additional financing arrangements with an equipment vendor, committing the Company to total payments of approximately $2.6 million (US$2.0 million) representing the purchase price plus interest with terms of 36 monthly lease payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
The following is a schedule of future minimum lease payments under the capital leases as at September 30, 2009:
$US | $CA | |||||
2009 Gross lease payments | 612,198 | 655,480 | ||||
2010 Gross lease payments | 2,136,442 | 2,287,489 | ||||
2011 Gross lease payments | 655,752 | 702,114 | ||||
2012 Gross lease payments | 132,549 | 141,920 | ||||
3,536,941 | 3,787,003 | |||||
Less: interest | (378,002 | ) | (404,727 | ) | ||
Total payments, net of interest | 3,158,939 | 3,382,276 | ||||
Less: current portion | (2,055,152 | ) | (2,200,451 | ) | ||
Capital Lease Obligation | 1,103,787 | 1,181,825 |
17. | ASSET RETIREMENT OBLIGATIONS |
Nine months ended | Year ended | |||||
September 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Balance, beginning of the period | 5,304,369 | 2,290,313 | ||||
Effect of change in estimates | - | 2,979,726 | ||||
Interest a ccretion | 338,610 | 200,477 | ||||
Effect of translation of foreign currencies | (568,714 | ) | (166,147 | ) | ||
5,074,265 | 5,304,369 |
16
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
17. | ASSET RETIREMENT OBLIGATIONS (continued) |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | September 30, 2009 | December 31, 2008 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2018 | 1,784,742 | 1,865,674 | ||||||
La Parrilla Silver Mine | 2022 | 1,539,776 | 1,609,602 | ||||||
San Martin Silver Mine | 2016 | 1,749,747 | 1,829,093 | ||||||
5,074,265 | 5,304,369 |
During the year ended December 31, 2008, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $7.27 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $2.46 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.31 million of the obligation relates to the San Martin Silver Mine, and $2.51 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
18. | COMMITMENTS |
The Company is obligated to make certain mining property option payments as described in Note 8, in connection with the acquisition of its mineral property interests.
As at September 30, 2009, the Company is obligated to make a series of payments totalling US$277,819 before the end of 2009 with respect to property payments at the Quebradillas Mine at La Parrilla.
The Company has office lease commitments of $77,900 per annum in 2009 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at September 30, 2009, the Company is committed to construction contracts of approximately $6.0 million (US$5.6 million) (December 31, 2008 - $5.9 million or US$4.9 million) relating to the La Encantada Project which is currently being constructed.
The Company is committed to making severance payments amounting to US$605,000 (December 31, 2008 -US$540,000) to four officers in the event of a change of control of the Company.
19. | NON-CASH FINANCING AND INVESTING ACTIVITIES |
17
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
20. | SUBSEQUENT EVENTS |
Subsequent to September 30, 2009:
(a) |
In September 2009, First Majestic and Normabec Mining Resources Ltd. (Normabec) entered into a definitive agreement whereby First Majestic will acquire Normabec. The transaction will be an all-share transaction by way of plan of arrangement (the "Arrangement"). |
|
The agreement provides that First Majestic will acquire Normabec in exchange for the issuance directly to Normabec's shareholders of 0.060425 First Majestic shares for each Normabec common share outstanding (the "Exchange Ratio"). In addition to Normabec's shareholders receiving shares in First Majestic, they will also receive shares in a newly formed public company (Newco) which will hold Normabec's interest in the Pitt Gold Property (and all other Quebec mineral interests currently held by Normabec) which will continue to be managed by the existing Normabec management. Subsequent to the completion of the Arrangement, First Majestic will invest, via a private placement, $300,000 in this public company which will represent approximately 10% of Newco. |
||
Normabec's primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí State, Mexico. |
||
The proposed Arrangement was approved by Normabec shareholders on November 6, 2009, received court approvals on November 9, 2009, and is expected to close on November 13, 2009. |
||
(b) |
In October 2009, the Company entered into an agreement for two loan facilities totaling $53.8 million Mexican pesos (CAD$4.3 million) from the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI). Funds from these loans will be used for the completion of the 3,500 tpd cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% per annum and is repayable over a 60-month period. The working capital loan, for up to $6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% per annum and is a 90-day revolving loan. The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine. |
|
(c) |
On October 24, 2009, the following stock options were forfeited: |
|
(i) |
25,000 stock options exercisable at a price of $4.34 per share expiring on November 1, 2010; |
|
(ii) |
30,000 stock options exercisable at a price of $3.62 per share expiring on August 28, 2011; and |
|
(iii) |
30,000 stock options exercisable at a price of $2.03 per share expiring on May 7, 2012. |
|
(d) |
On October 28, 2009, 25,000 stock options were granted at a price of $2.96 per share expiring on October 28, 2012. |
|
(e) |
On November 1, 2009, 12,500 stock options exercisable at a price of $2.40 per share expiring on August 10, 2012 were forfeited. |
|
(f) |
On November 5, 2009, 25,000 stock options were granted at a price of $3.38 per share expiring on November 5, 2012. |
21. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform with the classifications used in 2009.
18
|
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE QUARTER ENDED JUNE 30, 2009 |
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as plan, expect, forecast, project, intend, believe, anticipate, outlook and other similar words, or statements that certain events or conditions may or will occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Companys Annual Information Form under the heading Risk Factors. The Company undertakes no obligation to update forward-looking statements if circumstances or managements estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (First Majestic or the Company) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR, FR.WT.A and FR.WT.B, respectively. The common shares are also quoted on the OTCQX in the U.S. under the symbol FRMSF and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol FMV. Silver producing operations of the Company are carried out through three operating mines: the La Parrilla, La Encantada, and San Martin mines.
The following Managements Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2008. Additional information on the Company, including the Companys Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM) and First Silver Reserve Inc (First Silver), as well as the indirect wholly owned subsidiaries of CFM: First Majestic Plata, S.A. de C.V. (FM Plata), Mineral El Pilón, S.A. de C.V. (El Pilón), Minera La Encantada, S.A. de C.V. (La Encantada) and Majestic Services, S.A. de C.V. (Majestic Services). Our sole Canadian subsidiary, First Silver, underwent a wind up and distribution of assets and liabilities in December 2007; however, First Silver has not been dissolved pending the outcome of litigation in which it is involved as the plaintiff, described herein in the Liquidity section.
QUALIFIED PERSON S
Unless otherwise indicated, Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the Qualified Person for the Company and has reviewed the technical information herein. National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine can be found on the Companys web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
Suite 1805, 925 West Georgia Street, Vancouver, B.C., Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639-8873| Toll Free: 1.866.529.2807 | Email: acctg@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP.
MANAGEMENTS DISCUSSION
& ANALYSIS
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of August 13, 2009, unless otherwise stated.
FINANCIAL PERFORMANCE AND HIGHLIGHTS
In the second quarter ended June 30, 2009, the Company sold 1,073,129 silver equivalent ounces including 103,867 ounces of coins, ingots and bullion, with a combined average price of $14.70 per ounce (US$12.60) compared to 892,406 equivalent ounces of silver (with no coin sales) in the quarter ended June 30, 2008 at an average price of $16.01 (US$15.86) per ounce and 996,595 equivalent ounces, with 67,620 ounces of coins, ingots and bullion (none in 2008), at a combined average price of $17.52 per ounce (US$14.07) in the first quarter ended March 31, 2009. The average spot price of silver in the second quarter of 2009 was US$13.76 per ounce compared to US$17.18 per ounce in the second quarter of 2008, and US$12.61 per ounce in the first quarter ended March 31, 2009.
Consolidated gross revenue for the second quarter ended June 30, 2009, prior to smelting and refining charges and metal deductions, was $15.8 million (US$13.5 million) compared to $14.3 million (US$14.1 million) in the second quarter of 2008, and $17.5 million (US$14.0 million) in the first quarter of 2009.
Sales revenue (after smelting and refining charges and metals deductions) for the quarter ended June 30, 2009 was $13.0 million; an increase of 14% compared to $11.4 million for the quarter ended June 30, 2008. Smelting and refining charges and metal deductions decreased to 17% of gross revenue in the second quarter ended June 30, 2009 compared to 20% in the second quarter ended June 30, 2008 and 18% in the first quarter ended March 31, 2009. This decrease is attributed to the revised smelting and refining agreements renegotiated effective December 1, 2008; as well as the new smelting and refining relationships entered into in February and May 2009. Average smelting charges for doré in the quarter ended June 30, 2009 were US$0.32 per equivalent silver ounce whereas for concentrates they were US$3.21 per equivalent ounce.
The Company generated net income after taxes of $1.0 million for the quarter ended June 30, 2009 compared to a net loss after taxes of $0.3 million for the quarter ended June 30, 2008, and a net income after taxes of $0.9 million for the first quarter ended March 31, 2009. The net income after taxes for this quarter was after recording non-cash stock-based compensation expense of $0.8 million, a foreign exchange gain of $0.8 million, and an income tax recovery of $1.6 million.
Total production for the quarter ended June 30, 2009 was 957,936 ounces of silver equivalents consisting of 827,720 ounces of silver, 746 ounces of gold and 1,493,162 pounds of lead. This compares to the 1,271,141 ounces of silver equivalents produced in the quarter ended June 30, 2008, which consisted of 1,109,821 ounces of silver, 482 ounces of gold, 1,987,551 pounds of lead and 134,644 pounds of zinc. Total production for the quarter ended March 31, 2009 was 1,040,117 ounces of silver equivalents which included 929,964 ounces of silver, 491 ounces of gold and 1,828,739 pounds of lead.
Direct cash costs per ounce of silver for the quarter ended June 30, 2009 increased to US$6.31 per ounce of silver, compared to US$4.84 per ounce of silver for the quarter ended June 30, 2008, due to reduced silver production, lower by-product credits, lower average silver grades and lower recoveries in the second quarter of 2009. Direct cash costs for the quarter ended March 31, 2009 and the six months ended June 30, 2009 were US$4.94 per ounce and US$5.58 per ounce, respectively.
Mine operating earnings for the quarter ended June 30, 2009 were $1.7 million, a decrease of $0.5 million or 23% compared to mine operating earnings of $2.2 million for the quarter ended June 30, 2008, and mine operating earnings of $4.5 million for the quarter ended March 31, 2009. The La Encantada Silver Mine experienced some ground condition instability in the second quarter which interrupted the mining in the Milagros and San Javier Breccia areas which contain a higher grade of ore. This higher grade tonnage was temporarily replaced by lower grade ore from the Azul y Oro and Buenos Aires areas and dumps. This resulted in lower head grades at the mill, higher manganese content and lower recoveries. The ground conditions were remedied subsequent to the quarter and production from the Milagros and San Javier Breccias resumed in August.
-1-
The Company had an operating loss of $1.2 million for the second quarter ended June 30, 2009 compared to an operating loss of $0.6 million for the quarter ended June 30, 2008, an increase of $0.6 million or 110%. Operating income for the first quarter ended March 31, 2009 was $1.8 million.
At the La Encantada Silver Mine, construction is progressing on the 3,500 tonnes per day (tpd) cyanidation plant. The plant is scheduled to begin commissioning in September 2009 and to be fully operational by the end of 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of doré bars.
The Company has revised its estimated capital expenditures for the completion of the new 3,500 tpd mill at the La Encantada from US$24.5 million to US$27.5 million. The primary reason for the increase in capital expenditures is related to a decision to revise the tailings pond design to use a paste and filter design which will allow the new cyanidation plant to significantly reduce power and water consumption once fully operational by year end.
Total capitalized construction in progress consisted of $18.9 million (US$16.2 million) with a further $3.5 million (U$3.0 million) advanced to contractors for equipment.
During the quarter ended June 30, 2009, the Company invested $3.2 million on its mineral properties and a further $5.9 million in additions to plant and equipment on a cash basis. This compares to $2.8 million invested on its mineral properties, and a further $8.0 million on additions to plant and equipment in the quarter ended June 30, 2008, and $1.8 million invested on its mineral properties, and a further $1.6 million on additions to plant and equipment in the first quarter ended March 31, 2009.
On August 12, 2009, the Company reported a non-brokered private placement offering consisting of up to 4,000,000 units to be issued at a price of $2.30 per unit for gross proceeds of up to $9.2 million. Each unit will consist of one common share and one-half of one common share purchase warrant with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. The Company plans to use the net proceeds of the offering as general working capital for its three operating silver mines in Mexico.
On August 12, 2009, the Company reported that it will settle certain debts of its subsidiaries in the aggregate amount of up to $4,000,000 and has entered into debt settlement agreements with those creditors to settle such debt by the issuance of up to 1,739,130 common shares of the Company at a deemed price of $2.30 per share. Closing of the debt settlement is subject to receipt of all required regulatory approvals including the consent of the Toronto Stock Exchange.
The subsidiaries, mines, mills and properties in Mexico are as follows:
-2-
Certain financial results in this MD&A, regarding operations, cash costs, and average realized revenues, are presented in the Mine Operating Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars. U.S. dollar results are translated using the U.S. dollar rates on the dates on which the transactions occurred.
-3-
MINING OPERATING RESULTS
Quarter Ended June 30, |
CONSOLIDATED FIRST MAJESTIC
RESULTS |
|||
2009 | 2008 | |||
204,873 | 213,995 | Ore processed/tonnes milled | 420,920 | 372,393 |
189 | 229 | Average silver grade (g/tonne) | 206 | 237 |
66% | 70% | Recovery (%) | 63% | 71% |
827,720 | 1,109,821 | Silver ounces produced | 1,757,683 | 2,005,178 |
746 | 482 | Gold ounces produced | 1,237 | 722 |
49,857 | 25,128 | Equivalent ounces from gold | 83,340 | 37,812 |
1,493,162 | 1,987,551 | Pounds of lead produced | 3,321,901 | 3,845,448 |
80,359 | 129,243 | Equivalent ounces from lead | 157,030 | 267,136 |
- | 134,644 | Pounds of zinc produced | - | 401,297 |
- | 6,950 | Equivalent ounces from zinc | - | 22,735 |
957,936 | 1,271,141 | Total production - ounces silver equiv. | 1,998,053 | 2,332,862 |
1,073,129 | 892,406 | Ounces of silver equivalents sold (1) | 2,069,724 | 1,911,896 |
$6.31 | $4.84 | Total US cash cost per ounce (2) (3) | $5.58 | $5.00 |
4,918 | 7,162 | Underground development (m) | 9,529 | 15,472 |
363 | 20,325 | Diamond drilling (m) | 5,411 | 35,488 |
$36.97 | $47.04 | Total US production cost per tonne (3) | $34.79 | $43.37 |
Quarter Ended June 30, |
LA
ENCANTADA
RESULTS |
||||
2009 | 2008 | ||||
68,481 | 63,194 | Ore processed/tonnes milled | 145,037 | 116,075 | |
237 | 290 | Average silver grade (g/tonne) | 273 | 305 | |
50% | 63% | Recovery (%) | 51% | 64% | |
263,321 | 374,163 | Silver ounces produced | 648,297 | 727,145 | |
- | - | Gold ounces produced | - | - | |
- | - | Equivalent ounces from gold | - | - | |
569,712 | 836,425 | Pounds of lead produced | 1,472,084 | 1,340,213 | |
28,109 | 53,399 | Equivalent ounces from lead | 65,828 | 90,449 | |
- | - | Pounds of zinc produced | - | - | |
- | - | Equivalent ounces from zinc | - | - | |
291,430 | 427,562 | Total production - ounces of silver equiv. | 714,125 | 817,594 | |
289,753 | 391,404 | Ounces of silver equivalents sold | 707,970 | 757,328 | |
$7.14 | $3.67 | Total US cash cost per ounce (2) (3) | $5.23 | $3.49 | |
2,230 | 1,761 | Underground development (m) | 4,327 | 5,460 | |
- | 2,501 | Diamond drilling (m) | 2,397 | 8,186 | |
$44.56 | $66.46 | Total US production cost per tonne (3) | $41.19 | $53.80 | |
(1)
(2) (3) |
Includes 40,278 ounces in the second quarter ended
June 30, 2009 and 39,736 ounces in the six months ended June 30, 2009
(after
adjustments for intercompany eliminations) sold as coins,
ingots and bullion from Canadian operations.
The Company reports non-GAAP measures which include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver (prior to smelting charge), and smelting charges per ounce of silver in order to manage and evaluate operating performance at each of the Companys mines. These measures are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP below Cash Costs do not include smelting; production costs per tonne include smelter charges. |
-4-
Quarter Ended June 30, |
LA
PARRILLA
RESULTS |
|||
2009 | 2008 | |||
63,548 | 72,650 | Ore processed/tonnes milled | 129,454 | 127,949 |
196 | 243 | Average silver grade (g/tonne) | 193 | 257 |
81% | 66% | Recovery (%) | 74% | 70% |
324,972 | 376,528 | Silver ounces produced | 593,301 | 744,397 |
221 | 154 | Gold ounces produced | 371 | 292 |
14,408 | 8,017 | Equivalent ounces from gold | 25,252 | 15,241 |
923,450 | 1,098,773 | Pounds of lead produced | 1,849,817 | 2,344,107 |
52,250 | 72,144 | Equivalent ounces from lead | 91,202 | 164,858 |
- | - | Pounds of zinc produced | - | - |
- | - | Equivalent ounces from zinc | - | - |
391,630 | 456,688 | Total production - ounces of silver equiv. | 709,754 | 924,496 |
423,674 | 307,260 | Ounces of silver equivalents sold | 724,855 | 733,779 |
$4.72 | $3.61 | Total US cash cost per ounce (1) (2) | $4.95 | $3.52 |
1,982 | 2,505 | Underground development (m) | 3,787 | 4,552 |
- | 10,569 | Diamond drilling (m) | 2,038 | 19,116 |
$40.58 | $43.89 | Total US production cost per tonne (2) | $38.14 | $38.33 |
Quarter Ended June 30, |
SAN MARTIN
RESULTS |
Year to date June 30, | |||
2009 | 2008 | ||||
72,844 | 78,151 | Ore processed/tonnes milled | 146,430 | 128,369 | |
138 | 168 | Average silver grade (g/tonne) | 150 | 156 | |
74% | 85% | Recovery (%) | 73% | 83% | |
239,427 | 359,130 | Silver ounces produced | 516,086 | 533,636 | |
525 | 328 | Gold ounces produced | 866 | 430 | |
35,449 | 17,111 | Equivalent ounces from gold | 58,088 | 22,571 | |
- | 52,353 | Pounds of lead produced | - | 161,128 | |
- | 3,700 | Equivalent ounces from lead | - | 11,829 | |
- | 134,644 | Pounds of zinc produced | - | 401,297 | |
- | 6,950 | Equivalent ounces from zinc | - | 22,735 | |
274,876 | 386,891 | Total production - ounces of silver equiv. | 574,174 | 590,772 | |
319,424 | 193,742 | Ounces of silver equivalents sold | 597,163 | 420,789 | |
$7.54 | $7.35 | Total US cash cost per ounce (1) (2) | $6.76 | $9.12 | |
707 | 2,896 | Underground development (m) | 1,414 | 5,460 | |
363 | 7,255 | Diamond drilling (m) | 976 | 8,186 | |
$26.71 | $34.26 | Total US production cost per tonne (2) | $25.50 | $38.97 | |
(1)
(2) |
The Company reports non-GAAP measures which
include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable
silver (prior
to smelting charge) and smelting charges per ounce of
silver in order to manage and evaluate operating performance at each of
the
Companys mines. These measures are widely used in the silver
mining industry as a benchmark for performance, but do not have a
standardized meaning, and are not GAAP measures. See Reconciliation to
GAAP below.
Cash Costs do not include smelting; production costs per tonne include smelter charges. |
-5-
Reconciliation of Cash Costs to GAAP |
Three Months Ended
June 30, 2009 |
Three Months Ended
June 30, 2008 |
Year to Date
June 30, 2009 |
Year to Date
June 30, 2008 |
|||||||||||||
San Martin | La Parrilla | La Encantada | 2009 | San Martin | La Parrilla | La Encantada | 2009 | San Martin | La Parrilla | La Encantada | 2009 | San Martin | La Parrilla | La Encantada | 2009 | ||
DIRECT MINING EXPENSES(MMI) | US$ | 2,182,816 | 2,195,447 | 2,073,855 | 6,452,118 | 2,729,893 | 3,107,950 | 1,862,447 | 7,700,290 | 4,145,517 | 4,296,055 | 3,963,705 | 12,405,277 | 4,949,332 | 5,318,964 | 3,284,553 | 13,552,849 |
PROFIT SHARING | US$ | - | - | 59,120 | 59,120 | - | - | 217,949 | 217,949 | - | - | 59,120 | 59,120 | - | - | 234,538 | 234,538 |
OTHER SELLING COSTS (TRANSPORT, ETC.) | US$ | 179,173 | 130,757 | 201,786 | 511,716 | 37,834 | 81,735 | 67,762 | 187,331 | 205,444 | 188,425 | 228,124 | 621,993 | 68,269 | 125,618 | 139,349 | 333,236 |
THIRD PARTY SMELTING | US$ | 139,277 | 1,045,512 | 1,170,930 | 2,355,719 | 39,416 | 1,828,318 | 2,827,218 | 4,694,952 | 245,293 | 2,002,611 | 2,583,496 | 4,831,400 | 134,259 | 2,282,555 | 3,709,755 | 6,126,569 |
BYPRODUCT CREDITS | US$ | (555,958) | (793,202) | (394,725) | (1,743,885) | (129,574) | (1,829,156) | (557,610) | (2,516,340) | (862,605) | (1,549,946) | (801,516) | (3,214,067) | (148,981) | (2,822,445) | (889,137) | (3,860,563) |
LESS PROFIT SHARING | US$ | - | - | (59,120) | (59,120) | - | - | (217,949) | (217,949) | - | - | (59,120) | (59,120) | - | - | (234,538) | (234,538) |
TOTAL CASH COSTS | US$ | 1,945,308 | 2,578,514 | 3,051,846 | 7,575,668 | 2,677,569 | 3,188,847 | 4,199,817 | 10,066,233 | 3,733,649 | 4,937,145 | 5,973,809 | 14,644,603 | 5,002,879 | 4,904,692 | 6,244,520 | 16,152,091 |
CASH COST PER OUNCE PRODUCED | US$/OZ | 8.12 | 7.93 | 11.59 | 9.15 | 7.46 | 8.47 | 11.22 | 9.07 | 7.23 | 8.32 | 9.21 | 8.33 | 9.38 | 6.59 | 8.59 | 8.06 |
SMELTING/REFINING/TRANSPORTATION | |||||||||||||||||
COST PER OUNCE | US$/OZ | (0.58) | (3.22) | (4.45) | (2.85) | (0.11) | (4.86) | (7.56) | (4.23) | (0.48) | (3.38) | (3.99) | (2.75) | (0.25) | (3.07) | (5.10) | (3.06) |
DIRECT MINING EXPENSES CASH COST | US$/OZ | 7.54 | 4.72 | 7.14 | 6.31 | 7.35 | 3.61 | 3.67 | 4.84 | 6.76 | 4.95 | 5.23 | 5.58 | 9.12 | 3.52 | 3.49 | 5.00 |
TONNES PRODUCED | TONNES | 72,844 | 63,548 | 68,481 | 204,873 | 78,151 | 72,650 | 63,194 | 213,995 | 146,430 | 129,453 | 145,037 | 420,920 | 128,369 | 127,949 | 116,075 | 372,393 |
OUNCES OF SILVER PRODUCED | OZ | 239,427 | 324,972 | 263,321 | 827,720 | 359,130 | 376,528 | 374,163 | 1,109,821 | 516,086 | 593,300 | 648,297 | 1,757,683 | 533,636 | 744,398 | 727,145 | 2,005,179 |
OUNCES OF SILVER EQ PRODUCED | OZ EQ | 35,449 | 66,658 | 28,109 | 130,216 | 27,761 | 80,161 | 53,999 | 161,921 | 58,088 | 116,454 | 65,828 | 240,370 | 57,135 | 180,099 | 90,449 | 327,683 |
TOTAL OZ OF SILVER EQ PRODUCED | OZ EQ | 274,876 | 391,630 | 291,430 | 957,936 | 386,891 | 456,689 | 427,562 | 1,271,142 | 574,174 | 709,754 | 714,125 | 1,998,053 | 590,771 | 924,497 | 817,594 | 2,332,862 |
MINING | $/Tonne | 11.80 | 12.68 | 14.06 | 12.83 | 15.31 | 17.41 | 9.89 | 14.42 | 10.38 | 12.36 | 12.75 | 11.81 | 18.13 | 14.68 | 9.52 | 14.26 |
MILLING | $/Tonne | 12.96 | 16.61 | 9.82 | 13.04 | 9.76 | 20.67 | 6.08 | 12.38 | 12.60 | 16.05 | 8.96 | 12.41 | 10.00 | 20.70 | 5.04 | 12.13 |
INDIRECT | $/Tonne | 5.21 | 5.26 | 6.40 | 5.62 | 9.86 | 4.70 | 13.50 | 9.18 | 5.32 | 4.77 | 5.62 | 5.26 | 10.42 | 6.20 | 13.74 | 10.00 |
DIRECT CASH COST | $/Tonne | 29.97 | 34.55 | 30.28 | 31.49 | 34.93 | 42.78 | 29.47 | 35.98 | 28.31 | 33.19 | 27.33 | 29.47 | 38.56 | 41.57 | 28.30 | 36.39 |
SELLING AND TRANSPORT COSTS | $/Tonne | 2.46 | 2.06 | 2.95 | 2.50 | 0.48 | 1.13 | 1.07 | 0.88 | 1.40 | 1.46 | 1.57 | 1.48 | 0.53 | 0.98 | 1.20 | 0.89 |
SMELTING AND REFINING COSTS | $/Tonne | 1.91 | 16.45 | 17.10 | 11.50 | 0.50 | 25.17 | 44.74 | 21.94 | 1.68 | 15.47 | 17.81 | 11.48 | 1.05 | 17.84 | 31.96 | 16.45 |
BY PRODUCT CREDITS | $/Tonne | (7.63) | (12.48) | (5.76) | (8.51) | (1.66) | (25.18) | (8.82) | (11.76) | (5.89) | (11.97) | (5.53) | (7.64) | (1.16) | (22.06) | (7.66) | (10.37) |
DIRECT COST PER TONNE | $/Tonne | 26.71 | 40.58 | 44.56 | 36.97 | 34.26 | 43.89 | 66.46 | 47.04 | 25.50 | 38.14 | 41.19 | 34.79 | 38.97 | 38.33 | 53.80 | 43.37 |
MINING | $/Oz. | 3.59 | 2.48 | 3.66 | 3.17 | 3.33 | 3.36 | 1.67 | 2.78 | 2.95 | 2.70 | 2.85 | 2.83 | 4.36 | 2.52 | 1.52 | 2.65 |
MILLING | $/Oz. | 3.94 | 3.25 | 2.56 | 3.23 | 2.12 | 3.99 | 1.03 | 2.39 | 3.58 | 3.50 | 2.00 | 2.97 | 2.41 | 3.56 | 0.80 | 2.25 |
INDIRECT | $/Oz. | 1.59 | 1.03 | 1.67 | 1.39 | 2.14 | 0.91 | 2.28 | 1.77 | 1.51 | 1.04 | 1.26 | 1.26 | 2.51 | 1.06 | 2.19 | 1.86 |
DIRECT CASH COST | $/Oz. | 9.12 | 6.76 | 7.88 | 7.80 | 7.60 | 8.25 | 4.98 | 6.94 | 8.03 | 7.24 | 6.11 | 7.06 | 9.27 | 7.15 | 4.52 | 6.76 |
SELLING AND TRANSPORT COSTS | $/Oz. | 0.75 | 0.40 | 0.77 | 0.62 | 0.11 | 0.22 | 0.18 | 0.17 | 0.40 | 0.32 | 0.35 | 0.35 | 0.13 | 0.17 | 0.19 | 0.17 |
SMELTING AND REFINING COSTS | $/Oz. | 0.58 | 3.22 | 4.45 | 2.85 | 0.11 | 4.86 | 7.56 | 4.23 | 0.48 | 3.38 | 3.99 | 2.75 | 0.25 | 3.07 | 5.10 | 3.06 |
BY PRODUCT CREDITS | $/Oz. | (2.32) | (2.44) | (1.50) | (2.11) | (0.36) | (4.86) | (1.49) | (2.27) | (1.67) | (2.61) | (1.24) | (1.83) | (0.28) | (3.79) | (1.22) | (1.93) |
CASH COST PER OUNCE | $/Oz. | 8.12 | 7.93 | 11.59 | 9.15 | 7.46 | 8.47 | 11.22 | 9.07 | 7.23 | 8.32 | 9.21 | 8.33 | 9.38 | 6.59 | 8.59 | 8.06 |
-6-
Three months ended June 30, 2009 | Year to date June 30, 2009 | ||||||||||
INVENTORY RECONCILIATION (See Note 1): | San Martin | La Parrilla | La Encantada | Vancouver | 2009 | San Martin | La Parrilla | La Encantada | Vancouver | 2009 | |
Opening stockpile inventory | OZ EQ | 116,400 | 93,350 | 54,070 | - | 263,820 | 147,932 | 193,165 | 88,555 | 429,652 | |
Reduction of stockpile | OZ EQ | (88,377) | (12,088) | (14,047) | - | (114,512) | (119,909) | (111,903) | (48,532) | - | (280,344) |
Ending Stockpile inventory | OZ EQ | 28,023 | 81,262 | 40,023 | - | 149,308 | 28,023 | 81,262 | 40,023 | - | 149,308 |
Opening in process inventory | OZ EQ | 13,641 | 9,763 | - | - | 23,404 | 13,992 | 8,524 | - | - | 22,516 |
Inventory adjustments | OZ EQ | 525 | 1,077 | - | - | 1,602 | 174 | 2,316 | - | - | 2,490 |
Ending in process inventory | OZ EQ | 14,166 | 10,840 | - | - | 25,006 | 14,166 | 10,840 | - | - | 25,006 |
Opening finished goods inventory | OZ EQ | 55,350 | 37,567 | 45,948 | - | 138,865 | 33,276 | 20,368 | 48,111 | - | 101,755 |
Production - silver equivalent ounces | OZ EQ | 274,876 | 391,630 | 291,430 | - | 957,936 | 574,174 | 709,754 | 714,130 | - | 1,998,058 |
Shipments - silver equivalent ounces | OZ EQ | (319,424) | (423,674) | (289,753) | - | (1,032,851) | (596,621) | (724,855) | (707,970) | - | (2,029,446) |
Purchased material for processing | OZ EQ | - | 16,584 | - | - | 16,584 | - | 16,584 | - | - | 16,584 |
Inventory adjustments | OZ EQ | 794 | (5,973) | (684) | - | (5,863) | 767 | (5,302) | (7,330) | - | (11,865) |
Ending finished goods inventory | OZ EQ | 11,596 | 16,134 | 46,941 | - | 74,671 | 11,596 | 16,549 | 46,941 | - | 75,086 |
Total inventory before transfers | OZ EQ | 53,785 | 108,236 | 86,964 | - | 248,985 | 53,785 | 108,236 | 86,964 | - | 248,985 |
Transfers to Coins, Ingots and Bullion inventory | OZ EQ | - | 50,000 | 50,000 | - | - | - | 146,769 | 146,769 | ||
Inventory adjustments | OZ EQ | - | - | - | (616) | (616) | - | - | - | (616) | (616) |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 71,602 | 71,602 | - | - | - | 42,453 | 42,453 |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (103,867) | (103,867) | - | - | - | (171,487) | (171,487) |
Closing inventory of coins, ingots and bullion | OZ EQ | - | - | - | 17,119 | 17,119 | - | - | - | 17,119 | 17,119 |
Total inventory, all stages and products | OZ EQ | 53,785 | 108,236 | 86,964 | 17,119 | 266,104 | 53,785 | 108,236 | 86,964 | 17,119 | 266,104 |
Value of ending inventory - (Note 1) | CDN$ | 386,807 | 476,945 | 634,610 | 178,779 | 1,677,141 | 386,807 | 476,945 | 634,610 | 178,779 | 1,677,141 |
Value of ending inventory - Cdn$ per oz | CDN$ | 7.19 | 4.41 | 7.30 | 10.44 | 6.30 | 7.19 | 4.41 | 7.30 | 10.44 | 6.30 |
Month end exchange rate - June 30, 2009 | 1.1630 | 1.1630 | 1.1630 | 1.1630 | 1.1630 | 1.1630 | 1.1630 | 1.1630 | 1.1630 | 1.1630 | |
Value of ending inventory - US$ per oz | US$ | 6.18 | 3.79 | 6.27 | 8.98 | 5.42 | 6.18 | 3.79 | 6.27 | 8.98 | 5.42 |
Three Months ended June 30, 2009 | Year to Date June 30, 2009 | ||||||||||
Cost of Sales Reconciliation | San Martin | La Parrilla La Encantada | Vancouver | 2009 | San Martin | La Parrilla La Encantada | Vancouver | 2009 | |||
Cash Cost | US$ | 1,945,308 | 2,578,514 | 3,051,846 | - | 7,575,668 | 3,733,649 | 4,937,145 | 5,973,809 | - | 14,644,603 |
Inventory changes | US$ | 480,054 | 293,018 | (117,518) | - | 655,554 | 794,173 | 250,400 | (33,830) | - | 1,010,743 |
Byproduct credits | US$ | 555,958 | 793,202 | 394,725 | - | 1,743,885 | 862,605 | 1,549,946 | 801,516 | - | 3,214,067 |
Smelting and refining | US$ | (139,277) | (1,045,512) | (1,170,930) | - | (2,355,719) | (245,293) | (2,002,611) | (2,583,496) | - | (4,831,400) |
Other | US$ | (88,361) | 277,285 | (36,608) | - | 152,316 | (109,833) | 366,561 | (7,306) | - | 249,422 |
Cost of sales - Calculated | US$ | 2,753,682 | 2,896,507 | 2,121,515 | - | 7,771,704 | 5,035,301 | 5,101,441 | 4,150,693 | - | 14,287,435 |
Average CDN/US Exchange Rate | 0.82769 | 0.84287 | 0.81955 | - | 0.83101 | 0.83088 | 0.83115 | 0.81820 | - | 0.82726 | |
Booked Cost of Sales | CDN$ | 3,326,950 | 3,436,485 | 2,588,633 | - | 9,352,068 | 6,060,176 | 6,137,789 | 5,072,929 | - | 17,270,894 |
Vancouver Cost of Sales (See Note 2) | CDN$ | - | - | - | 107,800 | 107,800 | - | - | - | 487,787 | 487,787 |
Total Cost of Sales as Reported | CDN$ | 107,800 | 9,459,868 | 487,787 | 17,758,681 |
Note 1 - The inventory reconciliation above consists of silver
coins, bullion, doré, concentrates, ore in process and stockpile but excludes
materials and supplies.
Note 2 - Net of intercompany eliminations of $1,671,393
for the second quarter ended June 30, 2009 and $2,375,383 for the year to date
ended June 30, 2009.
-7-
REVIEW OF MINING OPERATING RESULTS
The silver production for the second quarter of 2009 consisted of 827,720 ounces of silver representing a decrease of 102,245 ounces or 11% compared to the first quarter of 2009. In the quarter, 1,493,162 pounds of lead were produced, representing a decrease of 335,577 pounds or 18% compared to the first quarter of 2009. Gold produced in the second quarter of 2009 was 746 ounces, representing an increase of 255 ounces or 52% compared to the first quarter of 2009.
The ore processed during the quarter at the Company's three operating silver mines: La Parrilla Silver Mine, the San Martin Silver Mine and La Encantada Silver Mine; amounted to 204,873 tonnes which is a decrease of 11,174 tonnes or 5% over the first quarter of 2009.
The average silver head grade in the quarter for the three mines decreased to 189 g/t silver compared to 222 g/t Ag in the first quarter of 2009 and 229 g/t in the second quarter of 2008.
Total combined recoveries of silver at the Companys three mills improved in the second quarter to 66% compared to 60% in the first quarter of 2009.
A total of 4,918 meters of underground development was completed in the second quarter of 2009 compared to 4,610 metres completed in the first quarter of 2009. This program is important as it provides access to new areas within the different mines and prepares the mines for continued growth of silver production going forward. A total of 363 meters of diamond drilling was completed during the second quarter of 2009 compared to 5,048 metres drilled in the first quarter of 2009.
The Company's production levels are slightly behind schedule mostly due to the enormous efforts ongoing for completing the major construction project at the La Encantada mine. The completion of this new 3,500 tonne-per-day cyanidation mill is expected to have a dramatic effect on production and profitability and management has focused most of its efforts on completing this project. In addition, production was also impacted at La Encantada due to some ground instability in the second quarter which interrupted high grade ore mining efforts in the Milagros and San Javier Breccias. The Company mitigated the lost high grade production with an increase in mining of low grade dumps and mining in the Azul y Oro and Buenos Aires veins where the manganese in the ore could not be diluted with the high grade ore from the Breccias and this caused reduced recoveries at La Encantada. The Breccias have been stabilized and mining has resumed in these high grade areas. It should be noted that once the new cyanidation mill is up and running, ore containing manganese can be processed without affecting recoveries.
The Company continues to analyze its expenditures in order to optimize operations and improve profitability.
MINE UPDATES
La Encantada Silver Mine
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest city, Melchor Muzquiz, is 225 kilometres away via 45 kilometres of gravel road and 180 kilometres of paved road. The La Encantada mine consists of a 1,000 tpd flotation plant, and other related facilities, including a mining village with 180 houses, administrative offices, and private airstrip. The Company owns 100% of the La Encantada Silver Mine.
The La Encantada operation is undergoing an expansion to add a new 3,500 tpd cyanidation plant. The current flotation mill is operating on average at approximately 900 tpd to produce a silver rich lead concentrate. To date, the Company has spent approximately US$15.6 million on the new plant which is expected to be fully commissioned by the end of 2009. Once completed, the La Encantada Silver Mine is expected to produce 4.3 million ounces of silver doré annually.
-8-
Tonnes milled in the second quarter of 2009 decreased by 11% to 68,481 tonnes from the 76,556 tonnes milled in the first quarter of 2009. The reduction of tonnes milled in the second quarter of 2009 was due to problems accessing certain areas of the mine due to safety recommendations related to some structural instability issues. Access to those areas has now been re-established and the tonnage is expected to increase in the third quarter of 2009. The average head grade was 237 grams per tonne (g/t) in the second quarter of 2009, representing a decrease of 68 g/t or 22% when compared to 305 g/t in the first quarter of 2009. This decrease was originated by the temporary closure of certain areas of the mine, resulting in an increase in the production from lower grade areas. Silver recovery in the second quarter of 2009 was 50%, comparable to the 51% achieved in the first quarter of 2009. These low recoveries were caused by the high manganese content in the ore from Azul y Oro and Buenos Aires areas. Steps are being taken to improve recoveries including dilution with high grade breccia ore; however, until the new 3,500 tpd cyanidation plant is completed, metallurgical recoveries are only expected to increase modestly.
A total of 291,430 equivalent ounces of silver were produced during the second quarter of 2009, which represents a decrease of 131,265 ounces or 31% from the 422,695 equivalent ounces of silver produced in the first quarter of 2009. Silver production consisted of 263,321 ounces of silver, representing a decrease of 32% compared with the 384,976 ounces in the first quarter of 2009. Lead production for the second quarter of 2009 was 569,712 pounds, representing a decrease of 332,660 pounds or 37% compared to 902,372 pounds of lead produced in the first quarter of 2009.
Underground mine development consisted of 2,230 metres completed in the second quarter of 2009 compared to 2,097 metres of development completed in the first quarter of 2009, representing an increase of 6%. The focus of this program was several targets including the San Javier/Milagros Breccias, Azul y Oro and the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. The purpose of the ongoing underground development program is to prepare for increased production levels in 2009, to confirm additional Reserves and Resources, and for exploration and exploitation purposes going forward. No exploration diamond drilling was completed at La Encantada in the second quarter of 2009.
La Parrilla Silver Mine
The La Parrilla Silver Mine is a group of producing underground mines consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings including the San Marcos and the Quebradillas mines, located approximately 65 kilometres southeast of the city of Durango, Mexico. La Parrilla includes an 850 tpd mill consisting of parallel 425 tpd cyanidation and flotation circuits, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
This was the first mine developed by the Company and its operations have been scaled up continually from a 180 tpd operation in early 2005, to the current average throughput of 840 tpd. This mill produces doré bars and both silver-rich lead and zinc concentrates.
An expansion program at the mill was launched in July 2008 to expand this operation to 1,000 tpd by April 2009. However, due to market conditions that affected the entire mining sector in the fourth quarter of 2008, the expansion program was suspended resulting in the current mill capacity of 850 tpd.
Tonnes milled at La Parrilla were 63,548 tonnes in the second quarter of 2009, representing a decrease of 2,357 tonnes or 4%, when compared with the 65,905 tonnes milled in the first quarter of 2009. The average head grade increased to 196 g/t from 191 g/t in the first quarter of 2009. Recoveries of silver increased significantly to 81% in the second quarter of 2009, compared to 66% in the second quarter of 2008 and the first quarter of 2009, respectively.
-9-
Total silver production was 391,630 equivalent ounces of silver in the second quarter of 2009, representing an increase of 73,506 ounces or 23% when compared to the 318,124 ounces of silver equivalent produced in the first quarter of 2009. The composition of the silver equivalent production in the second quarter of 2009 included 324,972 ounces of silver, 221 ounces of gold and 923,450 pounds of lead. This compares with 268,329 ounces of silver, 150 ounces of gold and 926,367 pounds of lead in the first quarter of 2009.
No diamond drilling was completed in the second quarter of 2009. This compares to the 2,038 metres of drilling completed in the first quarter of 2009. A total of 1,982 metres of underground development was completed in the second quarter of 2009, compared to 1,806 metres in the first quarter of 2009.
San Martin Silver Mine
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 1,000 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine. The mill has historically produced 100% doré bars and continues to do so to this day. In early 2008, a 500 tpd flotation circuit was completed to take advantage of the large sulphide Resource at this mine, however, due to low base metal prices and high costs of smelting concentrates this circuit is presently not being operated.
An expansion program of the mill was launched in July 2008. The program included additional leaching tanks, thickeners and a third ball mill. The plan was to expand this mill from the historic 800 tpd to 1,200 tpd by April 2009. However, due to market conditions and the need to preserve cash, the expansion program was suspended in November 2008 resulting in the current mill capacity of 950 tpd. The mill is currently running at a monthly average 890 tpd in the last quarter, after factoring in maintenance and statutory holidays. The completed upgrades included the construction of a new thickener, new clarifiers and new filter presses to complete the expansion of the cyanidation process. Other upgrades completed included the pouring of cement floors around the leaching and thickeners areas and the repair and reinforcement of the older leaching tanks. These improvements are part of the process of achieving a Clean Industry Certification from PROFEPA.
In order to reduce operating costs, the Company temporarily reduced the production of ore from the main Zuloaga vein in 2008, eliminating all the external contractors and focusing on a combination of ore from the mine, old backfill and stockpile inventory to feed the cyanidation process.
Tonnes milled at the San Martin mine were 72,844 tonnes in the second quarter of 2009, representing a slight decrease when compared to 73,586 tonnes milled in the first quarter of 2009. The average head grade was 138 g/t in the second quarter of 2009, representing a decrease of 16% when compared to the 163 g/t in the first quarter of 2009, due to higher volume of ore feed from the old dumps.
Recoveries of silver in the second quarter of 2009 increased to 74%, from 72% achieved in the first quarter of 2009. Total production of 274,876 ounces of silver equivalent in the second quarter of 2009 was modestly lower than the 299,298 equivalent ounces of silver produced in the first quarter of 2009. The equivalent ounces of silver in the second quarter of 2009 consisted of 239,427 ounces of silver and 525 ounces of gold. This compares to 276,659 ounces of silver and 341 ounces of gold produced in the first quarter of 2009.
During the second quarter of 2009, a total of 363 metres of diamond drilling was completed. This compares to 613 metres drilled in the first quarter of 2009.
During the second quarter of 2009, a total of 707 metres of underground development was completed; this is similar to the 707 metres completed in the first quarter of 2009.
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Del Toro Silver Mine, Zacatecas, Mexico
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of 320 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines; the Perseverancia and San Juan mines which are approximately 1 kilometre apart.
The Del Toro Silver Mine is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings. The Company has been extracting development ore from the mine and shipping it to its La Parrilla mill for mixing into La Parrillas production and for batch metallurgical testing. In the second quarter of 2009, 2,417 tonnes of development ore were extracted and fed into the La Parrilla mill for production compared to the 15,089 tonnes in the first quarter of 2009. The Perseverancia area is presently being upgraded and rehabilitated to increase production from the high grade chimney areas.
Presently, permitting is underway for the construction of a new mill at Del Toro. Assuming all permitting is completed in 2009 and funds are available for this project, a new 500 tpd mill is anticipated to be operating towards the end of 2010.
EXPLORATION PROPERTY UPDATES
Cuitaboca Silver Project, Sinaloa, Mexico
The Company has an option to purchase a 100% interest in the Cuitaboca Silver Project, consisting of 5,134 hectares located in the State of Sinaloa, Mexico, which contains at least six well known veins with sulphide mineralization carrying high grade silver. The veins within the property are known as the La Lupita, Los Sapos, Chapotal, Colateral-Jesus Maria, Mojardina and Santa Eduwiges. In October 2008, in an effort to reduce costs, the Company halted its activities at the Cuitaboca project. Further exploration and development consisting of 2,000 metres of direct drifting along the vein and a diamond drill program at both the Colateral and Mojardina veins is being deferred until funds can be allocated to this project. Road construction for access to the La Lupita, Los Sapos, Chapotal, and Santa Eduwiges veins was also deferred.
Jalisco Group of Properties, Jalisco, Mexico
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, Mexico. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued pending an improvement in market conditions.
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RESULTS OF OPERATIONS
Three Months ended June 30, 2009 compared to Three Months ended June 30, 2008.
For the Quarter Ended | ||||||||
June 30, 2009 | June 30, 2008 | |||||||
$ | $ | |||||||
Gross Revenue | 15,779,596 | 14,290,892 | (1 ) | |||||
Net Revenue | 13,024,877 | 11,436,889 | (2 ) | |||||
Cost of sales | 9,459,868 | 7,629,755 | (3 ) | |||||
Amortization and depreciation | 943,553 | 877,252 | ||||||
Depletion | 828,911 | 698,844 | ||||||
Accretion of reclamation obligation | 117,171 | 50,367 | ||||||
Mine operating earnings | 1,675,374 | 2,180,671 | (4 ) | |||||
General and administrative | 2,114,312 | 2,100,325 | ||||||
Stock-based compensation | 800,808 | 670,616 | ||||||
2,915,120 | 2,770,941 | |||||||
Operating loss | (1,239,746 | ) | (590,270 | ) | (5 ) | |||
Interest and other expenses | (404,765 | ) | (226,872 | ) | (6 ) | |||
Investment and other income | 222,173 | 644,057 | (7 ) | |||||
Foreign exchange gain | 840,958 | 542,846 | (8 ) | |||||
(Loss) income before taxes | (581,380 | ) | 369,761 | |||||
Income tax - current | 113,532 | 267,530 | ||||||
Income tax (recovery) - future | (1,731,328 | ) | 399,187 | |||||
Income tax (recovery) expense | (1,617,796 | ) | 666,717 | (9 ) | ||||
NET INCOME (LOSS) FOR THE QUARTER | 1,036,416 | (296,956 | ) | (10 ) | ||||
1. |
Consolidated gross revenue (prior to smelting and refining and metal deductions) for the quarter ended June 30, 2009 was $15,779,596 or $14.70 (US$12.60) per ounce compared to $14,290,892 or $16.01 (US$15.86) per ounce for the quarter ended June 30, 2008 for an increase of $1,488,704, or 10%. A 20% increase in silver ounces sold in the current quarter and a weaker Canadian dollar compared to the U.S. dollar contributed to the increase in spite of lower U.S. revenue per ounce in the current quarter. |
2. |
Net revenue for the three months ended June 30, 2009 increased by $1,587,988 or 14% to $13,024,877, from $11,436,889 in the second quarter of 2008, due to the increase in the silver ounces sold and the lower smelting and refining charges from two new smelting and refining agreements entered into in February and May 2009. |
3. |
Cost of sales increased by $1,830,113 or 24% due to the increase in ounces sold of 180,723 ounces or 20% from the quarter ended June 30, 2009 compared to the quarter ended June 30, 2008. This increase in ounces sold was achieved through a reduction of 114,512 ounces of stockpile at a cost of $281,104. |
4. |
Mine operating earnings decreased by 23% to $1,675,374 for the quarter ended June 30, 2009 from $2,180,671 for the same quarter the prior year. This is primarily due to the operational challenges and instability experienced at La Encantada which led to revenue exceeding cost of sales by 3%. In comparison, La Encantadas revenue from operations exceeded cost of sales by 155% in the second quarter of 2008. |
5. |
Operating loss increased by $649,476 or 110% to $1,239,746 for the quarter ended June 30, 2009, from $590,270 for the quarter ended June 30, 2008, due to reduced mine operating earnings described above and a $130,192 increase in stock-based compensation relating to the granting of stock options in May 2009. |
6. |
Interest and other expenses increased by $177,893 or 78% in the quarter ended June 30, 2009 compared to the quarter ended June 30, 2008. The increase is primarily attributed to additional interest on capital leases and financing cost relating to advance payments on silver shipments. |
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7. |
Investment and other income decreased by $421,884 or 66% due to declining interest rates on short-term investments; however, the Company realized a gain of $212,380 on derivative financial instruments in the quarter ended June 30, 2009. |
8. |
The foreign exchange gain increased to $840,958 in the quarter ended June 30, 2009 from $542,846 in the quarter ended June 30, 2008 due to the effect of a weakening U.S. dollar on outstanding U.S .dollar denominated liabilities. |
9. |
During the quarter ended June 30, 2009, the Company recorded an income tax recovery of $1,617,796 compared to a tax expense of $666,717 in the quarter ended June 30, 2008, and this is attributed to the recovery of future income taxes arising from temporary timing differences and tax loss carryforwards compared to 2008. Included in the current recovery is a Canadian dollar equivalent of $542,906 for the adjusted tax deductibility of energy expenses which has increased the tax loss carryforwards. |
10. |
Net income for the quarter ended June 30, 2009 was $1,036,416 or $0.01 per common share compared to a net loss of $296,956 or $0.00 per common share in the quarter ended June 30, 2008, for an increase of $1,333,372. |
Six Months ended June 30, 2009 compared to Six Months ended June 30, 2008.
For the Six Months Ended | ||||||||
June 30, 2009 | June 30, 2008 | |||||||
$ | $ | |||||||
Gross Revenue | 33,243,733 | 30,536,815 | (1 ) | |||||
Net Revenue | 27,411,749 | 24,401,071 | (2 ) | |||||
Cost of sales | 17,758,681 | 14,146,811 | (3 ) | |||||
Amortization and depreciation | 1,802,391 | 1,664,431 | ||||||
Depletion | 1,399,207 | 1,585,206 | (4 ) | |||||
Accretion of reclamation obligation | 233,210 | 95,842 | (5 ) | |||||
Mine operating earnings | 6,218,260 | 6,908,781 | ||||||
General and administrative | 3,932,315 | 4,232,205 | ||||||
Stock-based compensation | 1,697,548 | 1,778,832 | ||||||
5,629,863 | 6,011,037 | |||||||
Operating income | 588,397 | 897,744 | (6 ) | |||||
Interest and other expenses | (764,971 | ) | (565,699 | ) | (7 ) | |||
Investment and other income | 512,017 | 781,450 | (8 ) | |||||
Foreign exchange (loss) gain | (111,908 | ) | 533,034 | (9 ) | ||||
Income before taxes | 223,535 | 1,646,529 | ||||||
Income tax - current | 171,582 | 705,934 | ||||||
Income tax (recovery) - future | (1,924,160 | ) | 172,228 | |||||
Income tax (recovery) expense | (1,752,578 | ) | 878,162 | (10 ) | ||||
NET INCOME FOR THE PERIOD | 1,976,113 | 768,367 | (11 ) | |||||
1. |
Gross revenue (prior to smelting and refining and metal deductions) for the six month period ended June 30, 2009 was $33,243,733 compared to $30,536,815 for the six month period ended June 30, 2008 for an increase of $2.7 million or 9%. A 9% increase in silver equivalent ounces sold in the first half of 2009, compared to the first half of 2008, contributed to this increase. Although silver prices were lower in 2009, the weaker Canadian dollar compared to the U.S. dollar contributed to the favourable increase in gross revenue as silver shipments are valued in U.S dollars and translated into Canadian dollars for financial statement presentation. The average gross revenue per ounce sold on a consolidated basis was Cdn$16.06 (US$13.32) per ounce for the six months ended June 30, 2009 compared to Cdn$15.97 (US$15.86) per ounce for the six months ended June 30, 2008. |
2. |
Net revenue for the six months ended June 30, 2009 increased by $3.0 million or 12%, from $24,401,071 in the first half of 2008 to $27,411,749 in the first half of 2009. Smelting and refining charges and metal deductions were reduced by 5% during the six-month period ended June 30, 2009 compared to the six months ended June 30, 2008, and reflects the reductions in smelting and refining charges related to two new smelting and refining agreements entered into in February and May 2009 for doré and concentrate smelting. Net revenue in the current year to date period also included the incremental revenue of $778,159 from the sales of coins, ingots and bullion to consumers and individual retail investors over the Companys website. |
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3. |
Cost of sales increased by $3,611,870 or 26% from $14,146,811 to $17,758,681 for the six months ended June 30, 2009. Total equivalent ounces of silver sold for six months ended June 30, 2009, was 2,069,724 ounces whereas for the six months ended June 30, 2008, the total equivalent ounces of silver sold was 1,911,896 ounces, for an increase of 157,828 equivalent ounces or 8%. Also contributing to the increase of cost of sales in the six months ended June 30, 2009 was a significant consumption of stockpile inventories amounting to $1,024,371, which is categorized as an inventory effect and is excluded from the cash costs, but is included in cost of sales for the current year-to-date period. The Ore Stockpile has been reduced from 429,652 equivalent ounces or $1,631,625 at the beginning of the year to 149,307 equivalent ounces or $607,254 at June 30, 2009, a reduction of 280,345 equivalent ounces of Ore Stockpile inventory. Due to losses in recoveries, equivalent pricing variations, and normal contribution to tailings, the 280,345 equivalent ounce reduction of the Ore Stockpile ounces converted to 216,650 equivalent ounces of silver production on a year to date basis. |
4. |
Depletion expense decreased by $185,999 or 12% to $1,399,207 in the six months ended June 30, 2009 compared to $1,585,206 for the six months ended June 30, 2008 and is primarily related to the San Martin mine as less tonnage was extracted from reserves, and more tonnage was extracted from areas outside of reserves. |
5. |
Accretion of reclamation obligations has increased by $137,368, from $95,842 in the second quarter of 2008 to $233,210 in the second quarter of 2009, due to the updated cost estimates for reclamation activities as determined in late 2008. |
6. |
Operating income decreased by $309,347 or 34%, from $897,744 for the period ended June 30, 2008 to $588,397 for the period ended June 30, 2009. The decrease is attributable to the $690,521 reduction of mine operating earnings, but it was partially offset by a $299,890 reduction of general and administrative expenses and a $81,284 reduction in stock-based compensation. |
7. |
Interest and other expenses increased by $199,272 or 35% in the six month period ended June 30, 2009 compared to the prior year and is primarily attributed to additional interest on capital leases and financing cost relating to advance payments on silver shipments. |
8. |
Investment and other income decreased by $269,433 or 34%. Interest rates on short-term investments continued to decline in the first half of 2009 but this was offset by a gain of $479,197 that was realized on derivative financial instruments. |
9. |
There was a foreign exchange loss of $111,908 for the six month period ended June 30, 2009, compared to a gain of $533,034 in the six month period ended June 30, 2008, due to the effect of a weakening U.S. dollar on outstanding U.S .dollar denominated liabilities. |
10. |
During the six months ended June 30, 2009, the Company recorded an income tax recovery of $1,752,578 compared to a tax expense of $878,162 in the six months ended June 30, 2008. This is attributed to the recovery of future income taxes arising from temporary timing differences and tax loss carryforwards compared to 2008. Included in the current recovery is a Canadian dollar equivalent of $542,906 for the adjusted tax deductibility of energy expenses which has increased the tax loss carryforwards. |
11. |
Net income for the six months ended June 30, 2009 was $1,976,113 or $0.02 per common share (basic) compared to net income of $768,367 or $0.01 per common share in 2008, for an increase of $1.2 million. |
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SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the last eight quarters.
|
Quarter |
Net sales revenues $ |
Net income (loss) after taxes $ |
Basic and
diluted net income (loss) per common share $ |
Stock based compensation (1) $ |
Property write downs $ |
Note |
Year ended December 31, 2009 | Q2 | 13,024,877 | 1,036,416 | 0.01 | 800,808 | - | 2 |
Q1 | 14,386,872 | 939,698 | 0.01 | 896,739 | - | 3 | |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | - | 4 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 | - | ||
Q2 | 11,436,889 | (296,956) | 0.00 | 670,616 | - | 5 | |
Q1 | 12,964,182 | 1,065,323 | 0.02 | 1,108,216 | - | ||
Year ended December 31, 2007 | Q4 | 11,631,477 | (1,292,631) | (0.03) | 1,446,821 | - | |
Q3 | 10,288,478 | (2,070,082) | (0.04) | 723,992 | 1,703,591 | 6 |
Notes:
(1) |
Stock-based Compensation - the net losses are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
(2) |
In the quarter ended June 30, 2009, net sales revenue decreased due to losses on final settlements for which provisional payments had already been received in the prior quarter. |
(3) |
In the quarter ended March 31, 2009, a stronger U.S. dollar compared to the Canadian dollar accounted for the increase of revenue. Although silver prices were lower in the first quarter of 2009, the average gross revenue per ounce sold was Cdn$17.52 (US$14.07) per ounce on a consolidated basis for the three-month period ended March 31, 2009. Also contributing to an increase in net sales is $1,194,452 from the sale of coins, ingots and bullion in the three months ended March 31, 2009. |
(4) |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metal settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million in the fourth quarter of 2008. |
(5) |
In the quarter ended June 30, 2008, the Company had a revision to its smelting charges imposed, resulting in an incremental charge and reduction of net sales of $1.9 million (US$1,852,830) in the quarter. Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate. |
(6) |
Write downs of mineral properties net losses are impacted by managements decision not to pursue certain mineral properties. In the quarter ended September 30, 2007, management elected not to proceed with the acquisitions of the Candameña Mining District and accordingly, included a $1,703,591 one time write down of the carrying value of the Candameña mineral property to its estimated proceeds from disposal. |
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Revenues Per Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net sum of invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including metal by-products of gold, lead and zinc, after having deducted refining and smelting charges and metal deductions, as well as shipments of coins, ingots and bullion products. The following analysis provides the gross revenues prior to refining and smelting charges and metal deductions, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP. Gross revenues are deducted by shipped ounces of equivalent silver to calculate the average realized price per ounce of silver sold.
Revenue Analysis |
Quarter Ended
June 30, |
Year to Date
June 30, |
||
2009
$ |
2008
$ |
2009
$ |
2008
$ |
|
MEXICO | ||||
Gross revenues - silver dore bars and concentrates | 16,195,889 | 14,290,892 | 32,465,574 | 30,536,815 |
Less: refining and smelting charges | (2,165,720) | (2,345,331) | (4,706,462) | (5,146,566) |
Less: metal deductions | (588,999) | (508,672) | (1,125,522) | (989,178) |
Net revenue from silver dore and concentrates | 13,441,170 | 11,436,889 | 26,633,590 | 24,401,071 |
Equivalent ounces of silver sold | 1,032,851 | 892,406 | 2,029,446 | 1,911,896 |
Average gross revenue per ounce sold ($CDN) | 15.68 | 16.01 | 16.00 | 15.97 |
Average exchange rate in the period ($US/$CDN) | 1.1672 | 1.0100 | 1.2062 | 1.0070 |
Average gross revenue per ounce sold ($US) | 13.43 | 15.86 | 13.26 | 15.86 |
CANADA | ||||
Gross revenues - silver coins, ingots and bullion | 1,807,629 | - | 3,002,081 | - |
Equivalent ounces of silver sold, from Mexican production | 103,867 | - | 171,487 | - |
Average gross revenue per ounce sold ($CDN) | 17.40 | - | 17.51 | - |
Average exchange rate in the period ($US/$CDN) | 1.1672 | - | 1.2062 | - |
Average gross revenue per ounce sold ($US) | 14.91 | - | 14.51 | - |
CONSOLIDATED | ||||
Combined gross revenues - silver dore, concentrates, coins, ingots and bullion | 18,003,518 | 14,290,892 | 35,467,655 | 30,536,815 |
Less: intercompany eliminations (Note 1) | (2,223,922) | - | (2,223,922) | - |
Consolidated gross revenues - silver dore, concentrates, coins, ingots and bullion | 15,779,596 | 14,290,892 | 33,243,733 | 30,536,815 |
Less: refining and smelting charges | (2,165,720) | (2,345,331) | (4,706,462) | (5,146,566) |
Less: metal deductions | (588,999) | (508,672) | (1,125,522) | (989,178) |
Consolidated net revenue from silver dore, concentrates, coins, ingots and bullion | 13,024,877 | 11,436,889 | 27,411,749 | 24,401,071 |
Equivalent ounces of silver sold (after interco. eliminations) | 1,073,129 | 892,406 | 2,069,724 | 1,911,896 |
Average gross revenue per ounce sold ($CDN) | 14.70 | 16.01 | 16.06 | 15.97 |
Average exchange rate in the period ($CDN/$US) | 1.1672 | 1.0100 | 1.2062 | 1.0070 |
Average gross revenue per ounce sold ($US) | 12.60 | 15.86 | 13.32 | 15.86 |
Average market price of per ounce of silver per LBMA.ORG.UK ($US) | 13.76 | 17.18 | 13.17 | 17.38 |
Note 1: |
Intercompany eliminations in Q2-2009 includes $650,830 relating to Q1-2009 that was previously adjusted through Mexicos gross revenues (as reported in the Q1-2009 MD&A). To adjust for the new presentation in this MD&A, $650,830 was added to the intercompany elimination in Q2-2009 and to the year-to-date gross revenue of Mexico. |
LIQUIDITY
At June 30, 2009, the Company had working capital of $2.2 million and cash and cash equivalents of $23.1 million compared to a working capital deficiency of $1.0 million and cash and cash equivalents of $17.4 million at December 31, 2008. Current liabilities at June 30, 2009 include the long-term vendor liability and associated interest relating to the acquisition of First Silver in the amount of $14.5 million. On July 22, 2008, the Company secured its outstanding vendor liability by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. In addition, a further $545,522 was paid into the Supreme Court of British Columbia in January 2009 and the Letter of Credit increased to a total Restricted Cash balance of $14,485,759. On July 16, 2009, the Company agreed to a consent order whereby $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder of First Silver. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. This cash is not available for general corporate purposes. Also included in current liabilities as at June 30, 2009 is the current portion of capital lease obligations of $2.6 million.
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On August 12, 2009, the Company reported a non-brokered private placement offering consisting of up to 4,000,000 units to be issued at a price of $2.30 per unit for gross proceeds of up to $9.2 million. Each unit will consist of one common share and one-half of one common share purchase warrant with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. The Company plans to use the net proceeds of the offering as general working capital in respect to its three operating silver mines in Mexico.
On August 12, 2009, the Company reported that it will settle certain debts of its subsidiaries in the aggregate amount of up to $4,000,000 and has entered into debt settlement agreements with those creditors to settle such debt by the issuance of up to 1,739,130 common shares of the Company at a deemed price of $2.30 per share. Closing of the debt settlement is subject to receipt of all required regulatory approvals including the consent of the Toronto Stock Exchange.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,705,739. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine and the remainder for general working capital. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. During the six months ended June 30, 2009, the Company also received $7,938 pursuant to the exercise of 6,250 stock options.
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters issuing 8,500,000 Units at an issue price of $5.35 per unit for net proceeds to the Company of $40,144,471. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring March 25, 2010. In addition, the Company received $1,130,588 pursuant to the exercise of 376,250 stock options and $31,875 pursuant to the exercise of 7,500 warrants during the six months ended June 30, 2008.
During the six months ended June 30, 2009, the Company invested $5.0 million (June 30, 2008 - $6.0 million) on its mineral properties of and a further $7.5 million (June 30, 2008 - $12.5 million) on plant and equipment. In late 2008, the Company took actions to reduce its rate of spending on exploration and development expenditures. Although the Company has expended approximately US$15.6 million to date on its capital expansion at La Encantada, the capital expansion is expected to be a total of US$27.5 million and to increase capacity to 3,500 tonnes per day.
Funds surplus to the Companys short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to any liquidity risk and there are no restrictions on the ability of the Company to meet its obligations. The Company has no exposure and has not invested any of its treasuries in any asset backed commercial paper securities.
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2009 OUTLOOK
Management is revising its production outlook for 2009 in response to the delayed commissioning of the new La Encantada cyanidation plant. Please be cautioned, these are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
Tonnes Milled | 594,200 | 265,300 | 250,900 | 1,110,400 |
Silver head grades (grams/tonne) | 212 | 250 | 150 | 207 |
Silver recoveries | 55% | 75% | 75% | 65% |
Silver ounces | 2,011,000 | 1,546,000 | 911,000 | 4,468,000 |
Gold ounces | 50 | 475 | 1,700 | 2,225 |
Lead tonnes | 3,500 | 3,800 | - | 7,300 |
Silver equivalent ounces (1) | 2,228,000 | 1,740,000 | 1,032,000 | 5,000,000 |
(1) Pricing assumptions for equivalents Au = US$850/oz., Pb = US$0.65/oz.
Tonnes Milled | 587,100 | 265,300 | 250,800 | 1,103,200 |
Silver head grades (grams/tonne) | 212 | 250 | 150 | 205 |
Silver recoveries | 60% | 75% | 80% | 68% |
Silver ounces | 2,470,300 | 1,545,700 | 967,700 | 4,983,700 |
Gold ounces | 15 | 465 | 1,187 | 1,667 |
Lead tonnes | 944 | 1,322 | - | 2,266 |
Silver equivalent ounces (1) | 2,563,300 | 1,703,600 | 1,032,200 | 5,300,000 |
(2) Pricing assumptions for equivalents Au = US$800/oz., Pb = US$0.55/oz.
Silver production is expected to increase in late 2009 when the La Encantada plant expansion is completed and plant capacity has been increased from 1,000 tpd to 3,500 tpd. The Company expects to gradually bring the new cyanidation plant into production beginning with production of 1,000 tpd in the first month, 2,000 tpd in the second month, 3,000 tpd in the third month, and achieving full capacity of 3,500 tpd by December 2009. The delay in scaling up production at La Encantada has delayed the expected increase in monthly production levels and caused the annual production outlook to be reduced for 2009 as per the above table. However, the Company will continue to operate its flotation circuit in parallel with cyanidation throughout the balance of 2009.
Although mill capacities are stated in maximum daily tonnage, management has established expected available days of operation in the year to include two days of maintenance per month and eleven days of statutory holidays for a total of 330 available productive days.
The Company has revised its estimated capital expenditures for the completion of the new 3,500 tpd mill at the La Encantada from US$24.5 million to US$27.5 million. The primary reason for the increase in capital expenditures is related to a decision to revise the tailings pond design to use a paste and filter design which will allow the new cyanidation plant to significantly reduce power and water consumption once fully operational by year end. As at June 30, 2009, the Company had expended US$16.2 million toward the completion of the 3,500 tonne per day mill project.
-18-
Sales of coins, ingots and bullion are expected to remain at 10% of total sold ounces for the balance of 2009. These sales result in approximately a 10% increase in selling price over normal quoted selling prices in any quarter. Additional information on the Companys silver coins, ingots and bullion, including how to place an order, may be found on the Companys website at www.firstmajestic.com.
OFF-BALANCE SHEET ARRANGEMENTS
At June 30, 2009, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the consolidated financial statements and the related notes.
RELATED PARTY TRANSACTIONS
During the period ended June 30, 2009, the Company:
a) |
incurred $147,748 for the six month period ended June 30, 2009 and $71,255 for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $120,273; quarter ended June 30, 2008 - $75,088) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
|
b) |
incurred $146,462 for the six month period ended June 30, 2009 and $72,829 for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $139,105; quarter ended June 30, 2008 - $78,849) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
|
c) |
incurred $1,269,751 of service fees during the six month period ended June 30, 2009 and $nil for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $4,207,123; quarter ended June 30, 2008 - $2,271,223) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $627,578 was unpaid as at June 30, 2009 (2008 - $1,635,365). This relationship was terminated in February 2009. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
PROPOSED TRANSACTIONS
Other than as disclosed herein, the board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
-19-
CONTRACTUAL OBLIGATIONS
The Companys liabilities have contractual maturities which are summarized below;
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 4,369,748 | $ | 2,585,705 | $ | 1,784,043 | $ | - | $ | - | |||||
Purchase Obligations (1) | 13,830,388 | 13,830,388 | - | - | - | ||||||||||
Vendor Liability on Mineral Property (2) | 651,892 | 651,892 | - | - | - | ||||||||||
Total Contractual Obligations (3) | $ | 18,852,028 | $ | 17,067,985 | $ | 1,784,043 | $ | - | $ | - |
(1) |
Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project (US$11.9 million). |
(2) |
Vendor liability on mineral property on the Quebradillas Mine at La Parrilla. |
(3) |
Amounts above do not include payments related to the Company's future asset retirement obligations (see Note 16), nor do they include accounts payable and accrued liabilities of $17.5 million. |
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for the year ended December 31, 2008. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
Carrying Values of Property, Plant and Equipment and Other Mineral Property Interests
The Company reviews and evaluates its mineral properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and/or development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
-20-
The Company completed an impairment review of its properties at December 31, 2008. The estimates used by management were subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest components of the Companys assets and, as such, the amortization of these assets has a significant effect on the Companys financial statements. On the commencement of commercial production, depletion of each mining property is provided on the unit-of-production basis using estimated reserves and resources expected to be converted to reserves as the depletion basis. The mining plant and equipment and other capital assets are depreciated, following the commencement of commercial production, over their expected economic lives using either the unit-of-production method. Capital projects in progress are not depreciated until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets.
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and decommissioning related to its mining properties. The Company, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future obligations from mine closure activities. Since the obligations are dependent on the laws and regulations of the county in which the mines operate, the requirements could change resulting from amendments in those laws and regulations relating to environmental protection and other legislation affecting resource companies.
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at June 30, 2009.
-21-
Income Taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantially enacted, as applicable, income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling it on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Co-incident with the tax consolidation, Mexico introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in Mexico. Management has reviewed its IETU obligations and its consolidated tax position at June 30, 2009, and management assessed whether the Company is more likely than not to benefit from these tax losses prior to recording a benefit from the tax losses.
Changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
Stock-Based Compensation
The Company uses the Black-Scholes Option Pricing Model . Option pricing models require the input of subjective assumptions including the expected price volatility. Changes in the input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide an accurate single measure of the actual fair value of the Companys stock options granted during the year.
FUTURE ACCOUNTING CHANGES
The Company has assessed new and revised accounting pronouncements that have been issued but that are not yet effective and determined that the following may have a significant impact on the Company.
The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009. The Company has determined there is no impact on its consolidated financial statements.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted.
-22-
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management reviewed internal controls in detail in 2008 and noted weaknesses in internal controls related to education and adoption of new automated internal controls in Mexico proposed when its new accounting information systems were adopted in the first quarter of 2008. The risk of material error is mitigated by extensive management review of financial reports and various account reconciliations and analyses in both Mexico and Canada. Management is continuing to rely significantly on substantive testing and detailed analyses in parallel with establishing detailed controls over the new systems in order to mitigate specific weaknesses while ensuring the fair presentation of its financial statements. During the quarter, significant progress on the remediation plan has been achieved and management expects the remainder of its current plan to be completed by the end of the year.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in Mexico but these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at June 30, 2009.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is presently undergoing a diagnostic assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. While the effects of IFRS have not yet been fully determined, the Company has identified several key areas where it is likely to be impacted by accounting policy changes, including the accounting for Property, Plant and Equipment, Asset Retirement Obligations and Business Combinations. Further detailed analysis of these areas is underway, and no decisions have yet been made with regard to accounting policy choices.
-23-
A more detailed review of the impact of IFRS on the Companys consolidated financial statements, and other areas of the Company is in progress and is expected to be completed by the end of 2009. The Company will continue to monitor changes in IFRS during the implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting. There will be changes in accounting policies related to the adoption of IFRS and these changes may materially impact the Companys financial statements in the future.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company may be found on or in:
-24-
|
CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE THREE MONTHS ENDED |
JUNE 30, 2009 (UNAUDITED) |
MANAGEMENTS COMMENTS ON
UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements of the
Company have been prepared by and are the
responsibility of the Companys
management.
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED BALANCE SHEETS |
AS AT JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
(Expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Note 17)
APPROVED BY THE BOARD OF DIRECTORS
(signed) Keith Neumeyer | Director | (signed) Douglas Penrose | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF INCOME |
FOR THE PERIODS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars, except share amounts) |
Three Months ended June 30, | Six Months ended June 30, | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
$ | $ | $ | $ | |||||||||
Revenue (Note 12) | 13,024,877 | 11,436,889 | 27,411,749 | 24,401,071 | ||||||||
Cost of sales | 9,459,868 | 7,629,755 | 17,758,681 | 14,146,811 | ||||||||
Amortization and depreciation | 943,553 | 877,252 | 1,802,391 | 1,664,431 | ||||||||
Depletion | 828,911 | 698,844 | 1,399,207 | 1,585,206 | ||||||||
Accretion of reclamation obligation | 117,171 | 50,367 | 233,210 | 95,842 | ||||||||
Mine operating earnings | 1,675,374 | 2,180,671 | 6,218,260 | 6,908,781 | ||||||||
General and administrative | 2,114,312 | 2,100,325 | 3,932,315 | 4,232,205 | ||||||||
Stock-based compensation | 800,808 | 670,616 | 1,697,548 | 1,778,832 | ||||||||
2,915,120 | 2,770,941 | 5,629,863 | 6,011,037 | |||||||||
Operating (loss) income | (1,239,746 | ) | (590,270 | ) | 588,397 | 897,744 | ||||||
Interest and other expenses | (404,765 | ) | (226,872 | ) | (764,971 | ) | (565,699 | ) | ||||
Investment and other income | 222,173 | 644,057 | 512,017 | 781,450 | ||||||||
Foreign exchange gain (loss) | 840,958 | 542,846 | (111,908 | ) | 533,034 | |||||||
(Loss) Income before taxes | (581,380 | ) | 369,761 | 223,535 | 1,646,529 | |||||||
Income tax - current | 113,532 | 267,530 | 171,582 | 705,934 | ||||||||
Income tax (recovery) - future | (1,731,328 | ) | 399,187 | (1,924,160 | ) | 172,228 | ||||||
Income tax (recovery) expense | (1,617,796 | ) | 666,717 | (1,752,578 | ) | 878,162 | ||||||
NET INCOME (LOSS) FOR THE PERIOD | 1,036,416 | (296,956 | ) | 1,976,113 | 768,367 | |||||||
EARNINGS PER COMMON SHARE BASIC & DILUTED | $ | 0.01 | $ | (0.00 | ) | $ | 0.02 | $ | 0.01 | |||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
BASIC | 82,341,636 | 73,782,410 | 79,387,259 | 68,919,747 | ||||||||
DILUTED | 99,426,674 | 90,070,550 | 96,472,297 | 85,207,887 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME |
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars, except share amounts) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Comprehensive | Total | |||||||||||||||||||||||
Share capital | Contributed | Income (Loss) | AOCI | |||||||||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and deficit | Total | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | |||||||||||||
Net income | - | - | - | - | - | 768,367 | 768,367 | 768,367 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 11,242,916 | - | 11,242,916 | 11,242,916 | ||||||||||||||||
Unrealized loss on marketable securities | - | - | - | - | (180,000 | ) | - | (180,000 | ) | (180,000 | ) | |||||||||||||
Total comprehensive i ncome | 11,831,283 | 11,831,283 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 376,250 | 1,393,995 | - | (263,407 | ) | - | - | - | 1,130,588 | |||||||||||||||
Exercise of warrants | 7,500 | 31,875 | - | - | - | - | - | 31,875 | ||||||||||||||||
First Silver arrangement | 1,856,500 | 8,985,460 | (8,985,460 | ) | - | - | - | - | - | |||||||||||||||
Public offering, net of issue costs (Note 11(a)(ii)) | 8,500,000 | 40,144,471 | - | 2,666,135 | - | - | - | 42,810,606 | ||||||||||||||||
Stock option expense during the period | - | - | - | 1,778,832 | - | - | - | 1,778,832 | ||||||||||||||||
Balance at June 30, 2008 | 73,782,410 | 196,255,584 | 300,695 | 21,496,561 | (4,123,291 | ) | (33,563,732 | ) | (37,687,023 | ) | 180,365,817 | |||||||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | |||||||||||||
Net income | - | - | - | - | - | 1,976,113 | 1,976,113 | 1,976,113 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 124,630 | - | 124,630 | 124,630 | ||||||||||||||||
Unrealized gain on marketable securities | - | - | - | - | 750 | - | 750 | 750 | ||||||||||||||||
Total comprehensive income | 2,101,493 | 2,101,493 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 6,250 | 10,888 | - | (2,950 | ) | - | - | - | 7,938 | |||||||||||||||
Public offering, net of issue costs (Note 11(a)(i)) | 8,487,576 | 18,837,183 | - | 848,758 | - | - | - | 19,685,941 | ||||||||||||||||
Stock option expense during the period | - | - | - | 1,697,548 | - | - | - | 1,697,548 | ||||||||||||||||
Balance at June 30, 2009 | 82,341,636 | 215,496,416 | 276,495 | 25,840,614 | (23,091,010 | ) | (37,500,770 | ) | (60,591,780 | ) | 181,021,745 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining s ubsidiaries, except for the unrealized gain of $750 (2008 - unrealized loss of $180,000) on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE PERIODS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
$ | $ | $ | $ | |||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income (loss) for the period | 1,036,416 | (296,956 | ) | 1,976,113 | 768,367 | |||||||
Adjustment for items not affecting cash | ||||||||||||
Depletion | 828,911 | 698,844 | 1,399,207 | 1,585,206 | ||||||||
Depreciation | 943,553 | 906,483 | 1,802,391 | 1,727,752 | ||||||||
Stock-based compensation | 800,808 | 670,616 | 1,697,548 | 1,778,832 | ||||||||
Accretion of reclamation obligation | 117,171 | 50,367 | 233,210 | 95,842 | ||||||||
Write-down of other assets | - | - | - | 240,000 | ||||||||
Future income taxes | (1,731,481 | ) | 399,187 | (1,949,967 | ) | 172,228 | ||||||
Other income from derivative financial instruments | (212,380 | ) | - | (479,197 | ) | - | ||||||
Unrealized foreign exchange and other | (1,310,042 | ) | 278,444 | (1,004,365 | ) | 39,765 | ||||||
472,956 | 2,706,985 | 3,674,940 | 6,407,992 | |||||||||
Net change in non-cash working capital items | ||||||||||||
(Increase) decrease in accounts receivable and other receivables | (662,399 | ) | 126,912 | (266,919 | ) | (592,683 | ) | |||||
Decrease (increase) in inventories | 2,192,939 | (318,828 | ) | 1,656,806 | (794,683 | ) | ||||||
(Increase) decrease in prepaid expenses and advances | (1,722,418 | ) | (2,280,319 | ) | (2,202,403 | ) | (973,842 | ) | ||||
(Decrease) increase in accounts payable and accrued liabilities | (496,077 | ) | 5,488,267 | (2,834,288 | ) | 6,981,118 | ||||||
Decrease in unearned revenue | (336,122 | ) | - | (68,250 | ) | - | ||||||
(Decrease) increase in taxes receivable and payable | (14,851 | ) | 400,741 | (172,875 | ) | 422,737 | ||||||
Increase in vendor liability and interest | - | 199,556 | - | 399,112 | ||||||||
Decrease in vendor liability on mineral property | (370,521 | ) | - | (721,081 | ) | - | ||||||
(936,493 | ) | 6,323,314 | (934,070 | ) | 11,849,751 | |||||||
INVESTING ACTIVITIES | ||||||||||||
Expenditures on mineral property interests (net of accruals) | (3,174,554 | ) | (2,834,191 | ) | (5,022,028 | ) | (5,993,053 | ) | ||||
Additions to plant and equipment (net of accruals) | (5,888,016 | ) | (8,036,238 | ) | (7,473,675 | ) | (12,537,258 | ) | ||||
Decrease in silver futures contract deposits | 281,335 | - | 969,628 | - | ||||||||
Decrease (increase) in deposits on long term assets and other | 380,708 | (2,150,613 | ) | - | (3,843,306 | ) | ||||||
Increase in restricted cash securitizing vendor liability (Note 9) | - | - | (545,522 | ) | - | |||||||
(8,400,527 | ) | (13,021,042 | ) | (12,071,597 | ) | (22,373,617 | ) | |||||
FINANCING ACTIVITIES | ||||||||||||
Issuance of common shares and warrants, net of issue costs | (19,798 | ) | 157,432 | 19,693,879 | 43,973,069 | |||||||
Payment of capital lease obligations | (678,606 | ) | - | (1,061,074 | ) | - | ||||||
(698,404 | ) | 157,432 | 18,632,805 | 43,973,069 | ||||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (10,035,424 | ) | (6,540,296 | ) | 5,627,138 | 33,449,203 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH HELD IN FOREIGN CURRENCY | 5,891 | (54,169 | ) | 6,145 | (59,667 | ) | ||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD | 33,086,939 | 52,819,184 | 17,424,123 | 12,835,183 | ||||||||
CASH AND CASH EQUIVALENTS - END OF THE PERIOD | 23,057,406 | 46,224,719 | 23,057,406 | 46,224,719 | ||||||||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | - | |||||||||||
Cash | 8,487,949 | 740,710 | 8,487,949 | 740,710 | ||||||||
Short-term deposits | 83,698 | 45,484,009 | 83,698 | 45,484,009 | ||||||||
Restricted cash (Note 9) | 14,485,759 | - | 14,485,759 | - | ||||||||
23,057,406 | 46,224,719 | 23,057,406 | 46,224,719 | |||||||||
Interest paid | 233,402 | 5,832 | 275,770 | 11,665 | ||||||||
Income taxes paid | - | - | - | 221,108 | ||||||||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 18) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
1. | DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS |
First Majestic Silver Corp. (the Company or First Majestic) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR, FR.WT.A and FR.WT.B, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Of the Companys cash balance of $23.1 million at June 30, 2009, $14.5 million was restricted and subsequently on July 16, 2009, $14,258,332 of this amount was paid out in trust pending the outcome of the litigation described in Note 9. The Companys ability to continue as a going concern is dependent primarily on the price of silver in global commodity markets, and on maintaining sustained, profitable operations and/or obtaining funds from other sources as required for capital developments. If the Company were unable to continue as a going concern, then material adjustments would be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. | BASIS OF PRESENTATION |
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP) with respect to the preparation of interim financial information. Accordingly, they do not include all the information and disclosures required by Canadian GAAP in the preparation of annual financial statements. Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with GAAP have been omitted. The accounting policies, used in preparation of the accompanying unaudited interim consolidated financial statements, are the same as those described in our most recent annual consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results for the entire year. These interim financial statements should be read in conjunction with the Companys latest audited consolidated financial statements for the year ended December 31, 2008.
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM) and First Silver Reserve Inc. (First Silver) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada) and Majestic Services S.A. de C.V. (Majestic Services). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 9. Intercompany balances and transactions are eliminated on consolidation.
1
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
3. | SIGNIFICANT CHANGES IN ACCOUNTING POLICIES |
The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted.
International Financial Reporting Standards (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined.
4. | RESTRICTED CASH |
On July 22, 2008, the Company secured its outstanding vendor liability (Note 9) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. In addition, a further $545,522 was paid into the Supreme Court of British Columbia in January 2009 and the Letter of Credit increased to a total Restricted Cash balance of $14,485,759. On July 16, 2009, the Company agreed to a consent order whereby $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder of First Silver. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. This cash is not available for general corporate purposes. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.
5. | OTHER RECEIVABLES |
Details of the components of other receivables are as follows:
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Value added taxes recoverable | 6,678,909 | 6,109,943 | ||||
Other taxes recoverable | 39,570 | 406,536 | ||||
Interest receivable | 85,408 | 188,111 | ||||
Advances to employees | 137,510 | 67,240 | ||||
Advances to suppliers | 426,518 | 440,863 | ||||
7,367,915 | 7,212,693 |
2
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
6. | INVENTORIES |
Inventories consist of the following:
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Silver coins and bullion including in process shipments | 178,779 | 572,149 | ||||
Finished product - doré and concentrates | 692,615 | 1,017,769 | ||||
Ore in process | 198,493 | 196,169 | ||||
Stockpile | 607,254 | 1,631,625 | ||||
Materials and supplies | 1,607,393 | 1,523,628 | ||||
3,284,534 | 4,941,340 |
7. | PREPAID EXPENSES AND OTHER |
Details of prepaid expenses and other are as follows:
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Advances to suppliers and contractors | 1,804,256 | 1,380,509 | ||||
Deposits | 231,517 | 252,941 | ||||
Marketable securities | 51,125 | 50,375 | ||||
Derivative financial instruments | - | 490,431 | ||||
2,086,898 | 2,174,256 |
8. | MINING INTERESTS |
Expenditures incurred on mining interests, net of accumulated depreciation and depletion, are as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
depreciation | depreciation | |||||||||||||||||
and | and | |||||||||||||||||
Cost | depletion | Net | Cost | depletion | Net | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Mining properties | 175,055,187 | 16,069,207 | 158,985,980 | 167,130,756 | 14,436,791 | 152,693,965 | ||||||||||||
Plant and equipment | 58,968,528 | 7,766,595 | 51,201,933 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||||||||
234,023,715 | 23,835,802 | 210,187,913 | 215,402,188 | 20,580,843 | 194,821,345 |
3
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS (continued) |
A summary of the net book value of mining properties is as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depletion | Value | Cost | Depletion | Value | |||||||||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||||||||
Producing properties | ||||||||||||||||||
La Encantada (a) | 11,263,775 | 2,665,513 | 8,598,262 | 8,922,466 | 2,276,963 | 6,645,503 | ||||||||||||
La Parrilla (b) | 20,954,533 | 2,489,093 | 18,465,440 | 18,644,777 | 2,038,223 | 16,606,554 | ||||||||||||
San Martin (c) | 38,021,634 | 10,914,601 | 27,107,033 | 36,803,283 | 10,121,605 | 26,681,678 | ||||||||||||
70,239,942 | 16,069,207 | 54,170,735 | 64,370,526 | 14,436,791 | 49,933,735 | |||||||||||||
Exploration properties | ||||||||||||||||||
La Encantada (a) | 3,410,253 | - | 3,410,253 | 2,858,043 | - | 2,858,043 | ||||||||||||
La Parrilla (b) | 9,331,386 | - | 9,331,386 | 8,722,897 | - | 8,722,897 | ||||||||||||
San Martin (c) (1) | 76,600,821 | - | 76,600,821 | 77,582,247 | - | 77,582,247 | ||||||||||||
Del Toro (d) | 12,781,534 | - | 12,781,534 | 11,881,557 | - | 11,881,557 | ||||||||||||
Cuitaboca (e) | 2,691,251 | - | 2,691,251 | 1,715,486 | - | 1,715,486 | ||||||||||||
104,815,245 | - | 104,815,245 | 102,760,230 | - | 102,760,230 | |||||||||||||
175,055,187 | 16,069,207 | 158,985,980 | 167,130,756 | 14,436,791 | 152,693,965 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
A summary of plant and equipment is as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
La Encantada Silver Mine | 29,940,249 | 1,657,553 | 28,282,696 | 19,541,421 | 1,221,301 | 18,320,120 | ||||||||||||
La Parrilla Silver Mine | 18,705,404 | 3,343,637 | 15,361,767 | 18,590,746 | 2,568,373 | 16,022,373 | ||||||||||||
San Martin Silver Mine | 10,322,875 | 2,765,405 | 7,557,470 | 10,139,265 | 2,354,378 | 7,784,887 | ||||||||||||
Us ed in Mining Operations | 58,968,528 | 7,766,595 | 51,201,933 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||||||||
Corporate office equipment | 726,792 | 314,735 | 412,057 | 712,525 | 229,475 | 483,050 | ||||||||||||
59,695,320 | 8,081,330 | 51,613,990 | 48,983,957 | 6,373,527 | 42,610,430 |
Details of plant and equipment and corporate office equipment by specific assets are as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Land | 2,301,252 | - | 2,301,252 | 2,302,273 | - | 2,302,273 | ||||||||||||
Automobile | 426,465 | 185,971 | 240,494 | 427,817 | 140,703 | 287,114 | ||||||||||||
Buildings | 6,270,911 | 520,709 | 5,750,202 | 6,250,748 | 399,982 | 5,850,766 | ||||||||||||
Machinery and equipment | 27,926,718 | 6,515,186 | 21,411,532 | 27,744,171 | 5,053,326 | 22,690,845 | ||||||||||||
Computer equipment | 533,750 | 250,823 | 282,927 | 566,511 | 239,162 | 327,349 | ||||||||||||
Office equipment | 599,219 | 481,198 | 118,021 | 600,413 | 447,405 | 153,008 | ||||||||||||
Leasehold improvements | 320,304 | 127,443 | 192,861 | 320,304 | 92,949 | 227,355 | ||||||||||||
Construction in progress (1) | 21,316,701 | - | 21,316,701 | 10,771,720 | - | 10,771,720 | ||||||||||||
59,695,320 | 8,081,330 | 51,613,990 | 48,983,957 | 6,373,527 | 42,610,430 |
(1) |
Construction i n progress includes $18,897,156 relating to La Encantada, $517,693 relating to La Parrilla and $1,901,852 relating to San Martin. |
4
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS (continued) |
Mineral property options paid and future option payments are due as follows:
Del Toro | Cuitaboca | ||||||||
Note 8(d) | Note 8(e) | Total | |||||||
(US$) | (US$) | (US$) | |||||||
Paid as at June 30, 2009 | 5,925,000 | 1,175,000 | 7,100,000 | ||||||
Payable November 25, 2009 | - | 275,000 | 275,000 | ||||||
Payable December 6, 2009 | 62,500 | - | 62,500 | ||||||
Payable before December 31, 2009 | 62,500 | 275,000 | 337,500 | ||||||
Payable in 2010 and beyond | 225,000 | 1,050,000 | 1,275,000 | ||||||
Total Future Option Payments | 287,500 | 1,325,000 | 1,612,500 |
(a) | La Encantada Silver Mine, Coahuila State |
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz de Boquillas del Cármen, is 45 kilometres away via unpaved road. The La Encantada Silver Mine consists of a 1,000 tonnes per day flotation plant, an airstrip, and other facilities, including a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.
The Company is constructing a 3,500 tonne per day cyanidation plant at La Encantada which is expected to begin commissioning in September 2009 and is expected to be fully commissioned by the end of 2009.
(b) | La Parrilla Silver Mine, Durango State |
The La Parrilla Silver Mine is a system of connecting underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 kilometres southeast of the city of Durango, in Durango state Mexico. Located at the mine are: mining equipment, a 425 tonne-per-day cyanidation plant, a 425 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
In 2008, the Company amended payment terms to an optionor regarding the outstanding payments as at December 31, 2008 on the Quebradillas Mine. In regards to the aggregate of US$749,000 which was previously payable in 2008, the Company has agreed to make a series of payments in 2009 totaling US$1,121,160 which includes interest at a rate of 3% over three month LIBOR. During the six months ended June 30, 2009, the Company made payments totaling US$560,634 (of which US$10,332 related to interest) pursuant to the amended agreements.
There is a net smelter royalty agreement (NSR) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. For the period ended June 30, 2009, the Company paid US$64,846 (December 31, 2008 US$69,000) relating to royalties.
5
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS (continued) |
(c) | San Martin Silver Mine, Jalisco State |
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface rights where the 950 tonnes per day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.
(d) | Del Toro Silver Mine, Zacatecas State |
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of 320 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart.
The Company owns 100% of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package.
(e) | Cuitaboca Silver Project, Sinaloa State |
The Cuitaboca Silver Project, located in Sinaloa State , Mexico, consists of an option to acquire a 5,134 hectare land package. This option was acquired in May 2006 through the acquisition of First Silver and its wholly owned subsidiary, El Pilon.
The Company entered into an option agreement in November 2004 with Consorcio Minero Latinamericano, S.A. de C.V., a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims covering 3,718 hectares located in Sinaloa State, Mexico. To purchase the claims, the Company needs to pay US$2,500,000 in staged cash payments through November, 2010 (US$1,175,000 paid as at June 30, 2009). A 2.5% NSR on the claims may be purchased at any time during the term of the agreement or for a period of 12 months thereafter for an additional US$500,000.
9. | VENDOR LIABILITY AND INTEREST |
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53,365,519. The purchase price was payable to the majority shareholder of First Silver (the Majority Shareholder) in three instalments. The first instalment of $26,682,759, for 50% of the purchase price, was paid upon closing on May 30, 2006. An additional 25% instalment of $13,341,380 was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum was payable quarterly on the outstanding vendor balance.
In November 2007, an action was commenced by the Company and First Silver against the Majority Shareholder who previously was a director, President & Chief Executive Officer of First Silver. The Company and First Silver allege that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
6
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
9. | VENDOR LIABILITY AND INTEREST (continued) |
Pending resolution of the litigation set out above, the Company had withheld payments of interest due to the previous Majority Shareholder on scheduled interest payment dates of November 30, 2007, February 29, 2008 and May 30, 2008, as well as payment of the final instalment of $13,341,380 due May 30, 2008, the combined amounts totalling $13,940,237. On July 22, 2008, the Company posted an irrevocable Letter of Credit with the Supreme Court of British Columbia pending the court outcome which is not anticipated for at least one year or until such litigation has been resolved. In January 2009, a further $545,522 was paid into the Supreme Court of British Columbia for additional interest payments and was added to the Letter of Credit posted to the Supreme Court of British Columbia.
On July 16, 2009, the Company agreed to a consent order with the prior Majority Shareholder, with respect to the $14,485,759 posted by a Letter of Credit securing the vendor liability and interest. Pursuant to the order, $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.
10. | DEPOSITS ON LONG-TERM ASSETS |
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Deposit on equipment at La Encantada | 3,520,034 | 1,986,517 | ||||
Deposit on equipment at La Parrilla | 1,489,086 | - | ||||
5,009,120 | 1,986,517 |
11. | SHARE CAPITAL |
(a) | Authorized unlimited number of common shares without par value |
Issued | Six Months ended June 30, 2009 | Year ended December 31, 2008 | ||||||||||
Shares | $ | Shares | $ | |||||||||
Balance - beginning of the period | 73,847,810 | 196,648,345 | 63,042,160 | 145,699,783 | ||||||||
Issued during the period | ||||||||||||
For cash: | ||||||||||||
Exercise of options | 6,250 | 7,938 | 436,650 | 1,398,566 | ||||||||
Exercise of warrants | - | - | 7,500 | 31,875 | ||||||||
Public offering of units (i) (ii) | 8,487,576 | 18,837,183 | 8,500,000 | 40,144,471 | ||||||||
For First Silver Arrangement | - | - | 1,861,500 | 9,009,660 | ||||||||
Transfer of contributed surplus for stock options exercised | - | 2,950 | - | 363,990 | ||||||||
Balance - end of the period | 82,341,636 | 215,496,416 | 73,847,810 | 196,648,345 |
7
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
11. | SHARE CAPITAL (continued) |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,685,941, of which $18,837,183 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 expiring on March 5, 2011. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. |
(ii) |
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 units at an issue price of $5.35 per unit for net proceeds to the Company of $40,144,471. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 warrants at a price of $0.56 per warrant. The underwriters did not exercise their option to purchase any option shares, but did acquire the 637,500 warrants (see Note 11(c)). |
(b) | Stock Options |
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the 2008 Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the six months ended June 30, 2009 and the year ended December 31, 2008 are as follows:
Six Months Ended June 30, 2009 | Year Ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |||||||||||||
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |||||||||||||
Balance, beginning of the period | 6,862,500 | 3.84 | 2.78 years | 5,892,500 | 4.04 | 2.75 years | ||||||||||||
Granted | 1,275,000 | 2.03 | 3.75 years | 2,672,500 | 2.93 | 3.67 years | ||||||||||||
Exercised | (6,250 | ) | 1.27 | 2.78 years | (436,650 | ) | 3.20 | 0.51 years | ||||||||||
Forfeited or expired | (177,500 | ) | 4.10 | 1.59 years | (1,265,850 | ) | 3.05 | 0.45 years | ||||||||||
Balance, end of the period | 7,953,750 | 3.55 | 2.52 years | 6,862,500 | 3.84 | 2.78 years |
8
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
The following table summarizes both the stock options outstanding and those that are exercisable at June 30, 2009:
Price | Options | Options | |||||||
$ | Outstanding | Exercisable | Expiry Dates | ||||||
4.32 | 605,000 | 605,000 | December 6, 2009 | ||||||
5.50 | 200,000 | 200,000 | February 1, 2010 | ||||||
4.64 | 75,000 | 75,000 | June 1, 2010 | ||||||
4.17 | 100,000 | 100,000 | August 8, 2010 | ||||||
3.72 | 30,000 | 30,000 | September 24, 2010 | ||||||
3.98 | 20,000 | 20,000 | October 17, 2010 | ||||||
4.45 | 580,000 | 580,000 | October 30, 2010 | ||||||
4.34 | 50,000 | 50,000 | November 1, 2010 | ||||||
4.42 | 25,000 | 25,000 | November 12, 2010 | ||||||
4.34 | 200,000 | 200,000 | December 5, 2010 | ||||||
4.42 | 50,000 | 37,500 | February 20, 2011 | ||||||
4.65 | 100,000 | 75,000 | March 25, 2011 | ||||||
4.19 | 20,000 | 15,000 | April 26, 2011 | ||||||
4.02 | 100,000 | 75,000 | May 15, 2011 | ||||||
4.30 | 450,000 | 450,000 | June 19, 2011 | ||||||
4.67 | 130,000 | 65,000 | July 4, 2011 | ||||||
4.15 | 300,000 | 150,000 | July 28, 2011 | ||||||
3.62 | 685,000 | 342,500 | August 28, 2011 | ||||||
1.60 | 200,000 | 100,000 | October 8, 2011 | ||||||
1.27 | 118,750 | 56,250 | October 17, 2011 | ||||||
4.32 | 245,000 | 245,000 | December 6, 2011 | ||||||
4.41 | 400,000 | 400,000 | December 22, 2011 | ||||||
5.00 | 155,000 | 155,000 | February 7, 2012 | ||||||
2.03 | 800,000 | 200,000 | May 7, 2012 | ||||||
4.65 | 25,000 | 25,000 | June 20, 2012 | ||||||
4.34 | 925,000 | 925,000 | December 5, 2012 | ||||||
3.62 | 100,000 | 50,000 | August 28, 2013 | ||||||
1.44 | 240,000 | 120,000 | November 10, 2013 | ||||||
1.56 | 550,000 | 275,000 | December 17, 2013 | ||||||
2.03 | 462,500 | 115,625 | May 7, 2014 | ||||||
2.32 | 12,500 | 3,125 | June 15, 2014 | ||||||
7,953,750 | 5,765,000 |
During the six months ended June 30, 2009, the Company granted stock options to directors, officers and employees to purchase 1,275,000 shares of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, $1,697,548 has been recorded as an expense in the six months ended June 30, 2009 relating to all stock options.
The fair value of stock options granted is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
Six Months ended | Six Months ended | |||||
June 30, 2009 | June 30, 2008 | |||||
Risk-free interest rate | 0.9% | 2.8% | ||||
Estimated volatility | 80.3% | 53.1% | ||||
Expected life | 2.44 years | 1.9 years | ||||
Expected dividend yield | 0% | 0% |
9
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
Option-pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide an accurate measure of the actual fair value of the Companys stock options.
(c) | Share Purchase Warrants |
The changes in share purchase warrants for the six months ended June 30, 2009 and the year ended December 31, 2008 are as follows:
Six months ended June 30, 2009 | Year ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average Term to | Number of | Exercise Price | Average Term to | |||||||||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||||||||
Balance, beginning of the period | 5,078,791 | 6.99 | 1.19 years | 5,845,240 | 5.66 | 0.89 years | ||||||||||||
Issued (i) (ii) (iii) | 4,243,788 | 3.50 | 2.00 years | 4,887,500 | 7.00 | 2.00 years | ||||||||||||
Exercised | - | 0.00 | 0.00 years | (7,500 | ) | 4.25 | 0.86 years | |||||||||||
Cancelled or expired | (191,291 | ) | 6.81 | 0.00 years | (5,646,449 | ) | 5.62 | 0.00 years | ||||||||||
Balance, end of the period | 9,131,288 | 5.37 | 1.17 years | 5,078,791 | 6.99 | 1.19 years |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35%, expected life of 2 years and expected dividend yield of 0%) and $848,758 was credited to contributed surplus. |
(ii) |
On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2,380,000 was credited to contributed surplus. |
(iii) |
On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus. |
The following table summarizes the share purchase warrants outstanding at June 30, 2009:
Exercise Price | Warrants | |||||
$ | Outstanding | Expiry Dates | ||||
7.00 | 4,887,500 | March 25, 2010 | ||||
3.50 | 4,243,788 | March 5, 2011 | ||||
9,131,288 |
10
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
11. | SHARE CAPITAL (continued) |
(d) | Share Capital to be Issued |
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc. and the San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic.
At June 30, 2009, the prior shareholders of First Silver had yet to exchange the remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic resulting in a remaining balance of shares to be issued of $276,495.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
12. | REVENUE |
Details of the components of revenue are as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
$ | $ | $ | $ | |||||||||
Combined revenue - silver doré bars, concentrates, coins and ingots | 18,003,518 | 14,290,892 | 35,467,655 | 30,536,815 | ||||||||
Less: intercompany eliminations | (2,223,922 | ) | - | (2,223,922 | ) | - | ||||||
Consolidated gross revenue | 15,779,596 | 14,290,892 | 33,243,733 | 30,536,815 | ||||||||
Less: refining and smelting charges | (2,165,720 | ) | (2,345,331 | ) | (4,706,462 | ) | (5,146,566 | ) | ||||
Less: metal deductions | (588,999 | ) | (508,672 | ) | (1,125,522 | ) | (989,178 | ) | ||||
Net revenue | 13,024,877 | 11,436,889 | 27,411,749 | 24,401,071 |
11
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
13. | RELATED PARTY TRANSACTIONS |
During the period ended June 30, 2009, the Company:
a) |
incurred $147,748 for the six month period ended June 30, 2009 and $71,255 for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $120,273; quarter ended June 30, 2008 - $75,088) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
b) |
incurred $146,462 for the six month period ended June 30, 2009 and $72,829 for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $139,105; quarter ended June 30, 2008 - $78,849) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
c) |
incurred $1,269,751 of service fees during the six month period ended June 30, 2009 and $nil for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $4,207,123; quarter ended June 30, 2008 - $2,271,223) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $627,578 was unpaid as at June 30, 2009 (2008 - $1,635,365). This relationship was terminated in February 2009. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
12
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
14. | SEGMENTED INFORMATION |
The Company considers that it has three operating segments all of which are located in Mexico, and one corporate segment with locations in Canada and Mexico. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property, the Cuitaboca Silver Project and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Three months ended June 30, 2009 | |||||||||||||||
First Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 5,128,241 | 5,206,431 | 2,678,133 | 12,072 | 13,024,877 | ||||||||||
Cost of s ales | 3,326,950 | 3,436,485 | 2,588,633 | 107,800 | 9,459,868 | ||||||||||
Amortiza tion, depreciation and accretion | 238,154 | 547,730 | 274,840 | - | 1,060,724 | ||||||||||
Depletion | 463,081 | 228,188 | 137,642 | - | 828,911 | ||||||||||
Mine operating earnings (loss) | 1,100,056 | 994,028 | (322,982 | ) | (95,728 | ) | 1,675,374 | ||||||||
General and administrative | - | - | - | 2,114,312 | 2,114,312 | ||||||||||
Stock-based compensation | - | - | - | 800,808 | 800,808 | ||||||||||
Net interest, other income (expense) and foreign exchange | (73,230 | ) | (603,422 | ) | (417,616 | ) | 435,902 | (658,366 | ) | ||||||
Income tax expense (recovery) | 121,398 | (58,486 | ) | (599,696 | ) | (1,081,012 | ) | (1,617,796 | ) | ||||||
Net income (loss) | 1,051,888 | 1,655,936 | 694,330 | (2,365,738 | ) | 1,036,416 | |||||||||
Capital expenditures | 874,235 | 1,903,461 | 6,419,379 | 131,485 | 9,328,560 | ||||||||||
Total assets | 118,788,430 | 62,249,122 | 49,559,957 | 22,489,594 | 253,087,103 |
Three months ended June 30, 2008 | |||||||||||||||
First Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 3,343,546 | 4,057,696 | 4,035,647 | - | 11,436,889 | ||||||||||
Cost of sales | 2,792,146 | 3,256,004 | 1,581,605 | - | 7,629,755 | ||||||||||
Amortization, depreciation and accretion | 214,009 | 549,597 | 145,952 | 18,061 | 927,619 | ||||||||||
Depletion | 270,305 | 228,044 | 200,495 | - | 698,844 | ||||||||||
Mine operating earnings (loss) | 67,086 | 24,051 | 2,107,595 | (18,061 | ) | 2,180,671 | |||||||||
General and administrative | - | - | - | 2,100,325 | 2,100,325 | ||||||||||
Stock-based compensation | - | - | - | 670,616 | 670,616 | ||||||||||
Net interest, other income (expense) and foreign exchange | 160,866 | (1,011,351 | ) | (60,199 | ) | (49,347 | ) | (960,031 | ) | ||||||
Income tax (recovery) expense | (351,764 | ) | 659,229 | 964,573 | (605,321 | ) | 666,717 | ||||||||
Net income (loss) | 257,984 | 376,173 | 1,203,221 | (2,134,334 | ) | (296,956 | ) | ||||||||
Capital expenditures | 4,118,671 | 7,596,329 | 2,248,968 | (146,923 | ) | 13,817,045 | |||||||||
Total assets | 131,020,870 | 57,759,525 | 21,227,658 | 47,789,874 | 257,797,927 |
13
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
14. | SEGMENTED INFORMATION (continued) |
Six months ended June 30, 2009 | |||||||||||||||
First | |||||||||||||||
Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 9,584,207 | 9,142,290 | 8,126,458 | 558,794 | 27,411,749 | ||||||||||
Cost of sales | 6,060,176 | 6,137,789 | 5,072,929 | 487,787 | 17,758,681 | ||||||||||
Amortization, depreciation and accretion | 491,301 | 1,012,489 | 531,811 | - | 2,035,601 | ||||||||||
Depletion | 714,521 | 379,067 | 305,619 | - | 1,399,207 | ||||||||||
Mine operating earnings | 2,318,209 | 1,612,945 | 2,216,099 | 71,007 | 6,218,260 | ||||||||||
General and administrative | - | - | - | 3,932,315 | 3,932,315 | ||||||||||
Stock-based compensation | - | - | - | 1,697,548 | 1,697,548 | ||||||||||
Net interest, other income and foreign exchange | 220,403 | (255,927 | ) | (136,896 | ) | 537,282 | 364,862 | ||||||||
Income tax (recovery) expense | (53,295 | ) | (105,744 | ) | (25,659 | ) | (1,567,880 | ) | (1,752,578 | ) | |||||
Net income (loss) | 2,151,101 | 1,974,616 | 2,378,654 | (4,528,258 | ) | 1,976,113 | |||||||||
Capital expenditures | 1,567,128 | 3,789,716 | 12,342,385 | 146,301 | 17,845,530 | ||||||||||
Total assets | 118,788,430 | 62,249,122 | 49,559,957 | 22,489,594 | 253,087,103 |
Six months ended June 30, 2008 | |||||||||||||||
First | |||||||||||||||
Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 5,553,108 | 9,055,725 | 9,792,238 | - | 24,401,071 | ||||||||||
Cost of sales | 4,257,678 | 5,827,499 | 4,061,634 | - | 14,146,811 | ||||||||||
Amortiza tion, depreciation and accretion | 499,273 | 904,477 | 292,987 | 63,536 | 1,760,273 | ||||||||||
Depletion | 748,980 | 418,846 | 417,380 | - | 1,585,206 | ||||||||||
Mine operating earnings | 47,177 | 1,904,903 | 5,020,237 | (63,536 | ) | 6,908,781 | |||||||||
General and administrative | - | - | - | 4,232,205 | 4,232,205 | ||||||||||
Stock-based compensation | - | - | - | 1,778,832 | 1,778,832 | ||||||||||
Net interest, other income and foreign exchange | 169,012 | 681,246 | (23,919 | ) | (77,554 | ) | 748,785 | ||||||||
Income tax (recovery) expense | (437,839 | ) | 750,886 | 1,170,436 | (605,321 | ) | 878,162 | ||||||||
Net income (loss) | 654,028 | 1,835,263 | 3,825,882 | (5,546,806 | ) | 768,367 | |||||||||
Capital expenditures | 6,920,925 | 13,079,039 | 3,644,492 | 20,506 | 23,664,962 | ||||||||||
Total assets | 131,020,870 | 57,759,525 | 21,227,658 | 47,789,874 | 257,797,927 |
14
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
15. | CAPITAL LEASE OBLIGATIONS |
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for $14.1 million (US$11.2 million) of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. On March 13, 2009, the Company executed a restructuring agreement for the balance of $3.6 million (US$2.9 million) payable to the equipment lease vendor, to be paid over 24 monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.
On January 12, 2009, the Company executed two additional financing arrangements with an equipment vendor, committing the Company to total payments of approximately $2.6 million (US$2.0 million) representing the purchase price plus interest with terms of 36 monthly lease payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
The following is a schedule of future minimum lease payments under the capital leases at June 30, 2009:
$US | $CA | |||||
2009 Gross lease payments | 1,314,651 | 1,528,939 | ||||
2010 Gross lease payments | 2,108,858 | 2,452,603 | ||||
2011 Gross lease payments | 653,453 | 759,966 | ||||
2012 Gross lease payments | 132,549 | 154,154 | ||||
4,209,511 | 4,895,662 | |||||
Less: interest | (452,204 | ) | (525,914 | ) | ||
Total payments, net of interest | 3,757,307 | 4,369,748 | ||||
Less: current portion | (2,223,306 | ) | (2,585,705 | ) | ||
Capital Lease Obligation | 1,534,001 | 1,784,043 |
15
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
16. | ASSET RETIREMENT OBLIGATIONS |
Six months ended | Year ended | |||||
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Balance, beginning of the period | 5,304,369 | 2,290,313 | ||||
Effect of change in estimates | - | 2,979,726 | ||||
Interest accretion | 233,210 | 200,477 | ||||
Effect of translation of foreign currencies | (19,277 | ) | (166,147 | ) | ||
5,518,302 | 5,304,369 |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | June 30, 2009 | December 31, 2008 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2018 | 1,940,922 | 1,865,674 | ||||||
La Parrilla Silver Mine | 2022 | 1,674,518 | 1,609,602 | ||||||
San Martin Silver Mine | 2016 | 1,902,862 | 1,829,093 | ||||||
5,518,302 | 5,304,369 |
During the year ended December 31, 2008, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $7.27 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $2.46 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.31 million of the obligation relates to the San Martin Silver Mine, and $2.51 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
17. | COMMITMENTS |
The Company is obligated to make certain mining property option payments as described in Note 8, in connection with the acquisition of its mineral property interests.
As at June 30, 2009, the Company is obligated to make a series of payments totalling US$560,526 before the end of 2009 with respect to property payments at the Quebradillas Mine at La Parrilla.
The Company has capital lease obligations as described in Note 15.
The Company has office lease commitments of $77,900 per annum in 2009 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at June 30, 2009, the Company is committed to construction contracts of approximately $13.8 million (US$11.9 million) (December 31, 2008 - $5.9 million or US$4.9 million) relating to the La Encantada Project which is currently being constructed.
16
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
17. | COMMITMENTS (continued) |
The Company is committed to making severance payments amounting to US$605,000 (December 31, 2008 -US$540,000) to four officers in the event of a change of control of the Company.
18. | NON-CASH FINANCING AND INVESTING ACTIVITIES |
19. | SUBSEQUENT EVENTS |
Subsequent to June 30, 2009:
(a) |
On July 16, 2009, the Company agreed to a consent order with the prior Majority Shareholder of First Silver with respect to the funds represented by a Letter of Credit securing the vendor liability and interest described in Note 9. Pursuant to the order, $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. These funds will be accessible to the Company in the event of a favourable outcome to the litigation. |
(b) |
On August 10, 2009, 12,500 stock options were granted at a price of $2.40 per share expiring on August 10, 2012. |
(c) |
On August 12, 2009, the Company reported a non-brokered private placement offering consisting of up to 4,000,000 units to be issued at a price of $2.30 per unit for gross proceeds of up to $9.2 million. Each unit will consist of one common share and one-half of one common share purchase warrant with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. The Company plans to use the net proceeds of the offering as general working capital in respect to its three operating silver mines in Mexico. A finders fee of 6% cash will be payable on a portion of this private placement to an arms length party. Closing of the private placement is subject to receipt of all required regulatory approvals including the consent of the Toronto Stock Exchange. |
(d) |
On August 12, 2009, the Company reported that it will settle certain debts of its subsidiaries in the aggregate amount of up to $4,000,000 and has entered into debt settlement agreements with those creditors to settle such debt by the issuance of up to 1,739,130 common shares of the Company at a deemed price of $2.30 per share. Closing of the debt settlement is subject to receipt of all required regulatory approvals including the consent of the Toronto Stock Exchange. |
20. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform with the classifications used in 2009.
17
|
MANAGEMENTS DISCUSSION AND ANALYSIS |
FOR THE QUARTER ENDED MARCH 31, 2009 |
Forward-Looking Statements
Certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as plan, expect, forecast, project, intend, believe, anticipate, outlook and other similar words, or statements that certain events or conditions may or will occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the inherent risks involved in the mining, exploration and development of mineral properties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, the possibility of project cost overruns or unanticipated costs and expenses, uncertainties related to the availability of and costs of financing needed in the future and other factors described in the Companys Annual Information Form under the heading Risk Factors. The Company undertakes no obligation to update forward-looking statements if circumstances or managements estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
PRELIMINARY INFORMATION
First Majestic Silver Corp. (First Majestic or the Company) is in the business of producing, developing, exploring and acquiring mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR, FR.WT.A and FR.WT.B, respectively. The common shares are also quoted on the Grey Market (Pink Sheets) in the U.S. under the symbol FRMSF and on the Frankfurt, Berlin, Munich and Stuttgart Stock Exchanges under the symbol FMV. Silver producing operations of the Company are carried out through three operating mines: the La Parrilla, La Encantada, and San Martin mines.
The following Managements Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2008. Additional information on the Company, including the Companys Annual Information Form, is also available on SEDAR at www.sedar.com.
This MD&A relates to the consolidated operations of the Company and its wholly owned direct subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM) and First Silver Reserve Inc (First Silver), as well as the indirect wholly owned subsidiaries of CFM: First Majestic Plata, S.A. de C.V. (FM Plata), Mineral El Pilón, S.A. de C.V. (El Pilón), Minera La Encantada, S.A. de C.V. (La Encantada) and Majestic Services, S.A. de C.V. (Majestic Services). First Silver underwent a wind up and distribution of assets and liabilities to the Company in December 2007; however, First Silver has not been dissolved pending the outcome of litigation described herein.
QUALIFIED PERSON S
Unless otherwise indicated, Leonel Lopez, C.P.G., P.G. of Pincock Allen & Holt is the Qualified Person for the Company and has reviewed the technical information herein. National Instrument 43-101 technical reports regarding the La Parrilla Silver Mine, the La Encantada Silver Mine, the San Martin Silver Mine and the Del Toro Silver Mine can be found on the Companys web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
Suite 1805, 925 West Georgia Street, Vancouver, B.C., Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639-8873| Toll Free: 1.866.529.2807 | Email: acctg@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP.
MANAGEMENTS DISCUSSION
& ANALYSIS
All financial information in this MD&A is prepared in accordance with Canadian GAAP, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated. All information contained in this MD&A is current as of May 14, 2009, unless otherwise stated.
FINANCIAL PERFORMANCE AND HIGHLIGHTS
Total production for the quarter ended March 31, 2009 was 1,040,117 ounces of silver equivalents consisting of 929,964 ounces of silver, 491 ounces of gold and 1,828,739 pounds of lead. This compares to the 1,061,720 ounces of silver equivalents produced in the quarter ended March 31, 2008, which consisted of 895,358 ounces of silver, 240 ounces of gold, 1,857,897 pounds of lead and 318,539 pounds of zinc. Total production for the quarter ended December 31, 2008 was 1,056,219 ounces of silver equivalents which included 930,120 ounces of silver, 403 ounces of gold and 2,093,988 pounds of lead.
Gross revenue for the quarter ended March 31, 2009, prior to smelting, refining, transportation charges and metal deductions, was $17.5 million compared to $16.2 million in the same quarter of 2008; an increase of 8%. In the quarter ended March 31, 2009, the Company shipped 996,595 silver equivalent ounces including 67,620 ounces of coins, ingots and bullion at an average price of $17.52 per ounce (US$14.07) compared to 1,019,490 equivalent ounces in the quarter ended March 31, 2008 at an average price of $15.94 (US$15.87) per ounce. The Company has been successful in realizing an average selling price of US$14.07, higher than the average trading price of silver in the quarter of US$12.61 per ounce. Compared to the quarter ended December 31, 2008, the Company increased shipped ounces by 20% compared to the 827,845 ounces of silver equivalent previously shipped, at an average price of $14.15 per ounce (US$11.67).
The Company generated net income after taxes of $0.9 million for the first quarter ended March 31, 2009 compared to net income after taxes of $1.1 million for the quarter ended March 31, 2008, and a net loss after taxes of $5.5 million for the fourth quarter ended December 31, 2008. The net income after taxes for this quarter was after recording non-cash stock-based compensation expense of $0.9 million, a foreign exchange loss of $1.0 million and an income tax recovery of $0.1 million.
Sales revenue (after smelting, refining, transportation charges and metals deductions) for the quarter ended March 31, 2009 was $14.4 million; an increase of 11% compared to $13.0 million for the quarter ended March 31, 2008. Smelting, refining, transportation charges and metal deductions decreased by 3.3% of gross revenue to $3.1 million in the quarter ended March 31, 2009 compared to $3.3 million in the quarter ended March 31, 2008, and $2.6 million in the quarter ended December 31, 2008. This was attributed to the revised smelting and refining agreements renegotiated effective December 1, 2008; as well as the new smelting and refining relationships entered into in February 2009. Average smelting and transportation charges for doré in the quarter ended March 31, 2009 were US$0.51 per equivalent ounce whereas for concentrates were US$3.23 per equivalent ounce. The smelting rates for concentrate were higher than expected as final settlements of concentrates occur 60 days after shipment, therefore the settlement lag resulted in older shipments of November and December settling in Q1-2009 under previous smelting agreements.
Direct cash costs per ounce of silver for the quarter ended March 31, 2009 decreased to US$4.94 per ounce of silver, compared to US$6.51 per ounce of silver for the quarter ended March 31, 2008, due to higher silver ounces produced in 2009 and reduction of mining expenses and indirect costs. Direct cash costs for the quarter ended December 31, 2008 were US$6.37 per ounce.
Mine operating earnings for the quarter ended March 31, 2009 were $4.5 million, a decrease of $0.2 million or 4% compared to mine operating earnings of $4.7 million for the quarter ended March 31, 2008, and a mine operating loss $1.1 million for the quarter ended December 31, 2008.
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The Company had operating income of $1.8 million for the first quarter ended March 31, 2009 compared to operating income of $1.5 million for the quarter ended March 31, 2008, an increase of $0.3 million or 23%. Operating loss for the fourth quarter ended December 31, 2008 was $3.8 million.
At the La Encantada Silver Mine, construction is progressing according to plan on the US$21.6 million, 3,500 tonnes per day (tpd) cyanidation plant. The plant is scheduled to commence operations in July 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of doré bars. Total capitalized construction in progress consisted of $12.9 million with a further $1.4 million being un-capitalized advances to contractors.
During the quarter ended March 31, 2009, the Company invested $1.8 million on its mineral properties and a further $1.6 million on additions to plant and equipment on a cash basis. This compares to $4.6 million invested on its mineral properties, and a further $3.0 million on additions to plant and equipment in the quarter ended March 31, 2008, and $0.7 million invested on its mineral properties, and a further $0.4 million on additions to plant and equipment in the quarter ended December 31, 2008.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940.
The subsidiaries, mines, mills and properties in Mexico are as follows:
Certain financial results in this MD&A, regarding operations, cash costs, and average realized revenues, are presented in the Mine Operations Results table below to conform with industry peer company presentation standards, which are generally presented in U.S. dollars. U.S. dollar results are translated using the U.S. dollar rates on the dates on which the transactions occurred.
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MINING OPERATING RESULTS
CONSOLIDATED FIRST
MAJESTIC
RESULTS |
||
Ore processed/tonnes milled | 216,047 | 158,398 |
Average silver grade (g/tonne) | 222 | 248 |
Recovery (%) | 60% | 71% |
Silver ounces produced | 929,964 | 895,358 |
Gold ounces produced | 491 | 240 |
Equivalent ounces from gold | 33,483 | 12,684 |
Pounds of lead produced | 1,828,739 | 1,857,897 |
Equivalent ounces from lead | 76,668 | 137,894 |
Pounds of zinc produced | - | 318,539 |
Equivalent ounces from zinc | - | 15,784 |
Total production - ounces silver equiv. | 1,040,117 | 1,061,720 |
Ounces of silver equivalents sold | 996,595 | 1,019,490 |
Total US cash cost per ounce (1) (2) | 4.94 | 6.51 |
Underground development (m) | 4,610 | 6,006 |
Diamond drilling (m) | 5,048 | 10,256 |
Total US production cost per tonne (2) | 32.72 | 45.83 |
LA ENCANTADA
RESULTS |
||
Ore processed/tonnes milled | 76,556 | 52,881 |
Average silver grade (g/tonne) | 305 | 322 |
Recovery (%) | 51% | 64% |
Silver ounces produced | 384,976 | 352,982 |
Gold ounces produced | - | - |
Equivalent ounces from gold | - | - |
Pounds of lead produced | 902,372 | 503,788 |
Equivalent ounces from lead | 37,719 | 37,050 |
Pounds of zinc produced | - | 19,136 |
Equivalent ounces from zinc | - | - |
Total production - ounces of silver equiv. | 422,695 | 390,032 |
Ounces of silver equivalents sold | 418,217 | 365,924 |
Total US cash cost per ounce (1) (2) | 3.92 | 4.04 |
Underground development (m) | 2,097 | 1,395 |
Diamond drilling (m) | 2,397 | 779 |
Total US production cost per tonne (2) | 38.17 | 43.63 |
(1) |
The Company reports non-GAAP measures which include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver (prior to smelting charge), and smelting charges per ounce of silver in order to manage and evaluate operating performance at each of the Companys mines. These measures are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP below. |
(2) |
Cash Costs do not include smelting; production costs per tonne include smelter charges. |
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LA PARRILLA
RESULTS |
||
Ore processed/tonnes milled | 65,905 | 55,299 |
Average silver grade (g/tonne) | 191 | 276 |
Recovery (%) | 66% | 75% |
Silver ounces produced | 268,329 | 367,870 |
Gold ounces produced | 150 | 138 |
Equivalent ounces from gold | 10,844 | 7,224 |
Pounds of lead produced | 926,367 | 1,245,334 |
Equivalent ounces from lead | 38,949 | 92,714 |
Pounds of zinc produced | - | 32,763 |
Equivalent ounces from zinc | - | - |
Total production - ounces of silver equiv. | 318,124 | 467,808 |
Ounces of silver equivalents sold | 301,181 | 426,519 |
Total US cash cost per ounce (1) (2) | 5.22 | 4.66 |
Underground development (m)(includes 389 metres at Del Toro) | 1,806 | 2,048 |
Diamond drilling (m) (includes 926 metres at Del Toro) | 2,038 | 8,547 |
Total US production cost per tonne (2) | 35.79 | 39.24 |
(1) |
The Company reports non-GAAP measures which include Direct Costs Per Tonne, Direct Cash Cost per ounce of payable silver (prior to smelting charge), and smelting charges per ounce of silver in order to manage and evaluate operating performance at each of the Companys mines. These measures are widely used in the silver mining industry as a benchmark for performance, but do not have a standardized meaning, and are not GAAP measures. See Reconciliation to GAAP below. |
(2) |
Cash Costs do not include smelting; production costs per tonne include smelter charges. |
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Reconciliation of Cash Costs to GAAP |
Three Months Ended
March 31, 2009 |
||||
San Martin | La Parrilla | La Encantada | 2009 | ||
DIRECT MINING EXPENSES(MMI) | US$ | 1,962,701 | 2,100,608 | 1,889,850 | 5,953,160 |
OTHER SELLING COSTS (TRANSPORT, ETC.) | US$ | 26,271 | 57,667 | 26,338 | 110,276 |
THIRD PARTY SMELTING | US$ | 106,017 | 957,099 | 1,412,566 | 2,475,682 |
BYPRODUCT CREDITS | US$ | (306,647) | (756,744) | (406,791) | (1,470,182) |
TOTAL CASH COSTS | US$ | 1,788,342 | 2,358,631 | 2,921,963 | 7,068,936 |
CASH COST PER OUNCE PRODUCED | US$/OZ | 6.46 | 8.79 | 7.59 | 7.60 |
SMELTING/REFINING/TRANSPORTATION
COST PER OUNCE |
US$/OZ |
(0.38) |
(3.57) |
(3.67) |
(2.66) |
DIRECT MINING EXPENSES CASH COST | US$/OZ | 6.08 | 5.22 | 3.92 | 4.94 |
TONNES PRODUCED | TONNES | 73,586 | 65,905 | 76,556 | 216,047 |
OUNCES OF SILVER PRODUCED | OZ | 276,659 | 268,328 | 384,976 | 929,963 |
OUNCES OF SILVER EQ PRODUCED | OZ EQ | 22,639 | 49,796 | 37,719 | 110,154 |
TOTAL OZ OF SILVER EQ PRODUCED | OZ EQ | 299,298 | 318,124 | 422,695 | 1,040,117 |
MINING | $/Tonne | 8.99 | 12.05 | 11.59 | 10.84 |
MILLING | $/Tonne | 12.25 | 15.51 | 8.19 | 11.81 |
INDIRECT | $/Tonne | 5.43 | 4.31 | 4.91 | 4.91 |
SELLING AND TRANSPORT COSTS | $/Tonne | 0.36 | 0.88 | 0.34 | 0.51 |
SMELTING AND REFINING COSTS | $/Tonne | 1.44 | 14.52 | 18.45 | 11.46 |
BY PRODUCT CREDITS | $/Tonne | (4.17) | (11.48) | (5.31) | (6.80) |
DIRECT COST PER TONNE | $/Tonne | 24.30 | 35.79 | 38.17 | 32.72 |
RECONCILIATION: | |||||
Cash Cost | US$ | 1,788,342 | 2,358,631 | 2,921,963 | 7,068,936 |
Inventory changes | US$ | 314,120 | (42,618) | 83,688 | 355,190 |
Byproduct credits | US$ | 306,647 | 756,744 | 406,791 | 1,470,182 |
Smelting and refining | US$ | (106,017) | (957,099) | (1,412,566) | (2,475,682) |
Other | US$ | (21,472) | 89,276 | 29,302 | 97,106 |
Cost of sales - Calculated | US$ | 2,281,620 | 2,204,934 | 2,029,178 | 6,515,732 |
Average CDN/US Exchange Rate | 0.83477 | 0.81625 | 0.81680 | 0.82282 | |
Booked Cost of Sales | CDN$ | 2,733,227 | 2,701,303 | 2,484,297 | 7,918,827 |
Vancouver Cost of Sales (See Note 1) | CDN$ | - | - | - | 379,986 |
Total Cost of Sales as Reported | CDN$ | - | - | - | 8,298,813 |
Note 1 - Net of intercompany elimination of $703,990.
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INVENTORY RECONCILIATION (See Note 1): | San Martin | La Parrilla | La Encantada | Vancouver | 2009 | |
Opening stockpile inventory | OZ EQ | 147,932 | 193,165 | 88,555 | 429,652 | |
Reduction of stockpile | OZ EQ | (31,532) | (99,815) | (34,485) | - | (165,832) |
Ending stockpile inventory | OZ EQ | 116,400 | 93,350 | 54,070 | - | 263,820 |
Opening in process inventory | OZ EQ | 13,992 | 8,524 | - | - | 22,516 |
Inventory adjustments | OZ EQ | (351) | 1,239 | - | - | 888 |
Ending in process inventory | OZ EQ | 13,641 | 9,763 | - | - | 23,404 |
Opening finished goods inventory | OZ EQ | 33,276 | 20,368 | 48,111 | - | 101,755 |
Production - silver equivalent ounces | OZ EQ | 299,298 | 318,124 | 422,695 | - | 1,040,117 |
Shipments - silver equivalent ounces | OZ EQ | (277,197) | (301,181) | (418,217) | - | (996,595) |
Inventory adjustments | OZ EQ | (27) | 256 | (6,646) | - | (6,417) |
Ending finished goods inventory | OZ EQ | 55,350 | 37,567 | 45,943 | - | 138,860 |
Total inventory before transfers | OZ EQ | 185,391 | 140,680 | 100,013 | 426,084 | |
Transfers to coins, ingots and bullion inventory | OZ EQ | (46,769) | - | - | 46,769 | - |
Open market purchases of silver | OZ EQ | - | - | - | 50,000 | 50,000 |
Opening inventory of coins, ingots and bullion | OZ EQ | - | - | - | 42,453 | 42,453 |
Sales of coins, ingots and bullion | OZ EQ | - | - | - | (67,620) | (67,620) |
Closing inventory of coins, ingots and bullion | OZ EQ | - | - | - | 71,602 | 71,602 |
Total inventory, all stages and products | OZ EQ | 185,391 | 140,680 | 100,013 | 71,602 | 497,686 |
Value of ending inventory - (Note 1) | CDN$ | 1,019,569 | 967,763 | 522,594 | 1,246,643 | 3,756,569 |
Value of ending inventory - Cdn$ per oz | CDN$ | 5.50 | 6.88 | 5.23 | 17.41 | 7.55 |
Month end exchange rate - March 31, 2009 | 1.2613 | 1.2613 | 1.2613 | 1.2613 | 1.2613 | |
Value of ending inventory - US$ per oz | US$ | 4.36 | 5.45 | 4.14 | 13.80 | 5.98 |
Note 1 - The inventory reconciliation above consists of silver coins, bullion, doré, concentrates, ore in process and stockpile but excludes materials and supplies.
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REVIEW OF MINING OPERATING RESULTS
The silver production for the quarter consisted of 929,964 ounces of silver representing an increase of 4% compared with the first quarter of 2008 and a minor decrease of 156 ounces from the 930,120 ounces of silver when compared with the fourth quarter of 2008. 1,828,739 pounds of lead were produced in the quarter representing a 2% decrease over the first quarter of 2008 and a decrease of 13% or 265,249 pounds when compared with the fourth quarter of 2008. 491 ounces of gold were produced in the quarter representing an increase of 105% when compared with the first quarter of 2008 and an increase of 22% compared with the fourth quarter of 2008.
The ore processed during the quarter at the Company's three operating silver mines: La Parrilla Silver Mine, the San Martin Silver Mine and La Encantada Silver Mine; amounted to 216,047 tonnes showing an increase of 36% over the same quarter of 2008 and a modest increase of 401 tonnes over the fourth quarter of 2008.
The overall average silver head grade in the quarter for the three mines increased to 222 g/t silver compared to 248 g/t Ag in the first quarter of 2008 and 207 g/t Ag achieved in the fourth quarter of 2008.
Total combined recoveries of silver at the Companys three different mills were 60% compared to 65% in the prior quarter and 71% in the first quarter of 2008. At the La Encantada operation low recoveries were caused by high manganese in the ore and increased throughput through the mill. At the San Martin operation, some high carbonaceous ore affected metallurgy, however this was compensated by increased head grades. Steps are being taken at La Encantada to improve recoveries; however, until the new 3,500 tpd cyanidation plant is completed in June of this year, metallurgical recoveries are only expected to increase modestly.
A total of 4,610 meters of underground development was completed in the quarter compared to 6,006 metres of development completed in the first quarter of 2008 and 5,845 metres completed in the fourth quarter of 2008. This program is important as it provides access to new areas within the different mines and prepares the mines for continued growth of silver production going forward. The Company has recently reduced its drilling program to two rigs operating at San Martin only; however, in the first quarter 31 holes were completed marking an end to those drill programs commenced last year. A total of 5,048 meters of diamond drilling was completed during the quarter compared to 10,256 metres drilled in Q1 2008 and 4,194 metres drilled in Q4 2008.
The Company continues to analyze its expenditures in order to optimize operations and improve profitability.
MINE UPDATES
La Encantada Silver Mine
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico in Coahuila State approximately a 1.5 hour flight from Torreon and comprises 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest city, Melchor Muzquiz, is 225 kilometres away via 45 kilometres of gravel road and 180 kilometres in paved road. The La Encantada mine consists of a 1,000 tpd flotation plant, and other related facilities, including a mining village with 180 houses, administrative offices, and private airstrip. The Company owns 100% of the La Encantada Silver Mine.
The La Encantada mine is the Companys largest producer of silver, with the highest grade ore and lowest cost to produce. This operation is undergoing a US$21.6 million expansion expected to be completed in mid-2009 to add a 3,500 tpd cyanidation plant thereby becoming a producer of doré bars. The mill is presently operating on average at approximately 950 tpd and produces a silver rich lead concentrate. To date, the Company has spent approximately US$13 million on the new plant and the Company estimates commissioning to commence in mid-2009.
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Tonnes milled in the first quarter of 2009 decreased by 4%, from 79,480 tonnes milled in the fourth quarter of 2008 to 76,556 tonnes milled in the first quarter of 2009, however this was a 45% increase over the 52,881 tonnes milled in the first quarter of 2008. The average head grade increased by 9% or 24 grams of silver, from 281 g/t in the fourth quarter of 2008 to 305 g/t in the first quarter of 2009, due to higher tonnage of high grade ore coming from the mine. A total of 422,695 equivalent ounces of silver were produced during the first quarter of 2009, which represents a decrease of 13% from the 484,053 equivalent ounces of silver produced in the fourth quarter of 2008 and an increase of 32,663 when compared with the first quarter of 2008. Silver production consisted of 384,976 ounces of silver, a decrease of 10% versus the 427,753 ounces in the previous quarter, and an increase of 31,994 over the first quarter of 2008, and 902,372 pounds of lead, a decrease of 25% from the 1,195,557 pounds of lead produced in the previous quarter and an increase of 398,584 pounds of lead produced in the first quarter of 2008. At the La Encantada operation low recoveries were caused by high manganese in the ore and increased throughput through the mill. Steps are being taken at La Encantada to improve recoveries; however, until the new 3500 tpd cyanidation plant is completed in mid-2009, metallurgical recoveries are only expected to increase modestly.
Underground mine development consisted of 2,097 metres of development completed in the first quarter of 2009 aimed at several targets including the San Javier/Milagros Breccias, Azul y Oro and the new Buenos Aires areas and a new developed area between the 660 and the Ojuelas ore bodies. This compares to 3,075 metres of development completed in the previous quarter, showing a decrease of 32% and an increase of 702 meters over the first quarter of 2008. The purpose of the ongoing underground development program is to prepare for increased production levels in 2009, to confirm additional Reserves and Resources, and for exploration and exploitation purposes going forward. Underground diamond drilling continued with a total of 2,397 metres compared with 2,107 metres drilled in the previous quarter and 779 meters drilled in the first quarter of 2008.
La Parrilla Silver Mine
The La Parrilla Silver Mine is a group of producing underground mines consisting of the La Rosa/Rosarios/La Blanca mines which are connected through underground workings, the San Marcos mine and the Quebradillas mine, located approximately 65 kilometres southeast of the city of Durango, Mexico. La Parrilla includes an 850 tpd mill consisting of parallel 425 tpd cyanidation and flotation circuits, buildings, offices and infrastructure and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
This is the first mine developed by the Company and its operations have been scaled up continually from a 180 tpd operation in early 2005, to the current average throughput of 840 tpd. This mill produces doré bars and both silver-rich lead and zinc concentrates.
An expansion program at the mill was launched in July 2008 to expand this operation to 1,000 tpd by April 2009. However, due to market conditions that affected the entire mining sector in the fourth quarter of 2008, the expansion program was suspended resulting in the current mill capacity of 850 tpd.
Tonnes milled at La Parrilla decreased slightly, from 66,395 tonnes in the fourth quarter of 2008 to 65,905 tonnes in the first quarter of 2009, a decrease of 1% and an increase of 10,606 tonnes at the first quarter of 2008. The average head grade of silver at the mill decreased from 206 g/t in the fourth quarter of 2008 to 191 g/t in the first quarter of 2009, a decrease of 7% and a decrease of 85 g/t over the production of the first quarter of 2008. Recoveries of silver decreased from 70% in the fourth quarter to 66% in the first quarter of 2009 and a decrease of 11% over the first quarter of 2008.
Total silver production from the mill decreased by 12%, from 359,851 ounces of silver equivalent in the fourth quarter of 2008 to 318,124 ounces of silver equivalent in the first quarter of 2009 and a decrease of 149,684 ounces equivalent when compared with the first quarter of 2008. The composition of the silver equivalent production in the first quarter of 2009 included 268,329 ounces of silver, 150 ounces of gold and 926,367 pounds of lead. This compares to 305,685 ounces of silver, 297 ounces of gold and 897,031 pounds of lead in the fourth quarter of 2008 and to 367,870 ounces of silver, 138 ounces of gold and 1,245,334 pounds of lead in the fourth quarter of 2008. The decrease was caused by lower head grade and lower metallurgical recoveries.
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The total metres of diamond drilling increased from 668 metres in the fourth quarter of 2008 to 1,112 metres in the first quarter of 2009, an increase of 66% and a reduction compared to the 8,547 meters of drilling completed in the first quarter of 2008. In addition to the ongoing diamond drill program, a total of 1,417 metres of underground development was completed in the first quarter of 2009 compared to the 1,557 metres in the fourth quarter of 2008, a decrease of 9% and a decrease on the 2,048 meters of development completed in the first quarter of 2008.
In February 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a Clean Industry Certificate to the La Parrilla Silver Mine. This Certificate was achieved after twenty nine months of voluntary environmental audit work, which demonstrates the Company's sustained focus in complying with international and Mexican mining standards.
San Martin Silver Mine
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños, in Northern Jalisco State, Mexico. The mine comprises approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine and another 104 hectares of surface land rights where the 1,000 tpd cyanidation mill and 500 tpd flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine. The mill has historically produced 100% doré bars and continues to do so to this day. In early 2008, a 500 tpd flotation circuit was completed to take advantage of the large sulphide Resource at this mine, however, due to low base metal prices and high costs of smelting concentrates this circuit is presently not being operated.
In order to reduce operating costs, the Company temporarily reduced the production of ore from the main Zuloaga vein in 2008, eliminating all the external contractors and focusing on a combination of ore from the mine, old backfill and stockpile inventory to feed the cyanidation process.
An expansion program of the mill was launched in July 2008. The program included adding additional leaching tanks, thickeners and the addition of a third ball mill. The plan was to expand this mill from the historic 800 tpd to 1,200 tpd by April 2009. However, due to market conditions and the need to preserve cash, the expansion program was suspended in November 2008 resulting in the mill running at the current monthly average 890 tpd in the last quarter, after factoring in maintenance and statutory holidays. The completed upgrades included the construction of a new thickener, new clarifiers and new filter presses to complete the expansion of the cyanidation process. Other upgrades completed included the pouring of cement floors around the leaching and thickeners areas and the repair and reinforcement of the older leaching tanks. These improvements are part of the process of achieving a Clean Industry Certification from PROFEPA.
Tonnes milled at the San Martin mine increased from 69,771 tonnes in the fourth quarter of 2008 to 73,586 tonnes in the first quarter of 2009, an increase of 5% and an increase over the 50,218 tonnes produced in the first quarter of 2008. The average head grade increased significantly, from 124 g/t in the fourth quarter of 2008 to 163 g/t during the first quarter of 2009, representing a 31% increase and an increase also over the 138 g/t obtained in the first quarter of 2008. The higher grades were obtained as a result of new blocks being brought into production at the mine in the oxides areas.
Combined recoveries of silver in the quarter were 72%, compared to 71% in the previous quarter and below the 79% obtained in the first quarter of 2008, resulting in total production of 299,298 equivalent ounces of silver, which is 41% higher than the 212,315 equivalent ounces of silver in the fourth quarter of 2008 and 46% higher than the 203,880 produced in the first quarter of 2008. The equivalent ounces of silver in the first quarter of 2009 consisted of 276,659 ounces of silver and 341 ounces of gold. This compares to 196,681 ounces of silver, 106 ounces of gold and 1,399 pounds of lead in the fourth quarter of 2008 and the 174,506 ounces of silver, 102 ounces of gold, 108,775 pounds of lead and 266,640 pounds of zinc produced on the first quarter of 2008.
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During the first quarter of 2009, a total of 613 metres of diamond drilling was completed. This is compared to 1,419 metres drilled in the fourth quarter of 2008, amounting to a 57% decrease, due to the reduction in exploration corporate wide, and the 931 meters drilled on the first quarter of 2008.
During the first quarter of 2009, a total of 707 metres of underground development was completed. This represents a 42% decrease when compared with 1,214 metres of underground development in the fourth quarter of 2008.
Del Toro Silver Mine, Zacatecas, Mexico
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of 320 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines; the Perseverancia and San Juan mines which are approximately 1 kilometre apart.
The Del Toro Silver Mine is an advanced stage development project that has undergone an aggressive drilling program since 2005 to explore the various areas of interest within the Del Toro property holdings. The Company has been extracting development ore from the mine and shipping it to its La Parrilla mill for mixing into La Parrillas production and for batch metallurgical testing. In the current quarter, 15,089 tonnes of development ore were extracted and fed into the La Parrilla mill for production and testing.
The Perseverancia area is presently being upgraded and rehabilitated to increase production from the high grade chimney areas. During the first quarter of 2009, the upgrade of the shaft continued and construction and installation of a new 200 tpd head frame and new hoist was completed which will allow for an increase in production from this area in the following months.
Presently permitting is underway for the construction of a new mill at Del Toro. Assuming all permitting is completed by mid 2009, and funds are available for this project, a new 500 tpd mill is anticipated to be operating in the first half of 2010. The Company has been making instalment payments toward the purchase of a semi autogenous grinding mill (SAG Mill) and currently has a long term prepaid balance of $1.1 million (US$836,000) toward an estimated total cost of $1.4 million (US$1.1 million) for the shipped and landed SAG Mill. It is anticipated that the Company will take receipt of the SAG Mill at the Del Toro mine after permitting is completed in two to three months.
EXPLORATION PROPERTY UPDATES
Cuitaboca Silver Project, Sinaloa, Mexico
The Company has an option to purchase a 100% interest in the Cuitaboca Silver Project, consisting of 5,134 hectares located in the State of Sinaloa, Mexico, which contains at least six well known veins with sulphide mineralization carrying high grade silver. The veins within the property are known as the La Lupita, Los Sapos, Chapotal, Colateral-Jesus Maria, Mojardina and Santa Eduwiges. In October 2008, in an effort to reduce costs, the Company halted its activities at the Cuitaboca project. Further exploration and development consisting of 2,000 metres of direct drifting along the vein and a diamond drill program at both the Colateral and Mojardina veins is being deferred until silver commodity prices recover and/or funds can be allocated to this project. Road construction for access to the La Lupita, Los Sapos, Chapotal, and Santa Eduwiges veins was also deferred.
Jalisco Group of Properties, Jalisco, Mexico
The Company acquired a group of mining claims totalling 5,131 hectares located in various mining districts located in Jalisco State, Mexico. During 2008, surface geology and mapping began with the purpose of defining future drill targets; however, exploration has been discontinued pending an improvement in market conditions.
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RESULTS OF OPERATIONS
Three Months ended March 31, 2009 compared to Three Months ended March 31, 2008.
March 31, 2009 | March 31, 2008 | |||||||
$ | $ | |||||||
Gross Revenue | 17,464,137 | 16,245,923 | (1) | |||||
Net Revenue | 14,386,872 | 12,964,182 | (2) | |||||
Cost of sales | 8,298,813 | 6,517,056 | ||||||
Amortization and depreciation | 858,837 | 787,179 | ||||||
Depletion | 570,295 | 886,362 | ||||||
Accretion of reclamation obligation | 116,039 | 45,475 | ||||||
Mine operating earnings | 4,542,888 | 4,728,110 | (3) | |||||
General and administrative | 1,818,005 | 2,131,880 | ||||||
Stock-based compensation | 896,739 | 1,108,216 | ||||||
2,714,744 | 3,240,096 | |||||||
Operating income | 1,828,144 | 1,488,014 | (4) | |||||
Interest and other expenses | (360,206 | ) | (338,827 | ) | (5) | |||
Investment and other income | 289,843 | 137,393 | ||||||
Foreign exchange loss | (952,866 | ) | (9,812 | ) | (6) | |||
Income before taxes | 804,915 | 1,276,768 | ||||||
Income tax - current | 83,703 | 438,404 | ||||||
Income tax (recovery) - future | (218,486 | ) | (226,959 | ) | ||||
Income tax (recovery) expense | (134,783 | ) | 211,445 | (7) | ||||
NET INCOME FOR THE PERIOD | 939,698 | 1,065,323 | (8) | |||||
1. |
Gross revenue (prior to smelting, refining and transportation costs and metal deductions) for the three month period ended March 31, 2009 was $17,464,137 compared to $16,245,923 for the three month period ended March 31, 2008 for an increase of $1,218,214 or 8%. Although silver prices were lower and there was a slight decrease in the number of ounces sold in the first quarter of 2009, the stronger U.S dollar compared to the Canadian dollar accounted for the favourable increase in gross revenue as silver shipments are valued in U.S dollars. The average gross revenue per ounce sold on a consolidated basis was Cdn$17.52 (US$14.07) per ounce for the three-month period ended March 31, 2009 compared to Cdn$15.94 (US$15.87) per ounce for the three-month period ended March 31, 2008. The product mix has seen an increase in the proportion of sales of coins, ingots and bullion, which have a higher final sales price and a higher cost of sales relative to normal sales of doré and concentrates. |
2. |
Net revenue for the three months ended March 31, 2009 increased by $1,422,690 or 11%, from $12,964,182 in the first quarter of 2008 to $14,386,872 in the first quarter of 2009. Smelting, refining and transportation charges were reduced by 6% compared to the three-month period ended March 31, 2009 compared to March 31, 2008, and reflects the start of reductions to smelting and refining charges related to two new smelting and refining agreements entered into in February 2009 for doré and concentrate smelting. Smelting and refining reductions are delayed due to the 60 day delay in settling prior concentrate shipments. Net revenue in the quarter included $1,194,452 from the sales of coins, ingots and bullion, which are products with a lower gross margin percentage but a positive contribution to sales after deducting metal costs and costs to fabricate the products for sale directly to consumers and individual retail investors over the Companys website. |
3. |
Mine operating earnings decreased to $4,542,888 for the three months ended March 31, 2009 from $4,728,110 for the three months ended March 31, 2008, a difference of $185,222 or 4%,. This is primarily due to an increase of 27% in the cost of sales as presented in Canadian dollars compared to the prior year. In the prior year the Canadian dollar was nearly at par with the US dollar, however this year the average exchange rate of US to Canadian dollars was nearly 1.25:1. Also contributing to the increase of Cost of Sales in Q1 2009 was a significant reduction of stockpile inventories amounting to $743,267, which is categorized as an inventory effect and is excluded from the Cash Costs, but is included in Cost of Sales in Q1-2009. These significant variations account for the increase in Canadian dollar Cost of Sales at a time when US denominated Cash Costs have decreased relative to the same quarter in the prior year. The Company is continuing to review its contracts and procurement activities to negotiate more favourable terms for materials purchases and to renegotiate payment terms where possible from U.S. dollars to the Mexican pesos. |
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4. |
There was an increase in depreciation and amortization of $71,658 for the three month period ended March 31, 2009 compared to the three month period ended March 31, 2008 which were normal charges on plant and equipment related to capital expansions at all three operating mines. Depletion expense decreased by $316,067 or 36% in the three months ended March 31, 2009 compared to the three months ended March 31, 2008 and is primarily related to the San Martin mine as less tonnage was extracted from reserves. Accretion of reclamation obligations has increased by $70,564, from $45,475 in the first quarter of 2008 to $116,039 in the first quarter of 2009, due to the updated cost estimates for reclamation activities as determined in late 2008. |
5. |
Operating income increased by $340,130 or 23%, from $1,488,014 for the three-month period ended March 31, 2008 to $1,828,144 for the three-month period ended March 31, 2009. The increase is attributable to reductions in general and administrative expenses ($313,875 or 15%) and stock-based compensation ($211,477 or 19%) but these were partially offset by the reduced mine operating earnings as described above. |
6. |
Interest and other expenses increased by $21,379 or 6% in the three month period ended March 31, 2009 compared to the prior year and are primarily attributed to additional interest on capital leases. Investment and other income increased by $152,450 or 111%. Interest rates on short-term investments continued to decline in the first quarter of 2009 but this was offset by a gain of $254,046 that was realized on derivative financial instruments. |
7. |
There is an increase in foreign exchange loss, from $9,812 in the three month period ended March 31, 2008 to $952,866 for the three month period ended March 31, 2009, due to the effect of a strengthening U.S. dollar on outstanding U.S .dollar denominated liabilities. |
8. |
During the three month period ended March 31, 2009, the Company recorded an income tax recovery of $134,783 compared to a tax expense of $211,445 in the period ended March 31, 2008, and is attributed to the reduction of taxable income in the 2009 period compared to 2008. |
9. |
Net income for the three month period ended March 31, 2009 was $939,698 or $0.01 per common share compared to net income of $1,065,323 or $0.02 per common share in 2008, for a decrease of $125,625. |
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SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the last eight quarters.
|
Quarter |
Net sales revenues $ |
Net income (loss) after taxes $ |
Basic and
diluted net income (loss) per common share $ |
Stock based compensation (1) $ |
Property write downs $ |
Note |
Year ended December 31, 2009 | Q1 | 14,386,872 | 939,698 | 0.01 | 896,739 | - | 2 |
Year ended December 31, 2008 | Q4 | 9,106,605 | (5,538,906) | (0.08) | 865,415 | - | 3 |
Q3 | 10,817,211 | (374,245) | (0.01) | 1,035,864 | - | ||
Q2 | 11,436,889 | (296,956) | 0.00 | 670,616 | - | 4 | |
Q1 | 12,964,182 | 1,065,323 | 0.02 | 1,108,216 | - | ||
Year ended December 31, 2007 | Q4 | 11,631,477 | (1,292,631) | (0.03) | 1,446,821 | - | |
Q3 | 10,288,478 | (2,070,082) | (0.04) | 723,992 | 1,703,591 | 5 | |
Q2 | 10,846,344 | (729,658) | (0.01) | 775,532 | - |
Notes:
(1) |
Stock-based Compensation - the net losses are affected significantly by varying stock based compensation amounts in each quarter. Stock based compensation results from the issuance of stock options in any given period, as well as factors such as vesting and the volatility of the Companys stock, and is a calculated amount based on the Black-Scholes Option Pricing Model of estimating the fair value of stock option issuances. |
|
(2) |
In the quarter ended March 31, 2009, a stronger U.S. dollar compared to the Canadian dollar accounted for the increase of revenue. Although silver prices were lower in the first quarter of 2009, the average gross revenue per ounce sold was Cdn$17.52 (US$14.07) per ounce on a consolidated basis for the three- month period ended March 31, 2009. The Company also experienced higher cost of sales and a foreign exchange loss of $1.0 million due to the effect of a strengthening U.S. dollar on U.S. dollar denominated expenses and liabilities. Also contributing to an increase in net sales is the increasing revenues from the sale of coins, ingots and bullion, with sales of $1,194,452 in the quarter. |
|
(3) |
In the quarter ended December 31, 2008, net sales revenue was negatively affected by declining silver prices and losses on final metal settlements, for which provisional payments had already been received. While the average gross revenue per ounce was US$14.66 for the year ended December 31, 2008, the average gross revenue per ounce for the fourth quarter of 2008 was US$11.67 per ounce. In addition, the strengthening U.S. dollar relative to the Mexican peso and Canadian dollar gave rise to a foreign exchange loss of $3.7 million in the fourth quarter of 2008. |
|
(4) |
In the quarter ended June 30, 2008, the Company had a revision to its smelting charges imposed, resulting in an incremental charge and reduction of net sales of $1.9 million (US$1,852,830) in the quarter. Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for doré and concentrate. |
|
(5) |
Write downs of mineral properties net losses are impacted by managements decision not to pursue certain mineral properties. In the quarter ended September 30, 2007, management elected not to proceed with the acquisitions of the Candameña Mining District and accordingly, included a $1,703,591 one time write down of the carrying value of the Candameña mineral property to its estimated proceeds from disposal. |
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Revenues Per Canadian GAAP (expressed in CDN$)
As required by Canadian GAAP, revenues are presented as the net sum of invoiced revenues for delivered shipments of silver doré bars, and silver concentrates, including metal by-products of gold, lead and zinc, after having deducted refining and smelting charges, as well as shipments of coins, ingots and bullion products. The following analysis provides the gross revenues prior to refining and smelting charges, and shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per Canadian GAAP. Gross revenues are deducted by shipped ounces of equivalent silver to calculate the average realized price per ounce of silver sold.
Revenue Analysis |
Quarter Ended
March 31, |
|
2009
$ |
2008
$ |
|
MEXICO | ||
Gross revenues - silver dore bars and concentrates | 16,269,685 | 16,245,923 |
Less: refining, smelting and transportation charges | (2,540,742) | (2,801,235) |
Less: metal deductions | (536,523) | (480,506) |
Net revenue from silver dore and concentrates | 13,192,420 | 12,964,182 |
Equivalent ounces of silver sold | 996,595 | 1,019,490 |
Average gross revenue per ounce sold ($CDN) | 16.33 | 15.94 |
Average exchange rate in the period ($US/$CDN) | 1.2453 | 1.0041 |
Average gross revenue per ounce sold ($US) | 13.11 | 15.87 |
CANADA | ||
Gross revenues - silver coins, ingots and bullion | 1,194,452 | - |
Equivalent ounces of silver sold, from Mexican production | 67,620 | - |
Average gross revenue per ounce sold ($CDN) | 17.66 | - |
Average exchange rate in the period ($US/$CDN) | 1.2453 | - |
Average gross revenue per ounce sold ($US) | 14.18 | - |
CONSOLIDATED | ||
Gross revenues - silver coins, ingots and bullion | 17,464,137 | 16,245,923 |
Less: refining, smelting and transportation charges | (2,540,742) | (2,801,235) |
Less: metal deductions | (536,523) | (480,506) |
Net revenue from silver dore and concentrates | 14,386,872 | 12,964,182 |
Equivalent ounces of silver sold (after interco. eliminations) | 996,595 | 1,019,490 |
Average gross revenue per ounce sold ($CDN) | 17.52 | 15.94 |
Average exchange rate in the period ($US/$CDN) | 1.2453 | 1.0041 |
Average gross revenue per ounce sold ($US) | 14.07 | 15.87 |
Average market price of per ounce of silver per LBMA.ORG ($US) | 12.61 | 17.68 |
LIQUIDITY
At March 31, 2009, the Company had working capital of $14.2 million and cash and cash equivalents of $33.1 million compared to a working capital deficiency of $1.0 million and cash and cash equivalents of $17.4 million at December 31, 2008. Current liabilities at March 31, 2009 include the long-term vendor liability and associated interest relating to the acquisition of First Silver in the amount of $14.5 million. On July 22, 2008, the Company secured its outstanding vendor liability by entering into a Letter of Credit facility for $13.9 million, secured by cash and liquid short term investments. The Letter of Credit is revolving with annual expiry on July 22. The cash and short term investments earn market rates of interest from which the 0.5% per annum cost of the Letter of Credit is deducted and the net interest remitted to the Company. In January 2009, a further $0.5 million was paid into the Supreme Court of British Columbia for additional interest payments and will be added to the Letter of Credit posted to the Supreme Court of British Columbia. The Restricted Cash is segregated from operating cash as the funds are not accessible by the Company pending the litigation described in Note 9 of the Consolidated Financial Statements. Also included in current liabilities at March 31, 2009 is the current portion of capital lease obligations of $3.0 million.
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On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,705,739. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 until March 5, 2011. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine and the remainder for general working capital. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. During the quarter ended March 31, 2009, the Company also received $7,938 pursuant to the exercise of 6,250 stock options.
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters issuing 8,500,000 Units at an issue price of $5.35 per unit for net proceeds to the Company of $40,144,471. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring March 25, 2010. In addition, the Company received $1,130,588 pursuant to the exercise of 376,250 stock options and $31,875 pursuant to the exercise of 7,500 warrants during the three months ended March 31, 2008.
During the three months ended March 31, 2009, the Company made investments on its mineral properties of $1.8 million (March 31, 2008 - $4.6 million), and on plant and equipment further expenditures of $1.6 million (March 31, 2008 - $3.0 million). In 2008, the Company took actions to reduce its rate of spending on exploration and development expenditures. Although the Company has expended approximately US$13 million to date on its capital expansion at La Encantada, this is expected to be a US$21.6 million capital expansion that would increase capacity to 3,500 tonnes per day.
Funds surplus to the Companys short-term operating needs are invested in highly liquid short-term investments with maturities of three months or less. The funds are not exposed to any liquidity risk and there are no restrictions on the ability of the Company to meet its obligations. The Company has no exposure and has not invested any of its treasuries in any asset backed commercial paper securities.
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2009 OUTLOOK
Management is choosing at this time to revise its production and cost outlook for 2009 in the interests of maintaining a more conservative expectation for the year. Please be cautioned, these are forward-looking estimates and subject to the cautionary note regarding the risks associated with forward looking statements at the beginning of this MD&A.
Tonnes Milled | 587,100 | 265,300 | 250,800 | 1,103,200 |
Silver head grades (grams/tonne) | 212 | 250 | 150 | 205 |
Silver recoveries | 60% | 75% | 80% | 68% |
Silver ounces | 2,470,300 | 1,545,700 | 967,700 | 4,983,700 |
Gold ounces | 15 | 465 | 1,187 | 1,667 |
Lead tonnes | 944 | 1,322 | - | 2,266 |
Silver equivalent ounces (1) | 2,563,300 | 1,703,600 | 1,032,200 | 5,300,000 |
(1) Pricing assumptions for equivalents Au = US$800/oz., Pb = US$0.55/oz. , Zn = US$0.50/oz.
Silver production is expected to increase in mid 2009 when the La Encantada plant expansion is completed and plant capacity has been increased from 1,000 tpd to 3,500 tpd. The Company expects to gradually bring the new cyanidation plant into production beginning with production of 1,000 tpd in the first month, 2,000 tpd in the second month, 3,000 tpd in the third month, and achieving full capacity of 3,500 tpd in the fourth month of production.
Although mill capacities are stated in maximum daily tonnage, management has established expected available days of operation in the year to include two days of maintenance per month and eleven days of statutory holidays for a total of 330 available productive days.
Capital expenditures at the La Encantada mine are expected to amount to US$21.6 million upon completion in mid-2009.
Smelting and refining charges are expected to decrease in 2009 due to new refining and smelting agreements entered into in February 2009 for doré and concentrate production. With the shift in production at the La Encantada mine, the mix of doré to concentrate production will increase from 49% to 92% by the fourth quarter of 2009.
Sales of coins, ingots and bullion will increase in the year from 5% of production in Q1/09, to approximately 10% by the end of Q2/09 and will remain at that level for the balance of 2009. These sales result in approximately a 10% increase in selling price over normal quoted selling prices in any quarter. Additional information on the Companys silver coins, ingots and bullion, including how to place an order, may be found on the Companys website at www.firstmajestic.com.
OFF-BALANCE SHEET ARRANGEMENTS
At March 31, 2009, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than those disclosed in this MD&A and the consolidated financial statements and the related notes.
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RELATED PARTY TRANSACTIONS
During the period ended March 31, 2009, the Company:
a) |
incurred $76,493 (2008 - $45,185) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
|
b) |
incurred $73,633 (2008 - $60,256) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
|
c) |
incurred $1,269,751 (2008 - $1,935,900) for service fees with a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $769,644 was unpaid as at March 31, 2009 (2008 - $511,536). This relationship was terminated in February 2009. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
PROPOSED TRANSACTIONS
The board of directors of the Company is not aware of any proposed transactions involving any proposed assets, businesses, business acquisitions or dispositions which may have an effect on the financial condition, results of operations and cash flows.
CONTRACTUAL OBLIGATIONS
The Companys liabilities have contractual maturities which are summarized below;
Payments Due By Period | |||||||||||||||
Total | Less than | 1- 3 | 4 - 5 | After 5 | |||||||||||
1 year | years | years | years | ||||||||||||
Capital Lease Obligations | $ | 5,541,467 | $ | 3,010,446 | $ | 2,531,021 | $ | - | $ | - | |||||
Purchase Obligations (1) | 7,050,202 | 7,050,202 | - | - | - | ||||||||||
Vendor Liability on Mineral Property (2) | 1,063,559 | 1,063,559 | - | - | - | ||||||||||
Purchase obliga tion for SAG mill | 405,000 | 405,000 | |||||||||||||
Total Contractual Obligations (3) | $ | 14,060,228 | $ | 11,529,207 | $ | 2,531,021 | $ | - | $ | - |
(1) |
Contract commitments for construction materials and equipment for the La Encantada Mill Expansion Project |
(2) |
Vendor liability on mineral property on the Quebradillas Mine at La Parrilla. |
(3) |
Amounts above do not i nclude payments related to the Company's future asset retirement obliga tions (see Note 16), nor do they include accounts payable and accrued liabilities of $15.5 million. |
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in Canada requires companies to establish accounting policies and to make estimates that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
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All of the Companys significant accounting policies and the estimates are included in Note 2 in the annual consolidated financial statements for period ended December 31, 2008. While all of the significant accounting policies are important to the Companys consolidated financial statements, the following accounting policies and the estimates have been identified as being critical:
Carrying Values of Property, Plant and Equipment and Other Mineral Property Interests
The Company reviews and evaluates its mineral properties for impairment at least annually or when events and changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future undiscounted cash flows are less than the carrying amount of the assets. Estimated undiscounted future net cash flows for properties in which a mineral resource has been identified are calculated using estimated future production, commodity prices, operating and capital costs and reclamation and closure costs. Undiscounted future cash flows for exploration stage mineral properties are estimated by reference to the timing of exploration and/or development work, work programs proposed, the exploration results achieved to date and the likely proceeds receivable if the Company sold specific properties to third parties. If it is determined that the future net cash flows from a property are less than the carrying value, then an impairment loss is recorded to write down the property to fair value.
The Company completed an impairment review of its properties at December 31, 2008. The estimates used by management are subject to various risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Companys investments in mining projects and other mineral property interests.
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest components of the Companys assets and, as such, the amortization of these assets has a significant effect on the Companys financial statements. On the commencement of commercial production, depletion of each mining property is provided on the unit-of-production basis using estimated reserves and resources expected to be converted to reserves as the depletion basis. The mining plant and equipment and other capital assets are depreciated, following the commencement of commercial production, over their expected economic lives using either the unit-of-production method. Capital projects in progress are not depreciated until the capital asset has been put into operation.
The reserves are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and the reliance on a number of assumptions. The estimates of the reserves may change, based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production. A change in the original estimate of reserves would result in a change in the rate of depletion and depreciation of the related mining assets or could result in impairment resulting in a write-down of the assets.
Asset Retirement Obligations and Reclamation Costs
The Company has obligations for site restoration and decommissioning related to its mining properties. The Company, using mine closure plans or other similar studies that outline the requirements planned to be carried out, estimates the future obligations from mine closure activities. Since the obligations are dependent on the laws and regulations of the county in which the mines operate, the requirements could change resulting from amendments in those laws and regulations relating to environmental protection and other legislation affecting resource companies.
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The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mining property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
As the estimate of obligations is based on future expectations, in the determination of closure provisions, management makes a number of assumptions and judgments. The liability is accreted over time to the amount ultimately payable through periodic charges to earnings. The undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is discounted using a credit adjusted risk free rate of 8.5% . The closure provisions are more uncertain the further into the future the mine closure activities are to be carried out. Actual costs incurred in future periods related to the disruption to date could differ materially from the discounted future value estimated by the Company at March 31, 2009.
Income Taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values, using the enacted or substantially enacted, as applicable, income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset future income tax payable requires management to exercise judgment and make assumptions about the future performance of the Company.
Management executed a corporate restructuring for tax purposes that became effective January 1, 2008, enabling on a limited basis to consolidate its tax losses of certain subsidiaries against the taxable incomes of other subsidiaries. Co-incident with the tax consolidation, Mexico introduced an alternative minimum tax known as the IETU, effective January 1, 2008, to attempt to limit certain companies from avoiding paying taxes on their cash earnings in Mexico. Management has reviewed its IETU obligations and its consolidated tax position at March 31, 2009, and management is required to assess whether the Company is more likely than not to benefit from these tax losses prior to recording a benefit from the tax losses.
Changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.
Stock-Based Compensation
The Company uses the Black-Scholes Option Pricing Model . Option pricing models require the input of subjective assumptions including the expected price volatility. Changes in the input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Companys stock options granted during the year.
FUTURE ACCOUNTING CHANGES
The Company has assessed new and revised accounting pronouncements that have been issued but that are not yet effective and determined that the following may have a significant impact on the Company.
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The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009. The Company is currently assessing the impact of this new standard on its consolidated financial statements.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Companys officers and management are also responsible for establishing and maintaining disclosure controls and procedures for the Company. These disclosure controls and procedures are designed to provide reasonable assurance that any information required to be disclosed by the Company under securities legislation is recorded, processed, summarized and reported within the applicable time periods and to ensure that required information is gathered and communicated to the Companys management so that decisions can be made about timely disclosure of that information.
Management reviewed internal controls in detail in 2008 and noted weaknesses in internal controls related to education and adoption of new automated internal controls in Mexico proposed when its new accounting information systems were adopted in the first quarter of 2008. The risk of material error is mitigated by extensive management review of financial reports and various account reconciliations and analyses in both Mexico and Canada. Management is continuing to rely significantly on substantive testing and detailed analyses in parallel with establishing detailed controls over the new systems in order to mitigate specific weaknesses while ensuring the fair presentation of its financial statements.
Based upon the recent assessment of the effectiveness of the internal control over financial reporting and disclosure controls and procedures, including consideration of detailed analyses by supervisory personnel to mitigate any exposure or weaknesses, the Companys Chief Executive Officer and Chief Financial Officer have concluded that there are weaknesses in Mexico but these are compensated by head office supervisory controls and as a result management has concluded that there are no material unmitigated weaknesses, and the design and implementation of internal control over financial reporting and disclosure controls and procedures were effective as at March 31, 2009.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
-21-
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined. The Company is presently undergoing a diagnostic assessment of its current accounting policies systems and processes in order to identify differences between current Canadian GAAP and IFRS treatment. While the effects of IFRS have not yet been fully determined, the Company has identified several key areas where it is likely to be impacted by accounting policy changes, including the accounting for Property, Plant and Equipment, Asset Retirement Obligations and Business Combinations. Further detailed analysis of these areas is underway, and no decisions have yet been made with regard to accounting policy choices.
A more detailed review of the impact of IFRS on the Companys consolidated financial statements, and other areas of the Company is in progress and is expected to be completed by the end of 2009. The Company will continue to monitor changes in IFRS during the implementation process and intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial reporting. There will be changes in accounting policies related to the adoption of IFRS and these changes may materially impact the Companys financial statements in the future.
OTHER MD&A REQUIREMENTS
(a) |
Additional information relating to the Company may be found on or in: |
|
|
SEDAR at www.sedar.com, |
|
|
the Companys Annual Information Form, |
|
|
the Companys audited consolidated financial statements for the year ended December 31, 2008. |
-22-
|
CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE THREE MONTHS ENDED |
MARCH 31, 2009 (UNAUDITED) |
MANAGEMENTS COMMENTS ON
UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Companys management.
The Companys independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entitys auditor.
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED BALANCE SHEETS |
AS AT MARCH 31, 2009 AND DECEMBER 31, 2008 |
(Expressed in Canadian dollars) |
CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Note 17)
APPROVED BY THE BOARD OF DIRECTORS
(signed) Keith Neumeyer | Director | (signed) Douglas Penrose | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF INCOME |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
(Expressed in Canadian dollars, except share amounts) |
March 31, 2009 | March 31, 2008 | |||||
$ | $ | |||||
Revenue (Note 12) | 14,386,872 | 12,964,182 | ||||
Cost of sales | 8,298,813 | 6,517,056 | ||||
Amortization and depreciation | 858,837 | 787,179 | ||||
Depletion | 570,295 | 886,362 | ||||
Accretion of reclamation obligation | 116,039 | 45,475 | ||||
Mine operating earnings | 4,542,888 | 4,728,110 | ||||
General and administrative | 1,818,005 | 2,131,880 | ||||
Stock-based compensation | 896,739 | 1,108,216 | ||||
2,714,744 | 3,240,096 | |||||
Operating income | 1,828,144 | 1,488,014 | ||||
Interest and other expenses | (360,206 | ) | (338,827 | ) | ||
Investment and other income | 289,843 | 137,393 | ||||
Foreign exchange loss | (952,866 | ) | (9,812 | ) | ||
Income before taxes | 804,915 | 1,276,768 | ||||
Income tax - current | 83,703 | 438,404 | ||||
Income tax (recovery) - future | (218,486 | ) | (226,959 | ) | ||
Income tax (recovery) expense | (134,783 | ) | 211,445 | |||
NET INCOME FOR THE PERIOD | 939,698 | 1,065,323 | ||||
EARNINGS PER COMMON SHARE BASIC & DILUTED | $ | 0.01 | $ | 0.02 | ||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||
BASIC | 76,400,055 | 64,057,083 | ||||
DILUTED | 92,387,593 | 79,769,823 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
(Expressed in Canadian dollars, except share amounts) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Comprehensive | Total | |||||||||||||||||||||||
Share capital | Contributed | Income (Loss) | AOCI | |||||||||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and deficit | Total | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | |||||||||||||
Net income | - | - | - | - | - | 1,065,323 | 1,065,323 | 1,065,323 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 9,957,297 | - | 9,957,297 | 9,957,297 | ||||||||||||||||
Total comprehensive income | 11,022,620 | 11,022,620 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 376,250 | 1,130,588 | - | - | - | - | - | 1,130,588 | ||||||||||||||||
Exercise of warrants | 7,500 | 31,875 | - | - | - | - | - | 31,875 | ||||||||||||||||
First Silver arrangement | 1,856,500 | 8,985,460 | (8,985,460 | ) | - | - | - | - | - | |||||||||||||||
Public offering, net of issue costs | 8,500,000 | 40,273,174 | - | 2,380,000 | - | - | - | 42,653,174 | ||||||||||||||||
Stock option expense during the period | - | - | - | 1,037,352 | - | - | - | 1,037,352 | ||||||||||||||||
Transfer of contributed surplus upon exercise of stock options | - | 263,407 | - | (263,407 | ) | - | - | - | - | |||||||||||||||
Balance at March 31, 2008 | 73,782,410 | 196,384,287 | 300,695 | 20,468,946 | (5,228,910 | ) | (33,266,776 | ) | (38,495,686 | ) | 178,658,242 | |||||||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | |||||||||||||
Net income | - | - | - | - | - | 939,698 | 939,698 | 939,698 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 799,151 | - | 799,151 | 799,151 | ||||||||||||||||
Unrealized gain on marketable securities | - | - | - | - | 22,796 | - | 22,796 | 22,796 | ||||||||||||||||
Total comprehensive income | 1,761,645 | 1,761,645 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 6,250 | 7,938 | - | - | - | - | - | 7,938 | ||||||||||||||||
Public offering, net of issue costs (Note 11) | 8,487,576 | 18,856,981 | - | 848,758 | - | - | - | 19,705,739 | ||||||||||||||||
Stock option expense during the period | - | - | - | 896,739 | - | - | - | 896,739 | ||||||||||||||||
Transfer of contributed surplus upon exercise of stock options | - | 2,950 | - | (2,950 | ) | - | - | - | - | |||||||||||||||
Balance at March 31, 2009 | 82,341,636 | 215,516,214 | 276,495 | 25,039,805 | (22,394,443 | ) | (38,537,185 | ) | (60,931,628 | ) | 179,900,886 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries, except for the unrealized gain of $22,796 on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
(Expressed in Canadian dollars) |
March 31, 2009 | March 31, 2008 | |||||
$ | $ | |||||
OPERATING ACTIVITIES | ||||||
Net income for the period | 939,698 | 1,065,323 | ||||
Adjustment for items not affecting cash | ||||||
Depletion | 570,295 | 886,362 | ||||
Depreciation | 858,837 | 821,269 | ||||
Stock-based compensation | 896,739 | 1,108,216 | ||||
Accretion of reclamation obligation | 116,039 | 45,475 | ||||
Unrealized loss on futures contracts | 850 | - | ||||
Write-down of other assets | - | 240,000 | ||||
Future income taxes | (218,486 | ) | (226,959 | ) | ||
Other income from derivative financial instruments | (267,667 | ) | - | |||
Unrealized foreign exchange and other | 305,677 | 819,423 | ||||
3,201,982 | 4,759,109 | |||||
Net change in non-cash working capital items | ||||||
Decrease (increase) in accounts receivable and other receivables | 395,480 | (719,595 | ) | |||
Increase in inventories | (536,133 | ) | (475,855 | ) | ||
Increase in prepaid expenses and advances | (479,985 | ) | (1,306,477 | ) | ||
Increase (decrease) in accounts payable and accrued liabilities | (2,338,209 | ) | 3,177,514 | |||
Increase in unearned revenue | 267,872 | - | ||||
Increase in employee profit sharing payable | - | 5,575 | ||||
Increase (decrease) in taxes receivable and payable | (158,024 | ) | 21,996 | |||
Decrease in vendor liability on mineral property | (350,560 | ) | - | |||
2,423 | 5,462,267 | |||||
INVESTING ACTIVITIES | ||||||
Expenditures on mineral property interests (net of accruals) | (1,847,474 | ) | (4,592,740 | ) | ||
Additions to plant and equipment (net of accruals) | (1,585,659 | ) | (3,002,972 | ) | ||
Decrease in silver futures contract deposits | 688,293 | - | ||||
Increase in deposits on long term assets and other | (380,708 | ) | (1,692,693 | ) | ||
Increase in restricted cash securitizing vendor liability (Note 9) | (545,522 | ) | - | |||
(3,671,070 | ) | (9,288,405 | ) | |||
FINANCING ACTIVITIES | ||||||
Issuance of common shares and warrants, net of issue costs | 19,713,677 | 43,815,637 | ||||
Payment of capital lease obligations | (382,468 | ) | - | |||
19,331,209 | 43,815,637 | |||||
INCREASE IN CASH AND CASH EQUIVALENTS | 15,662,562 | 39,989,499 | ||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH HELD IN FOREIGN CURRENCY | 254 | (5,498 | ) | |||
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD | 17,424,123 | 12,835,183 | ||||
CASH AND CASH EQUIVALENTS - END OF THE PERIOD | 33,086,939 | 52,819,184 | ||||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | - | |||||
Cash | 18,517,588 | 3,022,290 | ||||
Short-term deposits | 83,592 | 49,796,894 | ||||
Restricted cash (Note 9) | 14,485,759 | - | ||||
33,086,939 | 52,819,184 | |||||
Interest paid | 42,368 | 5,833 | ||||
Income taxes paid | - | 78,555 | ||||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 18) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
1. | DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS |
First Majestic Silver Corp. (the Company or First Majestic) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR, FR.WT.A and FR.WT.B, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21.2 million. Of the Companys cash balance of $33.1 million, $14.5 million is restricted pending the outcome of the litigation described in Note 9. The Companys ability to continue as a going concern is dependent primarily on the price of silver in global commodity markets, and on maintaining sustained, profitable operations and/or obtaining funds from other sources as required for capital developments. If the Company were unable to continue as a going concern, then material adjustments would be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. | BASIS OF PRESENTATION |
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP) with respect to the preparation of interim financial information. Accordingly, they do not include all the information and disclosures required by Canadian GAAP in the preparation of annual financial statements. Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with GAAP have been omitted. The accounting policies, used in preparation of the accompanying unaudited interim consolidated financial statements, are the same as those described in our most recent annual consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results for the entire year. These interim financial statements should be read in conjunction with the Companys latest audited consolidated financial statements for the year ended December 31, 2008.
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM) and First Silver Reserve Inc. (First Silver) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada) and Majestic Services S.A. de C.V. (Majestic). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 9. Intercompany balances and transactions are eliminated on consolidation.
1
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
3. | SIGNIFICANT CHANGES IN ACCOUNTING POLICIES |
The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted.
International Financial Reporting Standards (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined.
4. | RESTRICTED CASH |
On July 22, 2008, the Company secured its outstanding vendor liability (Note 9) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. The Letter of Credit is revolving with annual expiry on July 22. The cash and short term investments earn market rates of interest from which the 0.5% per annum cost of the Letter of Credit is deducted and the net interest remitted to the Company. In addition, a further $545,522 was paid into the Supreme Court of British Columbia in January 2009 and our Letter of Credit will be amended for a total Restricted Cash balance of $14,485,759. The Restricted Cash is segregated from operating cash as the funds are not accessible by the Company pending the outcome of litigation described in Note 9.
5. | OTHER RECEIVABLES |
Details of the components of other receivables are as follows:
March 31, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Value added taxes recoverable | 5,459,566 | 6,109,943 | ||||
Other taxes recoverable | 49,643 | 406,536 | ||||
Interest receivable | 34,963 | 188,111 | ||||
Advances to employees | 120,986 | 67,240 | ||||
Advances to suppliers | 440,928 | 440,863 | ||||
6,106,086 | 7,212,693 |
2
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
6. | INVENTORIES |
Inventories consist of the following:
March 31, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Silver coins and bullion including in process shipments | 1,205,816 | 572,149 | ||||
Finished product - doré and concentrates | 1,446,885 | 1,017,769 | ||||
Ore in process | 215,482 | 196,169 | ||||
Stockpile | 888,358 | 1,631,625 | ||||
Materials and supplies | 1,380,544 | 1,523,628 | ||||
5,137,085 | 4,941,340 |
7. | PREPAID EXPENSES AND OTHER |
Details of prepaid expenses and other are as follows:
March 31, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Advances to suppliers and contractors | 1,405,506 | 1,380,509 | ||||
Deposits | 255,542 | 252,941 | ||||
Derivative financial instruments | 68,955 | 490,431 | ||||
1,730,003 | 2,123,881 |
8. | MINING INTERESTS |
Expenditures incurred on mining interests, net of accumulated depletion, are as follows:
March 31, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
depreciation | depreciation | |||||||||||||||||
and | and | |||||||||||||||||
Cost | depletion | Net | Cost | depletion | Net | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Mining properties | 171,287,790 | 15,020,161 | 156,267,629 | 167,130,756 | 14,436,791 | 152,693,965 | ||||||||||||
Plant and equipment | 52,592,509 | 6,959,965 | 45,632,544 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||||||||
223,880,299 | 21,980,126 | 201,900,173 | 215,402,188 | 20,580,843 | 194,821,345 |
3
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
8. | MINING INTERESTS (continued) |
A summary of the net book value of mining properties is as follows:
December 31, | ||||||||||||||||||
March 31, 2009 | 2008 | |||||||||||||||||
Non- | Plant and | |||||||||||||||||
Depletable | Depletable | Subtotal | Equipment | Total | Total | |||||||||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||||||||
Producing properties | ||||||||||||||||||
La Encantada (a) | 7,648,610 | - | 7,648,610 | 22,446,173 | 30,094,783 | 24,965,623 | ||||||||||||
La Parrilla (b) | 17,287,410 | - | 17,287,410 | 15,740,193 | 33,027,603 | 32,628,927 | ||||||||||||
San Martin (c) | 27,111,872 | - | 27,111,872 | 7,446,178 | 34,558,050 | 34,466,565 | ||||||||||||
52,047,892 | - | 52,047,892 | 45,632,544 | 97,680,436 | 92,061,115 | |||||||||||||
Exploration properties | ||||||||||||||||||
La Encantada (a) | - | 3,243,433 | 3,243,433 | - | 3,243,433 | 2,858,043 | ||||||||||||
La Parrilla (b) | - | 9,370,681 | 9,370,681 | - | 9,370,681 | 8,722,897 | ||||||||||||
San Martin (c) (1) | - | 76,748,046 | 76,748,046 | - | 76,748,046 | 77,582,247 | ||||||||||||
Del Toro (d) (2) | - | 12,455,122 | 12,455,122 | - | 12,455,122 | 11,881,557 | ||||||||||||
Cuitaboca (e) | - | 2,402,455 | 2,402,455 | - | 2,402,455 | 1,715,486 | ||||||||||||
- | 104,219,737 | 104,219,737 | - | 104,219,737 | 102,760,230 | |||||||||||||
52,047,892 | 104,219,737 | 156,267,629 | 45,632,544 | 201,900,173 | 194,821,345 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
(2) |
The ore from Del Toro is processed at the La Parrilla Silver Mine. |
A summary of plant and equipment is as follows:
March 31, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
La Encantada Silver Mine | 23,889,082 | 1,442,909 | 22,446,173 | 19,541,421 | 1,221,301 | 18,320,120 | ||||||||||||
La Parrilla Silver Mine | 18,681,055 | 2,940,862 | 15,740,193 | 18,590,746 | 2,568,373 | 16,022,373 | ||||||||||||
San Martin Silver Mine | 10,022,372 | 2,576,194 | 7,446,178 | 10,139,265 | 2,354,378 | 7,784,887 | ||||||||||||
Us ed in Mining Operations | 52,592,509 | 6,959,965 | 45,632,544 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||||||||
Corporate office equipment | 783,675 | 335,378 | 448,297 | 712,525 | 229,475 | 483,050 | ||||||||||||
53,376,184 | 7,295,343 | 46,080,841 | 48,983,957 | 6,373,527 | 42,610,430 |
Details by specific assets are as follows:
March 31, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Land | 2,302,749 | - | 2,302,749 | 2,302,273 | - | 2,302,273 | ||||||||||||
Automobile | 428,447 | 163,873 | 264,574 | 427,817 | 140,703 | 287,114 | ||||||||||||
Buildings | 6,281,031 | 465,563 | 5,815,468 | 6,250,748 | 399,982 | 5,850,766 | ||||||||||||
Machinery and equipment | 27,637,285 | 5,809,706 | 21,827,579 | 27,744,172 | 5,053,327 | 22,690,845 | ||||||||||||
Computer equipment | 581,248 | 284,134 | 297,114 | 566,511 | 239,162 | 327,349 | ||||||||||||
Office equipment | 601,098 | 461,871 | 139,227 | 600,413 | 447,405 | 153,008 | ||||||||||||
Leasehold improvements | 320,304 | 110,196 | 210,108 | 320,304 | 92,949 | 227,355 | ||||||||||||
Construction in progress | 15,224,022 | - | 15,224,022 | 10,771,720 | - | 10,771,720 | ||||||||||||
53,376,184 | 7,295,343 | 46,080,841 | 48,983,958 | 6,373,528 | 42,610,430 |
4
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
8. | MINING INTERESTS (continued) |
Mineral property options paid and future option payments are due as follows:
Note 8(d) | Note 8(e) | ||||||||
Del Toro | Cuitaboca | Total | |||||||
US$ | US$ | US$ | |||||||
Paid as at March 31, 2009 | 5,887,500 | 925,000 | 6,812,500 | ||||||
Payable May 25, 2009 | - | 250,000 | 250,000 | ||||||
Payable June 6, 2009 | 37,500 | - | 37,500 | ||||||
Payable as at June 30, 2009 | 37,500 | 250,000 | 287,500 | ||||||
Payable as at September 30, 2009 | 37,500 | 250,000 | 287,500 | ||||||
Payable November 25, 2009 | - | 275,000 | 275,000 | ||||||
Payable December 6, 2009 | 62,500 | - | 62,500 | ||||||
Payable as at December 31, 2009 | 100,000 | 525,000 | 625,000 | ||||||
Payable in 2010 and beyond | 225,000 | 1,050,000 | 1,275,000 | ||||||
Total Future Option Payments | 325,000 | 1,575,000 | 1,900,000 |
(a) | La Encantada Silver Mine, Coahuila State |
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine comprises of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz de Boquillas del Cármen, is 45 kilometres away via unpaved road. The La Encantada Silver Mine consists of a 1,000 tonnes per day flotation plant, an airstrip, and other facilities, including a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.
(b) | La Parrilla Silver Mine, Durango State |
The La Parrilla Silver Mine is a system of connecting underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 kilometres southeast of the city of Durango, in Durango state Mexico. Located at the mine are: mining equipment, a 425 tonne-per-day cyanidation plant, a 425 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
In 2008, the Company amended payment terms to an optionor regarding the outstanding payments as at December 31, 2008 on the Quebradillas Mine. In regards to the aggregate of US$749,000 which was previously payable in 2008, the Company has agreed to make a series of payments in 2009 totaling US$1,121,160 which includes interest at a rate of 3% over three month LIBOR. During the three months ended March 31, 2009, the Company made payments totaling US$277,935 pursuant to the amended agreements.
There is a net smelter royalty agreement (NSR) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. For the period ended March 31, 2009, the Company paid US$36,086 (December 31, 2008 US$69,000) relating to royalties.
5
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
8. | MINING INTERESTS (continued) |
(c) | San Martin Silver Mine, Jalisco State |
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine comprises of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface rights where the 950 tonnes per day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.
(d) | Del Toro Silver Mine, Zacatecas State |
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of 320 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart.
The Company owns 100% of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package.
(e) | Cuitaboca Silver Project, Sinaloa State |
The Cuitaboca Silver Project, located in Sinaloa State , Mexico, consists of an option to acquire a 5,134 hectare land package. This option was acquired in May 2006 through the acquisition of First Silver and its wholly owned subsidiary, El Pilon.
The Company entered into an option agreement in November 2004 with Consorcio Minero Latinamericano, S.A. de C.V., a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims covering 3,718 hectares located in Sinaloa State, Mexico. To purchase the claims, the Company needs to pay US$2,500,000 in staged cash payments through November, 2010 (US$925,000 paid as at March 31, 2009). A 2.5% NSR on the claims may be purchased at any time during the term of the agreement or for a period of 12 months thereafter for an additional US$500,000.
9. | VENDOR LIABILITY AND INTEREST |
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53,365,519. The purchase price was payable to the majority shareholder of First Silver (the Majority Shareholder) in three instalments. The first instalment of $26,682,759, for 50% of the purchase price, was paid upon closing on May 30, 2006. An additional 25% instalment of $13,341,380 was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum is payable quarterly on the outstanding vendor balance.
In November 2007, an action was commenced by the Company and First Silver against the Majority Shareholder who previously was a director, President & Chief Executive Officer of First Silver, and a company he controls. The Company and First Silver allege that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
6
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
9. | VENDOR LIABILITY AND INTEREST (continued) |
Pending resolution of the litigation set out above, the Company has withheld payments of interest due to the previous Majority Shareholder on scheduled interest payment dates of November 30, 2007, February 29, 2008 and May 30, 2008. The Company is withholding payment of the final instalment of $13,341,380 due May 30, 2008 and the above mentioned interest payments, an amount totalling $13,940,237. On July 22, 2008, the Company posted an irrevocable Letter of Credit with the Supreme Court of British Columbia pending the court outcome which is not anticipated for at least one year or until such litigation has been resolved. In January 2009, a further $545,522 was paid into the Supreme Court of British Columbia for additional interest payments and will be added to the Letter of Credit posted to the Supreme Court of British Columbia.
On March 14, 2008, a statement of defence and counter-claim was filed by the Majority Shareholder regarding the action commenced by the Company. Pursuant to the counterclaim, a claim has been made for payment of an aggregate of $598,857 in respect of interest payments due under the share purchase agreement dated April 3, 2006, which the Company has withheld under such agreement. The Majority Shareholder further claims unquantified damages, costs and interest. The Company believes that the issues raised and their outcome in the counterclaim will depend on the success of the Company's action against the defendant; however, the outcome of this litigation is not presently determinable.
10. | DEPOSITS ON LONG-TERM ASSETS |
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
March 31, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Deposit on services | 49,744 | - | ||||
Deposit on equipment | 2,585,159 | 1,986,517 | ||||
2,634,903 | 1,986,517 |
11. | SHARE CAPITAL |
(a) | Authorized unlimited number of common shares without par value |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,705,739, of which $18,856,981 relates to the common shares and $848,758 relates to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 expiring on March 5, 2011. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. |
7
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
11. | SHARE CAPITAL (continued) |
(ii) |
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 units at an issue price of $5.35 per unit for net proceeds to the Company of $40,144,471. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 warrants at a price of $0.56 per warrant. The underwriters did not exercise their option to purchase any option shares, but did acquire the 637,500 warrants (see Note 11(c)). |
(b) | Stock Options |
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the 2008 Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the three months ended March 31, 2009 and the year ended December 31, 2008 are as follows:
Three Months Ended March 31, 2009 | Year Ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |||||||||||||
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |||||||||||||
Balance, beginning of the period | 6,862,500 | 3.84 | 2.78 years | 5,892,500 | 4.04 | 2.75 years | ||||||||||||
Granted | - | 0.00 | 0.00 years | 2,672,500 | 2.93 | 3.67 years | ||||||||||||
Exercised | (6,250 | ) | 1.27 | 2.78 years | (436,650 | ) | 3.20 | 0.51 years | ||||||||||
Forfeited or expired | - | 0.00 | 0.00 years | (1,265,850 | ) | 3.05 | 0.45 years | |||||||||||
Balance, end of the period | 6,856,250 | 3.85 | 2.53 years | 6,862,500 | 3.84 | 2.78 years |
8
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
The following table summarizes both the stock options outstanding and those that are exercisable at March 31, 2009:
Price | Options | Options | |||||||
$ | Outstanding | Exercisable | Expiry Dates | ||||||
3.28 | 12,500 | 12,500 | June 13, 2009 | ||||||
4.32 | 630,000 | 630,000 | December 6, 2009 | ||||||
5.50 | 200,000 | 200,000 | February 1, 2010 | ||||||
4.64 | 75,000 | 75,000 | June 1, 2010 | ||||||
4.17 | 100,000 | 100,000 | August 8, 2010 | ||||||
3.72 | 30,000 | 30,000 | September 24, 2010 | ||||||
3.98 | 20,000 | 13,750 | October 17, 2010 | ||||||
4.45 | 660,000 | 495,000 | October 30, 2010 | ||||||
4.34 | 50,000 | 37,500 | November 1, 2010 | ||||||
4.42 | 25,000 | 18,750 | November 12, 2010 | ||||||
4.34 | 200,000 | 150,000 | December 5, 2010 | ||||||
4.42 | 50,000 | 37,500 | February 20, 2011 | ||||||
4.65 | 100,000 | 75,000 | March 25, 2011 | ||||||
4.19 | 30,000 | 15,000 | April 26, 2011 | ||||||
4.02 | 100,000 | 50,000 | May 15, 2011 | ||||||
4.30 | 450,000 | 450,000 | June 19, 2011 | ||||||
4.67 | 130,000 | 65,000 | July 4, 2011 | ||||||
4.15 | 300,000 | 150,000 | July 28, 2011 | ||||||
3.62 | 735,000 | 367,500 | August 28, 2011 | ||||||
1.60 | 200,000 | 50,000 | October 8, 2011 | ||||||
1.27 | 118,750 | 25,000 | October 17, 2011 | ||||||
4.32 | 245,000 | 245,000 | December 6, 2011 | ||||||
4.41 | 400,000 | 400,000 | December 22, 2011 | ||||||
5.00 | 155,000 | 155,000 | February 7, 2012 | ||||||
4.65 | 25,000 | 25,000 | June 20, 2012 | ||||||
4.34 | 925,000 | 693,750 | December 5, 2012 | ||||||
3.62 | 100,000 | 50,000 | August 28, 2013 | ||||||
1.44 | 240,000 | 60,000 | November 10, 2013 | ||||||
1.56 | 550,000 | 137,500 | December 17, 2013 | ||||||
6,856,250 | 4,813,750 |
During the three months ended March 31, 2009, no stock options were granted to directors, officers and employees. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, $896,739 has been recorded as an expense in the three months ended March 31, 2009, all of which relates to previously issued stock options.
The fair value of stock options granted is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
Three Months ended | Year ended | |||||
March 31, 2009 | December 31, 2008 | |||||
Risk-free interest rate | 2.4% | 2.4% | ||||
Estimated volatility | 64.9% | 64.9% | ||||
Expected life | 2.35 years | 2.35 years | ||||
Expected dividend yield | 0% | 0% |
9
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
Option-pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide a reliable measure of the fair value of the Companys stock options.
10
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
11. | SHARE CAPITAL (continued) |
(c) | Share Purchase Warrants |
The changes in share purchase warrants for the three months ended March 31, 2009 and the year ended December 31, 2008 are as follows:
Three months ended March 31, 2009 | Year ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average Term to | Number of | Exercise Price | Average Term to | |||||||||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||||||||
Balance, beginning of the period | 5,078,791 | 6.99 | 1.19 years | 5,845,240 | 5.66 | 0.89 years | ||||||||||||
Issued (i) (ii) (iii) | 4,243,788 | 3.50 | 2.00 years | 4,887,500 | 7.00 | 2.00 years | ||||||||||||
Exercised | - | 0.00 | 0.00 years | (7,500 | ) | 4.25 | 0.86 years | |||||||||||
Cancelled or expired | (191,291 | ) | 6.81 | 0.00 years | (5,646,449 | ) | 5.62 | 0.00 years | ||||||||||
Balance, end of the period | 9,131,288 | 5.37 | 1.42 years | 5,078,791 | 6.99 | 1.19 years |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector implied volatility of 35%, expected life of 2 years and expected dividend yield of 0%) and $848,758 was credited to contributed surplus. |
(ii) |
On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector implied volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2,380,000 was credited to contributed surplus. |
(iii) |
On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector implied volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus. |
The following table summarizes the share purchase warrants outstanding at March 31, 2009:
Exercise Price | Warrants | |||||
$ | Outstanding | Expiry Dates | ||||
7.00 | 4,887,500 | March 25, 2010 | ||||
3.50 | 4,243,788 | March 5, 2011 | ||||
9,131,288 |
11
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
11. | SHARE CAPITAL (continued) |
(d) | Share Capital to be Issued |
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc. and the San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic. Under the terms of the plan of arrangement (the Arrangement), First Majestic acquired the remaining First Silver shares in consideration for either: (i) the issuance of one common share of First Majestic for each two First Silver shares acquired; or (ii) a cash payment of $2.165 per share of First Silver.
The former shareholders of First Silver had until December 13, 2006 to deposit their completed Letters of Transmittal and to elect to receive either cash or shares of First Majestic. At December 31, 2006, the former shareholders of First Silver tendered 718,404 common shares of First Silver for cash, and another 9,583,813 shares of First Silver were tendered for shares of First Majestic. The remaining 3,840,504 shares of First Silver not tendered for either cash or shares of First Majestic may only be tendered for shares of First Majestic.
At December 31, 2006, the Company recorded $9,294,020 as share capital to be issued, representing 1,920,252 shares of First Majestic issuable in exchange for 3,840,504 shares of First Silver not tendered for cash and not yet tendered for First Majestic shares by the former shareholders of First Silver. During 2007 the prior shareholders of First Silver were issued 1,625 shares of First Majestic in exchange for 3,250 shares of First Silver. In 2008 the prior shareholders of First Silver were issued a further 1,861,500 shares in exchange for 3,723,000 shares of First Silver. At March 31, 2009, the prior shareholders of First Silver had yet to exchange the remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic resulting in a remaining balance of shares to be issued of $276,495.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
12. | REVENUE |
Details of the components of revenue are as follows:
Three months ended March 31 | ||||||
2009 | 2008 | |||||
$ | $ | |||||
Gross revenue - silver doré bars and concentrates | 16,269,685 | 16,245,923 | ||||
Less: refining, s melting and transportation charges | (2,540,742 | ) | (2,801,235 | ) | ||
Less: metal deductions | (536,523 | ) | (480,506 | ) | ||
Net revenue - silver doré bars and concentrates | 13,192,420 | 12,964,182 | ||||
Revenue - silver coins, ingots and bullion | 1,194,452 | - | ||||
Net revenue | 14,386,872 | 12,964,182 |
12
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
13. | RELATED PARTY TRANSACTIONS |
During the period ended March 31, 2009, the Company:
a) |
incurred $76,493 (2008 - $45,185) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
|
b) |
incurred $73,633 (2008 - $60,256) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
|
c) |
incurred $1,269,751 (2008 - $1,935,900) for service fees with a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $769,644 was unpaid as at March 31, 2009 (2008 - $511,536). This relationship was terminated in February 2009. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
14. | SEGMENTED INFORMATION |
The Company considers that it has three operating segments all of which are located in Mexico, and one corporate segment with locations in Canada and Mexico. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property, the Cuitaboca Silver Project and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Three months ended March 31, 2009 | ||||||||||||||||||
First | ||||||||||||||||||
Majestic | ||||||||||||||||||
El Pilon | Plata | La Encantada | Other | |||||||||||||||
operations | operations | operations | Corporate | Eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 4,455,966 | 3,935,858 | 5,448,325 | 1,194,452 | (647,729 | ) | 14,386,872 | |||||||||||
Cost of sales | 2,733,227 | 2,701,303 | 2,484,297 | 1,083,976 | (703,990 | ) | 8,298,813 | |||||||||||
Amortization, depreciation and accretion | 253,147 | 464,758 | 256,971 | - | - | 974,876 | ||||||||||||
Depletion | 251,440 | 150,878 | 167,977 | - | - | 570,295 | ||||||||||||
Mine operating earnings | 1,218,152 | 618,919 | 2,539,080 | 110,476 | 56,261 | 4,542,888 | ||||||||||||
General and administrative | - | - | - | 1,818,005 | - | 1,818,005 | ||||||||||||
Stock-based compensation | - | - | - | 896,739 | - | 896,739 | ||||||||||||
Net interest, other income and foreign exchange | 293,633 | 347,495 | 280,720 | 101,381 | - | 1,023,229 | ||||||||||||
Income tax (recovery) expense | (174,693 | ) | (47,258 | ) | 574,037 | (486,869 | ) | - | (134,783 | ) | ||||||||
Net income (loss) | 1,099,212 | 318,682 | 1,684,323 | (2,218,780 | ) | 56,261 | 939,698 | |||||||||||
Capital expenditures | 692,893 | 1,886,255 | 5,923,006 | 14,816 | - | 8,516,970 | ||||||||||||
Total assets | 118,179,765 | 59,759,240 | 40,700,384 | 35,098,796 | - | 253,738,185 |
13
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
14. | SEGMENTED INFORMATION (continued) |
Three months ended March 31, 2008 | ||||||||||||||||||
First Majestic | ||||||||||||||||||
El Pilon | Plata | La Encantada | Other | |||||||||||||||
operations | operations | operations | Corporate | eliminations | Total | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Revenue | 2,209,563 | 4,998,028 | 5,756,591 | - | - | 12,964,182 | ||||||||||||
Cost of sales | 1,465,532 | 2,571,495 | 2,480,029 | - | - | 6,517,056 | ||||||||||||
Amortization, depreciation and accretion | 285,264 | 354,880 | 147,035 | 45,475 | - | 832,654 | ||||||||||||
Depletion | 478,675 | 190,802 | 216,885 | - | - | 886,362 | ||||||||||||
Mine operating earnings (loss) | (19,908 | ) | 1,880,851 | 2,912,642 | (45,475 | ) | - | 4,728,110 | ||||||||||
General and administrative | - | - | - | 2,131,880 | - | 2,131,880 | ||||||||||||
Stock-based compensation | - | - | - | 1,108,216 | - | 1,108,216 | ||||||||||||
Net interest, other i ncome (expense) and foreign exchange | (329,878 | ) | 330,105 | 84,118 | 126,901 | - | 211,246 | |||||||||||
Income tax (recovery) expense | (86,075 | ) | 91,657 | 205,863 | - | - | 211,445 | |||||||||||
Net income (loss) | 396,045 | 1,459,089 | 2,622,661 | (3,412,472 | ) | - | 1,065,323 | |||||||||||
Capital expenditures | 2,802,254 | 5,482,710 | 1,395,524 | 167,429 | - | 9,847,917 | ||||||||||||
Total assets | 123,259,022 | 51,818,280 | 18,579,069 | 52,822,875 | - | 246,479,246 |
15. | CAPITAL LEASE OBLIGATIONS |
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for $14.1 million (US$11.2 million) of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. On March 13, 2009, the Company executed a restructuring agreement for the balance of $3.6 million (US$2.9 million) payable to the equipment lease vendor, to be paid over twenty four monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from First Majestic (the parent company).
On January 12, 2009, the Company executed two financing arrangements with an equipment vendor, committing the Company for a total of approximately $2.6 million (US$2.0 million) purchase price with terms of 36 monthly lease payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
The following is a schedule of future minimum lease payments under the capital leases at March 31, 2009:
$US | $CA | |||||
2009 Gross lease payments | 2,323,440 | 2,930,554 | ||||
2010 Gross lease payments | 1,972,328 | 2,487,697 | ||||
2011 Gross lease payments | 581,999 | 734,076 | ||||
4,877,767 | 6,152,327 | |||||
Less: interest | (484,328 | ) | (610,860 | ) | ||
Total payments, net of interest | 4,393,439 | 5,541,467 | ||||
Less: current portion | (2,386,781 | ) | (3,010,446 | ) | ||
Capital Lease Obligation | 2,006,658 | 2,531,021 |
14
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
16. | ASSET RETIREMENT OBLIGATIONS |
Three months ended | Year ended | |||||
March 31, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Balance, beginning of the period | 5,304,369 | 2,290,313 | ||||
Effect of change in estimates | - | 2,979,726 | ||||
Interest accretion | 116,039 | 200,477 | ||||
Effect of translation of foreign currencies | 7,786 | (166,147 | ) | |||
5,428,194 | 5,304,369 |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | March 31, 2009 | December 31, 2008 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2018 | 1,909,228 | 1,865,674 | ||||||
La Parrilla Silver Mine | 2022 | 1,647,175 | 1,609,602 | ||||||
San Martin Silver Mine | 2016 | 1,871,791 | 1,829,093 | ||||||
5,428,194 | 5,304,369 |
During the year ended December 31, 2008, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $7.27 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $2.46 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.31 million of the obligation relates to the San Martin Silver Mine, and $2.51 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
17. | COMMITMENTS |
The Company is obligated to make certain mining property option payments as described in Note 8, in connection with the acquisition of its mineral property interests.
As at March 31, 2009, the Company is obligated to make a series of payments totalling US$843,225 before the end of 2009 with respect to property payments at the Quebradillas Mine at La Parrilla.
The Company has capital lease obligations as described in Note 15.
The Company is obligated to make certain interest and cash payments, as described in Note 9, in connection with the acquisition of a controlling interest in First Silver, subject to litigation.
The Company has office lease commitments of $116,800 in 2009 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at March 31, 2009, the Company is committed to approximately $7.1 million (2008 - $nil) relating to the La Encantada Project which is currently being constructed.
15
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED MARCH 31, 2009 AND 2008 |
17. | COMMITMENTS (continued) |
As at March 31, 2009, the Company is obligated to make payments totalling $405,000 by the second quarter of 2009 with respect to the purchase and delivery of a semi autogenous grinding (SAG) mill for the Del Toro Silver Mine.
The Company is committed to making severance payments amounting to US$574,000 (2008- US$540,000) to four officers in the event of a change of control of the Company.
18. | NON-CASH FINANCING AND INVESTING ACTIVITIES |
March 31, 2009 | March 31, 2008 | |||||
$ | $ | |||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||
Fair value of warrants upon completion of public offering | 848,758 | 2,380,000 | ||||
Issuance of shares for First Silver Arrangement | - | 8,985,460 | ||||
Transfer of contributed surplus to common shares for options exercised | 2,950 | 263,407 | ||||
Assets acquired by capital lease | 2,259,380 | - |
19. | SUBSEQUENT EVENTS |
Subsequent to March 31, 2009:
(a) |
On April 1, 2009, the following stock options were forfeited: |
|
(i) |
25,000 stock options exercisable at a price of $4.32 per share expiring on December 6, 2009; |
|
(ii) |
60,000 stock options exercisable at a price of $4.45 per share expiring on October 30, 2010; |
|
(iii) |
10,000 stock options exercisable at a price of $4.19 per share expiring on April 26, 2011; and |
|
(iv) |
40,000 stock options exercisable at a price of $3.62 per share expiring on August 28, 2011. |
|
(b) |
On April 24, 2009, 20,000 stock options exercisable at a price of $4.45 per share expiring on October 30, 2010 were forfeited. |
|
(c) |
On May 7, 2009, 1,262,500 stock options exercisable at a price of $2.03 per share were granted. 800,000 of the stock options expire on May 7, 2012 and 462,500 stock options expire on May 7, 2014. |
20. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform with the classifications used in 2009.
16
Report of Voting Results
(Section 11.3 of National
Instrument 51-102)
The following describes the matters voted upon and the outcome of the votes at the annual general meeting of shareholders of First Majestic Silver Corp. (the Company) held on Thursday, May 27, 2010 at The Terminal City Club, 837 West Hastings Street, Vancouver, British Columbia.
1. |
Fix Number of Directors |
The ordinary resolution fixing the number of directors at seven was approved by a majority vote of shareholders present in person or represented by proxy at the meeting as follows: |
Votes in Favour | % of Votes Cast |
27,566,288 | 99.71% |
2. | Election of Directors |
The seven nominees set for in the Companys management information circular dated April 1, 2010 were elected as directors of the Company by a majority vote. The Companys shareholders present in person or represented by proxy at the meeting voted as follows:
Director Nominee | Votes in Favour | % of Votes Cast |
Keith Neumeyer | 16,041,311 | 99.51% |
Ramon Davila | 16,029,715 | 99.44% |
Robert A. McCallum | 16,033,811 | 99.46% |
Tony Pezzotti | 16,039,111 | 99.50% |
David Shaw | 16,047,411 | 99.55% |
Douglas Penrose | 16,009,711 | 99.31% |
Robert Young | 16,008,311 | 99.31% |
3. |
Appointment of Auditors |
Deloitte & Touche LLP was re-appointed as auditors of the Company by a majority vote of shareholders present in person or represented by proxy at the meeting as follows: |
Votes in Favour | % of Votes Cast | |
Appoint Auditors | 27,538,953 | 99.61% |
Fix Auditors Remuneration | 27,502,437 | 99.48% |
Dated at Vancouver, British Columbia, this 2 nd day of June, 2010.
FIRST MAJESTIC SILVER CORP.
signed
Connie Lillico
Corporate Secretary
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639-8873| Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
INFORMATION CIRCULAR
(Containing information as at April 1, 2010)
SOLICITATION OF PROXIES
This Information Circular is furnished in connection with the solicitation of proxies by the management of First Majestic Silver Corp. (First Majestic or the "Company") for use at the Annual General Meeting of shareholders of the Company (the "Meeting") to be held on May 27, 2010 at the time and place and for the purposes set forth in the accompanying Notice of Meeting and at any adjournment thereof. While it is expected that the solicitation will be primarily by mail, proxies may be solicited personally or by telephone by the directors and regular employees of the Company at nominal cost. The Company may retain other persons or companies to solicit proxies on behalf of management, in which event customary fees for such services will be paid. All costs of solicitation will be borne by the Company.
APPOINTMENT AND REVOCATION OF PROXY
The persons named in the accompanying form of proxy (the Proxy) are the President and Chief Executive Officer and Chairman, respectively, of the Company. A shareholder has the right to appoint some other person, who need not be a shareholder, to represent the shareholder at the Meeting. A shareholder who wishes to appoint some other person to serve as their representative at the Meeting may do so by striking out the names printed on the Proxy and inserting the desired persons name in the blank space provided.
The instrument appointing a proxyholder must be signed in writing by the shareholder, or such shareholders attorney authorized in writing. If the shareholder is a corporation, the instrument appointing a proxyholder must be in writing signed by an officer or attorney of the corporation duly authorized by resolution of the directors of such corporation, which resolution must accompany such instrument.
The completed Proxy must be delivered to Computershare Trust Company of Canada (Computershare) at the address set out in the Proxy by 10:00 am not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time set for holding the Meeting or any adjournment thereof, unless the Chairman of the Meeting elects to exercise his discretion to accept Proxies received subsequently.
The Proxy may be revoked by:
(a) |
signing a proxy with a later date and delivering it at the time and place noted above; |
|
(b) |
signing and dating a written notice of revocation and delivering it at the time and to the place noted above; or |
|
(c) |
attending the Meeting or any adjournment of the Meeting and registering with the scrutineer as a shareholder present in person. |
PROVISIONS RELATING TO THE VOTING OF PROXIES
The shares represented by proxy in the enclosed form will be voted by the designated holder in accordance with the direction of the shareholder appointing him. If there is no direction by the shareholder, those shares will be voted for all proposals set out in the Proxy and for the election of directors and the appointment of the auditors as set out in this Information Circular. The Proxy gives the person named in it the discretion to vote as they see fit on any amendments or variations to matters identified in the Notice of Meeting, or any other matters which may properly come before the Meeting. At the time of printing of this Information Circular, the management of the Company knows of no other matters which may come before the Meeting other than those referred to in the Notice of Meeting.
NON-REGISTERED HOLDERS
Only registered shareholders or duly appointed proxyholders are permitted to vote at the Meeting. Most shareholders of the Company are non-registered shareholders because the shares they own are not registered in their own names but are instead registered in the name of the brokerage firm, bank or trust company through which they purchased the shares. A person is not a registered shareholder (a Non-Registered Holder) in respect of shares which are held either: (a) in the name of an intermediary (an Intermediary) that the Non-Registered Holder deals with in respect of the shares (Intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or (b) in the name of a clearing agency (such as The Canadian Depository for Securities Limited (CDS)), of which the Intermediary is a participant.
Non-Registered Holders who have not objected to their Intermediary disclosing certain ownership information about themselves to the Company are referred to as NOBOs. Those Non-Registered Holders who have objected to their Intermediary disclosing ownership information about themselves to the Company are referred to as OBOs. In accordance with the requirements of National Instrument 54-101 of the Canadian Securities Administrators, the Company has elected to send the Notice of Meeting, this Circular and the Proxy (collectively, the Meeting Materials) directly to the NOBOs, and indirectly through Intermediaries to the OBOs. The Intermediaries (or their service companies) are responsible for forwarding the Meeting Materials to each OBO, unless the OBO has waived the right to receive them.
Intermediaries will frequently use service companies to forward the Meeting Materials to the OBOs. Generally, an OBO who has not waived the right to receive Meeting Materials will either:
(a) |
be given a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of shares beneficially owned by the OBO and must be completed, but not signed, by the OBO and deposited with Computershare; or |
|
(b) |
more typically, be given a voting instruction form (VIF) which is not signed by the Intermediary, and which, when properly completed and signed by the OBO and returned to the Intermediary or its service company, will constitute voting instructions which the Intermediary must follow. |
These securityholder materials are being sent to both registered shareholders and Non-Registered Holders. If you are a Non-Registered Holder, and the Company or its agent has sent these materials to you, your name and address and information about your holdings of securities have been obtained in accordance with applicable securities regulatory requirements from the Intermediary holding on your behalf. By choosing to send these materials to you directly, the Company (and not the Intermediary holding on your behalf) has assumed responsibility for: (a) delivering these materials to you; and (b) executing your proper voting instructions. Please return your voting instructions as specified in the request for voting instruction.
The Meeting Materials sent to NOBOs who have not waived the right to receive meeting materials are accompanied by a VIF, instead of a form of proxy. By returning the VIF in accordance with the instructions noted on it, a NOBO is able to instruct the voting of the shares owned by it.
VIFs, whether provided by the Company or by an Intermediary, should be completed and returned in accordance with the specific instructions noted on the VIF. The purpose of this procedure is to permit Non-Registered Holders to direct the voting of the shares which they beneficially own. Should a Non-Registered Holder who receives a VIF wish to attend the Meeting or have someone else attend on his or her behalf, the Non-Registered Holder may request a legal proxy as set forth in the VIF, which will grant the Non-Registered Holder, or his or her nominee, the right to attend and vote at the Meeting.
Page 2
Please return your voting instructions as specified in the VIF. Non-Registered Holders should carefully follow the instructions set out in the VIF, including those regarding when and where the VIF is to be delivered.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
The authorized capital of the Company consists of an unlimited number of common shares without par value. As at April 1, 2010 there were 92,723,744 common shares without par value issued and outstanding.
Only registered shareholders of record at the close of business on April 1, 2010 (the Record Date) who either personally attend the Meeting or who have completed and delivered a form of Proxy or, where applicable, a VIF, in the manner and subject to the provisions described above shall be entitled to vote or to have their shares voted at the Meeting.
Each shareholder is entitled to one vote for each common share registered in his/her/its name on the list of shareholders, which is available for inspection during normal business hours at Computershare Trust Company of Canada and at the Meeting. The failure of any shareholder to receive the Notice of Meeting does not deprive such shareholder of his or her entitlement to vote at the Meeting.
To the knowledge of the directors and senior officers of the Company, there are no persons or companies who beneficially own, directly or indirectly, or exercise control or direction over shares carrying more than 10% of the voting rights attached to all outstanding shares of the Company.
ELECTION OF DIRECTORS
The number of directors on the board of directors (the Board of Directors) of the Company is currently set at seven. Shareholders will be asked at the Meeting to pass an ordinary resolution to fix the number of directors at seven.
The term of office of each of the present directors expires at the close of the Meeting. Management proposes to nominate the persons listed below for election as directors at the Meeting and the persons named in the accompanying form of proxy intend to vote for the election of these nominees. In the absence of instructions to the contrary, all proxies in the accompanying form will be voted For the nominees herein listed . Each director elected at the Meeting will hold office until the next Annual General Meeting, unless his office is earlier vacated. Management does not contemplate that any of the nominees will be unable to serve as a director. In the event that prior to the meeting any vacancies occur in the slate of nominees herein listed, it is intended that discretionary authority shall be exercised by the person named in the Proxy as nominee to vote the shares represented by proxy for the election of any other person or persons as directors, unless the shareholder has specified in his or her Proxy that the shareholders Shares are to be withheld from voting on the election of directors.
The table below sets out the names of each of managements nominees for election as directors, the municipality and province or state and country in which each is ordinarily resident, all offices of the Company now held by each of them, each nominees principal occupation, business or employment, the period of time for which each nominee has served as a director of the Company and the number of shares of the Company beneficially owned by each nominee, directly or indirectly, or over which each nominee exercises control or direction as at April 1, 2010. All of the proposed nominees were duly elected as directors at the last Annual General Meeting of Shareholders held on May 28, 2009.
Page 3
Period as a | No. of | Percentage | ||||||
Name, Position and | Principal Occupation or Employment for | Director of the | Common | of Issued | ||||
Residence | Past 5 Years (1) | Company | Shares | Capital (2) | ||||
ROBERT A.
McCALLUM
,
B.Sc.,
P.Eng
(3)
(5) (6)
Chairman and Director North Vancouver, British Columbia, Canada |
Professional consulting engineer and President of Robert A. McCallum Inc. from 1999 to present; President and CEO of Kensington Resources Ltd. from June 1, 2004 to October 28, 2005; Director of Shore Gold Inc. from October 28, 2005 to present. |
December 15,
2005 to present. |
100,000
|
Less than 1%
|
||||
|
||||||||
KEITH NEUMEYER
CEO, President and Director London, England |
President and CEO of the Company from November 3, 2001 to present; Director of the Company since December 5, 1998. |
December 5,
1988 to present. |
2,726,300
|
2.94%
|
||||
RAMON DAVILA, Ing.
Chief Operating Officer and Director Durango, Mexico |
Chief Operating Officer of the Company from December 14, 2004 to present; Chairman of Minas La Colorado SA de CV from January 1994 to present; Chairman of Minera Lince SA de CV from September 2003 to present; Chairman of Mineral Real Victoria SA de CV from October 2003 to present; Member of the Board for Immobiliaria Aurum SA de CV from June 2005 to present. |
April 15, 2004 to present. | 309,540 | Less than 1% | ||||
|
||||||||
TONY PEZZOTTI
(3)
(4)
Director Burnaby, British Columbia, Canada |
Retired. Director of Pan Terra Industries Inc. from July 2007 to present. |
November 30, 2001 to present. | 581,000 | Less than 1% | ||||
|
||||||||
DAVID SHAW,
Ph.D.
(4)
(5)
Director Vancouver, British Columbia, Canada |
President of Duckmanton Partners Ltd. from June 12, 2000 to present; President and Director of Albion Petroleum Ltd. from October 2006 to present; Director of Reef Resources Ltd. from September 2007 to April 2008; Director of Pan Pacific Aggregates plc from October 2008 to present; CEO of Columbia Gold plc from May 2007 to March 2009; Chairman and Director of Salares Lithium Inc. from December 2009 to present. |
January 12, 2005 to present. | 73,100 | Less than 1% | ||||
|
||||||||
ROBERT YOUNG
(4)
Director Richmond, British Columbia, Canada |
Independent geological consultant from 1999 to present; Director of Goldrush Resources Ltd. from December 2004 to present; Advisor to Copper Mountain Mining Corporation from April 2007 to present. |
September 7, 2006 to present. | 10,000 | Less than 1% | ||||
|
||||||||
DOUGLAS PENROSE
(3) (5)
Director Kamloops, British Columbia, Canada |
Retired. Vice President, Finance and Corporate Services of British Columbia Lottery Corporation from 2000 to April 2008. |
September 7, 2006 to present. | 10,000 | Less than 1% |
(1) |
The information as to principal occupation and shares beneficially owned has been furnished by the respective individuals. |
(2) |
Based upon 92,723,744 common shares of the Company issued and outstanding as of the record date. |
(3) |
Member of the Audit Committee. |
(4) |
Member of the Human Resources, Compensation and Nominating Committee |
(5) |
Member of the Corporate Governance Committee |
(6) |
Chairman of the Board of Directors |
Page 4
The information as to the municipality and province, state or country of residence, principal occupation, or business or employment and the number of shares beneficially owned by each nominee or over which each nominee exercises control or direction set out in the above table has been furnished by the individual nominees as at April 1, 2010.
No director or proposed director of the Company is, or within the ten years prior to the date of this Information Circular has been, a director, chief executive officer or chief financial officer of any company, including the Company, that while that person was acting in that capacity:
(a) |
was the subject of a cease trade order, similar order or an order that denied the company access to any exemption under securities legislation for a period of more than 30 consecutive days; |
|
(b) |
was subject to an order issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or |
|
(c) |
within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets. |
No director or proposed director of the Company has, within the ten years prior to the date of this Information Circular, become bankrupt or made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual.
STATEMENT OF EXECUTIVE COMPENSATION
For the purposes of this Information Circular:
CEO of the Company means each individual who served as Chief Executive Officer of the Company or acted a similar capacity for any part of the most recently completed financial year;
CFO of the Company means each individual who served as Chief Financial Officer of the Company or acted in similar capacity for any part of the most recently completed financial year;
Named Executive Officers means (a) each Chief Executive Officer, (b) each Chief Financial Officer, (c) each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the Chief Executive Officer and Chief Financial Officer, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000; and (d) each individual who would be a Named Execuive Officer under paragraph (c) but for the fact that the individual was neither an executive officer of the company, nor acting in a similar capacity, at the end of that financial year.
During the financial year ended December 31, 2009, the Company had three Named Executive Officers: Keith Neumeyer, the President and Chief Executive Officer of the Company, Ramon Davila, the Chief Operating Officer of the Company and Raymond Polman, the Chief Financial Officer of the Company.
COMPENSATION DISCUSSION AND ANALYSIS
The Human Resources, Compensation and Nominating Committee of the Board of Directors (the Compensation Committee) directs the design and provides oversight of the Companys executive compensation program and has overall responsibility for recommending levels of executive compensation that are competitive and motivating in order to attract, hold and inspire senior officers. The Compensation Committees principal functions are to: (a) recommend compensation levels and programs for the Companys Chief Executive Officer to the independent members of the Board of Directors; (b) recommend compensation levels and programs for all other executive officers to the full Board of Directors; and (c) administer the Companys stock option plan (the Option Plan).
Page 5
The Companys Chief Executive Officer and executive officers participate in executive compensation decisions by making recommendations to the Compensation Committee regarding (a) executive officer base salary, annual bonus awards and stock option grants; (b) annual and long-term quantitative goals and the annual qualitative goals for the executive officers; and (c) participation in the Option Plan and amendments to the Option Plan, as necessary.
The Compensation Committee reviews the basis for these recommendations and can exercise its discretion in modifying any of the recommendations prior to making its recommendations to the Board of Directors.
The following executive compensation principals guide the Compensation Committee in fulfilling its roles and responsibilities in the design and ongoing administration of the Companys executive compensation program:
Compensation levels and opportunities should be sufficiently competitive to facilitate recruitment and retention of qualified and experienced executives, while being fair and reasonable to shareholders;
Compensation should reinforce the Companys business strategy by communicating key metrics and operational performance objectives (both annual and long-term) in its incentive plans and by emphasizing incentives in the total compensation mix;
Incentive compensation should be responsive to the Companys commodity-based cyclical business environment by emphasizing operational performance over performance measures that are more directly influenced by metals prices; and
Compensation programs should align executives long-term financial interests with those of shareholders by providing equity-based incentives.
While the Company does not actively benchmark its executive compensation program, and the individual components thereof, with comparable companies, it does review the compensation practices of comparable entities to ensure the compensation that it is paying to its executive officers is competitive with those other entities. The Companys general executive compensation philosophy is to, whenever possible, pay its executive officers base compensation in the form of salaries that are competitive in comparison to those earned by executive officers holding comparable positions with other Canadian publicly traded entities similar to the Company while at the same time providing its executive officers with the opportunity to earn above average total compensation through the potential attainment of annual incentive bonuses and through the Option Plan.
Individual executive compensation consists primarily of: base salary, annual incentive bonus, stock option grants and benefits and perquisites. Each component of compensation has a specific role with respect to supporting the goals of the Companys executive compensation program and is structured to reinforce specific job and organizational requirements. Compensation guidelines with respect to these components are established for particular positions based on job responsibilities and within the context of the Companys overall executive compensation program.
Specific compensation amounts are recommended to the Board of Directors by the Compensation Committee after discussion amongst the members of the Compensation Committee. Each component of compensation and the decisions of the Compensation Committee about each component have an affect on their decisions regarding other compensation components. For example, if a Named Executive Officer far exceeded his individual goals and objectives, this may affect the amount of compensation paid and/or options granted. All of the compensation components together are intended to meet the Companys compensation objectives, which are intended to allow the Company to attract and retain qualified and experienced senior management who are motivated to achieve the Companys business plans, strategies and goals.
The Board of Directors, on the advice of the Compensation Committee, has determined to structure compensation arrangements tailored to the specific circumstances of its senior management. The Board of Directors has accordingly determined that compensation paid to Mr. Neumeyer and Mr. Davila, both of whom are resident outside of Canada, should be structured as consulting arrangements. Please see Summary Compensation Table.
Page 6
The Company engaged Mercer (Canada) Limited to provide specific advice to it on executive and director compensation matters during the most recently completed fiscal year. This advice has consisted of:
(i) |
the provision of general market observations with respect to market trends and issues, |
|
(ii) |
the provision of benchmark market data, and |
|
(iii) |
assistance in the design of an annual bonus plan. |
Decisions made by the Company with respect to the compensation of its officers and directors, however, are its own responsibility and may reflect factors and considerations other than the information provided to the Company by Mercer. The Company implemented changes to the compensation arrangements for its officers and directors effective January 1, 2010.
Base Salary
A Named Executive Officers base salary is intended to remunerate the Named Executive Officer for discharging job responsibilities and reflects the executives performance over time. Individual salary adjustments take into account performance contributions in connection with their specific duties. The base salaries for the Named Executive Officers are set out in their employment agreements, the terms of which are described below. The base salary of each executive officer is determined by the Board of Directors based on an assessment by the Compensation Committee of his sustained performance and consideration of competitive compensation levels for the markets in which the Company operates. In making its recommendations to the Board of Directors, the Compensation Committee also considers the particular skills and experience of the individual. A final determination on executive compensation, including salary, is made by the Board of Directors in its sole discretion based on the recommendations of the Compensation Committee and its knowledge of the industry and geographic markets in which the Company operates. While the Chief Executive Officer is requested to provide to the Compensation Committee his recommendation on the Named Executive Officers annual base salaries, the Compensation Committee and the Board make the final determination on the annual base salaries of the Named Executive Officers. The Chief Executive Officer does not make a recommendation with respect to his own salary. The Compensation Committee does not use any type of quantitative formula to determine the base salary level of any of the Named Executive Officers.
The Company has employment and/or consulting agreements with each of its Named Executive Officers. The agreements specify the terms and conditions of employment, the duties and responsibilities of the executive during this term, the compensation and benefits to be provided by the Company in exchange for the executives services, the compensation and benefits to be provided by the Company in the event of a qualifying termination of employment not preceded by a change in control of the Company, and the compensation and benefits to be provided by the Company in the event of a qualifying termination of employment that is preceded by a change in control of the Company. The Committee believes that such agreements benefit the Company by clarifying the terms of employment and ensuring the Company is protected by noncompete and nondisclosure provisions.
Following are the significant terms of each the Companys Named Executive Officers employment agreements:
Employment Agreement Keith Neumeyer
The Company entered into an Employment Agreement effective January 1, 2008, pursuant to which Mr. Neumeyer was employed as President and Chief Executive Officer for an unspecified term at a salary of CDN$5,000 per month plus benefits and the granting of stock options and the awarding of annual bonuses which shall be determined at the absolute discretion of the Board of Directors or a Committee of the Company. No bonus was paid for the year ended December 31, 2009. The Employment Agreement could be terminated by Mr. Neumeyer with 90 days written notice or by the Company at any time, without cause, by payment of eight months base salary plus benefits. This amount would increase by two months for each additional year of employment. In the event of a change of control, the Company was committed to making severance payments to Mr. Neumeyer totaling eight months base salary plus benefits and after two years of employment with the Company, this amount will increase by two months for each additional year of employment.
The Employment Agreement was amended on April 1, 2009 pursuant to which Mr. Neumeyer was paid a salary of US$5,000 per month. The amendment was retroactively applied from January 1, 2008.
Page 7
The Employment Agreement was further amended on January 1, 2010 pursuant to which Mr. Neumeyer is currently paid a salary of $100,000 per annum. Pursuant to these amendments, the Employment Agreement may be terminated by Mr. Neumeyer with 90 days written notice or by the Company at any time, without cause upon payment of 12 months base salary and provision of the benefits. In the event of a change of control, the Company is committed to making severance payments to Mr. Neumeyer totaling 12 months base salary plus benefits set out as follows:
(i) |
A market compensation review shall be conducted by an independent human resources consultant for President and Chief Executive Officer positions of peer organizations that meet the following selection criteria: |
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|
Similar size production stage mining companies with operations in international locations. |
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Mining organizations with similar annual revenues to the Companys most recent annual revenues; and |
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Mining organizations with market capitalization levels similar to First Majestic. |
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(ii) |
The 12 months base salary shall be determined as 25% of the median percentile of President and Chief Executive Officer positions. |
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(iii) |
This termination payment to Mr. Neumeyer shall increase by two months for each additional year of employment from September 26, 2003. |
Services Agreement Keith Neumeyer
The Companys subsidiary, Corporación First Majestic, S.A. de C.V. entered into a Services Agreement effective January 1, 2008, pursuant to which Mr. Neumeyer was engaged as an independent contractor for an unspecified term at a fee of USD$15,000 per month plus benefits and the granting of stock options and the awarding of annual bonuses which were to be determined at the absolute discretion of the Board of Directors or a Committee of the Company. No bonus was paid for the year ended December 31, 2009. The Services Agreement could be terminated by Mr. Neumeyer with 90 days written notice or by the Company at any time, without cause, by payment of eight months base payment plus benefits. This amount would increase by two months for each additional year of engagement. In the event of a change of control, the Company was committed to making severance payments to Mr. Neumeyer totaling eight months base payments plus benefits and after two years of engagement with the Company, this amount would increase by two months for each additional year of engagement.
The Services Agreement was further amended on January 1, 2010 pursuant to which Mr. Neumeyer is currently paid $25,000 per month. Pursuant to these amendments, the Services Agreement may be terminated by Mr. Neumeyer with 90 days written notice or by the Company at any time, without cause, by payment of 12 months base payment plus benefits. In the event of a change of control, the Company is committed to making severance payments to Mr. Neumeyer totaling 12 months base payments plus benefits set out as follows:
(i) |
A market compensation review shall be conducted by an independent human resources consultant for President and Chief Executive Officer positions of peer organizations that meet the following selection criteria: |
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|
Similar size production stage mining companies with operations in international locations. |
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|
Mining organizations with similar annual revenues to the Companys most recent annual revenues; and |
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Mining organizations with market capitalization levels similar to First Majestic. |
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(ii) |
The 12 months base payments shall be determined as 75% of the median percentile of President and Chief Executive Officer positions. |
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(iii) |
This termination payment to Neumeyer shall increase by two months for each additional year of service from September 26, 2003. |
Page 8
Consulting Agreement Ramon Davila
The Company entered into a Consulting Agreement dated February 10, 2006, as amended October 1, 2007 and February 13, 2008 pursuant to which Mr. Davila was retained as a consultant with respect to the Companys operations in Mexico for an unspecified term at a salary of US $20,000 per month plus benefits and the awarding of annual bonuses which were to be determined at the absolute discretion of the Compensation Committee but in any event, would not be less than US $10,000 annually. US$10,000 was paid to Mr. Davila as a bonus during the year ended December 31, 2009. Mr. Davila was also entitled to receive a contribution to his monthly premium for a medical insurance plan to a maximum of US$400 per month. The Consulting Agreement could be terminated by Mr. Davila with 90 days written notice or by the Company at any time with, without cause, by payment of six months consulting fees. This amount would increase by two months for each additional year of consulting. In the event of a change of control, the Company was committed to making severance payments to Mr. Davila totaling twelve months base salary plus benefits.
The Consulting Agreement was amended on January 1, 2010 pursuant to which Mr. Davila is currently paid $30,000 per month. Pursuant to these amendments, the Consulting Agreement may be terminated by Mr. Davila with 90 days written notice or by the Company at any time with, without cause, by payment of 12 months consulting fees. In the event of a change in control, the Company is committed to making severance payments to Mr. Davila totaling twenty four months consulting fees plus benefits.
Employment Agreement Raymond Polman
The Company entered into an Employment Agreement effective February 1, 2007 and amended May 1, 2007, February 1, 2008 and May 20, 2008, pursuant to which Mr. Polman was employed as Chief Financial Officer for an unspecified term at a salary of $15,500 per month plus benefits and the granting of stock options and the awarding of annual bonuses which were to be determined at the absolute discretion of the President, Chief Executive Officer and Compensation Committee of the Company. No bonus was paid to Mr. Polman during the year ended December 31, 2009. The Employment Agreement could terminated by Mr. Polman with 60 days written notice or by the Company at any time, without cause, by payment of six months base salary plus benefits. This amount would increase by one month for each additional year of employment to a maximum total of 18 months base salary. In the event of a change of control, the Company was committed to making severance payments to Mr. Polman totalling six months base salary plus benefits and this amount would increase by one month for each additional year of employment to a maximum total of 18 months base salary.
The Employment Agreement was amended on January 1, 2010 pursuant to which Mr. Polman is currently paid $240,000 per annum. Pursuant to these amendments, the Employment Agreement may be terminated by Mr. Polman with 60 days written notice or by the Company, at any time, without cause, by payment of 12 months base salary plus benefits. In the event of a change of control, the Company is committed to making severance payments to Mr. Polman totaling 12 months base salary and this payment amount to Mr. Polman shall increase by two months for each year of employment to a maximum total of 24 months base salary.
Discretionary Bonus Payments
Subject to the caveat that the payment of any bonus always remains in the discretion of the Board of Directors, the Companys executive officers were eligible for annual cash incentive bonuses. The bonus component was intended to recognize and reward accomplishments in a given year measured against the annual performance of the Company compared to key quantitative, operational objectives established by the Compensation Committee. For 2009, Company performance was measured based on production and resource growth (both measured by number of ounces) and cost containment (measured in dollars per ounce). In addition to company measures, the Compensation Committee considered the individual performance of each Named Executive Officer. The Company did not set performance goals for its senior management which are based on share price or earnings per share.
As of December 31, 2009, no formal written bonus plan has been adopted by the Company and as such, the bonus component of the Named Executive Officers compensation was at the discretion of the Compensation Committee and the Board of Directors. Bonus awards were subject to the Board of Directors determining whether or not it was appropriate to pay a cash bonus at the time depending on the Companys cash position. The Compensation Committee, after consultation with the Chief Executive Officer and other members of management, considered all relevant factors and makes recommendations to the Board of Directors with respect to payment of bonuses to individual Named Executive Officers.
Page 9
Notwithstanding the foregoing, whether any particular performance criteria have been satisfied is determined by the Board of Directors in its sole discretion (upon recommendation from the Compensation Committee). In determining whether or not to pay a bonus, the Board of Directors considered all of the information available to it at the time of such determination including, but not limited to, the Companys overall performance for the year, general market and economic conditions, and the performance of each particular executive officer in light of the foregoing. See Information Respecting the Company Executive Compensation Summary Compensation Table for information on the actual annual incentive bonus paid to each of the Named Executive Officers for the most recently completed financial year.
On January 1, 2010, the Company adopted a formal written bonus plan. The bonus plan will provide a cash bonus opportunity based on an assessment of corporate and mine site performance. Actual payouts will be based on actual performance compared to a set of pre-determined goals. The target award levels will be set as a percentage of base salary with an opportunity to earn the target for meeting performance goals. The bonus plan does not affect executive compensation for 2009 and earlier years.
Option Based Awards
The stock option component of executive officers compensation is intended to advance the interests of the Company by encouraging the directors, officers, employees and consultants of the Company to acquire shares, thereby increasing their proprietary interest in the Company, encouraging them to remain associated with the Company and furnishing them with additional incentive in their efforts on behalf of the Company in the conduct of its affairs. Grants under the Option Plan are intended to provide long term awards linked directly to the market value performance of the Companys shares. The Compensation Committee reviews managements recommendations for and itself recommends to the Board of Directors the granting of stock options to management, directors, officers and other employees and consultants of the Company and its subsidiaries. Stock options are granted according to the specific level of responsibility of the particular executive and the number of options for each level of responsibility is determined by the Compensation Committee. The number of outstanding options is also considered by the Compensation Committee when determining the number of options to be granted in any particular year due to the limited number of options which are available for grant under the Option Plan.
The Option Plan was adopted by the Companys shareholders at the 2008 Annual General Meeting held May 20, 2008. The Option Plan complies with the rules set forth for such plans by the Toronto Stock Exchange (the TSX).
The material terms of the Option Plan as it currently exists can be summarized as follows:
General
The Board of Directors may from time to time grant to directors, employees or consultants options to acquire shares of the Company. The Option Plan is administered by the Corporate Secretary on the instructions of the Board of Directors.
The maximum number of shares issuable under the Option Plan, together with the number of shares issuable under outstanding options granted otherwise than under the Option Plan, shall not in the aggregate exceed 10% of the issued and outstanding shares (calculated as at the award date of such options). The Company is prohibited from granting options to any one person which will, when exercised, exceed 5% of the issued and outstanding shares of the Company. If an option expires or is otherwise terminated without having been exercised in full, the number of shares in respect of which the option expired or terminated shall again be available for the purposes of the Option Plan.
Expiry of Options
The expiry date of an option shall be the date fixed by the Board of Directors at the time the particular option is granted, provided that the expiry date shall not exceed five years from the date of grant.
In the event of the death or disability of an option holder, the expiry date shall be one year from the date of death or disability. Any options which are unvested as of the date of death or disability will not vest.
Page 10
In the event the option holder is a director and ceases to be a director of the Company other than by reason of death or disability, all unvested options shall immediately vest and become exercisable and the expiry date of the option shall be the 90th day following the date the option holder ceased to be a director of the Company (unless the option holder ceases to be a director as the result of certain prescribed circumstances).
In the event that an option holder is an employee and ceases to be employed by the Company (other than by reason of death, disability, mandatory retirement, a change of control, termination for cause or as a result of an order of a regulatory body) the expiry date of the option shall be the 60th day following the date the employee ceases to be employed. All options which are not vested as of the date the employee ceases to be employed shall not vest. Notwithstanding the foregoing, the Board of Directors may, in their discretion, determine that any unvested options of the option holder will immediately vest and become exercisable. If the employee ceases to be an employee by reason of mandatory retirement, all unvested options will immediately vest and become exercisable and the expiry date will be one year from the date of retirement.
In the event that an option holder is a consultant of the Company (and is not a director or officer of the Company), and, upon completion of the contract under which the consultant provided services to the Company the consultant is subsequently hired by the Company as an employee, the options previously granted to the consultant will flow through to the employee on the terms and conditions as the original grant of options.
Exercise Price
Vesting of Options
Vesting Period | Total Percentage Vested |
Date of Award | 25% |
6 months from Date of Award | 50% |
12 months from Date of Award | 75% |
18 months from Date of Award | 100% |
Assignment of Options
Amendment and Termination
Subject to the approval of the TSX, the Board of Directors may from time to time amend the Option Plan and the terms and conditions of any option thereafter to be granted. Any such amendment shall not alter the terms of any options granted prior to such amendment.
Subject to the approval of the TSX and with the consent of the affected option holders, the Board of Directors may from time to time retrospectively amend the Option Plan and retrospectively amend the terms and conditions of any options granted subject to obtaining disinterested shareholder approval, if required.
Page 11
Notwithstanding anything else contained in the Option Plan and subject to any necessary approval required by the applicable securities legislation, the Board of Directors may in its discretion (a) extend the expiry date of any option (provided that in no case shall the expiry date be extended beyond five years from the date of grant); (b) alter or change the vesting terms applicable to an option, including the accelerated vesting schedule; (c) reduce the exercise price; or (d) amend any other term of an outstanding option, provided that, if required by the rules or regulations of the TSX, disinterested shareholder approval must be obtained for a reduction in the exercise price if the option holder is an insider of the Company at the time of the proposed amendment.
Any substantive amendments to the Option Plan are subject to the Company first obtaining the approvals of the shareholders of the Company and the TSX.
The Board of Directors may terminate the Option Plan at any time provided that such termination will not alter the terms or conditions of any option awarded prior to the date of such termination.
Financial Assistance
Benefits and Perquisites
The primary purpose of providing benefits and limited perquisites to the Company's executives is to attract and retain the talent to manage the Company. The Company intends that the type and value of benefits and perquisites offered are to be competitive to overall market practices. Details of the benefits and perquisites provided to the Named Executive Officers are disclosed in the All Other Compensation column of the 2009 Summary Compensation Table set forth in this Information Circular. The primary benefits for the Companys executives include participation in the Companys broad-based plans: health and dental coverage, various company-paid insurance plans, including disability and life insurance, paid time off and paid holidays. In general, the Company will provide a specific perquisite only when the perquisite provides competitive value and promotes retention of executives, or when the perquisite provides shareholder value. In addition, perquisites that promote efficient performance of the Companys executives are also considered. The limited perquisites the Company provides its executives may include a company vehicle, cellular telephone, parking stall, Spanish or English lessons and fitness classes.
Retirement Policy
The Company does not have a retirement policy for its executive officers.
Review / Modifications
The Companys executive compensation program is reviewed and considered at least annually by the Compensation Committee to determine if the objectives of the executive compensation program are being achieved and whether any modifications to that program are required. This includes a review of base salaries payable, potential bonuses payable and entitlement and participation in equity related incentive plans for all executive officers. It also includes a review of the metrics used to assess performance, the targets established with respect to those performance metrics, whether previously established targets have been achieved and to what degree, and whether the performance metrics and targets are still appropriate in light of the then current industry, stock market and general economic conditions. The Compensation Committee considers the establishment of new performance metrics and related targets to be used to assess executive officer performance and determine executive officer compensation on a go-forward basis. In completing this review, the Compensation Committee considers the recommendations of management and the Chief Executive Officer in particular. Upon completion of that review, the Compensation Committee in turn makes its recommendations with respect to the Companys executive compensation program to the full Board of Directors. The Board of Directors then approves the executive compensation program, including the individual components thereof, subject to any modifications it deems necessary.
Page 12
Performance Graph
The following graph compares the percentage change in the cumulative total shareholder return for C$100 invested in common shares of the Company on January 1, 2005 against the cumulative total shareholder return of the S&P/TSX Composite Index for such period, assuming reinvestment of all dividends.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the fiscal year ended December 31, 2009 for the (a) President and Chief Executive Officer of the Company; (b) the Chief Operating Officer of the Company; and (c) the Chief Financial Officer of the Company, who are the Named Executive Officers for the purposes of this Information Circular.
Page 13
Non-equity incentive | |||||||||||||||||||||||||||
plan compensation | |||||||||||||||||||||||||||
($) | |||||||||||||||||||||||||||
Share- | Option- | Annual | Long-term | Pension | All other | Total | |||||||||||||||||||||
Name and | based | based | incentive | incentive | value | compensation | compensation | ||||||||||||||||||||
principal | Salary | awards | awards | plans (3) | plans | ($) | ($) | ($) | |||||||||||||||||||
position | Year | ($) (1) | ($) | ($) (2) | |||||||||||||||||||||||
Keith Neumeyer CEO | 2009 | $ | 274,075 | Nil | $ | 216,880 | Nil | Nil | Nil | $ | 6,288 | (4) | $ | 497,243 | |||||||||||||
2008 | $ | 255,840 | Nil | $ | 357,500 | Nil | Nil | Nil | $ | 4,312 | (4) | $ | 617,652 | ||||||||||||||
Ramon Davila COO | 2009 | $ | 274,075 | Nil | $ | 216,880 | $ | 11,420 | Nil | Nil | $ | 16,856 | (5) | $ | 519,230 | ||||||||||||
2008 | $ | 255,840 | Nil | $ | 313,500 | $ | 50,376 | Nil | Nil | $ | 5,878 | (6) | $ | 625,594 | |||||||||||||
Raymond Polman | 2009 | $ | 186,000 | Nil | $ | 180,708 | Nil | Nil | Nil | Nil | $ | 366,708 | |||||||||||||||
CFO | 2008 | $ | 184,020 | Nil | $ | 206,000 | $ | 25,000 | Nil | Nil | Nil | $ | 415,020 |
(1) |
Compensation for Mr. Neumeyer and Mr. Davila is paid in US dollars. In 2009, the rate of exchange used to convert US dollars to Canadian dollars was 1.14197729 which was the average rate for 2009 as posted by the Bank of Canada. In 2008, the rate of exchange used to convert US dollars to Canadian dollars was 1.0660 which was the average rate for 2008 as posted by the Bank of Canada. |
(2) |
The value of the option based awards was calculated using the Black-Scholes Option Pricing Model. |
(3) |
Mr. Davilas was paid a US$10,000 bonus during the year ended December 31, 2009. The rate of exchange used to convert US dollars to Canadian dollars was 1.14197729 which was the average rate for 2009 as posted by the Bank of Canada. Mr. Davila was paid $50,376 during the year ended December 31, 2008 which was comprised of a $7,736 (US$7,257) finders fee and $42,640 (US$40,000) bonus for performance in 2005, 2006, 2007 and 2008. The rate of exchange used to convert US dollars to Canadian dollars was 1.0660 which was the average rate for 2008 as posted by the Bank of Canada. Mr. Polman was paid a bonus during the year ended December 31, 2008 for performance in 2007. |
(4) |
Represents insurance premiums payable by the Company for personal insurance for Mr. Neumeyer during the years ended December 31, 2009 and December 31, 2008, respectively. |
(5) |
Represents the cost of personal security and insurance premiums paid or payable by the Company for personal insurance for Mr. Davila during the year ended December 31, 2009. The rate of exchange used to convert US dollars to Canadian dollars was 1.14197729 which was the average rate for 2009 as posted by the Bank of Canada. |
(6) |
Represents insurance premiums payable by the Company for personal insurance for Mr. Davila during the year ended December 31, 2008. The rate of exchange used to convert US dollars to Canadian dollars was 1.2246 per Bank of Canada on December 31, 2008. |
INCENTIVE PLAN AWARDS
Outstanding Share-Based Awards and Option-Based Awards
The following table sets forth the outstanding share-based awards and option-based awards granted to the Named Executive Officers of the Company during the most recently completed financial year:
Page 14
Value Vested or Earned During the Year
The following table sets forth details of the value vested or earned for all incentive plan awards during the most recently completed financial year by each Named Executive Officer:
Option-based awards | Non-equity incentive plan | ||
Value vested during the | Share-based awards Value | compensation Value earned | |
year (1) | vested during the year | during the year | |
Name | ($) | ($) | ($) |
Keith Neumeyer, CEO | $278,650 | Nil | Nil |
Ramon Davila, COO | $38,750 | Nil | $11,420 (2) |
Raymond Polman, CFO | $38,750 | Nil | $Nil |
(1) |
This amount is based on the aggregate dollar value that would have been realized if the options under the option- based award had been exercised on the vesting date. It was computed using the dollar value that would have been realized by determining the difference between the market price of the underlying securities at exercise and the exercise or base price of the options under the option-based award on the vesting date. |
|
(2) |
Mr. Davila received a US$10,000 bonus during the year ended December 31, 2009. The rate of exchange used to convert US dollars to Canadian dollars was 1.14197729 which was the average rate for 2009 as posted by the Bank of Canada. |
The number of options vesting to Named Executive Officers under the 2008 Stock Option Plan during the most recently completed financial year was 595,000, of which no options were exercised by the Named Executive Officers during the most recently completed financial year.
Option-Based Awards Outstanding at Year End
The following table sets forth for each Named Executive Officer, the number of options that were outstanding as at December 31, 2009 and includes the exercise price, expiration date and the value of such options as at December 31, 2009.
Page 15
Name |
Number of Securities
Underlying Unexercised Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
Value of Unexercised In-the Money Options (1) ($) |
Keith Neumeyer, | 100,000 | $4.30 | 19-Jun-11 | 0 |
CEO | 35,000 | $4.32 | 6-Dec-11 | 0 |
50,000 | $4.41 | 22-Dec-11 | 0 | |
15,000 | $5.00 | 7-Feb-12 | 0 | |
200,000 | $4.34 | 5-Dec-12 | 0 | |
50,000 | $3.62 | 28-Aug-13 | 22,500 | |
240,000 | $1.44 | 10-Nov-13 | 631,200 | |
100,000 | $1.56 | 17-Dec-13 | 251,000 | |
100,000 | $2.03 | 7-May-14 | 204,000 | |
50,000 | $3.70 | 15-Dec-14 | 18,500 | |
Total | 940,000 | $1,127,200 | ||
Ramon Davila, | 100,000 | $4.30 | 19-Jun-11 | 0 |
COO | 35,000 | $4.32 | 6-Dec-11 | 0 |
100,000 | $4.41 | 22-Dec-11 | 0 | |
65,000 | $5.00 | 7-Feb-12 | 0 | |
200,000 | $4.34 | 5-Dec-12 | 0 | |
50,000 | $3.62 | 28-Aug-13 | 22,500 | |
250,000 | $1.56 | 17-Dec-13 | 627,500 | |
100,000 | $2.03 | 7-May-14 | 204,000 | |
50,000 | $3.70 | 15-Dec-14 | 18,500 | |
Total | 950,000 | $872,500 | ||
Raymond Polman, | 200,000 | $5.50 | 1-Feb-10 | 0 |
CFO | 50,000 | $4.64 | 1-Jun-10 | 0 |
100,000 | $4.34 | 5-Dec-10 | 0 | |
100,000 | $4.65 | 25-Mar-11 | 0 | |
50,000 | $4.15 | 28-Jul-11 | 0 | |
100,000 | $2.03 | 7-May-12 | 204,000 | |
50,000 | $3.70 | 15-Dec-12 | 18,500 | |
Total | 650,000 | $222,500 |
(1) |
This amount is based on the difference between the market value of the Common Shares underlying the options at the end of the most recently completed financial year, and the exercise price of the option. |
TERMINATION AND CHANGE OF CONTROL BENEFITS
Each of the Named Executive Officers have termination and change and control benefits provided for in their employment agreements. The terms of each of the Named Executive Officers employment agreements is contained in this Information Circular under the heading Statement of Executive Compensation Compensation Discussion and Analysis.
The following table sets out the maximum amount the Company could be obligated to pay in the event that a Named Executive Officer was terminated without cause as of December 31, 2009. The Company would also be obligated to pay the Named Executive Officers actual accrued base salary and expenses up to the date of termination and continue the Named Executive Officers health benefits and option entitlements for the period set out in their respective employment agreements.
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Name | Base Salary | Bonus | Vacation Pay | Total Gross Payment | ||||||||
Keith Neumeyer (1) , CEO | $ | 252,240 | (4) | Nil | Nil | $ | 252,240 | |||||
Ramon Davila (2) , COO | $ | 252,240 | (5) | Nil | Nil | $ | 252,240 | |||||
Raymond Polman (3) , CFO | $ | 108,500 | (6) | Nil | $ | 20,928 | $ | 129,428 |
(1) |
On a termination without cause or following a change of control Mr. Neumeyers employment agreement and consulting agreement provide that he will be entitled to payment of eight months base salary plus benefits. This amount will increase by two months for each additional year of employment. |
(2) |
On a termination without cause Mr. Davilas consulting agreement provide that he will be entitled to payment of six months consulting fees. This amount will increase by two months for each additional year of consulting. In the event of a change of control, the Company is committed to making severance payments to Mr. Davila totaling twelve months base salary plus benefits. |
(3) |
On a termination without cause or a following a change of control, Mr. Polmans employment agreement and consulting agreement provide that he will be entitled to payment of six months base salary plus benefits. This amount will increase by one month for each additional year of employment to a maximum total of 18 months base salary. |
(4) |
$252,240 in the event of termination on a change of control. The rate of exchange used to convert US dollars to Canadian dollars was 1.0510 per Bank of Canada on December 31, 2009. |
(5) |
$252,240 in the event of termination on a change of control. The rate of exchange to convert US dollars to Canadian dollars was 1.0510 per Bank of Canada on December 31, 2009. |
(6) |
$108,500 in the event of termination on a change of control. |
COMPENSATION OF DIRECTORS
Other than compensation paid to the Named Executive Officers, and except as noted below, no compensation was paid to directors in their capacity as directors of the Company or its subsidiaries, in their capacity as members of the Board of Directors or of a committee of the Board of Directors of its subsidiaries, or as consultants or experts, during the Companys most recently completed financial year.
The following table sets forth the details of compensation provided to the directors, other than the Named Executive Officers during the Companys most recently completed financial year:
Director Compensation Table
Name |
Fees
Earned ($) |
Share-
based Awards ($) |
Option-based
Awards (1) ($) |
Non-Equity
Incentive
Plan Compensation ($) |
Pension
Value
($) |
All Other
Compensation
(2)
($) |
Total
($) |
||||||||||||||
Robert McCallum | $ | 69,000 | Nil | $ | 176,907 | Nil | Nil | $ | 2,000 | $ | 247,907 | ||||||||||
Douglas Penrose | $ | 60,500 | Nil | $ | 163,583 | Nil | Nil | $ | 2,000 | $ | 226,083 | ||||||||||
Tony Pezzotti | $ | 52,250 | Nil | $ | 163,583 | Nil | Nil | $ | 2,000 | $ | 217,833 | ||||||||||
David Shaw | $ | 32,500 | Nil | $ | 163,583 | Nil | Nil | $ | 2,000 | $ | 198,083 | ||||||||||
Robert Young | $ | 31,750 | Nil | $ | 178,583 | Nil | Nil | $ | 2,000 | $ | 212,333 |
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(1) |
The value of the option based awards was calculated using the Black-Scholes Option Pricing Model. |
(2) |
Represents miscellaneous out-of-pocket expenses. |
Independent members of the Board of Directors are compensated for acting as directors and may be granted incentive stock options pursuant to the policies of the Toronto Stock Exchange and the Option Plan. The Board of Directors as a whole determines the stock option grants for each director.
As at January 1, 2008, the Board of Directors determined that each independent director will receive an annual fee of $24,000, $750 for each quarterly meeting attended and $500 for each non-quarterly meeting attended exceeding 60 minutes. The Chairman of the Board of Directors (Mr. McCallum) receives an additional annual fee of $15,000, the Chairman of the Audit Committee (Mr. Penrose) receives an additional annual fee of $12,000, the Chairman of the Compensation Committee (Mr. Pezzotti) receives an additional annual fee of $5,000 and the Chairman of the Corporate Governance Committee (Mr. McCallum) receives an additional annual fee of $5,000. Further, each independent member of the Audit Committee (Messrs. McCallum, Pezzotti and Penrose) receives a fee of $1,000 per meeting, each independent member of the Compensation Committee (Messrs. Pezzotti, Shaw and Young) receives a fee of $500 per meeting and each independent member of the Corporate Governance Committee (Messrs. McCallum, Penrose and Shaw) receives a fee of $500 per meeting. The independent directors of the Company as at the fiscal year end were Mr. Robert McCallum, Mr. Tony Pezzotti, Mr. David Shaw, Mr. Douglas Penrose and Mr. Robert Young. From time to time, the Company also grants stock options to directors.
Compensation of Directors - Outstanding Share-Based Awards and Option-Based Awards
The following table sets forth the incentive plan awards granted to the directors of the Company during the most recently completed financial year:
Option-based Awards | Share-based Awards | |||||
Market or | ||||||
Number of | Number of | payout value of | ||||
securities | Value of | shares or units | share-based | |||
underlying | Option | unexercised in- | of shares that | awards that | ||
unexercised | exercise | Option | the-money | have not | have not | |
options | price | expiration | options | vested | vested | |
Name | (#) | ($) | date | ($) | (#) | ($) |
Robert McCallum
|
62,500
50,000 |
$2.03
$3.70 |
7-May-14
15-Dec-14 |
$127,500
$18,500 |
Nil
|
Nil
|
Douglas Penrose
|
50,000
50,000 |
$2.03
$3.70 |
7-May-14
15-Dec-14 |
$102,000
$18,500 |
Nil
|
Nil
|
Tony Pezzotti
|
50,000
50,000 |
$2.03
$3.70 |
7-May-14
15-Dec-14 |
$102,000
$18,500 |
Nil
|
Nil
|
David Shaw
|
50,000
50,000 |
$2.03
$3.70 |
7-May-14
15-Dec-14 |
$102,000
$18,500 |
Nil
|
Nil
|
Robert Young
|
50,000
12,500 50,000 |
$2.03
$2.32 $3.70 |
7-May-14
15-Jun-14 15-Dec-14 |
$102,000
$21,875 $18,500 |
Nil
|
Nil
|
Directors Compensation - Incentive Plan Awards Value Vested or Earned During the Year
The following table sets forth details of the value vested or earned for all incentive plan awards during the most recently completed fiscal year by each director:
Page 18
(1) |
This amount is based on the aggregate dollar value that would have been realized if the options under the option- based award had been exercised on the vesting date. It was computed using the dollar value that would have been realized by determining the difference between the market price of the underlying securities at exercise and the exercise or base price of the options under the option-based award on the vesting date. |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets out, as of the end of the Companys financial year ended December 31, 2009, the information required with respect to compensation plans under which equity securities of the Company are authorized for issuance:
Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |
Weighted-average exercise price of outstanding options, warrants and rights (b) |
Number of securities
remaining available for issuance under equity compensation plans (excluding securities reflected in column (a) (c) |
Equity compensation plans approved by securityholders |
8,603,750
|
$3.50
|
653,124
|
Equity compensation plans not approved by securityholders |
Nil
|
Nil
|
Nil
|
Totals | 8,603,750 | $3.50 | 653,124 |
A description of the Companys Option Plan is contained in this Information Circular under the heading Executive Compensation Description of the Option Plan.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS TO THE COMPANY
No director or senior officer of the Company or any associate or affiliate of any such director or senior officer, other than Ramon Davila, is or has been indebted to the Company or any of its subsidiaries at any time during the Company's last completed financial year. During the year ended December 31, 2008, the Company provided an unsecured interest free loan of US$30,000 to Mr. Davila. This loan was fully repaid during the year ended December 31, 2009.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Other than as set forth in this Information Circular, none of the persons who were directors or executive officers of the Company or a subsidiary of the Company at any time during the Company's last financial year, any person or company who beneficially owns, directly or indirectly, or who exercises control or direction over (or a combination of both) more than 10% of the issued and outstanding common shares of the Company, nor any associate or affiliate of any such person, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any transaction since the commencement of the Company's most recently completed financial year or in any proposed transaction, which has materially affected or would materially affect the Company.
Page 19
AUDITORS
The auditors for the Company are Deloitte & Touche LLP, Chartered Accountants of Four Bentall Centre, 2800 1055 Dunsmuir Street, Vancouver, British Columbia V7X 1P4. Management of the Company intends to nominate Deloitte & Touche LLP for reappointment as auditors of the Company. At the Meeting, shareholders will be asked to approve (a) the re-appointment of Deloitte & Touche LLP as auditors for the Company to hold office as such until the next Annual General Meeting of the Company and (b) a resolution authorizing the Board of Directors to fix the remuneration to be paid to the auditors for the upcoming year. Forms of Proxy given pursuant to the solicitation by the management of the Company will, on any poll, be voted in favour of such matters. Deloitte & Touche LLP were first appointed as auditors for the Company on December 14, 2004.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The Board of Directors of the Company is responsible for developing, reviewing and implementing a set of corporate governance guidelines specifically applicable to the Company, as provided in Appendix A Statement of Corporate Governance Practices. The corporate governance practices ensure the process and structure used to direct and manage the business and affairs of the Company with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business.
The Board of Directors has adopted a Board Mandate, as provided in Appendix B hereto, clarifying responsibilities and ensuring effective communication between the Board of Directors and management.
MANAGEMENT CONTRACTS
The management functions of the Company are not to any substantial degree performed by any person other than the senior officers and the Board of Directors of the Company.
AUDIT COMMITTEE
As required by National Instrument 52-110, information about the Companys Audit Committee is provided in the Companys most recent Annual Information Form (AIF) under Directors and Officers. The AIF may be obtained from the Companys disclosure documents available on the SEDAR website at www.sedar.com.
FINANCIAL STATEMENTS
The audited financial statements of the Company for the year ended December 31, 2009, together with the auditors report on those statements (the Financial Statements), will be presented to the shareholders at the Meeting. The Financial Statements are included within the Companys 2009 Annual Report which is being mailed with this Information Circular to the shareholders of record.
OTHER MATTERS TO BE ACTED UPON
Management of the Company is not aware of any other matters which are to come before the Meeting other than the matters referred to in the Notice of Meeting. However, if any matters other than those referred to herein should be presented at the Meeting, the persons named in the enclosed Proxy are authorized to vote the shares represented by the Proxy in accordance with their best judgment.
Page 20
ADDITIONAL INFORMATION
Additional information relating to the Company can be found on the SEDAR website at www.sedar.com. Financial information concerning the Company is also provided in the Companys comparative financial statements for the year ended December 31, 2009.
Shareholders may obtain a copy of the Companys financial statements and managements discussion and analysis upon request to the Company at Suite 1805 925 West Georgia Street, Vancouver, BC, V6C 3L2 or can view them on the Companys website at www.firstmajestic.com.
APPROVAL OF THE BOARD OF DIRECTORS
The contents of this Information Circular have been approved, and the delivery of it to each shareholder of the Company entitled thereto and to the appropriate regulatory agencies has been authorized by the Board of Directors of the Company.
CERTIFICATE
The foregoing contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made.
DATED at Vancouver, British Columbia the 1 st day of April, 2010.
Keith Neumeyer
Keith Neumeyer,
President and Chief Executive Officer
Page 21
APPENDIX A
FIRST MAJESTIC SILVER CORP.
(the Company)
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The following description of the governance practices of the Company is provided in accordance with the guidelines of National Instrument 58-101, as set out in Form 58-101F1 (the Form 58-101F1 Guidelines). The Form 58-101F1 Guidelines address matters relating to constitution and independence of directors, the functions to be performed by the directors of a company and their committees and effectiveness and evaluation of proposed corporate governance guidelines and best practices specified by the Canadian securities regulators. The directors of the Company will continue to monitor the developments and the various changes to the proposed corporate governance guidelines and best practices and where applicable will amend its corporate governance guidelines accordingly.
1. | Board of Directors |
Independence of the Board
The Board consists of seven directors, of whom five are independent. None of the five unrelated directors has any direct or indirect material relationship with the Company (other than shareholdings) which could, in the view of the Companys Board, reasonably interfere with the exercise of a directors independent judgment. Robert McCallum, Tony Pezzotti, David Shaw, Douglas Penrose and Robert Young are independent directors. Keith Neumeyer is the Chief Executive Officer of the Company and Ramon Davila is the Chief Operating Officer. Neither Mr. Neumeyer nor Mr. Davila are independent directors.
Directorships
The directors of the Company are directors of the following reporting issuers set opposite their names:
Robert A. McCallum Director of Shore Gold Inc.
David Shaw President and Director of Albion Petroleum Ltd.; Director of Pan Pacific Aggregates plc; Chairman and Director of Salares Lithium Inc.
Robert Young Director of Goldrush Resources Ltd.
Tony Pezzotti Director of Pan Terra Industries Inc.
Independent Directors Meetings
The independent directors hold regularly scheduled meeting at which non-independent directors and members of management do not attend. The Board holds in-camera meetings regularly following certain board meetings and Audit Committee meetings. During the financial year ended December 31, 2009, the independent directors held seven in-camera meetings at the end of board meetings and 11 in-camera meetings at the end of Audit Committee meetings.
Chairman
The Chairman of the Board, Robert McCallum, is an independent director.
Meetings of the Board and Committees of the Board
The Board meets a minimum of four times per year, usually every quarter and following the annual general meeting of the Companys shareholders. Each committee of the Board meets once a year or more frequently as deemed necessary by the applicable committee. The frequency of the meetings and the nature of the meeting agendas are dependent upon the nature of the business and affairs which the Company faces from time to time. During the financial year ended December 31, 2009, the Board held 15 meetings, the Audit Committee held 18 meetings, the Corporate Governance Committee held zero meetings and the Human Resources, Compensation and Nominating Committee held two meetings. The following table provides details regarding attendance at the Board and committee meetings during the financial year ended December 31, 2009.
2. | Board Mandate |
The Board Mandate was implemented by the Board effective December 21, 2006, and is attached as Appendix B to this Information Circular.
3. | Position Descriptions |
Written position descriptions have been developed by the Board for the Chief Executive Officer, the Chairman of the Board and the Chairman of each committee of the Board.
4. | Orientation and Continuing Education |
Orientation of new members of the Board is conducted informally by management and members of the Board. The orientation provides background information on the Companys history, performance and strategic plans.
Continuing education for all members of the Board is also conducted primarily on an informal basis. As a part of the continuing education of the directors, presentations are made at Board meetings by management on new developments which may impact upon the Company and its business. In addition, directors receive periodic one on one presentations from management and are provided with the opportunity to meet with corporate officers outside of formal Board meetings to discuss and better understand the business. Directors also visit, from time to time, the underground mine and above ground operations at each of the Companys producing assets. In November 2009, the Directors visited each of the La Parrilla Silver Mine, the San Martin Silver Mine and the La Encantada Silver Mine.
Board members are encouraged to communicate with management and the Companys auditors, to keep themselves current with industry trends and development, and to attend related industry seminars. Board members have full access to the Companys records.
The following table provides details regarding various continuing education events held for, or attended by, the directors during the year ended December 31, 2009.
Page 2
Date and Place | Event | Directors |
February 2009
Mexico |
Visits to the San Martin Silver Mine, La Parrilla Silver Mine and La Encantada Silver Mine | Neumeyer |
March 2009
Toronto |
PDAC | Neumeyer |
March 2009
Mexico |
Visits to the San Martin Silver Mine, La Parrilla Silver Mine and La Encantada Silver Mine | Neumeyer |
April 2009
Zurich |
Denver Gold Conference | Neumeyer |
April 2009
Mexico |
Visits to the San Martin Silver Mine, La Parrilla Silver Mine and La Encantada Silver Mine | Neumeyer |
May 2009
New York |
Hard Assets Conference | Neumeyer |
June 2009
New York |
SSA Conference | Neumeyer |
June 2009
Mexico |
Visits to the San Martin Silver Mine, La Parrilla Silver Mine and La Encantada Silver Mine | Neumeyer |
July 2009
New York |
Astrologers Fund Conference | Neumeyer |
September 2009
Colorado |
Denver Gold Conference | Neumeyer |
September 2009
Washington |
Silver Summit | Neumeyer |
October 2009
Mexico |
Visits to the San Martin Silver Mine, La Parrilla Silver Mine and La Encantada Silver Mine | Neumeyer |
November 2009
Mexico |
Visits to the San Martin Silver Mine, La Parrilla Silver Mine, La Encantada Silver Mine and Inauguration of La Encantada Processing Plant | Neumeyer, Davila, McCallum, Penrose, Pezzotti, Young |
November 2009
Vancouver, BC |
International Financial Reporting Standards Mining Industry | Penrose |
December 2009
Vancouver, BC |
KPMG Audit Committee Roundtable | Penrose |
5. | Ethical Business Conduct |
The Board has adopted a formal written code of ethical conduct (the Code) for its directors, officers and employees. The Companys Corporate Governance Committee is responsible for setting the standards of business conduct contained in the Code, as well as overseeing and monitoring compliance with the Code by ensuring all directors, officers and employees receive and become familiar with the Code and acknowledge their support and understanding of the Code. Any non-compliance with the Code is to be reported to the Corporate Governance Committee. A copy of the Code may be accessed on the Companys website at www.firstmajestic.com.
Where a director has a material interest in a transaction or agreement concerning the Company, the Board takes such steps as may be prudent to isolate and eliminate or reduce the potential for such a conflict of interest to interfere with the Boards exercise of independent judgment.
Page 3
Corporate law and the Code require that any director or officer who is directly or indirectly personally interested in a proposed activity or transaction which involves the Company, or otherwise is in a position which creates a potential for a conflict of interest, must disclose the circumstances and these holdings to the Companys Chief Executive Officer and the Governance Committee, who will assess whether there is a conflict of interest. If it is determined there is a conflict of interest, the conflict must be disclosed to the Board.
In accordance with applicable corporate law, any director who is in a position of conflict must refrain from voting on any resolution of the Board with respect to the conflict. The Board may also require the director to excuse himself or herself from deliberations of the Board or may alternatively refer the matter for consideration by a committee of independent directors of the Board.
6. | Whistleblower Policy |
The Company has adopted a Whistleblower Policy which allows its directors, officer and employees who feel that a violation of the Code has occurred, or who have concerns regarding financial statement disclosure issues, accounting, internal accounting controls, auditing matters to report such violation or concerns on a confidential and anonymous basis. Such reporting can be made by web-based reporting or telephone through EthicsPoint, Inc., an independent reporting agency used by the Company for this purpose. Once received, complaints are forwarded to the Chairman of the Corporate Governance Committee or Chief Executive Officer who then investigates each matter so reported and takes corrective and disciplinary action, if appropriate.
7. | Nomination of Directors |
The Human Resources, Compensation and Nominating Committee which consists of Tony Pezzotti, David Shaw and Robert Young, is responsible for identifying individuals qualified to become new board members and for recommending to the Board the new director nominees for the next annual meeting of shareholders.
8. | Compensation |
Independent members of the Board are compensated for acting as directors and may be granted incentive stock options pursuant to the policies of the Toronto Stock Exchange and the Companys stock option plan. The Companys Human Resources, Compensation and Nominating Committee reviews managements recommendations for and, in accordance with Board guidelines, recommends the granting of stock options to management, directors, officers and other employees and consultants of the Company and its subsidiaries. The Board as a whole determines the stock option grants for each director. The Human Resources, Compensation and Nominating Committee has overall responsibility for recommending levels of executive compensation that are competitive and motivating in order to attract, hold and inspire senior officers and for identifying individuals qualified to become new board members and recommending to the Board the new director nominees for the next annual meeting of shareholders.
The Company engaged Mercer (Canada) Limited to provide specific advice to it on executive and director compensation matters during the most recently completed fiscal year. This advice has consisted of:
(i) |
the provision of general market observations with respect to market trends and issues, |
|
(ii) |
the provision of benchmark market data, and |
|
(iii) |
assistance in the design of an annual bonus plan. |
Decisions made by the Company with respect to the compensation of its officers and directors, however, are its own responsibility and may reflect factors and considerations other than the information provided to the Company by Mercer. The Company implemented changes to the compensation arrangements for its officers and directors effective January 1, 2010.
Page 4
9. | Other Board Committees |
The Board is satisfied that in view of the size and composition of the Board, it is more efficient and cost effective for the full board to perform the duties that would be required by standing committees, other than the Audit Committee, Human Resources, Compensation and Nominating Committee and Corporate Governance Committee.
The Corporate Governance Committee which consists of Robert McCallum, Douglas Penrose and David Shaw, under the supervision of the Board, has overall responsibility to monitor the governance of the board of directors (including the size of the board and the profiles of the board members) and board committees. The Corporate Governance Committees responsibilities include, but are not limited to, the following:
Review at least annually the size, composition and profile of the Board;
Review at least annually the performance of the Board as a whole;
Review annually the performance of individual directors, including with respect to minimum attendance guidelines, diligence, avoidance or handling of conflicts of interest and compliance with respect to their statutory and common law duties;
Evaluate the performance of the Chairman of the Board;
On an annual basis, recommend and bring forward to the Board, a list of corporate governance issues for review, discussion or action by the Board or a committee; and
On an annual basis, review the indemnification polices of the Company, general liability insurance policy and Directors and Officers insurance policy.
10. | Assessments |
The Board considers individual director performance assessments are not warranted, given the Companys stage of development, the directors shareholdings and the required time commitment to the affairs of the Company.
Although the Company does not have a formal assessment process with respect to performance of the Board, its committees and its individual directors, the Board as a whole considers the contributions and performance of each of the directors and the performance of the Board and each of its committees on an informal ongoing basis by way of general discussion at Board meetings as and when required. The Board may in the future consider adopting a formal assessment process to ensure performance is monitored.
Page 5
APPENDIX B
FIRST MAJESTIC SILVER CORP.
(the Company)
BOARD OF DIRECTORS MANDATE
I. |
INTRODUCTION |
||
A. |
The First Majestic Silver Corp. (First Majestic or the Company) Board of directors (the Board) has a primary responsibility to foster the short and long-term success of the Company and is accountable to the shareholders. |
||
B. |
The directors are stewards of the Company. The Board has the responsibility to oversee the conduct of the Companys business and to supervise management, which is responsible for the day-to-day operation of the Company. In supervising the conduct of the business, the Board, through the Chief Executive Officer (the CEO) sets the standards of conduct for the Company. |
||
C. |
This mandate is prepared to assist the Board and management in clarifying responsibilities and ensuring effective communication between the Board and management. |
||
II. |
COMPOSITION AND BOARD ORGANIZATION |
||
A. |
Nominees for directors are initially considered and recommended by the Boards Compensation and Nominating Committee in conjunction with the Board Chair, approved by the entire Board and elected annually by the shareholders. |
||
B. |
A majority of directors comprising the Board must qualify as independent directors (as defined in National Instrument 58-201 Disclosure of Corporate Governance Practices. |
||
C. |
Certain of the Boards responsibilities may be delegated to Board committees. The responsibilities of those committees will be as set forth in their mandates. |
||
III. |
DUTIES AND RESPONSIBILITIES |
||
A. |
Managing the Affairs of the Board |
||
The Board operates by delegating certain of its authorities, including spending authorizations, to management and by reserving certain powers to itself. The legal obligations of the Board are described in Section IV. Subject to these legal obligations and to the Articles and By-laws of the Company, the Board retains the responsibility for managing its own affairs, including: |
|||
i) |
annually reviewing the skills and experience represented on the Board in light of the Companys strategic direction and approving a Board composition plan recommended by the Compensation and Nominating Committee; |
||
ii) |
appointing, determining the composition of and setting the terms of reference for, Board committees; |
||
iii) |
determining and implementing an appropriate process for assessing the effectiveness of the Board, the Board Chair, committees and directors in fulfilling their responsibilities; |
||
iv) |
assessing the adequacy and form of director compensation; |
v) |
assuming responsibility for the Companys governance practices; |
|||
vi) |
establishing new director orientation and ongoing director education processes; |
|||
vii) |
ensuring that the independent directors meet regularly without executive directors and management present; |
|||
viii) |
setting the terms of reference for the Board; and |
|||
ix) |
appointing the secretary to the Board. |
|||
B. |
Human Resources |
|||
The Board has the responsibility to: |
||||
i) |
provide advice and counsel to the CEO in the execution of the CEOs duties; |
|||
ii) |
appoint the CEO and plan CEO succession; |
|||
iii) |
set terms of reference for the CEO; |
|||
iv) |
annually approve corporate goals and objectives that the CEO is responsible for meeting; |
|||
v) |
monitor and, at least annually, review the CEOs performance against agreed upon annual objectives; |
|||
vi) |
to the extent feasible, satisfy itself as to the integrity of the CEO and other senior officers, and that the CEO and other senior officers create a culture of integrity throughout the Company; |
|||
vii) |
set the CEOs compensation; |
|||
viii) |
approve the CEOs acceptance of significant public service commitments or outside directorships; |
|||
ix) |
approve decisions relating to senior management, including: |
|||
a. |
review senior management structure including such duties and responsibilities to be assigned to officers of the Company; |
|||
b. |
on the recommendation of the CEO, appoint and discharge the officers of the Company who report to the CEO; |
|||
c. |
review compensation plans for senior management including salary, incentive, benefit and pension plans; and |
|||
d. |
employment contracts, termination and other special arrangements with executive officers, or other employee groups. |
|||
x) |
approve certain matters relating to all employees, including: |
|||
a. |
the Companys broad compensation strategy and philosophy; |
|||
b. |
new benefit programs or material changes to existing programs; and |
|||
xi) |
ensure succession planning programs are in place, including programs to train and develop management. |
Page 2
C. |
Strategy and Plans |
||
The Board has the responsibility to: |
|||
i) |
adopt and periodically review a strategic planning process for the Company; |
||
ii) |
participate with management, in the development of, and annually approve a strategic plan for the Company that takes into consideration, among other things, the risks and opportunities of the business; |
||
iii) |
approve annual capital and operating budgets that support the Companys ability to meet its strategic objectives; |
||
iv) |
direct management to develop, implement and maintain a reporting system that accurately measures the Companys performance against its business plans; |
||
v) |
approve the entering into, or withdrawing from, lines of business that are, or are likely to be, material to the Company; and |
||
vi) |
approve material divestitures and acquisitions. |
||
D. |
Financial and Corporate Issues |
||
The Board has the responsibility to: |
|||
i) |
take reasonable steps to ensure the implementation and integrity of the Companys internal control and management information systems; |
||
ii) |
review and approve release by management of any materials reporting on the Companys financial performance or providing guidance on future results to its shareholders and ensure the disclosure accurately and fairly reflects the state of affairs of the Company, and is in accordance with generally accepted accounting principles, including quarterly results press releases and quarterly financial statements, any guidance provided by the Company on future results, Company information circulars, annual information forms, annual reports, offering memorandums and prospectuses; |
||
iii) |
declare dividends; |
||
iv) |
approve financings, issue and repurchase of shares, issue of debt securities, listing of shares and other securities, issue of commercial paper, and related prospectuses; and recommend changes in authorized share capital to shareholders for their approval; |
||
v) |
approve the incurring of any material debt by the Company outside the ordinary course of business; |
||
vi) |
approve the commencement or settlement of litigation that may have a material impact on the Company; and |
||
vii) |
recommend the appointment of external auditors and approve auditors fees. |
||
E. |
Business and Risk Management |
||
The Board has the responsibility to: |
|||
i) |
ensure management identifies the principal risks of the Companys business and implements appropriate systems to manage these risks; |
Page 3
ii) |
approve any plans to hedge silver sales; and |
||
iii) |
evaluate and assess information provided by management and others about the effectiveness of risk management systems. |
||
F. |
Policies and Procedures |
||
The Board has the responsibility to: |
|||
i) |
approve and monitor, through management, compliance with all significant policies and procedures that govern the Companys operations; |
||
ii) |
approve and act as the guardian of the Companys corporate values, including the implementation of a Code of Business Conduct and Ethics for the Company and managements procedures to monitor compliance with the Code of Business Conduct and Ethics; |
||
iii) |
direct management to ensure the Company operates at all times within applicable laws and regulations and to the highest ethical and moral standards; and |
||
iv) |
establish the Companys Environmental, Health and Safety Policy. |
||
G. |
Compliance Reporting and Corporate Communications |
||
The Board has the responsibility to: |
|||
i) |
ensure the Company has in place effective communication processes with shareholders and other stakeholders and financial, regulatory and other recipients; |
||
ii) |
approve and periodically review the Companys communications policy; |
||
iii) |
ensure the Board has measures in place to receive feedback from shareholders; |
||
iv) |
approve interaction with shareholders on all items requiring shareholder response or approval; |
||
v) |
ensure the Companys financial performance is adequately reported to shareholders, other security holders and regulators on a timely and regular basis; |
||
vi) |
ensure the financial results are reported fairly and in accordance with generally accepted accounting principles; |
||
vii) |
ensure the CEO and CFO certify the Companys annual and interim financial statements, annual and interim MD&A and Annual Information Form, and that the content of the certification meets all legal and regulatory requirements; |
||
viii) |
ensure timely reporting of any other developments that have a significant and material effect on the Company; and |
||
ix) |
report annually to the shareholders on the Boards stewardship for the preceding year. |
IV. |
GENERAL LEGAL OBLIGATIONS OF THE BOARD OF DIRECTORS |
|
A. | The Board is responsible for: |
Page 4
i) |
directing management to ensure legal requirements have been met, and documents and records have been properly prepared, approved and maintained; and |
|||
ii) |
recommending changes in the Articles and Bylaws, matters requiring shareholder approval, and setting agendas for shareholder meetings. |
|||
B. |
B.C. law identifies the following as legal requirements for the Board: |
|||
i) |
act honestly and in good faith with a view to the best interests of the Company, including the duty: |
|||
a. |
to disclose conflicts of interest; |
|||
b. |
not to appropriate or divert corporate opportunities; |
|||
c. |
to maintain confidential information of the Company and not use such information for personal benefit; and |
|||
d. |
disclose information vital to the business of the Company in the possession of a director; |
|||
ii) |
exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances; and |
|||
iii) |
act in accordance with the Business Corporations Act (British Columbia) (BCBCA) and any regulations, by-laws and unanimous shareholder agreement. |
EFFECTIVE DATE
This Mandate was implemented by the Board on December 21, 2006
Page 5
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the Annual General Meeting of the shareholders of First Majestic Silver Corp. (the "Company") will be held at Terminal City Club, 837 Hastings Street, Vancouver, British Columbia, V6C 1B6, on Thursday, May 27, 2010 at 10:00 a.m. (Vancouver time). At the meeting, the shareholders will receive the financial statements for the year ended December 31, 2009, together with the auditors report thereon, and consider resolutions:
1. |
To receive and consider the Report of the directors. |
|
2. |
To appoint Deloitte & Touche LLP , Chartered Accountants, as auditors for the Company to hold office until the next Annual Meeting. |
|
3. |
To authorize the directors to fix the remuneration to be paid to the auditors. |
|
4. |
To determine the number of directors at seven. |
|
5. |
To elect directors. |
|
6. |
To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof. |
Accompanying this Notice is an Information Circular, form of Proxy, and Financial Statement Request Form.
Shareholders unable to attend the Annual General Meeting in person are requested to read the enclosed Information Circular and Proxy, and then complete and deposit the Proxy together with the power of attorney or other authority, or certification, if appropriate, under which it was signed or a notarially certified copy thereof with the Company's Transfer Agent, Computershare Trust Company of Canada , not less than 48 hours (excluding Saturdays, Sundays and holidays) before the time of the meeting.
DATED at Vancouver, British Columbia, this 1 st day of April, 2010.
ON BEHALF OF THE BOARD OF DIRECTORS
OF FIRST MAJESTIC
SILVER CORP.
Keith Neumeyer
Keith Neumeyer
President and Chief Executive
Officer
April 1, 2010
Dear Shareholder:
FIRST MAJESTIC SILVER CORP.
(the Company)
Request for Printed Copies of Annual and Interim Financial Statements and MD&A
In accordance with National Instrument 51-102, Continuous Disclosure Obligations , the registered and beneficial owners of our shares may request a copy of our annual financial statements and management discussion and analysis (MD&A) for the annual financial statements, our interim financial statements and MD&A, or both.
If you wish to receive printed copies of any of these documents, please indicate your request by completing this form and returning it to:
FIRST MAJESTIC SILVER CORP.
Suite 1805 925 West Georgia
Street
Vancouver, BC, Canada
V6C 3L2
As an alternative to receiving these financial statements and MD&A by mail, you may view them on the Companys profile on SEDAR at www.sedar.com .
REQUEST TO RECEIVE ANNUAL AND INTERIM FINANCIAL STATEMENTS AND MD&A |
OF FIRST MAJESTIC SILVER CORP. (the Company) |
[ ] | A. |
Please send me the annual financial statements and MD&A. |
[ ] | B. |
Please send me the interim financial statements and MD&A. |
[ ] | C. |
Please send me both A and B. |
I confirm that I am a registered and/or beneficial holder of shares of the Company.
Signature | |
Name of Shareholder - Please Print | |
Address | |
Postal Code | |
Name and title of person signing, if different from name above |
Date: 02/03/2010 | 510 Burrard St, 3rd Floor |
Vancouver BC, V6C 3B9 | |
www.computershare.com |
To: All Canadian Securities Regulatory Authorities
Subject: First Majestic Silver Corp
Dear Sirs:
We advise of the following with respect to the upcoming Meeting of Security Holders for the subject Issuer:
Meeting Type : | Annual General Meeting |
Record Date for Notice of Meeting : | 01/04/2010 |
Record Date for Voting (if applicable) : | 01/04/2010 |
Beneficial Ownership Determination Date: | 01/04/2010 |
Meeting Date : | 27/05/2010 |
Terminal City Club, | |
Meeting Location (if available) : | 837 West Hastings Street, Vancouver, BC |
V6C 1B6 |
Voting Security Details:
Description | CUSIP Number | ISIN |
COMMON SHARES | 32076V103 | CA32076V1031 |
Sincerely,
Computershare Trust Company of Canada /
Computershare Investor Services Inc.
Agent for First Majestic Silver Corp
Report of Voting Results
(Section 11.3 of National
Instrument 51-102)
The following describes the matters voted upon and the outcome of the votes at the annual general meeting of shareholders of First Majestic Silver Corp. (the Company) held on Thursday, May 28, 2009 at The Fairmont Waterfront Hotel, 900 Canada Place Way, Vancouver, British Columbia.
1. |
Fix Number of Directors |
The ordinary resolution fixing the number of directors at seven was approved by a majority vote of shareholders present in person or represented by proxy at the meeting as follows: |
Votes in Favour | % of Votes Cast |
23,605,918 | 98.78% |
2. |
Election of Directors |
The seven nominees set for in the Companys management information circular dated April 15, 2008 were elected as directors of the Company by a majority vote. The Companys shareholders present in person or represented by proxy at the meeting voted as follows: |
Director Nominee | Votes in Favour | % of Votes Cast |
Keith Neumeyer | 25,528,080 | 98.46% |
Ramon Davila | 25,568,639 | 98.63% |
Robert A. McCallum | 23,565,303 | 98.61% |
Tony Pezzotti | 23,496,280 | 98.32% |
David Shaw | 23,571,870 | 98.64% |
Douglas Penrose | 23,426,398 | 98.03% |
Robert Young | 23,529,128 | 98.46% |
3. |
Appointment of Auditors |
Deloitte & Touche LLP was re-appointed as auditors of the Company by a majority vote of shareholders present in person or represented by proxy at the meeting as follows: |
Votes in Favour | % of Votes Cast | |
Appoint Auditors | 23,755,051 | 99.41% |
Fix Auditors Remuneration | 23,527,336 | 98.45% |
Dated at Vancouver, British Columbia, this 18 th day of June, 2009.
FIRST MAJESTIC SILVER CORP.
Connie Lillico
Connie
Lillico
Corporate Secretary
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C
3L2
Phone: 604.688.3033 | Fax: 604.639 -8873| Toll Free: 1.866.529.2807 |
Email: info@firstmajestic.com
www.firstmajestic.com
INFORMATION CIRCULAR
(Containing information as at April 13, 2009)
SOLICITATION OF PROXIES
This Information Circular is furnished in connection with the solicitation of proxies by the management of First Majestic Silver Corp. (First Majestic or the "Company") for use at the Annual General Meeting of shareholders of the Company (the "Meeting"), and any adjournment thereof, to be held on May 28, 2009 at the time and place and for the purposes set forth in the accompanying Notice of Meeting. While it is expected that the solicitation will be primarily by mail, proxies may be solicited personally or by telephone by the directors and regular employees of the Company at nominal cost. The Company may retain other persons or companies to solicit proxies on behalf of management, in which event customary fees for such services will be paid. All costs of solicitation will be borne by the Company.
APPOINTMENT AND REVOCATION OF PROXY
The persons named in the accompanying form of proxy (the Proxy) are the President and Chief Executive Officer and Chairman, respectively, of the Company. A shareholder has the right to appoint some other person, who need not be a shareholder, to represent the shareholder at the Meeting. A shareholder who wishes to appoint some other person to serve as their representative at the Meeting may do so by striking out the names printed on the Proxy and inserting the desired persons name in the blank space provided.
The instrument appointing a proxyholder must be signed in writing by the shareholder, or such shareholders attorney authorized in writing. If the shareholder is a corporation, the instrument appointing a proxyholder must be in writing signed by an officer or attorney of the corporation duly authorized by resolution of the directors of such corporation, which resolution must accompany such instrument.
The completed Proxy must be delivered to Computershare Trust Company of Canada (Computershare) at the address set out in the Proxy by 10:00 am not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time set for holding the Meeting or any adjournment thereof, unless the Chairman of the Meeting elects to exercise his discretion to accept Proxies received subsequently.
The Proxy may be revoked by:
(a) |
signing a proxy with a later date and delivering it at the time and place noted above; |
|
(b) |
signing and dating a written notice of revocation and delivering it at the time and to the place noted above; or |
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(c) |
attending the Meeting or any adjournment of the Meeting and registering with the scrutineer as a shareholder present in person. |
PROVISIONS RELATING TO THE VOTING OF PROXIES
The shares represented by proxy in the enclosed form will be voted by the designated holder in accordance with the direction of the shareholder appointing him. If there is no direction by the shareholder, those shares will be voted for all proposals set out in the Proxy and for the election of directors and the appointment of the auditors as set out in this Information Circular. The Proxy gives the person named in it the discretion to vote as they see fit on any amendments or variations to matters identified in the Notice of Meeting, or any other matters which may properly come before the Meeting. At the time of printing of this Information Circular, the management of the Company knows of no other matters which may come before the Meeting other than those referred to in the Notice of Meeting.
NON-REGISTERED HOLDERS
Only registered shareholders or duly appointed proxyholders are permitted to vote at the Meeting. Most shareholders of the Company are non-registered shareholders because the shares they own are not registered in their own names but are instead registered in the name of the brokerage firm, bank or trust company through which they purchased the shares. A person is not a registered shareholder (a Non-Registered Holder) in respect of shares which are held either: (a) in the name of an intermediary (an Intermediary) that the Non-Registered Holder deals with in respect of the shares (Intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or (b) in the name of a clearing agency (such as The Canadian Depository for Securities Limited (CDS)), of which the Intermediary is a participant.
Non-Registered Holders who have not objected to their Intermediary disclosing certain ownership information about themselves to the Company are referred to as NOBOs. Those Non-Registered Holders who have objected to their Intermediary disclosing ownership information about themselves to the Company are referred to as OBOs. In accordance with the requirements of National Instrument 54-101 of the Canadian Securities Administrators, the Company has elected to send the Notice of Meeting, this Circular and the Proxy (collectively, the Meeting Materials) directly to the NOBOs, and indirectly through Intermediaries to the OBOs. The Intermediaries (or their service companies) are responsible for forwarding the Meeting Materials to each OBO, unless the OBO has waived the right to receive them.
Intermediaries will frequently use service companies to forward the Meeting Materials to the OBOs. Generally, an OBO who has not waived the right to receive Meeting Materials will either:
(a) |
be given a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of shares beneficially owned by the OBO and must be completed, but not signed, by the OBO and deposited with Computershare; or |
|
(b) |
more typically, be given a voting instruction form (VIF) which is not signed by the Intermediary, and which, when properly completed and signed by the OBO and returned to the Intermediary or its service company, will constitute voting instructions which the Intermediary must follow. |
These securityholder materials are being sent to both registered shareholders and Non-Registered Holders. If you are a Non-Registered Holder, and the Company or its agent has sent these materials to you, your name and address and information about your holdings of securities have been obtained in accordance with applicable securities regulatory requirements from the Intermediary holding on your behalf. By choosing to send these materials to you directly, the Company (and not the Intermediary holding on your behalf) has assumed responsibility for: (a) delivering these materials to you; and (b) executing your proper voting instructions. Please return your voting instructions as specified in the request for voting instruction.
The Meeting Materials sent to NOBOs who have not waived the right to receive meeting materials are accompanied by a VIF, instead of a form of proxy. By returning the VIF in accordance with the instructions noted on it, a NOBO is able to instruct the voting of the shares owned by it.
Page 2
VIFs, whether provided by the Company or by an Intermediary, should be completed and returned in accordance with the specific instructions noted on the VIF. The purpose of this procedure is to permit Non-Registered Holders to direct the voting of the shares which they beneficially own. Should a Non-Registered Holder who receives a VIF wish to attend the Meeting or have someone else attend on his or her behalf, the Non-Registered Holder may request a legal proxy as set forth in the VIF, which will grant the Non-Registered Holder, or his or her nominee, the right to attend and vote at the Meeting.
Please return your voting instructions as specified in the VIF. Non-Registered Holders should carefully follow the instructions set out in the VIF, including those regarding when and where the VIF is to be delivered.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
The authorized capital of the Company consists of an unlimited number of common shares without par value. As at April 13, 2009 there were 82,341,636 common shares without par value issued and outstanding.
Only registered shareholders of record at the close of business on April 13, 2009 (the Record Date) who either personally attend the Meeting or who have completed and delivered a form of Proxy or, where applicable, a VIF, in the manner and subject to the provisions described above shall be entitled to vote or to have their shares voted at the Meeting.
Each shareholder is entitled to one vote for each common share registered in his/her/its name on the list of shareholders, which is available for inspection during normal business hours at Computershare Trust Company of Canada and at the Meeting. The failure of any shareholder to receive the Notice of Meeting does not deprive such shareholder of his or her entitlement to vote at the Meeting.
To the knowledge of the directors and senior officers of the Company, there are no persons or companies who beneficially own, directly or indirectly, or exercise control or direction over shares carrying more than 10% of the voting rights attached to all outstanding shares of the Company.
ELECTION OF DIRECTORS
The number of directors on the board of directors (the Board of Directors) of the Company is currently set at seven. Shareholders will be asked at the Meeting to pass an ordinary resolution to fix the number of directors at seven.
The term of office of each of the present directors expires at the close of the Meeting. Management proposes to nominate the persons listed below for election as directors at the Meeting and the persons named in the accompanying form of proxy intend to vote for the election of these nominees. In the absence of instructions to the contrary, all proxies in the accompanying form will be voted For the nominees herein listed . Each director elected at the Meeting will hold office until the next Annual General Meeting, unless his office is earlier vacated. Management does not contemplate that any of the nominees will be unable to serve as a director. In the event that prior to the meeting any vacancies occur in the slate of nominees herein listed, it is intended that discretionary authority shall be exercised by the person named in the Proxy as nominee to vote the shares represented by proxy for the election of any other person or persons as directors, unless the shareholder has specified in his or her Proxy that the shareholders Shares are to be withheld from voting on the election of directors.
The table below sets out the names of each of managements nominees for election as directors, the municipality and province or state and country in which each is ordinarily resident, all offices of the Company now held by each of them, each nominees principal occupation, business or employment, the period of time for which each nominee has served as a director of the Company and the number of shares of the Company beneficially owned by each nominee, directly or indirectly, or over which each nominee exercises control or direction as at April 13, 2009. All of the proposed nominees were duly elected as directors at the last Annual General Meeting of Shareholders held on May 20, 2008.
Page 3
Name, Position and Residence | Principal Occupation or Employment for Past 5 Years (1) | Period as a Director of the Company | No. of Common Shares | Percentage of Issued Capital (2) | ||||
ROBERT A.
McCALLUM
,
B.Sc.,
P.Eng
(3)
(5)(6)
Chairman and Director West Vancouver, British Columbia, Canada |
Professional consulting engineer and President of Robert A. McCallum Inc. from 1999 to present; President and CEO of Kensington Resources Ltd. from June 1, 2004 to October 28, 2005; Director of Shore Gold Inc. from October 28, 2005 to present. |
December 15, 2005 to present. | 100,000 | Less than 1% | ||||
KEITH NEUMEYER
CEO, President and Director London, England |
President and CEO of the Company from November 3, 2001 to present; Director of the Company since December 5, 1998. |
December 5, 1988 to present. | 2,726,300 | 3.31% | ||||
RAMON DAVILA, Ing.
Chief Operating Officer and Director Durango, Mexico |
Chief Operating Officer of the Company from December 14, 2004 to present; Chairman of Minas La Colorado SA de CV from January 1994 to present; Chairman of Minera Lince SA de CV from September 2003 to present; Chairman of Mineral Real Victoria SA de CV from October 2003 to present; Member of the Board for Immobiliaria Aurum SA de CV from June 2005 to present. |
April 15, 2004 to present. | 324,540 | Less than 1% | ||||
TONY PEZZOTTI
(3)
(4)
Director Burnaby, British Columbia, Canada |
Retired. Director of Pan Terra Industries Inc. from July 2007 to present. |
November 30, 2001 to present. | 581,000 | Less than 1% | ||||
DAVID SHAW,
Ph.D.
(4)
(5)
Director Vancouver, British Columbia, Canada |
President of Duckmanton Partners Ltd. from June 12, 2000 to present; President and Director of Albion Petroleum Ltd. from October 2006 to present; Director of Reef Resources Ltd. from September 2007 to April 2008, Director of Pan Pacific Aggregates plc from October 2008 to present; CEO of Columbia Gold plc from May 2007 to March 2009. |
January 12, 2005 to present. | 73,100 | Less than 1% | ||||
ROBERT YOUNG
(4)
Director Richmond, British Columbia, Canada |
Independent geological consultant from 1999 to present; Director of Goldrush Resources Ltd. from December 2004 to present; Advisor to Copper Mountain Mining Corporation from April 2007 to present. |
September 7, 2006 to present. | 10,000 | Less than 1% | ||||
DOUGLAS PENROSE
(3)
(5)
Director Kamloops, British Columbia, Canada |
Vice President, Finance and Corporate Services of British Columbia Lottery Corporation from 2000 to April 2008. |
September 7, 2006 to present. | 10,000 | Less than 1% |
(1) |
The information as to principal occupation and shares beneficially owned has been furnished by the respective individuals. |
(2) |
Based upon 82,341,636 common shares of the Company issued and outstanding as of the record date. |
(3) |
Member of the Audit Committee. |
(4) |
Member of the Human Resources, Compensation and Nominating Committee |
(5) |
Member of the Corporate Governance Committee |
Page 4
(6) | Chairman of the Board of Directors |
The information as to the municipality and province, state or country of residence, principal occupation, or business or employment and the number of shares beneficially owned by each nominee or over which each nominee exercises control or direction set out in the above table has been furnished by the individual nominees as at April 13, 2009.
No director or proposed director of the Company is, or within the ten years prior to the date of this Information Circular has been, a director, chief executive officer or chief financial officer of any company, including the Company, that while that person was acting in that capacity:
(a) |
was the subject of a cease trade order, similar order or an order that denied the company access to any exemption under securities legislation for a period of more than 30 consecutive days; |
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(b) |
was subject to an order issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or |
|
(c) |
within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets. |
No director or proposed director of the Company has, within the ten years prior to the date of this Information Circular, become bankrupt or made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual.
STATEMENT OF EXECUTIVE COMPENSATION
For the purposes of this Information Circular:
CEO of the Company means each individual who served as Chief Exectuvie Officer of the Company or acted a similar capacity for any part of the most recently completed financial year;
CFO of the Company means each individual who served as Chief Financial Officer of the Company or acted in similar capacity for any part of the most recently completed financial year;
Named Executive Officers means (a) each Chief Executive Officer, (b) each Chief Financial Officer, (c) each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the Chief Executive Officer and Chief Financial Officer, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000; and (d) each individual who would be a Named Execuive Officer under paragraph (c) but for the fact that the individual was neither an executive officer of the company, nor acting in a similar capacity, at the end of that financial year.
During the financial year ended December 31, 2008, the Company had three Named Executive Officers of the Company, being: Keith Neumeyer, the Chief Executive Officer of the Company, Ramon Davila, the Chief Operating Officer of the Company and Raymond Polman, the Chief Financial Officer of the Company.
COMPENSATION DISCUSSION AND ANALYSIS
The Human Resources, Compensation and Corporate Governance Committee of the Board of Directors (the Compensation Committee) directs the design and provides oversight of the Companys executive compensation program and has overall responsibility for recommending levels of executive compensation that are competitive and motivating in order to attract, hold and inspire senior officers. The Compensation Committees principal functions are to: (a) recommend compensation levels and programs for the Companys Chief Executive Officer to the independent members of the Board of Directors; (b) recommend compensation levels and programs for all other executive officers to the full Board of Directors; and (c) administer the Companys stock option plan (the Option Plan).
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The Companys Chief Executive Officer and executive officers participate in executive compensation decisions by making recommendations to the Compensation Committee regarding (a) executive officer base salary, annual bonus awards and stock option grants; (b) annual and long-term quantitative goals and the annual qualitative goals for the executive officers; and (c) participation in the Option Plan and amendments to the Option Plan, as necessary.
The Compensation Committee reviews the basis for these recommendations and can exercise its discretion in modifying any of the recommendations prior to making its recommendations to the Board of Directors.
The following executive compensation principals guide the Compensation Committee in fulfilling its roles and responsibilities in the design and ongoing administration of the Companys executive compensation program:
Compensation levels and opportunities should be sufficiently competitive to facilitate recruitment and retention of qualified and experienced executives, while being fair and reasonable to shareholders;
Compensation should reinforce the Companys business strategy by communicating key metrics and operational performance objectives (both annual and long-term) in its incentive plans and by emphasizing incentives in the total compensation mix;
Incentive compensation should be responsive to the Companys commodity-based cyclical business environment by emphasizing operational performance over performance measures that are more directly influenced by metals prices; and
Compensation programs should align executives long-term financial interests with those of shareholders by providing equity-based incentives.
While the Company does not actively benchmark its executive compensation program, and the individual components thereof, with comparable companies, it does review the compensation practices of comparable entities to ensure the compensation that it is paying to its executive officers is competitive with those other entities. The Companys general executive compensation philosophy is to, whenever possible, pay its executive officers base compensation in the form of salaries that are competitive in comparison to those earned by executive officers holding comparable positions with other Canadian publicly traded entities similar to the Company while at the same time providing its executive officers with the opportunity to earn above average total compensation through the potential attainment of annual incentive bonuses and through the Option Plan.
Individual executive compensation consists primarily of: base salary, annual incentive bonus, stock option grants and benefits and perquisites. Each component of compensation has a specific role with respect to supporting the goals of the Companys executive compensation program and is structured to reinforce specific job and organizational requirements. Compensation guidelines with respect to these components are established for particular positions based on job responsibilities and within the context of the Companys overall executive compensation program.
Specific compensation amounts are recommended to the Board of Directors by the Compensation Committee after discussion amongst the members of the Compensation Committee. Each component of compensation and the decisions of the Compensation Committee about each component have an affect on their decisions regarding other compensation components. For example, if a Named Executive Officer far exceeded his individual goals and objectives, this may affect the amount of compensation paid and/or options granted. All of the compensation components together are intended to meet the Companys compensation objectives, which are intended to allow the Company to attract and retain qualified and experienced senior management who are motivated to achieve the Companys business plans, strategies and goals.
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The Board of Directors, on the advice of the Compensation Committee, has determined to structure compensation arrangements tailored to the specific circumstances of its senior management. The Compensation Committee has accordingly determined that compensation paid to Mr. Neumeyer and Mr. Davila, both of whom are resident outside of Canada, should be structured as consulting arrangements. Please see Summary Compensation Table.
Base Salary
A Named Executive Officers base salary is intended to remunerate the Named Executive Officer for discharging job responsibilities and reflects the executives performance over time. Individual salary adjustments take into account performance contributions in connection with their specific duties. The base salaries for the Named Executive Officers are set out in their employment agreements, the terms of which are described below. The base salary of each executive officer is determined by the Board of Directors based on an assessment by the Compensation Committee of his sustained performance and consideration of competitive compensation levels for the markets in which the Company operates. In making its recommendations to the Board of Directors, the Compensation Committee also considers the particular skills and experience of the individual. A final determination on executive compensation, including salary, is made by the Board of Directors in its sole discretion based on the recommendations of the Compensation Committee and its knowledge of the industry and geographic markets in which the Company operates. While the Chief Executive Officer is requested to provide to the Compensation Committee his recommendation on the Named Executive Officers annual base salaries, the Compensation Committee and the Board make the final determination on the annual base salaries of the Named Executive Officers. The Chief Executive Officer does not make a recommendation with respect to his own salary. The Compensation Committee does not use any type of quantitative formula to determine the base salary level of any of the Named Executive Officers.
The Company has employment agreements with each of its Named Executive Officers. The agreements specify the terms and conditions of employment, the duties and responsibilities of the executive during this term, the compensation and benefits to be provided by the Company in exchange for the executives services, the compensation and benefits to be provided by the Company in the event of a qualifying termination of employment not preceded by a change in control of the Company, and the compensation and benefits to be provided by the Company in the event of a qualifying termination of employment that is preceded by a change in control of the Company. The Committee believes that such agreements benefit the Company by clarifying the terms of employment and ensuring the Company is protected by noncompete and nondisclosure provisions.
Following are the significant terms of each the Companys Named Executive Officers employment agreements:
Employment Agreement Keith Neumeyer
The Company entered into an Employment Agreement effective January 1, 2008, pursuant to which Mr. Neumeyer is employed as President and Chief Executive Officer for an unspecified term at a current salary of CDN$5,000 per month plus benefits and the granting of stock options and the awarding of annual bonuses which shall be determined at the absolute discretion of the Board of Directors or a Committee of the Company. No bonus was paid for the year ended December 31, 2008. The Employment Agreement may be terminated by Mr. Neumeyer with 90 days written notice or by the Company at any time, without cause, by payment of eight months base salary plus benefits. After two years of employment with the Company, this amount will increase by two months for each additional year of employment. In the event of a change of control, the Company is committed to making severance payments to Mr. Neumeyer totaling eight months base salary plus benefits and after two years of employment with the Company, this amount will increase by two months for each additional year of employment. The Employment Agreement was amended on April 1, 2009 pursuant to which Mr. Neumeyer is paid a salary of US$5,000 per month. The amendment was retroactively applied from January 1, 2008.
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Services Agreement Keith Neumeyer
The Companys subsidiary, Corporación First Majestic, S.A. de C.V. entered into a Services Agreement effective January 1, 2008, pursuant to which Mr. Neumeyer is engaged as an independent contractor for an unspecified term at a fee of USD$15,000 per month plus benefits and the granting of stock options and the awarding of annual bonuses which shall be determined at the absolute discretion of the Board of Directors or a Committee of the Company. No bonus was paid for the year ended December 31, 2008. The Services Agreement may be terminated by Mr. Neumeyer with 90 days written notice or by the Company at any time, without cause, by payment of eight months base payment plus benefits. After two years of engagement with the Company, this amount will increase by two months for each additional year of engagement. In the event of a change of control, the Company is committed to making severance payments to Mr. Neumeyer totaling eight months base payments plus benefits and after two years of engagement with the Company, this amount will increase by two months for each additional year of engagement.
Consulting Agreement Ramon Davila
The Company entered into a Consulting Agreement dated February 10, 2006, as amended October 1, 2007 and February 13, 2008 pursuant to which Mr. Davila was retained as a consultant with respect to the Companys operations in Mexico for an unspecified term at a current salary of US $20,000 per month plus benefits and the awarding of annual bonuses which shall be determined at the absolute discretion of the Compensation Committee but in any event, shall not be less than US $10,000 annually. US$40,000 was paid to Mr. Davila as a bonus during the year ended December 31, 2008 for performance in 2005, 2006, 2007 and 2008. Mr. Davila is also entitled to receive a contribution to his monthly premium for a medical insurance plan to a maximum of US$400 per month. The Consulting Agreement may be terminated by Mr. Davila with 90 days written notice or by the Company at any time with, without cause, by payment of six months consulting fees. This amount will increase by two months for each additional year of consulting. In the event of a change of control, the Company is committed to making severance payments to Mr. Davila totaling twelve months base salary plus benefits.
Employment Agreement Raymond Polman
The Company entered into an Employment Agreement effective February 1, 2007 and amended May 1, 2007, February 1, 2008 and May 20, 2008, pursuant to which Mr. Polman is employed as Chief Financial Officer for an unspecified term at a current salary of $15,500 per month plus benefits and the granting of stock options and the awarding of annual bonuses which shall be determined at the absolute discretion of the President, Chief Executive Officer and Compensation Committee of the Company. $25,000 was paid to Mr. Polman as a bonus during the year ended December 31, 2008 for performance in 2007. The Employment Agreement may be terminated by Mr. Polman with 60 days written notice or by the Company at any time, without cause, by payment of six months base salary plus benefits. This amount will increase by one month for each additional year of employment to a maximum total of 18 months base salary. In the event of a change of control, the Company is committed to making severance payments to Mr. Polman totalling six months base salary plus benefits and this amount will increase by one month for each additional year of employment to a maximum total of 18 months base salary.
Discretionary Bonus Payments
Subject to the caveat that the payment of any bonus always remains in the discretion of the Board of Directors, the Companys executive officers are eligible for annual cash incentive bonuses. The bonus component is intended to recognize and reward accomplishments in a given year measured against the annual performance of the Company compared to key quantitative, operational objectives established by the Compensation Committee. For 2008, Company performance was measured based on production and resource growth (both measured by number of ounces) and cost containment (measured in dollars per ounce). In addition to company measures, the Compensation Committee considers the individual performance of each Named Executive Officer. The Company does not set performance goals for its senior management which are based on share price or earnings per share.
Page 8
Currently, no formal written bonus plan has been adopted by the Company and as such, the bonus component of the Named Executive Officers compensation is at the discretion of the Compensation Committee and the Board of Directors. Bonus awards are subject to the Board of Directors determining whether or not it is appropriate to pay a cash bonus at the time depending on the Companys cash position. The Compensation Committee, after consultation with the Chief Executive Officer and other members of management, considers all relevant factors and makes recommendations to the Board of Directors with respect to payment of bonuses to individual Named Executive Officers. Notwithstanding the foregoing, whether any particular performance criteria have been satisfied is determined by the Board of Directors in its sole discretion (upon recommendation from the Compensation Committee). In determining whether or not to pay a bonus the Board of Directors considers all of the information available to it at the time of such determination including, but not limited to, the Companys overall performance for the year, general market and economic conditions, and the performance of each particular executive officer in light of the foregoing. See Information Respecting the Company Executive Compensation Summary Compensation Table for information on the actual annual incentive bonus paid to each of the Named Executive Officers for the most recently completed financial year.
Option Based Awards
The stock option component of executive officers compensation is intended to advance the interests of the Company by encouraging the directors, officers, employees and consultants of the Company to acquire shares, thereby increasing their proprietary interest in the Company, encouraging them to remain associated with the Company and furnishing them with additional incentive in their efforts on behalf of the Company in the conduct of its affairs. Grants under the Option Plan are intended to provide long term awards linked directly to the market value performance of the Companys shares. The Compensation Committee reviews managements recommendations for and itself recommends to the Board of Directors the granting of stock options to management, directors, officers and other employees and consultants of the Company and its subsidiaries. Stock options are granted according to the specific level of responsibility of the particular executive and the number of options for each level of responsibility is determined by the Compensation Committee. The number of outstanding options is also considered by the Compensation Committee when determining the number of options to be granted in any particular year due to the limited number of options which are available for grant under the Option Plan.
The Option Plan was adopted by the shareholders at the 2008 Annual General Meeting held May 20, 2008. The Option Plan complies with the rules set forth for such plans by the Toronto Stock Exchange (the TSX).
The material terms of the Option Plan as it currently exists can be summarized as follows:
General
The Board of Directors may from time to time grant to directors, employees or consultants options to acquire shares of the Company. The Option Plan is administered by the Corporate Secretary on the instructions of the Board of Directors.
The maximum number of shares issuable under the Option Plan, together with the number of shares issuable under outstanding options granted otherwise than under the Option Plan, shall not in the aggregate exceed 10% of the issued and outstanding shares (calculated as at the award date of such options). The Company is prohibited from granting options to any one person which will, when exercised, exceed 5% of the issued and outstanding shares of the Company. If an option expires or is otherwise terminated without having been exercised in full, the number of shares in respect of which the option expired or terminated shall again be available for the purposes of the Option Plan.
Expiry of Options
The expiry date of an option shall be the date fixed by the Board of Directors at the time the particular option is granted, provided that the expiry date shall not exceed five years from the date of grant.
In the event of the death or disability of an option holder, the expiry date shall be one year from the date of death or disability. Any options which are unvested as of the date of death or disability will not vest. Notwithstanding the foregoing, the Board of Directors may, in their discretion, determine that any unvested options of the option holder will immediately vest and become exercisable.
Page 9
In the event the option holder is a director and ceases to be a director of the Company other than by reason of death or disability, all unvested options shall immediately vest and become exercisable and the expiry date of the option shall be the 90th day following the date the option holder ceased to be a director of the Company (unless the option holder ceases to be a director as the result of certain prescribed circumstances).
In the event that an option holder is an employee and ceases to be employed by the Company (other than by reason of death, disability, mandatory retirement, a change of control, termination for cause or as a result of an order of a regulatory body) the expiry date of the option shall be the 60th day following the date the employee ceases to be employed. All options which are not vested as of the date the employee ceases to be employed shall not vest. Notwithstanding the foregoing, the Board of Directors may, in their discretion, determine that any unvested options of the option holder will immediately vest and become exercisable. If the employee ceases to be an employee by reason of mandatory retirement, all unvested options will immediately vest and become exercisable and the expiry date will be one year from the date of retirement.
In the event that an option holder is a consultant of the Company (and is not a director or officer of the Company), and, upon completion of the contract under which the consultant provided services to the Company the consultant is subsequently hired by the Company as an employee, the options previously granted to the consultant will flow through to the employee on the terms and conditions as the original grant of options.
Exercise Price
Vesting of Options
Vesting Period | Total Percentage Vested |
Date of Award | 25% |
6 months from Date of Award | 50% |
12 months from Date of Award | 75% |
18 months from Date of Award | 100% |
Assignment of Options
Amendment and Termination
Page 10
Subject to the approval of the TSX and with the consent of the affected option holders, the Board of Directors may from time to time retrospectively amend the Option Plan and retrospectively amend the terms and conditions of any options granted subject to obtaining disinterested shareholder approval, if required.
Notwithstanding anything else contained in the Option Plan and subject to any necessary approval required by the applicable securities legislation, the Board of Directors may in its discretion (a) extend the expiry date of any option (provided that in no case shall the expiry date be extended beyond five years from the date of grant); (b) alter or change the vesting terms applicable to an option, including the accelerated vesting schedule; (c) reduce the exercise price; or (d) amend any other term of an outstanding option, provided that, if required by the rules or regulations of the TSX, disinterested shareholder approval must be obtained for a reduction in the exercise price if the option holder is an insider of the Company at the time of the proposed amendment.
Any substantive amendments to the Option Plan are subject to the Company first obtaining the approvals of the shareholders of the Company and the TSX.
The Board of Directors may terminate the Option Plan at any time provided that such termination will not alter the terms or conditions of any option awarded prior to the date of such termination.
Financial Assistance
Benefits and Perquisites
The primary purpose of providing benefits and limited perquisites to the Company's executives is to attract and retain the talent to manage the Company. The Company intends the type and value of benefits and perquisites offered to be competitive with overall market practices. Details of the benefits and perquisites provided to the Named Executive Officers are disclosed in the All Other Compensation column of the 2008 Summary Compensation Table set forth in this Information Circular. The primary benefits for the Companys executives include participation in the Companys broad-based plans: health and dental coverage, various company-paid insurance plans, including disability and life insurance, paid time off and paid holidays. In general, the Company will provide a specific perquisite only when the perquisite provides competitive value and promotes retention of executives, or when the perquisite provides shareholder value. In addition, perquisites that promote efficient performance of the Companys executives are also considered. The limited perquisites the Company provides its executives may include a company vehicle, Spanish lessons and fitness classes.
Retirement Policy
The Company does not have a retirement policy for its executive officers.
Review / Modifications
The Companys executive compensation program is reviewed and considered at least annually by the Compensation Committee to determine if the objectives of the executive compensation program are being achieved and whether any modifications to that program are required. This includes a review of base salaries payable, potential bonuses payable and entitlement and participation in equity related incentive plans for all executive officers. It also includes a review of the metrics used to assess performance, the targets established with respect to those performance metrics, whether previously established targets have been achieved and to what degree, and whether the performance metrics and targets are still appropriate in light of the then current industry, stock market and general economic conditions. The Compensation Committee considers the establishment of new performance metrics and related targets to be used to assess executive officer performance and determine executive officer compensation on a go-forward basis. In completing this review, the Compensation Committee considers the recommendations of management and the Chief Executive Officer in particular. Upon completion of that review, the Compensation Committee in turn makes its recommendations with respect to the Companys executive compensation program to the full Board of Directors. The Board of Directors then approves the executive compensation program, including the individual components thereof, subject to any modifications it deems necessary.
Page 11
Performance Graph
The following graph compares the percentage change in the cumulative total shareholder return for C$100 invested in common shares of the Company on January 1, 2004 against the cumulative total shareholder return of the S&P/TSX Composite Index for such period, assuming reinvestment of all dividends.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the fiscal year ended December 31, 2008 for the (a) President and Chief Executive Officer of the Company; (b) the Chief Operating Officer of the Company; and (c) the Chief Financial Officer of the Company, who are the Named Executive Officers for the purposes of this Information Circular.
Non-equity incentive | |||||||||
plan compensation | |||||||||
($) | |||||||||
Share- | Option- | Annual | Long-term | Pension | All other | Total | |||
Name and | based | based | incentive | incentive | value | compensation | compensation | ||
principal | Salary | awards | awards | plans (3) | plans | ($) | ($) | ($) | |
position | Year | ($) (1) | ($) | ($) (2) | |||||
Keith Neumeyer
CEO |
2008
|
$255,840
|
Nil
|
$357,500
|
Nil
|
Nil
|
Nil
|
$4,312
(4)
|
$617,652
|
Ramon Davila
COO |
2008
|
$255,840
|
Nil
|
$313,500
|
$50,376
|
Nil
|
Nil
|
$5,878
(5)
|
$625,594
|
Raymond Polman
CFO |
2008
|
$184,020
|
Nil
|
$206,000
|
$25,000
|
Nil
|
Nil
|
Nil
|
$415,020
|
Page 12
(1) |
Compensation for Mr. Neumeyer and Mr. Davila is paid in US dollars. The rate of exchange used to convert US dollars to Canadian dollars is 1.0660 which is the average rate for 2008 as posted by the Bank of Canada. |
(2) |
The value of the option based awards was calculated using the Black-Scholes Option Pricing Model. |
(3) |
Mr. Davilas compensation comprises of $7,736 for finders fee, $42,640 (US$40,000) bonus paid during the year ended December 31, 2008 for performance in 2005, 2006, 2007 and 2008.. The rate of exchange used to convert US dollars to Canadian dollars is 1.0660 which is the average rate for 2008 as posted by the Bank of Canada. Mr. Polmans compensation comprises of a bonus paid during the year ended December 31, 2008 for performance in 2007. |
(4) |
Represents insurance premiums payable by the Company for personal insurance for Mr. Neumeyer during the year ended December 31, 2008. |
(5) |
Represents insurance premiums payable by the Company for personal insurance for Mr. Davila during the year ended December 31, 2008. The rate of exchange used to convert US dollars to Canadian dollars is 1.2246 per Bank of Canada on December 31, 2008. |
INCENTIVE PLAN AWARDS
Outstanding Share-Based Awards and Option-Based Awards
The following tables sets forth the outstanding share-based awards and option-based awards granted to the Named Executive Officers of the Company during the most recently completed financial year:
Option-based Awards | Share-based Awards | |||||
Market or | ||||||
Number of | payout value | |||||
securities | Value of | Number of | of share- | |||
underlying | unexercised in- | shares or units | based awards | |||
unexercised | Option | the-money | of shares that | that have not | ||
options | exercise price | Option | options | have not vested | vested | |
Name | (#) | ($) | expiration date | ($) | (#) | ($) |
Keith Neumeyer,
CEO |
50,000
240,000 100,000 |
$3,62
$1.44 $1.56 |
28-Aug-13
10-Nov-13 17-Dec-13 |
$Nil
$175,200 $ 61,000 |
Nil
|
Nil
|
Ramon Davila,
COO |
50,000
250,000 |
$3.62
$1.56 |
28-Aug-13
17-Dec-13 |
$Nil
$152,000 |
Nil
|
Nil
|
Raymond Polman,
CFO |
100,000
50,000 |
$4.65
$4.15 |
25-Mar-11
28-Jul-11 |
Nil
Nil |
Nil
|
Nil |
Page 13
Value Vested or Earned During the Year
The following table sets forth details of the value vested or earned for all incentive plan awards during the most recently completed financial year by each Named Executive Officer:
Option-based awards | Non-equity incentive plan | ||
Value vested during the | Share-based awards Value | compensation Value earned | |
year (1) | vested during the year | during the year (2) | |
Name | ($) | ($) | ($) |
Keith Neumeyer, CEO | $25,225 | Nil | Nil |
Ramon Davila, COO | $25,225 | Nil | $50,376 |
Raymond Polman, CFO | $3,000 | Nil | $25,000 |
(1) |
This amount is based on the aggregate dollar value that would have been realized if the options under the option-based award had been exercised on the vesting date. It was computed using the dollar value that would have been realized by determining the difference between the market price of the underlying securities at exercise and the exercise or base price of the options under the option-based award on the vesting date. |
|
(2) |
Mr. Davilas compensation comprises of $7,736 (US$7,257) for finders fee, $42,640 (US$40,000) bonus paid during the year ended December 31, 2008 for performance in 2005, 2006, 2007 and 2008.. The rate of exchange used to convert US dollars to Canadian dollars is 1.0660 which is the average rate for 2008 as posted by the Bank of Canada. Mr. Polmans compensation comprises of a bonus paid during the year ended December 31, 2008 for performance in 2007. |
The number of options vesting to Named Executive Officers under the 2008 Stock Option Plan during the most recently completed financial year was 730,000, of which no options were exercised by the Named Executive Officers during the most recently completed financial year.
Option-Based Awards Outstanding at Year End
The following table sets forth for each Named Executive Officer, the number of options that were outstanding as at December 31, 2008 and includes the exercise price, expiration date and the value of such options as at December 31, 2008.
Number of Securities | ||||
Underlying Unexercised | Option | Value of Unexercised In-the | ||
Options | Exercise Price | Option | Money Options (1) | |
Name | (#) | ($) | Expiration Date | ($) |
Keith Neumeyer, | 100,000 | $4.30 | 19-Jun-11 | 0 |
CEO | 35,000 | $4.32 | 6-Dec-11 | 0 |
50,000 | $4.41 | 22-Dec-11 | 0 | |
15,000 | $5.00 | 7-Feb-12 | 0 | |
200,000 | $4.34 | 5-Dec-12 | 0 | |
50,000 | $3.62 | 28-Aug-13 | 0 | |
240,000 | $1.44 | 10-Nov-13 | $175,200 | |
100,000 | $1.56 | 17-Dec-13 | $ 61,000 | |
Total | $236,200 | |||
Ramon Davila, | 100,000 | $4.30 | 19-Jun-11 | 0 |
COO | 35,000 | $4.32 | 6-Dec-11 | 0 |
100,000 | $4.41 | 22-Dec-11 | 0 | |
65,000 | $5.00 | 7-Feb-12 | 0 | |
200,000 | $4.32 | 5-Dec-12 | 0 | |
50,000 | $3.62 | 28-Aug-13 | 0 | |
250,000 | $1.56 | 17-Dec-13 | $152,500 | |
Total | $152,500 |
Page 14
Number of Securities | ||||
Underlying Unexercised | Option | Value of Unexercised In-the | ||
Options | Exercise Price | Option | Money Options (1) | |
Name | (#) | ($) | Expiration Date | ($) |
Raymond Polman, | 200,000 | $5.50 | 1-Feb-10 | 0 |
CFO | 50,000 | $4.64 | 1-Jun-10 | 0 |
100,000 | $4.34 | 5-Dec-10 | 0 | |
100,000 | $4.65 | 25-Mar-11 | 0 | |
50,000 | $4.15 | 28-Jul-11 | $ 0 | |
Total | $ 0 |
(1) |
This amount is based on the difference between the market value of the Common Shares underlying the options at the end of the most recently completed financial year, and the exercise price of the option. |
TERMINATION AND CHANGE OF CONTROL BENEFITS
Each of the Named Executive Officers have termination and change and control benefits provided for in their employment agreements. The terms of each of the Named Executive Officers employment agreements is contained in this Information Circular under the heading Statement of Executive Compensation Compensation Discussion and Analysis.
The following table sets out the maximum amount the Company could be obligated to pay in the event that a Named Executive Officer was terminated without cause as of December 31, 2008. The Company would also be obligated to pay the Named Executive Officers actual accrued base salary and expenses up to the date of termination and continue the Named Executive Officers health benefits and option entitlements for the period set out in their respective employment agreements.
Name | Base Salary | Bonus | Vacation Pay | Total Gross Payment | ||||||||
Keith Neumeyer (1) , CEO | $195,936 (4) | Nil | Nil | $195,936 | ||||||||
Ramon Davila (2) , COO | $146,952 (5) | $12,246 | Nil | $159,198 | ||||||||
Raymond Polman (3) , CFO | $93,000 (6) | Nil | $8,084 | $101,084 |
(1) |
On a termination without cause or following a change of control Mr. Neumeyers employment agreement and consulting agreement provide that he will be entitled to payment of eight months base salary plus benefits. After two years of employment with the Company, this amount will increase by two months for each additional year of employment. |
(2) |
On a termination without cause Mr. Davilas employment agreement and consulting agreement provide that he will be entitled to payment of six months consulting fees. This amount will increase by two months for each additional year of consulting. In the event of a change of control, the Company is committed to making severance payments to Mr. Davila totaling twelve months base salary plus benefits. |
(3) |
On a termination without cause or a following a change of control, Mr. Polmans employment agreement and consulting agreement provide that he will be entitled to payment of six months base salary plus benefits. This amount will increase by one month for each additional year of employment to a maximum total of 18 months base salary. |
(4) |
$195,936 in the event of termination on a change of control. The rate of exchange used to convert US dollars to Canadian dollars is 1.2246 per Bank of Canada on December 31, 2008. |
(5) |
$294,904 in the event of termination on a change of control. The rate of exchange to convert US dollars to Canadian dollars is 1.2246 per Bank of Canada on December 31, 2008. |
(6) |
$93,000 in the event of termination on a change of control. |
Page 15
COMPENSATION OF DIRECTORS
Other than compensation paid to the Named Executive Officers, and except as noted below, no compensation was paid to directors in their capacity as directors of the Company or its subsidiaries, in their capacity as members of the Board of Directors or of a committee of the Board of Directors of its subsidiaries, or as consultants or experts, during the Companys most recently completed financial year.
The following table sets forth the details of compensation provided to the directors, other than the Named Executive Officers during the Companys most recently completed financial year:
Director Compensation Table
Share- | Non-Equity | ||||||||||||||||||||
Fees | based | Option-based | Incentive Plan | Pension | All Other | ||||||||||||||||
Earned | Awards | Awards (1) | Compensation | Value | Compensation (2) | Total | |||||||||||||||
Name | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||
Robert McCallum | $ | 62,000 | Nil | Nil | Nil | Nil | $ | 2,000 | $ | 64,000 | |||||||||||
Douglas Penrose | $ | 56,000 | Nil | Nil | Nil | Nil | $ | 2,000 | $ | 58,000 | |||||||||||
Tony Pezzotti | $ | 51,000 | Nil | $ | 96,000 | Nil | Nil | $ | 2,000 | $ | 149,000 | ||||||||||
David Shaw | $ | 33,500 | Nil | $ | 96,000 | Nil | Nil | $ | 2,000 | $ | 131,500 | ||||||||||
Robert Young | $ | 31,000 | Nil | Nil | Nil | Nil | $ | 2,000 | $ | 33,000 |
(1) |
The value of the option based awards was calculated using the Black-Scholes Option Pricing Model. |
(2) |
Represents miscellaneous out-of-pocket expenses. |
Independent members of the Board of Directors are compensated for acting as directors and may be granted incentive stock options pursuant to the policies of the Toronto Stock Exchange and the Option Plan. The Board of Directors as a whole determines the stock option grants for each director.
As at January 1, 2008, the Board of Directors determined that each independent director will receive an annual fee of $24,000, $750 for each quarterly meeting attended and $500 for each non-quarterly meeting attended exceeding 60 minutes. The Chairman of the Board of Directors (Mr. McCallum) receives an additional annual fee of $15,000, the Chairman of the Audit Committee (Mr. Penrose) receives an additional annual fee of $12,000, the Chairman of the Compensation Committee (Mr. Pezzotti) receives an additional annual fee of $5,000 and the Chairman of the Corporate Governance Committee (Mr. McCallum) receives an additional annual fee of $5,000. Further, each independent member of the Audit Committee (Messrs. McCallum, Pezzotti and Penrose) receives a fee of $1,000 per meeting, each independent member of the Compensation Committee (Messrs. Pezzotti, Shaw and Young) receives a fee of $500 per meeting and each independent member of the Corporate Governance Committee (Messrs. McCallum, Penrose and Shaw) receives a fee of $500 per meeting. The independent directors of the Company as at the fiscal year end were Mr. Robert McCallum, Mr. Tony Pezzotti, Mr. David Shaw, Mr. Douglas Penrose and Mr. Robert Young. From time to time, the Company also grants stock options to directors.
Compensation of Directors - Outstanding Share-Based Awards and Option-Based Awards
The following table sets forth the incentive plan awards granted to the directors of the Company during the most recently completed financial year:
Page 16
Option-based Awards | Share-based Awards | |||||
Number of | Market or | |||||
securities | Value of | Number of | payout value of | |||
underlying | Option | unexercised in- | shares or units | share-based | ||
unexercised | exercise | Option | the-money | of shares that | awards that | |
options | price | expiration | options | have not vested | have not vested | |
Name | (#) | ($) | date | ($) | (#) | ($) |
Robert McCallum | Nil | N/A | N/A | Nil | Nil | Nil |
Douglas Penrose | Nil | N/A | N/A | Njl | Nil | Nil |
Tony Pezzotti | 100,000 | $1.56 | 17-Dec-13 | $61,000 | Nil | Nil |
David Shaw | 100,000 | $1.56 | 17-Dec-13 | $61,000 | Nil | Nil |
Robert Young | Nil | N/A | N/A | Nil | Nil | Nil |
Directors Compensation - Incentive Plan Awards Value Vested or Earned During the Year
The following table sets forth details of the value vested or earned for all incentive plan awards during the most recently completed fiscal year by each director:
(1) |
This amount is based on the aggregate dollar value that would have been realized if the options under the option-based award had been exercised on the vesting date. It was computed using the dollar value that would have been realized by determining the difference between the market price of the underlying securities at exercise and the exercise or base price of the options under the option-based award on the vesting date. |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets out, as of the end of the Companys financial year ended December 31, 2008, the information required with respect to compensation plans under which equity securities of the Company are authorized for issuance:
Page 17
Number of securities | |||
Number of securities | Weighted-average | remaining available for | |
to be issued upon | exercise price of | issuance under equity | |
exercise of | outstanding | compensation plans | |
outstanding options, | options, warrants | (excluding securities | |
warrants and rights | and rights | reflected in column (a)) | |
Plan Category | (a) | (b) | (c) |
Equity compensation plans approved by securityholders |
6,862,500
|
$3.84
|
522,281
|
Equity compensation plans not approved by securityholders |
Nil
|
Nil
|
Nil
|
Totals | 6,862,500 | $3.84 | 522,281 |
A description of the Companys Option Plan is contained in this Information Circular under the heading Executive Compensation Description of the Option Plan.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS TO THE COMPANY
No director or senior officer of the Company or any associate or affiliate of any such director or senior officer, other than Ramon Davila, is or has been indebted to the Company or any of its subsidiaries at any time during the Company's last completed financial year. During the year ended December 31, 2008, the Company provided an unsecured interest free loan of US$30,000 to Mr. Davila. This loan was fully repaid subsequent to December 31, 2008.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Other than as set forth in this Information Circular, none of the persons who were directors or executive officers of the Company or a subsidiary of the Company at any time during the Company's last financial year, any person or company who beneficially owns, directly or indirectly, or who exercises control or direction over (or a combination of both) more than 10% of the issued and outstanding common shares of the Company, nor any associate or affiliate of any such person, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any transaction since the commencement of the Company's most recently completed financial year or in any proposed transaction, which has materially affected or would materially affect the Company.
AUDITORS
The auditors for the Company are Deloitte & Touche LLP, Chartered Accountants of Four Bentall Centre, 2800 1055 Dunsmuir Street, Vancouver, British Columbia V7X 1P4. Management of the Company intends to nominate Deloitte & Touche LLP for reappointment as auditors of the Company. At the Meeting, shareholders will be asked to approve (a) the re-appointment of Deloitte & Touche LLP as auditors for the Company to hold office as such until the next Annual General Meeting of the Company and (b) a resolution authorizing the Board of Directors to fix the remuneration to be paid to the auditors for the upcoming year. Forms of Proxy given pursuant to the solicitation by the management of the Company will, on any poll, be voted in favour of such matters. Deloitte & Touche LLP were first appointed as auditors for the Company on December 14, 2004.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The Board of Directors of the Company is responsible for developing, reviewing and implementing a set of corporate governance guidelines specifically applicable to the Company, as provided in Appendix A Statement of Corporate Governance Practices. The corporate governance practices ensure the process and structure used to direct and manage the business and affairs of the Company with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business.
Page 18
The Board of Directors has adopted a Board Mandate, as provided in Appendix B hereto, clarifying responsibilities and ensuring effective communication between the Board of Directors and management.
MANAGEMENT CONTRACTS
The management functions of the Company are not to any substantial degree performed by any person other than the senior officers and the Board of Directors of the Company.
AUDIT COMMITTEE
As required by National Instrument 52-110, information about the Companys Audit Committee is provided in the Companys most recent Annual Information Form (AIF) under Directors and Officers. The AIF may be obtained from the Companys disclosure documents available on the SEDAR website at www.sedar.com.
FINANCIAL STATEMENTS
The audited financial statements of the Company for the year ended December 31, 2008, together with the auditors report on those statements (the Financial Statements), will be presented to the shareholders at the Meeting. The Financial Statements are included within the Companys 2008 Annual Report which is being mailed with this Information Circular to the shareholders of record.
OTHER MATTERS TO BE ACTED UPON
Management of the Company is not aware of any other matters which are to come before the Meeting other than the matters referred to in the Notice of Meeting. However, if any matters other than those referred to herein should be presented at the Meeting, the persons named in the enclosed Proxy are authorized to vote the shares represented by the Proxy in accordance with their best judgment.
ADDITIONAL INFORMATION
Additional information relating to the Company can be found on the SEDAR website at www.sedar.com. Financial information concerning the Company is also provided in the Companys comparative financial statements for the year ended December 31, 2008.
Shareholders may obtain a copy of the Companys financial statements and managements discussion and analysis upon request to the Company at Suite 1805 925 West Georgia Street, Vancouver, BC, V6C 3L2 or can view them on the Companys website at www.firstmajestic.com.
Page 19
APPROVAL OF THE BOARD OF DIRECTORS
The contents of this Information Circular have been approved, and the delivery of it to each shareholder of the Company entitled thereto and to the appropriate regulatory agencies has been authorized by the Board of Directors of the Company.
CERTIFICATE
The foregoing contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made.
DATED at Vancouver, British Columbia the 13th day of April, 2009.
Keith Neumeyer
Keith Neumeyer,
President and Chief Executive Officer
Page 20
APPENDIX A
FIRST MAJESTIC SILVER CORP.
(the Company)
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The following description of the governance practices of the Company is provided in accordance with the guidelines of National Instrument 58-101, as set out in Form 58-101F1 (the Form 58-101F1 Guidelines). The Form 58-101F1 Guidelines address matters relating to constitution and independence of directors, the functions to be performed by the directors of a company and their committees and effectiveness and evaluation of proposed corporate governance guidelines and best practices specified by the Canadian securities regulators. The directors of the Company will continue to monitor the developments and the various changes to the proposed corporate governance guidelines and best practices and where applicable will amend its corporate governance guidelines accordingly.
1. | Board of Directors |
Independence of the Board
The Board consists of seven directors, of whom five are independent. None of the five unrelated directors has any direct or indirect material relationship with the Company (other than shareholdings) which could, in the view of the Companys Board, reasonably interfere with the exercise of a directors independent judgment. Robert McCallum, Tony Pezzotti, David Shaw, Douglas Penrose and Robert Young are independent directors. Keith Neumeyer is the Chief Executive Officer of the Company and Ramon Davila is the Chief Operating Officer. Neither Mr. Neumeyer nor Mr. Davila are independent directors.
Directorships
The directors of the Company are directors of the following reporting issuers set opposite their names:
Robert A. McCallum Director of Shore Gold Inc.
David Shaw President and Director of Albion Petroleum Ltd.; Director of Pan Pacific Aggregates plc.
Robert Young Director of Goldrush Resources Ltd.
Tony Pezzotti Pan Terra Industries Inc.
Independent Directors Meetings
The independent directors hold regularly scheduled meeting at which non-independent directors and members of management do not attend. The Board holds its in-camera meeting at the end of each quarterly board meeting and Audit Committee meetings. During the financial year ended December 31, 2008, the independent directors held four in-camera meetings.
Chairman
The Chairman of the Board, Robert McCallum, is an independent director.
Meetings of the Board and Committees of the Board
The Board meets a minimum of four times per year, usually every quarter and following the annual general meeting of the Companys shareholders. Each committee of the Board meets once a year or more frequently as deemed necessary by the applicable committee. The frequency of the meetings and the nature of the meeting agendas are dependent upon the nature of the business and affairs which the Company faces from time to time. During the financial year ended December 31, 2008, the Board held 14 meetings, the Audit Committee held 13 meetings, the Corporate Governance Committee held zero meetings and the Human Resources, Compensation and Nominating Committee held two meetings. The following table provides details regarding attendance at the Board and committee meetings during the financial year ended December 31, 2008.
2. | Board Mandate |
The Board Mandate was implemented by the Board effective December 21, 2006, and is attached as Appendix B to this Information Circular.
3. | Position Descriptions |
Written position descriptions have been developed by the Board for the Chairman of the Board and the Chairman of each committee of the Board. The Company is currently in the process of reviewing the position description for the Chief Executive Officer of the Company and expects to have the written position description in place prior to the Annual General Meeting.
4. | Orientation and Continuing Education |
Orientation and education of new members of the Board is conducted informally by management and members of the Board. The orientation provides background information on the Companys history, performance and strategic plans.
5. | Ethical Business Conduct |
The Board has adopted a formal written code of ethical conduct (the Code) for its directors, officers and employees. The Companys Corporate Governance Committee is responsible for setting the standards of business conduct contained in the Code, as well as overseeing and monitoring compliance with the Code by ensuring all directors, officers and employees receive and become familiar with the Code and acknowledge their support and understanding of the Code. Any non-compliance with the Code is to be reported to the Corporate Governance Committee. A copy of the Code may be accessed on the Companys website at www.firstmajestic.com.
6. | Whistleblower Policy |
The Company has adopted a Whistleblower Policy which allows its directors, officer and employees who feel that a violation of the Code has occurred, or who have concerns regarding financial statement disclosure issues, accounting, internal accounting controls, auditing matters to report such violation or concerns on a confidential and anonymous basis. Such reporting can be made by web-based reporting or telephone through EthicsPoint, Inc., an independent reporting agency used by the Company for this purpose. Once received, complaints are forwarded to the Chairman of the Corporate Governance Committee or Chief Executive Officer who then investigates each matter so reported and takes corrective and disciplinary action, if appropriate.
Page 2
7. | Nomination of Directors |
The Human Resources, Compensation and Nominating Committee which consists of Tony Pezzotti, David Shaw and Robert Young, is responsible for identifying individuals qualified to become new board members and for recommending to the Board the new director nominees for the next annual meeting of shareholders.
8. | Compensation |
Independent members of the Board are compensated for acting as directors and may be granted incentive stock options pursuant to the policies of the Toronto Stock Exchange and the Companys stock option plan. The Companys Human Resources, Compensation and Nominating Committee reviews managements recommendations for and, in accordance with Board guidelines, recommends the granting of stock options to management, directors, officers and other employees and consultants of the Company and its subsidiaries. The Board as a whole determines the stock option grants for each director. The Human Resources, Compensation and Nominating Committee has overall responsibility for recommending levels of executive compensation that are competitive and motivating in order to attract, hold and inspire senior officers and for identifying individuals qualified to become new board members and recommending to the Board the new director nominees for the next annual meeting of shareholders.
9. | Other Board Committees |
The Board is satisfied that in view of the size and composition of the Board, it is more efficient and cost effective for the full board to perform the duties that would be required by standing committees, other than the Audit Committee, Human Resources, Compensation and Nominating Committee and Corporate Governance Committee.
The Corporate Governance Committee which consists of Robert McCallum, Douglas Penrose and David Shaw, under the supervision of the Board, has overall responsibility to monitor the governance of the board of directors (including the size of the board and the profiles of the board members) and board committees. The Corporate Governance Committees responsibilities include, but are not limited to, the following:
Review at least annually the size, composition and profile of the Board;
Review at least annually the performance of the Board as a whole;
Review annually the performance of individual directors, including with respect to minimum attendance guidelines, diligence, avoidance or handling of conflicts of interest and compliance with respect to their statutory and common law duties;
Evaluate the performance of the Chairman of the Board;
On an annual basis, recommend and bring forward to the Board, a list of corporate governance issues for review, discussion or action by the Board or a committee; and
On an annual basis, review the indemnification polices of the Company, general liability insurance policy and Directors and Officers insurance policy.
Page 3
10. | Assessments |
The Board considers individual director performance assessments are not warranted, given the Companys stage of development, the directors shareholdings and the required time commitment to the affairs of the Company.
Page 4
APPENDIX B
FIRST MAJESTIC SILVER CORP.
(the Company)
BOARD OF DIRECTORS MANDATE
I. |
INTRODUCTION |
||
A. |
The First Majestic Silver Corp. (First Majestic or the Company) Board of directors (the Board) has a primary responsibility to foster the short and long-term success of the Company and is accountable to the shareholders. |
||
B. |
The directors are stewards of the Company. The Board has the responsibility to oversee the conduct of the Companys business and to supervise management, which is responsible for the day-to-day operation of the Company. In supervising the conduct of the business, the Board, through the Chief Executive Officer (the CEO) sets the standards of conduct for the Company. |
||
C. |
This mandate is prepared to assist the Board and management in clarifying responsibilities and ensuring effective communication between the Board and management. |
||
II. |
COMPOSITION AND BOARD ORGANIZATION |
||
A. |
Nominees for directors are initially considered and recommended by the Boards Compensation and Nominating Committee in conjunction with the Board Chair, approved by the entire Board and elected annually by the shareholders. |
||
B. |
A majority of directors comprising the Board must qualify as independent directors (as defined in National Instrument 58-201 Disclosure of Corporate Governance Practices. |
||
C. |
Certain of the Boards responsibilities may be delegated to Board committees. The responsibilities of those committees will be as set forth in their mandates. |
||
III. |
DUTIES AND RESPONSIBILITIES |
||
A. |
Managing the Affairs of the Board |
||
The Board operates by delegating certain of its authorities, including spending authorizations, to management and by reserving certain powers to itself. The legal obligations of the Board are described in Section IV. Subject to these legal obligations and to the Articles and By-laws of the Company, the Board retains the responsibility for managing its own affairs, including: |
|||
i) |
annually reviewing the skills and experience represented on the Board in light of the Companys strategic direction and approving a Board composition plan recommended by the Compensation and Nominating Committee; |
||
ii) |
appointing, determining the composition of and setting the terms of reference for, Board committees; |
||
iii) |
determining and implementing an appropriate process for assessing the effectiveness of the Board, the Board Chair, committees and directors in fulfilling their responsibilities; |
||
iv) |
assessing the adequacy and form of director compensation; |
||
v) |
assuming responsibility for the Companys governance practices; |
vi) |
establishing new director orientation and ongoing director education processes; |
|||
vii) |
ensuring that the independent directors meet regularly without executive directors and management present; |
|||
viii) |
setting the terms of reference for the Board; and |
|||
ix) |
appointing the secretary to the Board. |
|||
B. |
Human Resources |
|||
The Board has the responsibility to: |
||||
i) |
provide advice and counsel to the CEO in the execution of the CEOs duties; |
|||
ii) |
appoint the CEO and plan CEO succession; |
|||
iii) |
set terms of reference for the CEO; |
|||
iv) |
annually approve corporate goals and objectives that the CEO is responsible for meeting; |
|||
v) |
monitor and, at least annually, review the CEOs performance against agreed upon annual objectives; |
|||
vi) |
to the extent feasible, satisfy itself as to the integrity of the CEO and other senior officers, and that the CEO and other senior officers create a culture of integrity throughout the Company; |
|||
vii) |
set the CEOs compensation; |
|||
viii) |
approve the CEOs acceptance of significant public service commitments or outside directorships; |
|||
ix) |
approve decisions relating to senior management, including: |
|||
a. |
review senior management structure including such duties and responsibilities to be assigned to officers of the Company; |
|||
b. |
on the recommendation of the CEO, appoint and discharge the officers of the Company who report to the CEO; |
|||
c. |
review compensation plans for senior management including salary, incentive, benefit and pension plans; and |
|||
d. |
employment contracts, termination and other special arrangements with executive officers, or other employee groups. |
|||
x) |
approve certain matters relating to all employees, including: |
|||
a. |
the Companys broad compensation strategy and philosophy; |
|||
b. |
new benefit programs or material changes to existing programs; and |
|||
xi) |
ensure succession planning programs are in place, including programs to train and develop management. |
Page 2
C. |
Strategy and Plans |
||
The Board has the responsibility to: |
|||
i) |
adopt and periodically review a strategic planning process for the Company; |
||
ii) |
participate with management, in the development of, and annually approve a strategic plan for the Company that takes into consideration, among other things, the risks and opportunities of the business; |
||
iii) |
approve annual capital and operating budgets that support the Companys ability to meet its strategic objectives; |
||
iv) |
direct management to develop, implement and maintain a reporting system that accurately measures the Companys performance against its business plans; |
||
v) |
approve the entering into, or withdrawing from, lines of business that are, or are likely to be, material to the Company; and |
||
vi) |
approve material divestitures and acquisitions. |
||
D. |
Financial and Corporate Issues |
||
The Board has the responsibility to: |
|||
i) |
take reasonable steps to ensure the implementation and integrity of the Companys internal control and management information systems; |
||
ii) |
review and approve release by management of any materials reporting on the Companys financial performance or providing guidance on future results to its shareholders and ensure the disclosure accurately and fairly reflects the state of affairs of the Company, and is in accordance with generally accepted accounting principles, including quarterly results press releases and quarterly financial statements, any guidance provided by the Company on future results, Company information circulars, annual information forms, annual reports, offering memorandums and prospectuses; |
||
iii) |
declare dividends; |
||
iv) |
approve financings, issue and repurchase of shares, issue of debt securities, listing of shares and other securities, issue of commercial paper, and related prospectuses; and recommend changes in authorized share capital to shareholders for their approval; |
||
v) |
approve the incurring of any material debt by the Company outside the ordinary course of business; |
||
vi) |
approve the commencement or settlement of litigation that may have a material impact on the Company; and |
||
vii) |
recommend the appointment of external auditors and approve auditors fees. |
||
E. |
Business and Risk Management |
||
The Board has the responsibility to: |
|||
i) |
ensure management identifies the principal risks of the Companys business and implements appropriate systems to manage these risks; |
Page 3
ii) |
approve any plans to hedge silver sales; and |
||
iii) |
evaluate and assess information provided by management and others about the effectiveness of risk management systems. |
||
F. |
Policies and Procedures |
||
The Board has the responsibility to: |
|||
i) |
approve and monitor, through management, compliance with all significant policies and procedures that govern the Companys operations; |
||
ii) |
approve and act as the guardian of the Companys corporate values, including the implementation of a Code of Business Conduct and Ethics for the Company and managements procedures to monitor compliance with the Code of Business Conduct and Ethics; |
||
iii) |
direct management to ensure the Company operates at all times within applicable laws and regulations and to the highest ethical and moral standards; and |
||
iv) |
establish the Companys Environmental, Health and Safety Policy. |
||
G. |
Compliance Reporting and Corporate Communications |
||
The Board has the responsibility to: |
|||
i) |
ensure the Company has in place effective communication processes with shareholders and other stakeholders and financial, regulatory and other recipients; |
||
ii) |
approve and periodically review the Companys communications policy; |
||
iii) |
ensure the Board has measures in place to receive feedback from shareholders; |
||
iv) |
approve interaction with shareholders on all items requiring shareholder response or approval; |
||
v) |
ensure the Companys financial performance is adequately reported to shareholders, other security holders and regulators on a timely and regular basis; |
||
vi) |
ensure the financial results are reported fairly and in accordance with generally accepted accounting principles; |
||
vii) |
ensure the CEO and CFO certify the Companys annual and interim financial statements, annual and interim MD&A and Annual Information Form, and that the content of the certification meets all legal and regulatory requirements; |
||
viii) |
ensure timely reporting of any other developments that have a significant and material effect on the Company; and |
||
ix) |
report annually to the shareholders on the Boards stewardship for the preceding year. |
IV. | GENERAL LEGAL OBLIGATIONS OF THE BOARD OF DIRECTORS |
A. | The Board is responsible for: |
Page 4
i) |
directing management to ensure legal requirements have been met, and documents and records have been properly prepared, approved and maintained; and |
|||
ii) |
recommending changes in the Articles and Bylaws, matters requiring shareholder approval, and setting agendas for shareholder meetings. |
|||
B. |
B.C. law identifies the following as legal requirements for the Board: |
|||
i) |
act honestly and in good faith with a view to the best interests of the Company, including the duty: |
|||
a. |
to disclose conflicts of interest; |
|||
b. |
not to appropriate or divert corporate opportunities; |
|||
c. |
to maintain confidential information of the Company and not use such information for personal benefit; and |
|||
d. |
disclose information vital to the business of the Company in the possession of a director; |
|||
ii) |
exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances; and |
|||
iii) |
act in accordance with the Business Corporations Act (British Columbia) (BCBCA) and any regulations, by-laws and unanimous shareholder agreement. |
EFFECTIVE DATE
This Mandate was implemented by the Board on December 21, 2006
Page 5
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the Annual General Meeting of the shareholders of First Majestic Silver Corp. (the "Company") will be held at The Fairmont Waterfront Hotel, 900 Canada Place Way, Vancouver, British Columbia, V6C 3L5, on Thursday, May 28, 2009 at 10:00 a.m. (Vancouver time). At the meeting, the shareholders will receive the financial statements for the year ended December 31, 2008, together with the auditors report thereon, and consider resolutions:
1. |
To receive and consider the Report of the directors. |
|
2. |
To appoint Deloitte & Touche LLP , Chartered Accountants, as auditors for the Company to hold office until the next Annual Meeting. |
|
3. |
To authorize the directors to fix the remuneration to be paid to the auditors. |
|
4. |
To determine the number of directors at seven. |
|
5. |
To elect directors. |
|
6. |
To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof. |
Accompanying this Notice is an Information Circular, form of Proxy, and Financial Statement Request Form.
Shareholders unable to attend the Annual General Meeting in person are requested to read the enclosed Information Circular and Proxy, and then complete and deposit the Proxy together with the power of attorney or other authority, or certification, if appropriate, under which it was signed or a notarially certified copy thereof with the Company's Transfer Agent, Computershare Trust Company of Canada , not less than 48 hours (excluding Saturdays, Sundays and holidays) before the time of the meeting.
DATED at Vancouver, British Columbia, this 13 th day of April, 2009.
ON BEHALF OF THE BOARD OF DIRECTORS
OF FIRST MAJESTIC
SILVER CORP.
Keith Neumeyer
Keith Neumeyer
President and Chief Executive
Officer
April 13, 2009
Dear Shareholder:
FIRST MAJESTIC SILVER CORP.
(the Company)
Request for Printed Copies of Annual and Interim Financial Statements and MD&A
In accordance with National Instrument 51-102, Continuous Disclosure Obligations , the registered and beneficial owners of our shares may request a copy of our annual financial statements and management discussion and analysis (MD&A) for the annual financial statements, our interim financial statements and MD&A, or both.
If you wish to receive printed copies of any of these documents, please indicate your request by completing this form and returning it to:
FIRST MAJESTIC SILVER CORP.
Suite 1805 925 West Georgia
Street
Vancouver, BC, Canada
V6C 3L2
As an alternative to receiving these financial statements and MD&A by mail, you may view them on the Companys profile on SEDAR at www.sedar.com .
REQUEST TO RECEIVE ANNUAL AND INTERIM FINANCIAL STATEMENTS AND MD&A |
OF FIRST MAJESTIC SILVER CORP. (the Company) |
[ ] | A. |
Please send me the annual financial statements and MD&A. |
[ ] | B. |
Please send me the interim financial statements and MD&A. |
[ ] | C. |
Please send me both A and B. |
I confirm that I am a registered and/or beneficial holder of shares of the Company.
Signature | |
Name of Shareholder - Please Print | |
Address | |
Postal Code | |
Name and title of person signing, if different from name above |
Date: 10/03/2009 | 510 Burrard St, 3rd Floor |
Vancouver BC, V6C 3B9 | |
www.computershare.com |
To: All Canadian Securities Regulatory Authorities
Subject: First Majestic Silver Corp
Dear Sirs:
We advise of the following with respect to the upcoming Meeting of Security Holders for the subject Issuer:
Meeting Type : | Annual General Meeting |
Record Date for Notice of Meeting : | 13/04/2009 |
Record Date for Voting (if applicable) : | 13/04/2009 |
Meeting Date : | 28/05/2009 |
Meeting Location (if available) : | Fairmont Waterfront Centre, 900 |
Canada Place Way, Vancouver BC |
Voting Security Details:
Description | CUSIP Number | ISIN |
COMMON SHARES | 32076V103 | CA32076V1031 |
Sincerely,
Computershare Trust Company of Canada /
Computershare Investor Services Inc.
Agent for First Majestic Silver Corp
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company |
FIRST MAJESTIC SILVER CORP. (the Company) | |
1805 925 West Georgia Street | |
Vancouver, BC V6C 3L2 CANADA | |
Telephone: (604) 688-3033 | |
Facsimile: (604) 639-8873 | |
Item 2. | Date of Material Change |
November 10, 2010 | |
Item 3. | News Release |
The press release was disseminated through the services of Marketwire. | |
Item 4. | Summary of Material Change |
The Company announced the closing today of the acquisition of all the real estate interests including the original mill and infrastructure and underlying royalties and bonuses which were associated with the Real de Catorce Silver Project in San Luis Potosi State, Mexico | |
Item 5. | Full Description of Material Change |
5.1 Full Description of Material Change | |
See Schedule A attached hereto. | |
5.2 Disclosure for Restructuring Transactions | |
Not applicable. | |
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 |
Not applicable | |
Item 7. | Omitted Information |
Not applicable. | |
Item 8. | Executive Officer |
Keith Neumeyer, President & CEO | |
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |
Item 9. | Date of Report |
November 10, 2010 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
Toronto Stock Exchange FR | November 10, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic Completes Acquisition of Surface Rights,
Royalties and
Infrastructure at Real de Catorce Silver
Project
VANCOUVER, November 10, 2010 - First Majestic Silver Corp. ("First Majestic") (TSX: FR) is pleased to announce the closing today of the acquisition of all the real estate interests including the original mill and infrastructure and underlying royalties and bonuses which were associated with the Real de Catorce Silver Project in San Luis Potosi State, Mexico.
The total purchase price of US$3,000,000 consists of US$1,500,000 cash and the issuance of US$1,500,000 in common shares of First Majestic equalling 152,798 shares at a deemed price of $9.91 per share based on the volume weighted average of the past five days trading. The package includes title to all of the land underlying the Santa Ana Hacienda located within the Real de Catorce property, together with all associated buildings and certain historic geological and proprietary mining information relating to the project.
The Real de Catorce Silver Mine which was acquired in November 2009, had been subject to a 3% net smelter royalty (3% NSR), of which 1.75% could be acquired for a total price of US$1.75 million, if paid prior to March 15, 2014, otherwise the total purchase price would increase to US$2.1 million. In addition, the previous owner (Normabec) had agreed to acquire the surface rights, the buildings located thereon which cover the location of the previous mining operations, and all technical and geological information, in consideration for a single payment of US$1.2 million to be made by December 2010. The Company was also obligated upon commencement of commercial production, to pay an additional US$200,000 to the previous owner.
The acquisition by the Company today replaces the above mentioned total cash payments of between $3.15 and $3.4,with a total purchase price of US$3.0 million in cash and shares, and removes entirely any future NSR on the Real de Catorce project.
The Company is currently evaluating its alternatives for future production in the area, including the evaluation of past exploration works in order to plan for future underground development, mining and processing plant alternatives. In the meantime, the Company is planning to rehabilitate the Santa Ana Hacienda for the purpose of opening a mining museum to help the community create new jobs and increase the economic opportunities in the area.
The shares issued in this agreement will be subject to a four month hold period from the date of issuance under applicable Canadian securities laws.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
2
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company |
FIRST MAJESTIC SILVER CORP. (the Company) | |
1805 925 West Georgia Street | |
Vancouver, BC V6C 3L2 CANADA | |
Telephone: (604) 688-3033 | |
Facsimile: (604) 639-8873 | |
Item 2. | Date of Material Change |
November 9, 2010 | |
Item 3. | News Release |
The press release was disseminated through the services of Marketwire. | |
Item 4. | Summary of Material Change |
The Company announced the unaudited financial results for the Company's third quarter ending September 30, 2010. | |
Item 5. | Full Description of Material Change |
5.1 Full Description of Material Change | |
See Schedule A attached hereto. | |
5.2 Disclosure for Restructuring Transactions | |
Not applicable. | |
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 |
Not applicable | |
Item 7. | Omitted Information |
Not applicable. | |
Item 8. | Executive Officer |
Keith Neumeyer, President & CEO | |
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |
Item 9. | Date of Report |
November 9, 2010 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | November 9, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Another Record Quarter of Earnings and Cash Flows
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company" or First Majestic) is pleased to announce the unaudited financial results for the Company's third quarter ending September 30, 2010. The full version of the financial statements and the managements discussion and analysis can be viewed on the Company's web site at www.firstmajestic.comor on SEDAR at www.sedar.com.
Third Quarter 2010 Highlights ($CAD) | Change from Q3-2009 | |
Gross Revenue | $36.1 million | Up 114% |
Net Revenue | $33.5 million | Up 144% |
Mine Operating Earnings | $16.9 million | Up 307% |
Net Income after Taxes | $10.3 million | Up 458% |
Cash Flow Per Share (non-GAAP measure) | $0.17 per share | Up 279% |
Earnings Per Share basic | $0.11 per share | Up 450% |
Silver Ounces Produced (excluding equivalent ounces of gold and lead) | 1,823,370 ounces Ag | Up 95% |
Silver Equivalent Production | 1,920,498 eq. oz. | Up 76% |
Silver Equivalent Ounces Sold | 1,869,393 eq. oz. | Up 84% |
Total Cash Costs per Ounce | US$ 7.42 | Down 14% |
Direct Cash Costs per Ounce | US$ 5.79 | Up 4% |
Average Revenue per Ounce sold | US$ 18.57 | Up 23% |
Cash and Cash Equivalents (as at Sept 30 th ) | $25.5 million | Up $19.6 million |
Results of Operations
Consolidated gross revenue (prior to smelting & refining charges, and metal deductions) for the quarter ended September 30, 2010 increased 114% to $36.1 million (US$34.7 million) compared to $16.8 million (US$15.4 million) for the quarter ended September 30, 2009, for an increase of $19.2 million. Compared to the second quarter ended June 30, 2010, consolidated gross revenue increased by $4.3 million or 13%. The increase in revenues in the third quarter of 2010 is primarily attributable to a 15% increase in silver ounces sold compared to the previous quarter. The increase in ounces sold is due to increased production from the plant at the La Encantada Silver Mine as well as from improving operating levels at the La Parrilla Silver Mine which combined to contribute a 95% increase in silver production when compared to the third quarter of 2009.
Net sales revenue (after smelting and refining charges and metals deductions) for the quarter ended September 30, 2010 was $33.5 million, an increase of 144% compared to $13.7 million for the third quarter of 2009. Net sales revenue for the quarter ended September 30, 2010 increased by 16% compared to $29.0 million in the second quarter of 2010. Smelting and refining charges and metal deductions decreased to 7% of gross revenue in the third quarter of 2010 compared to 19%of gross revenue in the third quarter of 2009, due to a shift in the production mix toward silver doré which is a benefit from the new cyanidation plant at La Encantada. Average smelting charges for doré in the third quarter of 2010 were US$0.39 per silver ounce as compared to US$3.84 per silver ounce for concentrates.
2
Net income after taxes was $10.3 million in the third quarter of 2010 resulting in basic earnings per common share (EPS) of $0.11, compared to a net income in the third quarter of 2009 of $1.8 million or an EPS of $0.02. Net income for the third quarter of 2010 was after taking a non-cash future income tax provision of $3.5 million or $0.04 per share and a foreign exchange loss (due to a stronger Peso) which increased by $1.0 million or $0.01 per share over the previous quarter, when net income after taxes was $8.9 million and basic EPS was $0.10.
Mine operating earnings for the third quarter of 2010 increased by 307% to $16.9 million, compared to mine operating earnings of $4.1 million for the third quarter of 2009, and are associated with an increase in net revenue during the third quarter of 2010. When compared to the second quarter of 2010, mine operating earnings increased by 29% from $13.1 million to $16.9 million.
Operating income increased by 617%, or $11.8 million, to $13.8 million for the quarter ended September 30, 2010, from $1.9 million for the quarter ended September 30, 2009, due to the 84% increase in ounces sold and the 23% increase in average US$ revenue per ounce of silver sold. When compared to the second quarter of 2010, operating income increased by 38% from $10.0 million to $13.8 million.
Production of silver, excluding any equivalents from gold, lead or zinc, increased 95% compared to the third quarter of 2009. The Company produced 1,823,370 ounces of silver in the current quarter, 1,538,798 ounces of silver in prior quarter and 935,996 ounces in the third quarter of 2009. In the current quarter, 95% of First Majestics revenue resulted from the sale of pure silver making it the purest silver producer relative to its peers.
Total silver equivalents production for the third quarter of 2010 increased 76% from the same quarter of the prior year and 16% from the prior quarter to 1,920,498 ounces of silver equivalents consisting of 1,823,370 ounces of silver, 323 ounces of gold, 1,248,086 pounds of lead and 228,517 pounds of zinc. This compares to the 1,089,481 ounces of silver equivalents produced in the third quarter of 2009, which consisted of 935,996 ounces of silver, 732 ounces of gold, 1,690,354 pounds of lead, and 8,913 pounds of zinc and compares with production in the previous quarter of 1,656,165 ounces of silver equivalents consisting of 1,538,798 ounces of silver, 541 ounces of gold and 1,494,548 pounds of lead.
In the third quarter of 2010, the Company sold 1,869,393 ounces of silver equivalent at an average price of $19.30 per ounce (US$18.57) compared to 1,018,417 ounces in the third quarter of 2009 at an average price of $16.54 per ounce (US$15.07), representing an increase of 84% in shipments over the same quarter in 2009 and a 15% increase over the preceding quarter. The average trading price for silver in the third quarter was US$18.96.
The new La Encantada cyanidation plant achieved average throughput of 3,477 tonnes per day in the third quarter compared to 2,900 tonnes per day in the second quarter. The La Encantada plant produces silver doré bars which are 93-97% silver with small amounts of lead, gold and other metals making up the balance of the contents in these bars. The economic differences between doré and concentrate production are significant and are beginning to reflect in improved financial numbers. The economics of switching from concentrate production to doré production resulted in a 56% savings of smelting and refining costs per silver ounce for consolidated operations in the third quarter of 2010 compared to the third quarter of 2009.
Total cash costs per ounce (including smelting, refining, metal deductions, transportation and other selling costs, and byproduct credits, which is a non-GAAP measure) for the third quarter of 2010 was US$7.42 per ounce of silver compared to US$8.64 per ounce of silver in the third quarter of 2009 and US$8.20 per ounce in the second quarter of 2010. The cost decrease was attributed to reduced smelting & refining costs (US$1.34 per ounce this quarter versus US$3.08 per ounce for the same quarter last year) related to the converting the production at La Encantada plant to doré production instead of concentrate production.
On a year to date basis, the Companys cash position has increased by $19.6 million to $25.5 million at the end of the third quarter, and working capital increased by $19.3 million to $24.1 million over the same period. The Company achieved these increases while also investing $11.6 million in plant and equipment and $10.0 million in its mineral properties. In addition, in September and October the Company repaid in advance 100% of the $4.1 million balance of the FIFOMI loans outstanding leaving the Company debt free, excluding the small prepayment facility and capital leases.
3
In Summary
First Majestic has delivered another quarter of strong operating results thanks to the additional production, earnings and cash flow from operations including the new plant at the La Encantada Silver Mine, which have also come at a time when theres been a significant increase in the price of silver, which combined, have had an extremely positive impact on the Companys balance sheet on a year to date basis.
These are clearly very exciting times in the silver commodity markets and a very exciting time for the Company to be reaping the rewards of over six years of hard work, and which have delivered increased capacities into a very buoyant market. We will continue to focus on the fundamentals of minimizing cash costs and increasing production as we grow First Majestic into a senior silver producer commented Keith Neumeyer, President and CEO of First Majestic.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan of becoming a senior silver producer through the development of its existing mineral property assets and the pursuit through acquisition of additional mineral assets which contribute to the Company achieving its aggressive corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website atwww.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
October 6, 2010 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that production in the third quarter ending September 30, 2010 increased to a new Company record of 1,920,498 equivalent ounces of silver representing a 16% increase over the previous quarter and a 76% increase over the third quarter of 2009. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
October 6, 2010 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | October 6, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Another New Record for Silver Production; 1,823,370 oz Silver Produced in Q3
Highlights
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the third quarter ending September 30, 2010 increased to a new Company record of 1,920,498 equivalent ounces of silver representing a 16% increase over the previous quarter and a 76% increase over the third quarter of 2009.
The total equivalent silver production for the quarter consisted of: 1,823,370 ounces of silver, representing an 18% increase from the previous quarter; 1,248,086 pounds of lead representing a 16% decrease from the previous quarter; and 377 ounces of gold representing a decrease of 36% compared to the previous quarter. Total silver production compared to the third quarter of 2009 increased by 95%.
The total ore processed during the quarter at the Company's three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to a new record of 434,221 tonnes milled in the quarter representing a 7% increase over the previous quarter.
Production Details Table:
|
Quarter Ended
September 30, 2010 |
Quarter Ended
June 30, 2010 |
% Change
+/- |
Total silver ounces produced | 1,823,370 | 1,538,798 | 18% |
Total equivalent silver ounces produced | 1,920,498 | 1,656,165 | 16% |
Total ore processed/tonnes milled | 434,221 | 404,350 | 7% |
Total pounds of lead produced | 1,248,086 | 1,494,548 | -16% |
Total gold ounces produced | 377 | 593 | -36% |
2
Other Developments
The Companys underground development in the third quarter consisted of 6,207 metres, compared to 5,063 metres completed in the previous quarter. Diamond drilling activity in the quarter consisted of 7,819 metres compared with 3,090 metres completed in the previous quarter. The expanded drilling program consisted of definition drilling to assist in mining activity and resource upgrading and exploration at the Companys three mines.
Now that the La Encantada mill expansion has effectively achieved full capacity, the Companys focus for the next 15 months will be: 1) expanding the Companys La Parrilla operation, 2) concluding a final decision on size and timing of a new mill construction at the Companys Del Toro Silver Mine, and 3) expanding the NI 43-101 compliant Reserves / Resources at each of the Companys five projects (La Encantada Silver Mine, La Parrilla Silver Mine, San Martin Silver Mine, Del Toro Silver Mine and the Real de Catorce Silver Project).
At the La Encantada Silver Mine:
The new 3,500 tpd cyanidation mill achieved full production during the quarter. Average throughput reached 3,477 tpd for a total of 295,328 tonnes (dry metric tonnes) compared to 2,908 tpd for the second quarter. Full capacity is based on a 330 day work year (85 days for the third quarter) which equates to 297,500 tonnes which confirms the mill is running at 99% of capacity.
Cost efficiencies are expected to improve compared to the second quarter as throughput has reached capacity in the third quarter.
In July, the main access to the mine from Muzquiz, Coahuila, was interrupted by Hurricane Alex. With cooperation with other mining companies in the area, efforts were combined to re-open roads. The interruption was short lived with minimal delays in transportation of supplies. Further work is underway to improve the local infrastructure to prevent future interruptions.
Now that the throughput in the mill has reached capacity, the focus in the fourth quarter will be to refine operations in the areas of recoveries, smelting and other areas which are expected to improve costs and efficiencies going forward.
At the La Parrilla Silver Mine:
Further to the July 8, 2010 news release discussing the plan to expand the La Parrilla operation; final engineering design and planning is expected to be completed in the fourth quarter. Permitting is expected in the first quarter of 2011, with groundbreaking commencing immediately afterwards. The current plan is to expand this operation to 1,600 tpd from its current capacity of 850 tpd, effectively doubling production from current levels by the end of 2011. Once final plans are completed, the Company will announce further details.
During the quarter the Company acquired, through staking, an additional 16,630 hectares of land which created a contiguous land block of 69,867 hectares surrounding the La Parrilla mining operations. Several large geological anomalies are now contained within First Majestics land holdings. Geophysical regional exploration and mapping is currently being carried out in order to define a broad diamond drill program scheduled for 2011.
3
At the San Martin Mine:
At the Del Toro Silver Mine:
Mr. Keith Neumeyer, President and CEO stated: First Majestics operations are exceeding budgeted levels. This is a real testament to the efforts of our management and staff at all levels of our business. Its nice to see First Majestic shine as it continues to break new records.
Ramon Davila, Ing., M.Sc., Chief Operating Officer for First Majestic, is the Qualified Person pursuant to NI 43-101 who reviewed this news release and oversees the mining operations.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
August 16, 2010 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the unaudited financial results for the Company's second quarter ending June 30, 2010. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
August 16, 2010 |
TSX Exchange FR | August 16, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Record Earnings and Cash Flows. Purest Silver Producer
with 93% of
Revenue from Silver Production
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company" or First Majestic) is pleased to announce the unaudited financial results for the Company's second quarter ending June 30, 2010. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
Second Quarter 2010 Highlights ($CAD) | Change from Q2-2009 | |
Gross Revenue | $31.8 million | Up 102% |
Net Revenue | $29.0 million | Up 122% |
Mine Operating Earnings | $13.1 million | Up 679% |
Net Income after taxes | $8.9 million | Up 757% |
Earnings Per Share basic | $0.10 per share | Up 900% |
Cash Flow Per Share (non-GAAP measure) | $0.14 per share | Up 1300% |
Silver Ounces Produced (excluding equivalent ounces of gold and lead) | 1,538,798 ounces Ag | Up 86% |
Silver Equivalent Production | 1,656,165 eq. oz. | Up 73% |
Silver Equivalent Ounces Sold | 1,623,844 eq. oz. | Up 51% |
Total Cash Costs per ounce | US$ 8.20 | Down 10% |
Direct Cash Costs per ounce | US$ 6.16 | Down 2% |
Average Revenue per ounce sold | US$ 18.68 | Up 48% |
Results of Operations
Consolidated gross revenue (prior to smelting and refining charges and metal deductions) for the quarter ended June 30, 2010 was $31.8 million (US$30.3 million) compared to $15.8 million (US$13.5 million) for the quarter ended June 30, 2009 for an increase of $16.0 million or 102%. Compared to the first quarter ended March 31, 2010, consolidated gross revenue increased by $9.9 million or 45%. The increase in revenues in the second quarter of 2010 is primarily attributable to a 25% increase in silver ounces sold compared to the first quarter ended March 31, 2010. The increase in ounces sold are due to the launch of the new cyanidation plant at the La Encantada Silver Mine and the improving operating levels at the La Parrilla Silver Mine which combined, contribute a 86% increase in silver production compared to the second quarter of 2009.
In the second quarter of 2010, the Company sold 1,623,844 ounces of silver equivalent at an average price of US$18.68 per ounce compared to 1,073,129 ounces in the second quarter of 2009 at an average price of US$12.60 per ounce, representing an increase of 51% in shipments over the same quarter in 2009 and a 25% increase over the first quarter of 2010. In the first quarter of 2010, the Company sold 1,298,659 ounces of silver equivalents at an average price of US$16.23 per ounce.
2
Production of silver, excluding any equivalents from gold or lead, increased by 9% over the prior quarter and 86% compared to the second quarter of 2009. The Company produced 1,538,798 ounces of silver in the current quarter, 1,409,825 ounces of silver in the first quarter of 2010 (commercial and non-commercial production), and 827,720 ounces in the second quarter of 2009. In the second quarter of 2010, 93% of First Majestics revenue resulted from the sale of pure silver making the Company the purest silver producer relative to its peers.
The new plant at La Encantada achieved commercial production on April 1, 2010. The design of the new plant allows for the production of silver doré bars which are generally 93-97% silver with small amounts of lead, gold and other metals making up the balance of the contents of these bars. During the second quarter, furnaces were installed allowing for the discontinuation of concentrate production. The economic differences are significant and are beginning to reflect in the financial numbers. Management completed a review of the economics of lead production and concluded that, due to the relatively small amount of lead produced historically and the current lead prices, ore was more valuable if processed directly through cyanidation rather than being floated, and thus the flotation circuit was shut down in June 2010. As a result of the discontinuation of flotation, concentrate production decreased in the second quarter and lead as a byproduct decreased by 41% to 1,494,548 pounds. The economics of switching from concentrate production to doré production resulted in a savings for La Encantada of approximately US$2.61 per ounce in the second quarter of 2010 and a savings of $1.10 per ounce for consolidated operations. The new La Encantada cyanidation plant achieved average throughput of approximately 2,900 tonnes per day in the second quarter. This average throughput is expected to increase in the third quarter.
Total commercial production for the second quarter of 2010 increased by 22% compared to the first quarter of 2010. Total production (commercial and non-commercial) for the second quarter of 2010 increased 2% from the prior quarter and 73% from the same quarter of the prior year to 1,656,165 ounces of silver equivalents consisting of 1,538,798 ounces of silver, 541 ounces of gold and 1,494,548 pounds of lead. This compares to the 957,936 ounces of silver equivalents produced in the second quarter of 2009, which consisted of 827,720 ounces of silver, 746 ounces of gold, 1,493,162 pounds of lead, and compares with production in the first quarter of 1,619,403 ounces of silver equivalents consisting of 1,409,825 ounces of silver, 857 ounces of gold and 2,542,071 pounds of lead.
Net sales revenue (after smelting and refining charges, metals deductions, transportation and other selling costs) for the quarter ended June 30, 2010 was $29.0 million, an increase of 122% compared to $13.0 million for the second quarter of 2009. Net sales revenue for the quarter ended June 30, 2010 increased by 59% compared to $18.2 million in the first quarter of 2010. Smelting and refining charges and metal deductions decreased to 9% of gross revenue in the second quarter of 2010 compared to 17% of gross revenue in the second quarter of 2009, due to a shift in the production mix toward silver doré which is a major benefit from the new cyanidation plant at La Encantada.
The Company generated net income of $8.9 million in the second quarter of 2010, or earnings per common share (EPS) of $0.10 compared to a net income in the second quarter of 2009 of $1.0 million or EPS of $0.01. Net income for the second quarter of 2010 included non-cash stock-based compensation expense of $0.6 million and an income tax provision of $1.4 million. In the first quarter of 2010, net income was $3.0 million resulting in EPS of $0.03. If the revenues and expenses of the new plant were deemed commercial in the first quarter (recorded as income rather than capital) an additional $2.3 million of capitalized profits would have increased EPS in the first quarter to $0.06.
Direct cash costs per ounce of silver (a non-GAAP measure) for the second quarter of 2010 were US$6.16, compared to US$6.31 per ounce of silver in the second quarter of 2009 and US$4.94 per ounce of silver in the first quarter of 2010. The cost increase was attributed to an increase in the peso relative to the US dollar, as well as an increase in electricity and diesel costs compared to previous quarters.
Total cash costs per ounce (including smelting, refining, metal deductions, transportation and other selling costs, and byproduct credits, which is a non-GAAP measure) for the second quarter of 2010 was US$8.20 per ounce of silver compared to US$9.15 per ounce of silver in the second quarter of 2009 and US$8.11 per ounce in the first quarter of 2010.
Mine operating earnings for the second quarter of 2010 increased by 679% to $13.1 million compared to mine operating earnings of $1.7 million for the second quarter of 2009 and are associated with an increase in net revenue during the second quarter of 2010. When compared to the first quarter of 2010, mine operating earnings increased by 78% from $7.4 million.
3
Operating income increased by 907%, or $11.2 million, to $10.0 million for the quarter ended June 30, 2010, from an operating loss of $1.2 million for the quarter ended June 30, 2009, due to the 51% increase in ounces sold and the 51% increase in average US$ revenue per ounce of silver sold. When compared to the first quarter of 2010, operating income increased by 114% from $4.7 million.
During the quarter ended June 30, 2010, the Company invested $2.6 million in its mineral properties and a further $3.0 million in additions to plant and equipment on a cash basis. This compares to $3.2 million invested in its mineral properties and a further $5.9 million in additions to plant and equipment on a cash basis in the second quarter ended June 30, 2009. When compared to the first quarter of 2010, the Company invested $3.4 million in its mineral properties and a further $1.4 million in additions to plant and equipment on a cash basis.
In Summary
First Majestic has experienced its first quarter of operating results incorporating the additional production, earnings and cashflow from the operations of its new plant at the La Encantada Silver Mine and, as expected, the results are clearly record breaking. The increased production of silver, reduced smelting and refining costs and firm silver prices are combining to provide the Company a quantum increase in earnings and cashflow for this past quarter.
We would like to thank everyone who assisted in the construction, financing and launching of the impressive La Encantada processing plant and look forward to continued improvements in costs and output as we further increase our daily throughput and improve our operational efficiencies commented Keith Neumeyer, President and CEO of First Majestic. Management looks forward to continued improvements in production, earnings and cashflow as the La Encantada operation matures over the coming quarters.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan of becoming a senior silver producer through the development of its existing mineral property assets and the pursuit through acquisition of additional mineral assets which contribute to the Company achieving its aggressive corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
July 8, 2010 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that production in the second quarter ending June 30, 2010 increased to a new company record of 1,651,411 equivalent ounces of silver representing a 2% increase over the previous quarter and a 72% increase over the second quarter of 2009. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
July 8, 2010 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | July 8, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
New Record for Silver Production; Produces 1,538,798 oz Silver
Highlights
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the second quarter ending June 30, 2010 increased to a new company record of 1,651,411 equivalent ounces of silver representing a 2% increase over the previous quarter and a 72% increase over the second quarter of 2009.
The total equivalent silver production for the quarter consisted of 1,538,798 ounces of silver, representing a 9% increase from the previous quarter, 1,494,532 pounds of lead representing a 41% decrease from the previous quarter, and 541 ounces of gold representing a decrease of 37% compared to the previous quarter. Total silver production from operations have increased by 86% when compared with the second quarter of 2009.
The total ore processed during the quarter at the Company's three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to a new record 404,349 tonnes milled in the quarter representing a 20% increase over the previous quarter.
Productions Details Table:
|
Quarter
Ended June 30, 2010 |
Quarter Ended March 31, 2010 |
% Change +/- |
Total Silver ounces produced | 1,538,798 | 1,409,825 | 9% |
Total Equivalent silver ounces produced | 1,651,411 | 1,619,403 | 2% |
Total Ore processed/tonnes milled | 404,349 | 337,110 | 20% |
Total Pounds of lead produced | 1,494,532 | 2,542,071 | -41% |
Total Gold ounces produced | 541 | 857 | -37% |
2
Other Developments
The Companys underground development in the second quarter consisted of 5,063 metres, compared to 5,100 metres completed in the previous quarter. There was 3,090 meters of diamond drilling completed in the quarter which consisted of definition drilling to assist in mining activity, resource upgrading and exploration at the Companys three mines.
At the La Encantada Silver Mine:
At the La Parrilla Silver Mine:
At the San Martin Mine:
Mr. Keith Neumeyer, President and CEO had the following to say about the recent production results: First Majestic continues to break new records and we are extremely pleased with the second quarter results. Our operational team continues to demonstrate that they are committed to increasing efficiencies to achieve our production goal of 6.35 million silver equivalent ounces in 2010.
Ramon Davila, Ing., Chief Operating Officer for First Majestic, is the Qualified Person who reviewed this news release and oversaw the mining operations.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
3
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
SIGNED
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
May 13, 2010 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the unaudited financial results for the Company's first quarter ending March 31, 2010. | |||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
May 13, 2010 |
TSX Exchange FR | May 13, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Quarter Marks 5 th Consecutive Quarter of Net Income
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the unaudited financial results for the Company's first quarter ending March 31, 2010. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
First Quarter 2010 Highlights ($CAD) | |
Gross Revenue | $21.9 million |
Net Revenue | $18.2 million |
Mine Operating Earnings | $7.4 million |
Net Income after taxes | $3.0 million |
Earnings Per Share | $0.03 |
Silver Equivalent Production (1) | 1,619,403 oz. Ag eq. |
Silver Equivalent Ounces Sold (2) | 1,298,659 oz. Ag eq. |
Total Cash Costs per ounce | US$8.11 |
Direct Cash Costs per ounce | US$4.94 |
Average Revenue per ounce sold | $16.89 (US$ 16.23) |
(1) includes pre-commercial production
of 261,193 silver ounces during the quarter
ended March 31,
2010.
(2) excludes the net margin of $2.3 million of pre-commercial production in connection with the sale of 262,403 silver ounces during the quarter ended March 31, 2010. |
FINANCIAL PERFORMANCE AND HIGHLIGHTS
Consolidated gross revenue (prior to smelting, refining and metal deductions) for the quarter ended March 31, 2010 was $21,935,712 compared to $17,464,137 for the quarter ended March 31, 2009 for an increase of $4,471,575 or 26%. Consolidated gross revenue for the quarter ended March 31, 2010 increased by 2% compared to the prior quarter ended December 31, 2009.
In the first quarter of 2010, the Company shipped (sold) 1,298,659 ounces of silver equivalent at an average price of $16.89 per ounce (US$16.23) compared to 996,595 ounces in the first quarter of 2009 at an average price of $17.52 per ounce (US$14.07), representing an increase of 30% in shipments over the same quarter in 2009 and a 13% increase over Q4 of 2009. In the fourth quarter of 2009, the Company shipped 1,145,562 ounces of silver equivalents at an average price of $18.71 (US$17.72) per ounce.
Total production for the first quarter of 2010 increased 30% from the prior quarter and 56% from the same quarter of the prior year to 1,619,403 ounces of silver equivalents consisting of 1,409,825 ounces of silver, 857 ounces of gold and 2,542,071 pounds of lead. This compares to the 1,040,117 ounces of silver equivalents produced in the first quarter of 2009, which consisted of 929,964 ounces of silver, 491 ounces of gold, 1,828,739 pounds of lead. In the fourth quarter of 2009, the Company produced 1,249,568 ounces of silver equivalents consisting of 1,103,840 ounces of silver, 701 ounces of gold and 1,571,819 pounds of lead.
2
Net sales revenue (after smelting and refining charges and metals deductions) for the quarter ended March 31, 2010 was $18.2 million, an increase of 27% compared to $14.4 million for the first quarter of 2009. Net sales revenue for the quarter ended March 31, 2010 was virtually unchanged compared to $18.4 million for the fourth quarter of 2009. Smelting and refining charges and metal deductions decreased marginally to 17% of gross revenue in the first quarter of 2010 compared to 18% of gross revenue in the first quarter of 2009. Average smelting charges for doré in the first quarter of 2010 were US$0.52 per equivalent silver ounce whereas for concentrates they were US$4.05 per equivalent silver ounce.
The Company generated net income in the first quarter of 2010 of $3.0 million, or earnings per common share (EPS) of $0.03 compared to a net income in the first quarter of 2009 of $0.9 million or EPS of $0.01. Net income for the first quarter of 2010 was after deducting non-cash stock-based compensation expense of $0.7 million and an income tax provision of $1.1 million. As the new La Encantada plant was not in commercial production until April 1, 2010, generally accepted accounting principles require the revenues and production costs to be recorded as capital costs against the plant rather than being recorded in the Statement of Income for the first quarter of 2010. If the revenues and expenses of the new plant were recorded as income rather than capital, the $2.3 million of capitalized profits would have been adjusted upwards to $0.06 per share rather than $0.03 per share.
Total cash costs per ounce (includes smelting, refining, metal deductions, and by-product credits and is a non-GAAP measure) for the first quarter of 2010 was US$8.11 per ounce of silver compared to US$7.60 per ounce of silver in the first quarter of 2009 and US$8.61 per ounce in the fourth quarter of 2009.
Direct cash costs per ounce of silver (a non-GAAP measure) for the first quarter of 2010 were US$4.94, consistent with the first quarter of 2009 at US$4.94 per ounce of silver. This compares to the direct cash costs of US$5.69 per ounce of silver in the fourth quarter of 2009.
Mine operating earnings for the first quarter of 2010 increased by 62% to $7.4 million, compared to mine operating earnings of $4.5 million for the first quarter of 2009, due to an increase in net revenue during the first quarter of 2010. Mine operating earnings for the first quarter of 2010 decreased by 9% when compared to mine operating earnings of $8.1 million for the fourth quarter of 2009, due to additional depletion expenses recorded in the current quarter. An additional $2.3 million of profits were capitalized due to the pre-commercial nature of the precipitate sales at the La Encantada cyanidation plant in the first quarter and therefore were excluded from the $7.4 million mine operating earnings reported above.
Operating income increased by 155%, or $2.8 million, to $4.7 million for the quarter ended March 31, 2010, from an operating income of $1.8 million for the quarter ended March 31, 2009. Operating income increased by 137%, for the quarter ended March 31, 2010, when compared to an operating income of $2.0 million for the fourth quarter ended December 31, 2009.
The new cyanidation process plant at the La Encantada Silver Mine achieved commercial production effective April 1, 2010 with current throughput at approximately 2,700 tonnes per day and is expected to reach full production by the end of the second quarter and producing at an annualized rate of over four million ounces of silver. Total capitalized construction in progress at La Encantada at March 31, 2010 consisted of $35.9 million (US$35.3 million).
During the quarter ended March 31, 2010, the Company invested $3.4 million in its mineral properties and a further $1.4 million in additions to plant and equipment on a cash basis. This compares to $1.8 million invested in its mineral properties and a further $1.6 million in additions to plant and equipment on a cash basis in the first quarter ended March 31, 2009.
In Summary
First Majestic has now had five consecutive quarters of net income and consistent advancements in production and cash flows due to continuing growth in production resulting from the expansion of operations, the most recent being the completion of the new plant at the La Encantada Silver Mine. As this new plant at La Encantada reached commercial production on April 1, 2010, the net earnings on the sale of silver will now be recorded in the Companys statement of income rather than being capitalized, as it was in the first quarter of 2010. Had the Company included the additional $2.3 million of profit in the first quarter, mine operating earnings would have been $9.7 million rather than $7.4 million resulting in an EPS of $0.06 instead of $0.03.
3
Due to the production of doré bars at La Encantada versus the production of concentrates, we are expecting significant reductions in smelting and refining costs and similar reductions in total cash costs going forward as doré is about one tenth the cost of concentrates to treat.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
April 12, 2010 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that total production at its three mines in Mexico for the first quarter ending March 31, 2010 increased to a new Company record of 1,619,403 equivalent ounces of silver, representing a 30% increase over the prior quarter production and a 56% increase over the first quarter of 2009 production. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
April 12, 2010 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | April 12, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Production Increases by 30% to 1,619,403 Equivalent Ounces Silver
Highlights
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that total production at its three mines in Mexico for the first quarter ending March 31, 2010 increased to a new Company record of 1,619,403 equivalent ounces of silver, representing a 30% increase over the prior quarter production and a 56% increase over the first quarter of 2009 production (See Production Details Table below).
The total equivalent silver production for the quarter consisted of 1,409,825 ounces of silver, representing a 28% increase from the prior quarter, 2,542,071 pounds of lead representing a 61% increase from the previous quarter, and 857 ounces of gold, representing an increase of 22% compared to the previous quarter.
The total ore processed during the quarter at the Company's three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to 337,110 tonnes milled representing a 34% increase over the previous quarter.
As announced on April 8, 2010, the new La Encantada cyanidation plant was deemed commercially operating effective April 1, 2010. Therefore, all production, revenues and operating costs associated with the new mill were capitalized in the first quarter. Effective April 1, 2010, all revenues and costs will be treated as normal course operations and recorded in the Companys income statement rather than being capitalized as pre-production, or pre-operating. For the first quarter, ending March 31 st , noncommercial production includes 261,193 ounces of silver in the form of precipitates produced at the La Encantada cyanidation plant.
The average head grade in the quarter for the three mines increased by 8% over the previous quarter to 253 g/t of silver. The combined recoveries of silver increased from 65% to 66% in the quarter. Noncommercial production was not taken into account when calculating head grades or recoveries.
2
Production Details Table:
|
Quarter Ended
March 31, 2010 |
Quarter Ended
December 31, 2009 |
% Change
+/- |
Total Ore processed/tonnes milled | 337,110 | 251,258 | 34.2% |
Commercial Ore processed/tonnes milled | 212,602 | 212,412 | 0.1% |
Total production - ounces of silver eqv. | 1,619,403 | 1,249,568 | 29.6% |
Commercial production - ounces of silver eqv. | 1,357,447 | 1,181,542 | 14.9% |
Total Silver ounces produced | 1,409,825 | 1,103,840 | 27.7% |
Commercial silver ounces produced | 1,148,632 | 1,036,137 | 10.9% |
Total Pounds of lead produced | 2,542,071 | 1,574,819 | 61.4% |
Commercial pounds of lead produced | 2,542,071 | 1,574,791 | 61.4% |
Total Gold Ounces produced | 857 | 701 | 22.3% |
Commercial Gold ounces produced | 845 | 696 | 21.4% |
Other Developments
The Companys underground development in the first quarter consisted of 5,100 metres, compared to 5,265 metres completed in the previous quarter. There was 308 meters of diamond drilling completed in the quarter which consisted of definition drilling to assist in mining activity and Reserve definition in the Companys three mines.
At the La Encantada Silver Mine:
At the La Parrilla Silver Mine:
At the San Martin Mine:
At the Del Toro Project:
3
At the Real de Catorce Mine:
Mr. Keith Neumeyer stated; I am very pleased with our teams efforts and accomplishments during the first quarter of 2010. The completion of the La Encantada construction is obviously a key milestone and production levels at our La Parrilla and San Martin mines have exceeded budget for three consecutive quarters. So far, were all very pleased that 2010 is shaping up to be a very good year for First Majestic.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
Signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
April 8, 2010 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that the Companys new 3,500 tpd cyanidation plant at its La Encantada Silver Mine in Coahuila, Mexico has reached commercial production effective April 1 st , 2010. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
April 8, 2010 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | April 8, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Encantada Achieves Commercial Production
First Majestic Silver Corp. (the Company) is pleased to announce that the Companys new 3,500 tpd cyanidation plant at its La Encantada Silver Mine in Coahuila, Mexico has reached commercial production effective April 1 st , 2010.
The throughput since April 1 st has averaged 2,600 tpd while the average throughput for the month of March was 1450 tpd. Full capacity at 3,500 tpd is expected to be reached in May 2010 resulting in production at an annualized rate of over 4 million ounces of silver doré bars per year. The new plant is now 98% complete with the only item remaining being the delivery and installation of the Induction Furnaces.
The completion of this new world-class cyanidation plant is beginning to have a significant impact on the Companys production growth. The Company plans to release its first quarter production results on April 12, 2010.
This plant is currently producing silver precipitates which are being shipped regularly to the smelter until the new induction furnaces are installed later this quarter. Once these furnaces are operating, the Company will be producing its own doré bars which will further reduce third party smelting and refining charges.
The last major items installed in the first quarter were the tailings filter-presses which are allowing for the recirculation of 84% of the water circulating in the system. These filters are some of the latest mining technologies available resulting in First Majestic setting an important standard for sustainable operational practices. The plant is using much less water than originally expected and much less than a traditional operation of this type. This state-of-art process is also opening the possibility for immediate reclamation of permanent rejuvenated open space.
The use of this filter press technology will play a central role in achieving superior operational performance in the areas of water use, cyanide use, land use and environmental impact. These three large, heavy duty, 2m x 2m automatic filter presses are dewatering the tailings to 16% moisture levels resulting in substantial savings in pumping, cyanide consumption and power generation. Additionally, the remaining tailings cake is being dry-stacked which eliminates the need for conventional tailings ponds and promotes ongoing reclamation and re-vegetation of the area.
2
Ongoing daily improvements are underway and being focused in the areas of daily tonnage, recoveries, quality of precipitate production and other plant optimizations.
Ramon Davila, Chief Operating Officer, stated; To have a plant of this size deemed commercial within five months of being inaugurated is an impressive achievement and something our team deserves a lot of credit for. These are exciting times for First Majestic.
In addition to the completion of the new cyanidation plant, the Company also invested in improving the old flotation plant by installing several new flotation cells and ancillary equipment. Improvements in recoveries resulted immediately and will be evident in future production and financial results going forward.
Keith Neumeyer, CEO & President stated; As this major milestone comes to its completion, this will result in our production of silver exceeding 6 million ounces this year and we can now look forward to other exciting challenges ahead. Congratulations should go out to all of our management, staff and construction crew for their professionalism and commitment to our growth strategy. This team is now readying itself for our next stage of expansion. Stay tuned.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
March 22, 2010 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the audited financial results for the Company's year ending December 31, 2009 and its fourth quarter ending December 31, 2009. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
March 22, 2010 |
TSX Exchange FR | March 22, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Year End & Fourth Quarter Financial Results
FIRST MAJESTIC SILVER CORP. (FR-TSX) (the "Company") is pleased to announce the audited financial results for the Company's year ending December 31, 2009 and its fourth quarter ending December 31, 2009. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
Fourth Quarter Highlights | |
Gross Revenue | CDN$21.4 million |
Net Revenue | CDN$18.4 million |
Mine Operating Earnings | CDN$8.1 million |
Net Income after taxes | CDN$2.5 million |
Earnings Per Share (EPS) | CDN$0.03 |
Silver Equivalent Production | 1,249,568 oz. Ag eq. |
Silver Equivalent Oz. Sold | 1,145,562 oz. Ag eq. |
Direct Cash Costs per ounce | US$5.69 |
Average Gross Revenue per Ounce Sold | CDN$18.71(US$ 17.72) |
2009 ANNUAL AND Q4 FINANCIAL PERFORMANCE AND HIGHLIGHTS
2
3
In Summary
First Majestics year ended on a very positive note, with the fourth quarter results being the strongest in the Companys history. It is noteworthy that the strong results in 2009 can be primarily credited to the La Parrilla and San Martin operations as the La Encantada expansion project was commissioned in November and had not delivered significant production increases to year end.
Management is confident that 2010 will be an even better year financially for the Company, due to increases in production and profitability expected from the new 3,500 tpd cyanidation mill at La Encantada which is in the ramp up stage and is expected to reach full production in Q2.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
Signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
November 26, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company is proud to announce that the new La Encantada cyanidation plant was inaugurated in a ceremony on November 19, 2009 in which the Mexican Federal Authorities, represented by the Lic. Ximena Valverde, Under Minister of Mines (Coordinadora General de Mineria) declared that the new plant is officially open. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
November 26, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | November 26, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Encantada Opening Ceremony & Production of First Silver Precipitates
First Majestic Silver Corp. is proud to announce that the new La Encantada cyanidation plant was inaugurated in a ceremony on November 19, 2009 in which the Mexican Federal Authorities, represented by the Lic. Ximena Valverde, Under Minister of Mines (Coordinadora General de Mineria) declared that the new plant is officially open.
This new plant has a total capacity of 3,500 tpd, with estimated annual production exceeding four million ounces of silver for an investment of under US$30 million.
Production is expected to reach 2,000 tpd by the end of November and will be further increased to its 3,500 tpd capacity by year end. The filter presses were opened during the ceremony for the first time and represents the first silver precipitate production from this new plant. The first shipments of silver precipitate to the smelter are planned within a few weeks as commercially saleable quantities are accumulated.
The final components of the plant to be installed are the induction furnaces which will allow for melting of the precipitates into silver doré bars. The installation of these furnaces will be completed during the first quarter of 2010.
Keith Neumeyer, President & CEO stated; We are very pleased with the opening of this new facility. The first production of precipitate represents another major milestone in the growth of First Majestic. Our Mexican construction team led by Ramon Davila, COO, should be recognized for their hard work and tireless efforts and should be congratulated for the completion of this very large project. We look forward to the impact that this new facility will have to increased commercial production of silver in the months and years to come.
First Majestic is one of North Americas fastest growing silver producers; its silver production is located in safe jurisdictions in the Americas and remains 100% un-hedged.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
2
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
November 13, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company First, Normabec Mining Resources Ltd. (Normabec) and Brionor Resources Inc. are pleased to announce the closing today of the plan of arrangement previously announced in the joint news release of First Majestic and Normabec dated September 14, 2009. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
November 13, 2009 |
SCHEDULE A
News Release for Immediate Release |
First Majestic Completes Acquisition of Normabec Mining
Resources;
Normabec Spins Out Brionor Resources Inc.
VANCOUVER, November 13, 2009 - First Majestic Silver Corp. ("First Majestic") (TSX: FR), Normabec Mining Resources Ltd. (Normabec) (TSX-V: NMB) and Brionor Resources Inc. (Brionor) are pleased to announce the closing today of the plan of arrangement (the Arrangement) previously announced in the joint news release of First Majestic and Normabec dated September 14, 2009.
Under the Arrangement, First Majestic today acquired all of the issued and outstanding shares of Normabec and Brionor acquired all of the non-Mexican assets of Normabec, including the Pitt Gold Property located in Quebec. Holders of Normabec shares will receive 0.060425 First Majestic shares and 0.25 Brionor shares for each Normabec common share held.
Concurrent with the completion of the Arrangement, First Majestic purchased, via a private placement, 2,115,195 common shares of Brionor for an aggregate purchase price of C$300,000, representing a price per share of approximately C$0.1418. These shares represent 9.9% of the total issued and outstanding shares of Brionor after completion of the transactions.
Shares of Brionor are expected to commence trading on the TSX Venture Exchange under the symbol BNR by Wednesday, November 18, 2009 . Until the shares of Brionor commence trading separately, Normabec will continue to be listed and trading on the TSX Venture Exchange. Shares of Normabec purchased on the Exchange will represent only the right to receive shares of First Majestic and Brionor based on the exchange ratios described above.
Former shareholders of Normabec will receive the shares of First Majestic and Brionor to which they are entitled upon delivery to Computershare Trust Company of Canada of the certificates previously representing their Normabec shares together with a duly completed letter of transmittal. Shareholders are encouraged to contact Computershare for further information concerning the exchange process.
Gryphon Partners acted as financial advisor to First Majestic and Haywood Securities Inc. acted as financial advisor to Normabec in connection with the Arrangement.
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About First Majestic
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives. Presently First Majestic owns three operating silver mines in Mexico, the La Encantada, the La Parrilla, and the San Martin Silver Mines, as well as a project undergoing pre-feasibility known as the Del Toro Silver Mine.
About Brionor
Brionor is a junior mining exploration company with a portfolio of exploration projects including the 100% owned Pitt Gold Project in Quebec.
Contact for further details;
First Majestic Silver Corp. | |
TEL: | 604-688-3033 |
EMAIL: | info@firstmajestic.com |
WEBSITE: | http://www.firstmajestic.com |
Brionor Resources Inc. | |
TEL: | 450-441-9177 |
EMAIL: | robert.ayotte@videotron.ca |
First Majestic Silver Corp. | Brionor Resources Inc. | |
(signed) Keith N. Neumeyer | (signed) Robert Ayotte | |
Keith N. Neumeyer, President & CEO | Robert Ayotte, President & CEO |
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
The securities issuable under the Arrangement have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any state, and are expected to be issued pursuant to exemptions from such registration requirements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
November 12, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the unaudited financial results for the Company's third quarter ending September 30, 2009. | |||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
November 12, 2009 |
TSX Exchange FR | November 12, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Record Third Quarter Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the unaudited financial results for the Company's third quarter ending September 30, 2009. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
3 rd Quarter Highlights ($CAD) | |
Gross Revenue | $16.8 million |
Net Revenue | $13.7 million |
Mine Operating Earnings | $4.1 million |
Net Income after taxes | $1.8 million |
Direct Cash Costs per ounce | US$5.56 |
Silver Equivalent Production | 1,089,481 oz. Ag eq. |
Silver Equivalent Oz. Sold | 1,018,417 oz. Ag eq. |
Average Revenue per Ounce Sold | $16.54 (US$ 15.07) |
FINANCIAL PERFORMANCE AND HIGHLIGHTS
Mine operating earnings increased 141% from $1.7 million to $4.1 million due to operational efficiencies, higher production and higher metals prices in the third quarter.
Consolidated gross revenue for the third quarter ended September 30, 2009, increased 22% to $16.8 million (US$15.4 million) compared to $13.9 million (US$13.3 million) in the third quarter of 2008, and increased 6% compared to $15.8 million (US$13.5 million) in the second quarter of 2009.
The Company generated net income of $1.8 million or $0.02 per common share for the quarter ended September 30, 2009 compared to a net loss of $0.4 million or $(0.01) per common share for the quarter ended September 30, 2008, and a net income of $1.0 million or $0.01 per common share for the second quarter ended June 30, 2009. The net income for this quarter was after recording non-cash stock-based compensation expense of $0.5 million, a foreign exchange loss of $0.4 million, and an income tax recovery of $0.6 million.
Direct cash costs per ounce of silver for the quarter ended September 30, 2009, decreased 27% to US$5.56 per ounce of silver, compared to US$7.65 per ounce of silver for the quarter ended September 30, 2008. During the quarter ended September 30, 2009, the Companys operations achieved operational efficiencies including reductions in production costs per tonne and cash costs per ounce. Direct cash costs for the quarter ended June 30, 2009 and the nine months ended September 30, 2009, were US$6.31 per ounce and US$5.58 per ounce, respectively.
Total production for the quarter ended September 30, 2009, was up 30% to 1,089,481 ounces of silver equivalents, consisting of 935,996 ounces of silver, 732 ounces of gold, 1,690,354 pounds of lead and 8,913 pounds of zinc, when compared to 840,918 ounces of silver equivalents produced in the quarter ended September 30, 2008, consisting of 719,399 ounces of silver, 536 ounces of gold and 1,518,271 pounds of lead. Total production for quarter was up 14% when compared to the second quarter ended June 30, 2009, which consisted of 957,936 ounces of silver equivalents which included 827,720 ounces of silver, 746 ounces of gold and 1,493,162 pounds of lead.
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In the third quarter ended September 30, 2009, the Company sold 1,018,417 silver equivalent ounces including 38,088 ounces of coins, ingots and bullion, with a combined average price of $16.54 (US$15.07) per ounce compared to 850,461 equivalent ounces of silver (with no coin sales) in the quarter ended September 30, 2008 at an average price of $16.29 (US$15.64) per ounce and 1,073,129 equivalent ounces, with 103,867 ounces of coins, ingots and bullion (none in 2008), at a combined average price of $14.70 per ounce (US$12.60) in the second quarter ended June 30, 2009. The LBMA average spot price of silver in the third quarter of 2009 was US$14.69 per ounce compared to US$15.09 per ounce in the third quarter of 2008, and US$13.76 per ounce in the second quarter ended June 30, 2009.
Sales revenue (after smelting and refining charges and metals deductions) for the quarter ended September 30, 2009 was $13.7 million, an increase of 27% compared to $10.8 million for the quarter ended September 30, 2008. Smelting and refining charges and metal deductions decreased to 19% of gross revenue in the third quarter ended September 30, 2009 compared to 22% in the third quarter ended September 30, 2008 but increased slightly from 17% of gross revenue in the second quarter ended June 30, 2009. Average smelting charges for doré in the quarter ended September 30, 2009 were US$0.54 per equivalent silver ounce whereas for concentrates average smelting charges were US$4.34 per equivalent ounce.
The Company had operating income of $1.9 million for the third quarter ended September 30, 2009 compared to an operating loss of $0.8 million for the quarter ended September 30, 2008, an increase of $2.8 million or 329%. The operating loss for the second quarter ended June 30, 2009 was $1.2 million.
During the third quarter of 2009, the commissioning process of the new La Encantada plant was initiated and is expected to conclude during the fourth quarter. Once completed, this new plant will have a capacity of 3,500 tpd and is expected to produce more than four million ounces of silver annually in the form of doré.
During the quarter ended September 30, 2009, the Company invested $4.1 million in its mineral properties, including $1.7 million in Mineral La Encantada, $1.8 million in La Parrilla and $0.6 million in San Martin, and a further $6.9 million in additions to plant and equipment on a cash basis. This compares to $11.3 million invested in its mineral properties, and a further $8.5 million in additions to plant and equipment in the quarter ended September 30, 2008. $3.2 million was invested in mineral properties, and a further $5.9 million in additions to plant and equipment in the second quarter ended June 30, 2009.
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. Finder's fee in the amount of $101,016 and 50,000 warrants were paid in respect to a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. The net proceeds of the offering are being used for general working capital purposes.
During the third quarter of 2009, the Company reduced current liabilities by $19.1 million by: (1) derecognizing $14.3 million pursuant to a consent order with respect to the vendor liability and interest relating to the acquisition of First Silver (the consent order requires that the $14.3 million be held in trust pending the outcome of litigation); (2) settling certain current liabilities amounting to $2.7 million by the issuance of 1,191,852 common shares of the Company; and (3) through a $2.1 million reduction of accounts payable and accrued liabilities from cash flow.
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, US$1.5 million was advanced against the Companys lead production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required.
In September 2009, First Majestic agreed to acquire Normabec Mining Resources Ltd. (Normabec). The acquisition will be an all-share transaction by way of plan of arrangement (the "Arrangement"). The agreement provides that First Majestic will acquire Normabec in exchange for the issuance directly to Normabec's shareholders of 0.060425 First Majestic shares for each Normabec common share outstanding. Normabec's primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí state, Mexico. The proposed Arrangement has already received shareholder approval, regulatory and court approvals, and is expected to close on November 13, 2009.
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In Summary
First Majestic has had a very active quarter of operations with a significant improvement in cash flow from operations related to lower costs of operations combined with higher production and increased revenues from silver sales. The Company is now commissioning the new La Encantada plant which will increase daily production significantly, taking the Company from current levels to approximately 6.3 million ounces in 2010. The Inaugural Ceremony at the La Encantada Silver Mine is being held on November 19, 2009.
The Company has also been focused on completing the acquisition of Normabec thereby adding another valuable asset to the Companys portfolio, the Real de Catorce Silver Project which management expects will ultimately become a producing mine in the future.
In the third quarter the Company has also strengthened its balance sheet with a $9.4 million private placement, a $4.3 million development loan, and a $2.7 million settlement of current liabilities and a further reduction of accounts payable of $2.1 million. With the completion of the capital investment at the La Encantada Silver Mine, the focus of the Company is now on generating cash flow from operations to further bolster our balance sheet.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
November 6, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company and Normabec Mining Resources Ltd. (Normabec) announced that Normabecs shareholders have overwhelmingly voted in favour of the proposed arrangement involving the Company, Normabec and Brionor Resources Inc., a wholly-owned subsidiary of Normabec. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
November 6, 2009 |
SCHEDULE A
News Release for Immediate Release | |
NORMABEC SHAREHOLDERS APPROVE | |
PLAN OF ARRANGEMENT WITH FIRST MAJESTIC |
Montreal, November 6, 2009. Normabec Mining Resources Ltd . (" Normabec ") (TSX-V:NMB) is pleased to announce that its shareholders have overwhelmingly voted in favour of the proposed arrangement involving First Majestic Silver Corp (" First Majestic ") (TSX:FR), Normabec and Brionor Resources Inc. ( Brionor ), a wholly-owned subsidiary of Normabec. Following the unanimous recommendation by the Normabec Board of Directors, the transaction was approved by over 99% of the votes cast at the special shareholders meeting held today in Montreal. The Final Court Order approving the Arrangement will be sought on November 9, 2009. The effective date of the arrangement is expected to be November 13, 2009.
We are excited that the shareholders of Normabec have approved the transaction with First Majestic said Robert Ayotte, President of Normabec. Brionor will hold Normabecs interest in the Pitt Gold Property, and all other Québec mineral interests currently held by Normabec, and will continue to be managed by the existing Normabec management. First Majestic will also invest, via a private placement, $300,000 in Brionor, representing 9.9% of the outstanding capital of Brionor after closing.
This transaction is expected to substantially benefit Normabec shareholders by not only allowing them to participate in the future upside of First Majestic, a producing silver company focused in Mexico, but also allowing them to retain the growth potential of the Pitt Gold Project located in Québec.
Contact
TEL: 450-441-9177 | Robert Ayotte, President & CEO | |
EMAIL: | info@normabec.com | |
WEBSITE: | http://www.normabec.com | |
TEL: 604-688-3033 | Keith Neumeyer, President & CEO | |
First Majestic Silver Corp. |
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EMAIL: | info@firstmajestic.com |
WEBSITE: | http://www.firstmajestic.com |
Neither the TSX Venture Exchange (TSX Venture) nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
October 13, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that its new 3,500 tpd Cyanidation Plant at its La Encantada Silver Mine in Coahuila, Mexico is in the final stages of construction and the commissioning process commenced in last week of August. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
October 13, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | October 13, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Encantada Expansion Nearing Completion
First Majestic Silver Corp. (the Company) is pleased to announce that the Companys new 3,500 tpd Cyanidation Plant at its La Encantada Silver Mine in Coahuila, Mexico is in the final stages of construction and the commissioning process commenced in last week of August.
The completion of this new world-class cyanidation plant will have a significant impact on the Companys production growth going forward. The first deliveries of silver precipitates are expected by mid November. Full production, at an annualized rate of over 4 million ounces of silver doré bars is expected to be achieved by year end.
All major components of this new mill have either been constructed and / or installed with only some final wiring and piping required for completion. Testing of the major components and equipment have been ongoing for the past few weeks.
The mill input plan during the coming weeks is as follows: initial production reaching 1000 tpd by the end of October, ramping up to 2000 tpd by the end of November, and full production at the rate of 3500 tpd anticipated by the end of December.
The Company will hold the official inauguration on November 19, 2009. Over 300 people are expected to attend the inaugural ceremonies, including; state and federal government officials, business partners, shareholders, analysts and brokers.
Keith Neumeyer, CEO & President stated; As the completion of construction draws near and the testing and commissioning process continues, another major milestone for First Majestic is approaching. This state of the art, large scale operation has been constructed during a very difficult economic environment and under a very tight timeline. Congratulations should go out to all our management, staff and construction crew for their perseverance, resolve and commitment. Our attention is now turning to the production and shipment of the first precipitates for doré production, and reaching the full operating capacity of the plant.
Ramon Davila, COO commented, This plant has been constructed using the best design elements, and using state of the art equipment. When full production rates for this plant have been reached, our achievements will definitely be noticed in the mining and investment communities. These are exciting times for First Majestic; particularly for our construction crew, management and staff.
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First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
October 6, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that production in the third quarter ending September 30, 2009 reached 1,089,481 equivalent ounces of silver, representing a 14% increase over the previous quarters production and a 30% increase over the same quarter in 2008. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
October 6, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
TSX Exchange FR | October 6, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Third Quarter Production Results
First Majestic Silver Corp. ("First Majestic" or the "Company") announces today that production in the third quarter ending September 30, 2009 reached 1,089,481 equivalent ounces of silver, representing a 14% increase over the previous quarters production and a 30% increase over the same quarter in 2008.
The equivalent silver production for the third quarter consisted of 935,996 ounces of silver, representing a 13% increase from the previous quarter and 30% increase over the third quarter of the previous year, 1,690,354 pounds of lead, representing a 13% increase from the previous quarter and an increase of 11% over the same quarter of the previous year and 732 ounces of gold, representing a decrease of 2%, compared to the previous quarter and an increase of 37% over the same quarter in 2008.
During the quarter the combined recoveries of silver at the three operating silver mines in Mexico showed an increase from 64% to 66%. The overall average silver head grade in the quarter for the three mines increased to 205 g/t of silver, compared to the previous quarter of 196 g/t of silver.
The ore processed during the quarter at the Company's three mines; the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine increased to 215,459 tonnes, representing a 5% increase over the previous quarter and an increase of 27% when compared to the third quarter of 2008.
The Company's development programs resulted in 6,597 metres of underground development globally over all mines, which represented an increase of 34% when compared to the 4,919 metres of underground development completed in the previous quarter. The diamond drill programs underway are for the purpose of assisting in mining activities only, and consisted of 498 meters of definition drilling in the quarter compared to 363 metres of drilling in the previous quarter, all of which was at the San Martin mine.
Keith Neumeyer, CEO & President stated; our operations team deserves to be congratulated for delivering a solid quarter. Even though our focus continues to be on the completion of the large construction project at La Encantada, this quarters results are an excellent accomplishment. It should be further noted, that even though commissioning of our new 3500 tpd plant commenced in the third quarter, no production in this quarter was attributed to this expansion as first revenues wont be recognized until the fourth quarter.
2
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
September 18, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that it has settled certain current liabilities amounting to $1,919,209 by the issuance of 834,438 common shares of the Company at a deemed price of CDN$2.30 per common share. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
September 18, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | September 18, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Settlement of Current Liabilities Closes
First Majestic Silver Corp. (the "Company") is pleased to announce that it has settled certain current liabilities amounting to $1,919,209 by the issuance of 834,438 common shares of the Company at a deemed price of CDN$2.30 per common share. This completes a onetime process of converting some old payables related to a select group of drilling and development partners, and demonstrates the strength and support of our business relationships in Mexico. With this settlement and the prior one announced on August 20th, we have reduced our current liabilities by more than $2.7 million and have further strengthened the Companys balance sheet after our recent $9.6 million private placement commented Raymond Polman, First Majestics Chief Financial Officer.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
September 16, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the closing of the second and final tranche of the non- brokered private placement consisting of 668,478 units at a price of CDN$2.30 per unit for gross proceeds of CDN$1,537,500. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
September 16, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | September 16, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Second Tranche of Non-Brokered Private Placement Closes
First Majestic Silver Corp. (the "Company") is pleased to announce the closing of the second and final tranche of the non-brokered private placement (the Offering) consisting of 668,478 units (a Unit) at a price of CDN$2.30 per Unit for gross proceeds of CDN$1,537,500. Each Unit consists of one common share and one-half of one common share purchase warrant (a Warrant), with each full Warrant entitling the holder to purchase one additional common share of the Company (the Warrant Share) at an exercise price of CDN$3.30 per Warrant Share for a period of two years after the closing of the Offering.
The Company plans to use the net proceeds of the Offering as general working capital in respect to its three operating silver mines; the La Encantada Silver Mine, La Parrilla Silver Mine, and the San Martin Silver Mine, all located in Mexico.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
September 14, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company and Normabec Mining Resources Ltd. (Normabec) announced that they have entered into a definitive agreement whereby First Majestic will acquire Normabec. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
September 14, 2009 |
SCHEDULE A
News Release for Immediate Release |
First Majestic to Acquire Normabec Mining Resources
VANCOUVER, September 14, 2009 - First Majestic Silver Corp. ("First Majestic") (TSX: FR) and Normabec Mining Resources Ltd. (Normabec) (TSX-V: NMB) have entered into a definitive agreement (the Agreement) whereby First Majestic will acquire Normabec. The transaction will be an all-share transaction by way of plan of arrangement (the Arrangement).
The Agreement, among other things provides that First Majestic will acquire Normabec in exchange for the issuance directly to Normabecs shareholders of 0.060425 First Majestic shares for each Normabec common share outstanding (the Exchange Ratio). In addition to Normabecs current shareholders receiving shares in First Majestic, they will also receive shares in a newly formed public company (NEWCO) which will hold Normabecs interest in the Pitt Gold Property (and all other Quebec mineral interests currently held by Normabec) which will continue to be managed by the existing Normabec management. Subsequent to the completion of the Arrangement, First Majestic will invest, via a private placement, C$300,000 in this public company which will represent approximately 10% of NEWCO.
The Agreement implies a value for each Normabec share of C$0.1806 (C$0.1406 in First Majestic shares and C$0.04 in NEWCO shares) and represents a premium of 47.7% to Normabec shareholders based on the average prices of First Majestic's and Normabec's common shares for the 20 trading days ended September 11, 2009. Normabec has approximately 75.3 million shares issued and outstanding.
Normabecs primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí state, Mexico. The property consists of approximately 6326 hectares of mineral rights which contains a drilled NI 43-101 compliant resource of 33.69 million Measured & Indicated silver ounces plus 13.10 million Inferred silver ounces.
Keith Neumeyer, President & CEO of First Majestic stated We are continually looking for ways to expand our business including potential acquisitions. Based on our due diligence we believe the Real de Catorce Silver Project is an excellent strategic fit and has the potential to become another important asset for our company. We believe this transaction will also substantially benefit Normabec shareholders by not only allowing them to participate in our future upside, but also allowing them to retain 100% of the growth potential of the Pitt Gold Project in Quebec.
Robert Ayotte, CEO and President of Normabec stated; Our strategic approach has always been to speed-up the development of the tremendous Real de Catorce Silver District. By this agreement we feel that our shareholders will participate not only in the development of this key asset but also in other divisions of First Majestic in production. Their talented technical and mining team have been a key factor for this association.
2
The proposed Arrangement has the unanimous support of the boards of directors of both Normabec and First Majestic and the Normabec board of directors has resolved to recommend that the Normabec shareholders vote in favour of the Arrangement at the special meeting. Lockup and support agreements have been signed by each officer and director and the largest shareholder of Normabec to support the Arrangement. An information circular is expected to be mailed to all shareholders by no later than mid-October and the proposed Arrangement is expected to close in early November. The Agreement includes representations, warranties and covenants typical of a transaction of this nature. The proposed Arrangement is subject to the approval of at least 66 2/3% of the votes of Normabec shareholders represented in person or by proxy at a special meeting of Normabec shareholders and the approvals of the Quebec Superior Court and other appropriate regulatory authorities and certain other conditions customary for transactions of this nature. A break-up fee of $350,000 is payable by either party in the event the Agreement is terminated in certain circumstances, including in connection with Normabec entering into a superior transaction.
First Majestic has engaged Gryphon Partners as its financial advisor and McCullough OConnor Irwin LLP as its Canadian legal advisor. Normabec has engaged Haywood Securities Inc. as its financial advisor and Miller Thomson LLP as its Canadian legal advisor. Haywood Securities Inc. has provided an opinion to the board of directors of Normabec that, subject to Haywood Securities' assumptions and limitations and its review and analysis of current market conditions, the consideration to be received by the shareholders of Normabec, other than First Majestic and its affiliates or associates, pursuant to the Agreement is fair, from a financial point of view.
About First Majestic
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives. Presently First Majestic owns three operating silver mines in Mexico, the La Encantada, the La Parrilla, and the San Martin Silver Mines, as well as a project undergoing pre-feasibility known as the Del Toro Silver Mine. In 2009, First Majestic expects to produce approximately five million ounces of silver eqv. from its Mexican silver mines.
About Normabec
Normabec is a junior mining exploration company with a portfolio of advanced exploration projects including: the 100% owned Pitt Gold Project in Quebec and the 100% owned Real de Catorce Silver Project in Mexico.
3
Contact
TEL: 450-441-9177 | Robert Ayotte, President & CEO |
Normabec Mining Resources Ltd. |
EMAIL: | info@normabec.com |
WEBSITE: | http://www.normabec.com |
TEL: 604-688-3033 | Keith Neumeyer, President & CEO |
First Majestic Silver Corp. |
EMAIL: | info@firstmajestic.com |
WEBSITE: | http://www.firstmajestic.com |
First Majestic Silver Corp. | Normabec Mining Resources Ltd | |
(signed) Keith N. Neumeyer | (signed) Robert Ayotte | |
Keith N. Neumeyer, President & CEO | Robert Ayotte, President & CEO |
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
The securities issuable under the Arrangement have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any state, and are expected to be issued pursuant to exemptions from such registration requirements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
August 20, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the closing of the first tranche of the non-brokered private placement (the Offering) consisting of 3,499,000 units (a Unit) at a price of CDN$2.30 per Unit for gross proceeds of CDN$8,047,700. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
August 20, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | August 20, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Tranche of Non-Brokered Private Placement Closes
First Majestic Silver Corp. (the "Company") is pleased to announce the closing of the first tranche of the non-brokered private placement (the Offering) consisting of 3,499,000 units (a Unit) at a price of CDN$2.30 per Unit for gross proceeds of CDN$8,047,700. Each Unit consists of one common share and one-half of one common share purchase warrant (a Warrant), with each full Warrant entitling the holder to purchase one additional common share of the Company (the Warrant Share) at an exercise price of CDN$3.30 per Warrant Share for a period of two years after the closing of the Offering. A finders fee in the amount of $101,016 cash and 50,000 Finders Warrants are payable in respect to a portion of this private placement. The Finders Warrants are subject to the same terms and conditions as those issued to the subscribers. It is anticipated that the balance of the private placement announced on August 12, 2009 will close on or before September 25, 2009.
The Company plans to use the net proceeds of the Offering as general working capital in respect to its three operating silver mines; the La Encantada Silver Mine, La Parrilla Silver Mine, and the San Martin Silver Mine, all located in Mexico.
The Company is also pleased to announced that it has settled certain current liabilities amounting to $822,053 by the issuance of 357,414 common shares of the Company at a deemed price of CDN$2.30 per common share. First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
August 14, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the unaudited financial results for the Company's second quarter ending June 30, 2009. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
August 14, 2009 |
TSX Exchange FR | August 14, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Second Quarter Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the unaudited financial results for the Company's second quarter ending June 30, 2009. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com. Below are the highlights of the results.
2 nd Quarter Highlights | |
Gross Revenue | $15.8 million |
Net Revenue | $13.0 million |
Mine Operating Earnings | $1.7 million |
Net Income after taxes | $1.0 million |
Direct Cash Costs per ounce | US$6.31 |
Silver Equivalent Production | 957,936 oz. Ag eqv. |
Silver Equivalent Oz. Sold | 1,073,129 oz. Ag eqv. |
FINANCIAL PERFORMANCE AND HIGHLIGHTS
For the second consecutive quarter in 2009, the Company generated net income, with $1.0 million earned in the quarter ended June 30, 2009, and a total of $2.0 million earned on a year to date basis. This compares with a net loss after taxes of $0.3 million for the quarter ended June 30, 2008, and a net income after taxes of $0.8 million for the year to date ended June 30, 2008.
In the second quarter ended June 30, 2009, the Company sold more silver than it produced, selling 1,073,129 silver equivalent ounces including 103,867 ounces of coins, ingots and bullion, which is 115,193 ounces or 11% more silver than it produced in the current quarter. This is compared to 892,406 equivalent ounces, with no sold ounces of coins, ingots and bullion for the quarter ended June 30, 2008.
2
Gross revenue for the second quarter ended June 30, 2009, prior to smelting and refining charges and metal deductions, was $15.8 million (US$13.5 million) compared to $14.3 million (US$14.1 million) in the second quarter of 2008, an increase of 9.5%.
Smelting and refining charges and metal deductions decreased to 17% of gross revenue in the second quarter ended June 30, 2009, compared to 20% in the second quarter ended June 30, 2008, and 18% in the first quarter ended March 31, 2009. Net sales revenue (after smelting and refining charges and metals deductions) for the quarter ended June 30, 2009 was $13.0 million, an increase of 14% compared to $11.4 million for the quarter ended June 30, 2008. This decrease in charges is attributed to the revised smelting and refining agreements renegotiated effective December 1, 2008; as well as the new smelting and refining relationships entered into in February and May 2009.
Total production for the quarter ended June 30, 2009 was 957,936 ounces of silver equivalents consisting of 827,720 ounces of silver, 746 ounces of gold and 1,493,162 pounds of lead. This compares to the 1,271,141 ounces of silver equivalents produced in the quarter ended June 30, 2008, which consisted of 1,109,821 ounces of silver, 482 ounces of gold, 1,987,551 pounds of lead and 134,644 pounds of zinc. Total production for the quarter ended March 31, 2009 was 1,040,117 ounces of silver equivalents which included 929,964 ounces of silver, 491 ounces of gold and 1,828,739 pounds of lead.
Mine operating earnings for the quarter ended June 30, 2009 were $1.7 million, a decrease of $0.5 million or 23% compared to mine operating earnings of $2.2 million for the quarter ended June 30, 2008, and mine operating earnings of $4.5 million for the quarter ended March 31, 2009.
Direct cash costs per ounce of silver for the quarter ended June 30, 2009 increased to US$6.31 per ounce of silver, compared to US$4.84 per ounce of silver for the quarter ended June 30, 2008, due to the reduced silver production at La Encantada, lower by-product credits, lower average head grades and lower recoveries in the second quarter of 2009. Direct cash costs for the quarter ended March 31, 2009 and the six months ended June 30, 2009 were US$4.94 per ounce and US$5.58 per ounce, respectively.
The Company had an operating loss of $1.2 million for the second quarter ended June 30, 2009 compared to an operating loss of $0.6 million for the quarter ended June 30, 2008, an increase of $0.6 million or 110%. Operating income for the first quarter ended March 31, 2009 was $1.8 million.
At the La Encantada Silver Mine, construction is progressing on the new 3,500 tpd cyanidation plant. The plant is scheduled to begin commissioning in September 2009 and to be fully operational by the end of 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of doré bars. The Company has revised its estimated capital expenditures for the completion of the La Encantada construction project from US$24.5 million to US$27.5 million. The primary reason for the increase in capital expenditures is related to a decision to revise the tailings pond design to a paste and filter design which will allow the new plant to significantly savings in power and water consumption once operational.
3
In Summary & Outlook
First Majestic has been making excellent progress on the 3,500 tpd expansion projection at La Encantada while simultaneously making operational improvements at the La Parrilla and San Martin mines. Production at both La Parrilla and San Martin are on budget while the La Encantada was under budget in the quarter. Third quarter production is anticipated to be back on track.
As a result of engineering changes and the extension of the timeline of the completion and commissioning of the new plant, the Company has revised its forecast for production for 2009 to 5 million eqv silver ounces. The addition of this new operation to the Companys assets is expected to have a dramatic effect on revenues and profitability. The La Encantada is anticipated to produce over 60% of the Companys production in 2010 and thus its successful completion has been managements primary focus. The recently announced private placement will assure this project comes online within the new schedule.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
August 13, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. |
|||
Item 4. | Summary of Material Change | ||
The Company announced that it is now trading on the OTC Markets prestigious tier, OTCQX International under the symbol FRMSF. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
August 13, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | August 13, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic Silver Joins OTCQX
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") announces that it is now trading on the OTC Markets prestigious tier, OTCQX International under the symbol FRMSF. The Pink OTC Markets Inc. is a leading electronic inter-dealer quotation system, trading technology and financial information provider for over-the-counter (OTC) securities in the United States. Investors can find current financial disclosure and real-time Level 2 quotes for the Company on www.otcqx.com and www.pinksheets.com.
As an OTCQX-listed company, First Majestic is expected to benefit from being associated with the top segment of the United States OTC Market and anticipated increased investor visibility. As an OTCQX-listed company, First Majestic joins several large and well known international companies who have also elected to access the US markets.
Mr. Keith Neumeyer stated; in reviewing the alternatives to satisfy the many requests by our US shareholders and potential US investors who have asked First Majestic to list its shares in the United States, we felt that the OTCQX offered a win-win solution for all concerned. We are optimistic that our new US listing will bring extra attention to the many exciting developments that are taking place within our Company.
Dorsey & Whitney LLP will serve as First Majestics Principal American Liaison (PAL) on OTCQX, responsible for providing guidance on listing requirements.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
August 12, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced a proposed non-brokered private placement offering consisting of up to 4,000,000 units of the Company to be issued at a price of CDN$2.30 per Unit for gross proceeds of up to $9,200,000. The Company also announced that it will settle certain debts of its subsidiaries in the aggregate amount of up to $4,000,000 and has entered into debt settlement agreements with those creditors to settle such debt by the issuance of up to 1,739,130 common shares of the Company at a deemed price of CDN$2.30 per Common Share. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
August 12, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | August 12, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Non-Brokered Private Placement and Debt Settlement
First Majestic Silver Corp. (the "Company") is pleased to announce a proposed non-brokered private placement offering consisting of up to 4,000,000 units (Units) of the Company to be issued at a price of CDN$2.30 per Unit (the Offering) for gross proceeds of up to $9,200,000. Each Unit will consist of one common share (a Unit Share) and one-half of one common share purchase warrant (a Warrant), with each full Warrant entitling the holder to purchase one additional common share of the Company (Warrant Shares) at an exercise price of CDN$3.30 per Warrant Share for a period of two years after the closing of the Offering.
The Company is also pleased to announce that it will settle certain debts of its subsidiaries in the aggregate amount of up to $4,000,000 and has entered into debt settlement agreements with those creditors to settle such debt by the issuance of up to 1,739,130 common shares (the Debt Shares) of the Company at a deemed price of CDN$2.30 per Common Share.
The Company plans to use the net proceeds of the Offering as general working capital in respect to its three operating silver mines; the La Encantada Silver Mine, La Parrilla Silver Mine, and the San Martin Silver Mine all located in Mexico.
A finders fee of 6% cash will be payable on a portion of this private placement to an arms length party. Closing of the private placement and the debt settlement is subject to receipt of all required regulatory approvals, including the consent of the Toronto Stock Exchange.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
July 20, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Stockwatch. | |||
Item 4. | Summary of Material Change | ||
The Company announced that production in the second quarter ending June 30 th , 2009 equalled 957,937 equivalent ounces of silver which consisted of 827,719 ounces of silver, 1,493,162.02 pounds of lead and 746 ounces of gold. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
July 20, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | July 20, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Second Quarter Production Results
First Majestic Silver Corp. ("First Majestic" or the "Company") announces that production in the second quarter ending June 30 th , 2009 equalled 957,937 equivalent ounces of silver which consisted of 827,719 ounces of silver, 1,493,162.02 pounds of lead and 746 ounces of gold.
Overall recoveries of silver at the Company's three operating silver mines; the La Encantada Silver Mine the La Parrilla Silver Mine and the San Martin Silver Mine increased in the quarter from 60% to 64%. The ore processed during the quarter, amounted to 204,574 tonnes with an overall average silver head grade in the quarter of 196 g/t of silver.
The Companys production levels are slightly behind schedule mostly due to the enormous efforts going into completing the major construction project at the La Encantada mine. The completion of this new 3500 tpd mill is expected to have such a dramatic effect on production and profitability and as a result management has focused most of its efforts on completing this project.
This major construction project at the La Encantada continued into the second quarter. This new 3500 tpd Cyanidation mill is expected to begin the commissioning process in a few weeks and will result in doré production being ramped up over a three month period. The new plant is expected to be fully commissioned by the end of October and once completed will produce 4.3 million ounces of silver doré annually.
With the completion of the La Encantada construction project coming to an end in October, production levels in the third and fourth quarter are expected to improve significantly. Once this occurs, management can then focus its efforts on its other projects in order to further increase production levels.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
2
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
July 16, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Stockwatch. | |||
Item 4. | Summary of Material Change | ||
The Company wishes to provide an update on the status of its ongoing litigation with Hector Davila Santos, the prior majority shareholder of First Silver Reserve, Inc. (FSR) with respect to alleged interference with FSRs opportunity to acquire the Bolanos mine in Mexico. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
July 16, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
Toronto Stock Exchange FR | July 16, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Update of Litigation
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") wishes to provide an update on the status of its ongoing litigation with Hector Davila Santos, the prior majority shareholder of First Silver Reserve, Inc. (FSR) with respect to alleged interference with FSRs opportunity to acquire the Bolanos mine in Mexico. FSR later became a wholly owned subsidiary of the Company.
In November 2007, an action was commenced in British Columbia by the Company and its wholly owned subsidiary, FSR against Hector Davila Santos and Minera Arroyo Del Agua, S.A. de C.V. whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer and Chairman of the Board of FSR, Mr. Davila Santos wrongfully interfered with FSRs opportunity to acquire the Bolanos mine and breached his fiduciary and statutory duties owed to FSR, which resulted in Mr. Davila Santos personally or through Minera Arroyo, acquiring the Bolanos mine from Grupo Mexico for his own interests. The court has yet to rule on these allegations.
Pending resolution of this action the Company withheld certain amounts owing to Mr. Davila Santos with respect to the purchase of shares in FSR which the Company acquired from Mr. Davila Santos in 2006. The withheld amounts consist of quarterly instalments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008, as well as the final principal payment of $13,341,380 due to Mr. Davila Santos on May 30, 2008. The total amount withheld from Mr. Davila Santos and due as at May 30, 2008 was $13,940,097. A letter of credit in the amount withheld plus interest, amounting to $14,485,759 was previously posted by First Majestic with the courts and a reserve of cash equalling this amount has been maintained by the Company.
On March 14, 2008, Mr. Davila Santos filed a statement of defence and counter-claim in respect of the action referred to above. Pursuant to the counterclaim, Mr. Davila Santos has claimed, among other things, for payment of the amounts referred to above.
The parties have now agreed to a consent order with respect to the funds represented by the letter of credit. Pursuant to the order, $14,258,332 will be paid out of the letter of credit to the trust account of Mr. Davila Santos lawyers. The remaining $227,420 will be paid out to the Company and the letter of credit will be cancelled. The amounts paid to the Company may be used as the Company sees fit. The consent order requires that the funds be held in the lawyers' trust account pending the outcome of the litigation, with trial scheduled to commence in the Supreme Court of British Columbia, Vancouver, British Columbia on April 12, 2010. If the trial has not commenced by June 30, 2011 the funds will be released on that date to Mr. Davila Santos, unless otherwise ordered by the court. The consent order does not affect the standing of the Companys claims against Mr. Davila Santos.
2
The effect of the consent order on the Companys financial position will be to simultaneously reduce Vendor Liability and Interest as well as Restricted Cash by offsetting amounts of $14,485,759, with $227,420 of cash being reclassified from Restricted Cash to Cash (i.e. unrestricted Cash). The net assets of the Company will not be increased or decreased as a result of this order.
The Companys President and Chief Executive Officer, Keith Neumeyer stated We think that this consent order is a reasonable compromise with Mr. Davila Santos and gives First Majestic comfort that if our action against Mr. Davila Santos is successful we will be able to enforce the judgment against these monies which will continue to reside within Canada and be subject to the jurisdiction of the British Columbia courts.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
May 14, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the unaudited financial results for the Company's first quarter ending March 31, 2009. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
May 14, 2009 |
TSX Exchange FR | May 14, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Quarter Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the unaudited financial results for the Company's first quarter ending March 31, 2009. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
1 st Quarter Highlights | |
Gross Revenue | $17.5 million |
Net Revenue | $14.4 million |
Mine Operating Earnings | $4.5 million |
Net Profit after taxes | $0.9 million |
Direct Cash Costs per ounce | US$4.94 |
Silver Equivalent Production | 1,040,117 oz. Ag eq. |
Silver Equivalent Oz. Sold | 996,595 oz. Ag eq. |
FINANCIAL HIGHLIGHTS
Total production for the quarter ended March 31, 2009 was 1,040,117 ounces of silver equivalents consisting of 929,964 ounces of silver, 491 ounces of gold and 1,828,739 pounds of lead. This compares to the 1,061,720 ounces of silver equivalents produced in the quarter ended March 31, 2008, which consisted of 895,358 ounces of silver, 240 ounces of gold, 1,857,897 pounds of lead and 318,539 pounds of zinc. Total production for the quarter ended December 31, 2008 was 1,056,219 ounces of silver equivalents which included 930,120 ounces of silver, 403 ounces of gold and 2,093,988 pounds of lead.
Gross revenue for the quarter ended March 31, 2009, prior to smelting, refining, transportation charges and metal deductions, was $17.5 million compared to $16.2 million in the same quarter of 2008; an increase of 8%. In the quarter ended March 31, 2009, the Company shipped 996,595 silver equivalent ounces including 67,620 ounces of coins, ingots and bullion at an average price of $17.52 per ounce (US$14.07) compared to 1,019,490 equivalent ounces in the quarter ended March 31, 2008 at an average price of $15.94 (US$15.87) per ounce. The Company has been successful in realizing an average selling price of US$14.07, higher than the average trading price of silver in the quarter of US$12.61 per ounce (Source - London Bullion Marketing Association). Compared to the quarter ended December 31, 2008, the Company increased shipped ounces by 20% compared to the 827,845 ounces of silver equivalent previously shipped, at an average price of $14.15 per ounce (US$11.67).
The Company generated net income after taxes of $0.9 million for the first quarter ended March 31, 2009 compared to net income after taxes of $1.1 million for the quarter ended March 31, 2008, and a net loss after taxes of $5.5 million for the fourth quarter ended December 31, 2008. The net income after taxes for this quarter was after recording non- cash stock-based compensation expense of $0.9 million, a foreign exchange loss of $1.0 million and an income tax recovery of $0.1 million.
Sales revenue (after smelting, refining, transportation charges and metals deductions) for the quarter ended March 31, 2009 was $14.4 million; an increase of 11% compared to $13.0 million for the quarter ended March 31, 2008. Smelting, refining, transportation charges and metal deductions decreased by 3.3% of gross revenue to $3.1 million in the quarter ended March 31, 2009 compared to $3.3 million in the quarter ended March 31, 2008, and $2.6 million in the quarter ended December 31, 2008. This was attributed to the revised smelting and refining agreements renegotiated effective December 1, 2008; as well as the new smelting and refining relationships entered into in February 2009. Average smelting and transportation charges for doré in the quarter ended March 31, 2009 were US$0.51 per equivalent ounce whereas for concentrates were US$3.23 per equivalent ounce. The smelting rates for concentrate were higher than expected as final settlements of concentrates occur 60 days after shipment, therefore the settlement lag resulted in older shipments of November and December settling in Q1-2009 under previous smelting agreements.
2
Direct cash costs per ounce of silver for the quarter ended March 31, 2009 decreased to US$4.94 per ounce of silver, compared to US$6.51 per ounce of silver for the quarter ended March 31, 2008, due to higher silver ounces produced in 2009 and reduction of mining expenses and indirect costs. Direct cash costs for the quarter ended December 31, 2008 were US$6.37 per ounce.
Mine operating earnings for the quarter ended March 31, 2009 were $4.5 million, a decrease of $0.2 million or 4% compared to mine operating earnings of $4.7 million for the quarter ended March 31, 2008, and a mine operating loss $1.1 million for the quarter ended December 31, 2008.
The Company had operating income of $1.8 million for the first quarter ended March 31, 2009 compared to operating income of $1.5 million for the quarter ended March 31, 2008, an increase of $0.3 million or 23%. Operating loss for the fourth quarter ended December 31, 2008 was $3.8 million.
At the La Encantada Silver Mine, construction is progressing according to plan on the US$21.6 million, 3,500 tonnes per day (tpd) cyanidation plant. The plant is scheduled to commence operations in July 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of doré bars. Total capitalized construction in progress consisted of $12.9 million with a further $1.4 million being un-capitalized advances to contractors.
During the quarter ended March 31, 2009, the Company invested $1.8 million on its mineral properties and a further $1.6 million on additions to plant and equipment on a cash basis. This compares to $4.6 million invested on its mineral properties, and a further $3.0 million on additions to plant and equipment in the quarter ended March 31, 2008, and $0.7 million invested on its mineral properties, and a further $0.4 million on additions to plant and equipment in the quarter ended December 31, 2008.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940.
OPERATIONAL HIGHLIGHTS
The primary focus in the first quarter of 2009 was reducing operating costs and completing the La Encantada mill expansion program. As shown in the financial results, the Company has been successful in reducing operating costs across all of its mines. Presently, only two drill rigs are operating compared with 23 drill rigs in the third quarter of 2008. In addition, underground mine development is being financed from cash flow versus capital as was the case in 2008. These scaled back exploration and development measures will remain in force for the balance of 2009.
Prior to the decision to reduce the Companys exploration program, the Company met its target on Resource development. The Company released two NI 43-101 Reports on both the La Parrilla Silver Mine and the San Martin Silver Mine in the first quarter which substantially increasing previously released estimates. As at the latest NI 43-101 Reports published in Q1, the Company has defined a global Resource of 300 million ounces of silver equivalents in all categories.
La Parrilla Silver Mine
At the La Parrilla mine, production continued from the Rosarios/La Blanca and Quebradillas areas. The flotation circuit was operating more efficiently and recoveries are now closer to the target of 75%, however, at the cyanidation circuit recoveries had been affected by the mix of ores and short leaching times. Efforts are being made in order to improve the recoveries by increasing leaching time increasing the oxygenation in the cyanidation circuit.
3
During the quarter, the La Parrilla mine received the Clean Industry Certification from PROFEPA (Procuradoria Federal de Protecion al Ambiente). This certification resulted from a concerted effort over a period of more than two years.
San Martin Silver Mine
During the quarter the production at the San Martin was focused on improving head grades and reducing operating costs. Management was very pleased with the progress at this operation as can be seen by the cost reductions achieved in the quarter. These improvements were largely achieved due to a better mix of ore produced from the mine and the recovery of some backfills and dumps, which allowed the mine to operate in a more efficient way which resulted in a cost reduction of 61% compared to the first quarter of 2008.
La Encantada Silver Mine
At the La Encantada mine, a special effort is underway to improve the recoveries at the flotation plant which had been affected in the last few quarters by the mix of ore from the Azul y Oro vein which was found to contain manganese. Several new reagents and different mixes of ores are being tested in order to improve recoveries. In addition a new washing screen has been installed in order to wash the dump material which is anticipated to increase the grades of the recovered ore. This new process is expected to be operational during the last part of May.
Construction of the new 3500 tpd cyanidation mill continues to be the primary focus at the La Encantada and is proceeding well. All the leaching tanks and CCD thickeners are constructed with the installation of the mechanisms now underway. New pieces of equipment are arriving regularly and the plant is still anticipated to be commissioned in July. Once this new circuit is completed, the silver precipitates produced from the concentrates will be shipped to the La Parrilla mill for the production of doré bars.
In Summary
Equally important to increasing silver production is further cost reductions where possible. The 2009 operating plan thus far represents a year of reduced operating costs as a result of the Companys pursuit of aggressive growth based on the expansion of its operations and Resources. Management is pleased with the many cost cutting measures underway, and it is believed that further improvements in profitability can be achieved with additional improvements expected going forward.
Finally, in this turbulent financial and commodity environment, First Majestic has been reacting by cutting costs wherever possible. The Company is continuing to analyze various options to reduce operating costs and to squeeze out the most optimum margins possible. During the quarter a new smelting agreement was executed for the sale of all the lead concentrates produced in 2009, and a new agreement was also signed for the sale of all doré produced by the Company in 2009. Both these agreements include terms better than previous agreements and are expected to go a long way in improving profitability.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
4
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
April 27, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that production in the first quarter ending March 31, 2009 consisted of 1,040,117 equivalent ounces of silver. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
April 27, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | April 27, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Silver production increases 4% in 1 st Quarter
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the first quarter ending March 31, 2009 consisted of 1,040,117 equivalent ounces of silver.
The equivalent silver production for the quarter consisted of 929,964 ounces of silver representing an increase of 4% compared with the first quarter of 2008 and a minor decrease of 156 ounces of silver when compared with the fourth quarter of 2008. 1,828,739 pounds of lead were produced in the quarter representing a 2% decrease over the first quarter of 2008 and a decrease of 13% or 265,248 pounds when compared with the fourth quarter of 2008. 491 ounces of gold were produced in the quarter representing an increase of 105% when compared with the first quarter of 2008 and an increase of 22% compared with the fourth quarter of 2008.
The ore processed during the quarter at the Company's three operating silver mines: La Parrilla Silver Mine, the San Martin Silver Mine and La Encantada Silver Mine; amounted to 216,047 tonnes showing an increase of 36% over the same quarter of 2008 and a modest increase of 401 tonnes over the fourth quarter of 2008.
The overall average silver head grade in the quarter for the three mines increased to 222 g/t silver compared to 207 g/t Ag achieved in the fourth quarter of 2008.
Total combined recoveries of silver at the Companys three different mills were 60% compared to 65% in the prior quarter. At the La Encantada operation low recoveries were caused by high manganese in the ore and increased throughput through the mill. At the San Martin operation, some high carbonaceous ore affected metallurgy however this was compensated by increased head grades. Steps are being taken at La Encantada to improve recoveries; however, until the new 3500 tpd cyanidation plant is completed in June of this year, recoveries are only expected to increase modestly.
As reported previously the Company has reduced exploration and development programs at each of its operations in the fourth quarter of 2008. The Company continues to analyze its expenditures in order to optimize the operations and improve profitability.
2
A total of 4,610 meters of underground development was completed in the quarter compared to 6,006 metres of development completed in the first quarter of 2008 and 5,847 metres completed in the fourth quarter of 2008. This program is important as it provides access to new areas within the different mines and prepares the mines for continued growth of silver production going forward. The Company has recently reduced its drilling program to two rigs operating at San Martin only; however, in the first quarter 31 holes were completed marking an end to those drill programs commenced last year. A total of 5,048 meters of diamond drilling was completed during the quarter compared to 10,256 metres drilled in Q1 2008 and 4,193 metres drilled in Q4 2008.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
March 31, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced the annual financial results for the Company's year ended December 31, 2008. | |||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
March 31, 2009 |
TSX Exchange FR | March 31, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
2008 Year End Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the annual financial results for the Company's year ended December 31, 2008. The full version of the financial statements can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com. The following are highlights from the year end and fourth quarter. Shareholders or interested parties are encouraged to review the complete financial statements for further details.
Gross Revenue for 2008 | $56.1 million |
Net Revenue for 2008 | $44.3 million |
Net Revenue for 4 th Quarter | $9.1 million |
Mine Operating Earnings for 2008 | $7.5 million |
Mine Operating Loss for 4 th Quarter | $1.1 million |
Operating Cash Flow for 2008 (before working capital changes) | $4.6 million |
Total Equivalent Silver Production for 2008 | 4,229,998 ounces |
Total Cash Costs per Silver Ounce for the year | US$5.87 |
Total Mining Costs per Tonne for the year | US$43.08 |
Cash in Treasury, currently | $32.2 million |
FINANCIAL PERFORMANCE AND HIGHLIGHTS
Total annual production for 2008 increased by 18% to 4,229,998 ounces of silver equivalents, including 3,654,698 ounces of silver, 1,661 ounces of gold, 7,457,707 pounds of lead and 425,710 pounds of zinc. This compares to the 3,584,265 ounces of silver equivalents produced in 2007 consisting of 3,170,139 ounces of silver, 2,049 ounces of gold and 2,924,146 pounds of lead.
Gross revenue for 2008, prior to smelting charges, was $56.1 million compared to $45.8 million in 2007, an increase of 22.4%. In 2008 the Company shipped 3,590,202 ounces of silver equivalents at an average price of $15.63 per ounce (US$14.66) compared to 3,461,560 ounces in 2007 at an average price of $13.24 (US$12.33).
2
Due to low metal prices in the latter half of 2008, the Company elected to carry 553,923 ounces of equivalent silver in inventory over the year end from its annual production. The inventory at year end consisted of 429,652 ounces in stockpiles, 101,755 ounces of finished product and 22,516 ounces in process. These ounces are expected to be sold throughout 2009.
Sales revenue (after smelting, refining and transportation charges) for the year ended December 31, 2008 was $44.3 million; an increase of 3% compared to $42.9 million for the year ended December 31, 2007. Smelting, refining and transportation charges increased from $2.9 million in 2007 to $11.8 million in 2008. A primary focus of the Company in 2009 is to increase its scale of operations and to shift its mix of production from concentrates toward Doré production to reduce its smelting charges and increase net revenues. Average smelting and transportation charges for Doré in 2008 were US$0.39 per equivalent ounce whereas for concentrates were US$4.78 per equivalent ounce.
Direct cash costs per ounce of silver for the year ended December 31, 2008 decreased to US$5.87 per ounce of silver, compared to US$7.06 per ounce of silver for the year ended December 31, 2007 and US$6.37 per ounce of silver for the fourth quarter of 2008 compared to US$7.97 per ounce of silver for the fourth quarter of 2007 due to higher silver ounces produced in 2008.
Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for Doré and concentrate smelting which have positively impacted costs for 2009.
At the La Encantada Silver Mine, construction began in June 2008 on the new US$21.6 million cyanidation plant which will have a capacity of 3,500 tonnes per day (tpd) once completed. The plant is scheduled to commence operations in July 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of Doré bars.
Reserve and Resource development was a high priority for the Company in 2008, leading to substantial increases in Reserves and Resources at all of its operating mines. On a consolidated basis, Proven and Probable Reserves increased by 102% to 47.8 million equivalent ounces of silver, compared to 23.7 million equivalent ounces of silver at the end of 2007. Measured and Indicated Resources increased by 9% to 92.3 million equivalent ounces of silver in 2008, compared to 85.1 million equivalent ounces of silver at the end of 2007. Inferred Resources increased by 113% to 158.8 million equivalent ounces of silver in 2008, compared to 74.7 million equivalent ounces of silver at the end of 2007.
During 2008, the Company invested $30.1 million in capital expenditures on its mineral properties, and a further $18.0 million on additions to plant and equipment.
Mine operating earnings for the year ended December 31, 2008 was $7.5 million, an increase of 7% compared to mine operating earnings of $7.0 million for the year ended December 31, 2007.
The Company reduced its operating loss for 2008 to $3.7 million, a 14% reduction compared to an operating loss of $4.3 million for the year ended December 31, 2007.
The Company incurred a net loss after taxes of $5.1 million for the year ended December 31, 2008, compared to a net loss after taxes of $7.2 million for the year ended December 31, 2007. The net loss after taxes for this year was after deducting a non-cash stock-based compensation expense of $3.7 million (2007 - $3.9 million) and recording a recovery for future income taxes of $2.1 million.
Subsequent to December 31, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine, including the completion of the 3,500 tonne-per-day cyanidation plant, and the remainder for general working capital.
On February 25, 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a CLEAN INDUSTRY CERTIFICATE to one of the Companys wholly owned subsidiaries, First Majestic Plata, SA de CV, regarding its activities at the La Parrilla Silver Mine (La Parrilla). This Certificate is a significant milestone for the Company and was achieved after twenty nine months of Voluntary Environmental Audit work, which demonstrates the Companys sustained focus in complying with international and Mexican mining standards.
3
4
2009 Outlook
PRODUCTION DATA | La Encantada | La Parrilla | San Martin | Consolidated |
Tonnes Milled | 611,800 | 275,358 | 307,753 | 1,194,911 |
Silver head grades (grams/tonne) | 212 | 250 | 150 | 205 |
Silver recoveries | 60% | 75% | 80% | 68% |
Silver ounces | 2,572,301 | 1,604,776 | 1,187,470 | 5,364,547 |
Gold ounces | 15 | 465 | 1,187 | 1,667 |
Lead tonnes | 944 | 1,322 | - | 2,266 |
Silver equivalent ounces (1) | 2,668,627 | 1,769,154 | 1,266,625 | 5,704,406 |
AVERAGE COSTS | ||||
Production costs per ounce (US$) | 4.71 | 6.83 | 9.10 | 6.40 |
Smelting/refining per ounce (US$) | 1.38 | 1.23 | 0.28 | 1.09 |
Transport and marketing per ounce (US$) | 0.17 | 0.18 | 0.16 | 0.17 |
Production costs per tonne (US$) | 21.72 | 39.79 | 35.10 | 28.84 |
(1) |
Pricing assumptions for equivalents Au = US$800/oz., Pb = US$0.55/oz., Zn = US$0.50/oz. |
Silver production is expected to increase in mid 2009 when the La Encantada plant expansion is completed and plant capacity has been increased from the current 1,000 tpd to 3,500 tpd. The Company expects to gradually bring the new cyanidation plant into production beginning with production of 1,000 tpd in July, 2,000 tpd in August, 3,000 tpd in September, and achieving full capacity in October. Capital expenditures at the La Encantada mine are expected to amount to US$21.6 million upon completion.
Smelting and refining charges are expected to decrease in 2009 due to new refining and smelting agreements entered into in February 2009 for Doré and concentrate production. With the shift in production at the La Encantada mine from concentrate to Doré, the global mix of Doré and concentrate production will increase from the current 49% to 92% Doré production by the fourth quarter of 2009.
Sales of coins, ingots and bullion will increase in the year from 5% of production in Q1/09, to approximately 10% by the end of Q2/09 and will remain at that level for the balance of 2009. These sales result in approximately a 10% increase in selling price over normal quoted selling prices in any quarter. Additional information on the Companys silver coins, ingots and bullion, including how to place an order, may be found on the Companys website at www.firstmajestic.com.
5
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
March 23, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that on March 12 th , 2009 the Centro Mexicano para la Filantropia (CEMEFI) awarded First Majestic the Socially Responsible Business Distinction for 2008 (Distintivo Empressa Socialmente Responsable 2008). |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
March 23, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | March 23, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic receives Mexican Distinction as a Socially Responsible Business
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce that on March 12 th , 2009 the Centro Mexicano para la Filantropia (CEMEFI) awarded First Majestic the Socially Responsible Business Distinction for 2008 (Distintivo Empressa Socialmente Responsable 2008).
This marks the first time that First Majestic has achieved this annual award of distinction. This award is a significant milestone for the Company and was accomplished after having demonstrated responsibility, transparency and sustainability within its operations and projects in Mexico.
Relevant activities that the Company excelled in to accomplish this distinction included:
Mr. Neumeyer, President & CEO stated, Management at First Majestic feel strongly that being socially responsible sets the foundation for high values and principles within the Company and supports the mission of growth in a sustainable way taking care of the most valuable assets; our people and the communities in which we work.
First Majestic Silver Corp. operates three separate mining units within Mexico; First Majestic Plata, S.A. de C.V., which owns the La Parrilla Silver Mine, Minera El Pilon, S.A. de C.V., which owns the San Martin Silver Mine and Minera La Encantada, S.A. de C.V., which owns the La Encantada Silver Mine. Each of these units is 100% held by Corporación First Majestic, S.A. de C.V., a wholly owned subsidiary based in Durango, Mexico.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
2
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
March 17, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that on the February 25 th , 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a CLEAN INDUSTRY CERTIFICATE to one of the Companys wholly owned subsidiaries, First Majestic Plata, SA de CV., regarding its activities at the La Parrilla Silver Mine (La Parrilla). |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
March 17, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | March 17, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Parrilla receives Clean Industry Certification
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce that on the February 25 th , 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a CLEAN INDUSTRY CERTIFICATE to one of the Companys wholly owned subsidiaries, First Majestic Plata, SA de CV., regarding its activities at the La Parrilla Silver Mine (La Parrilla).
This Certificate is a significant milestone for the Company and was achieved after twenty nine months of Voluntary Environmental Audit work, which demonstrates the Companys sustained focus in complying with international and Mexican mining standards.
Relevant activities undertaken in order to achieve this Certificate included:
First Majestic is operating three separate mines within the La Parrilla property including the La Rosa/Rosario/La Blanca systems which are joined underground into a single operation, the San Marcos mine, and the Quebradillas mine. Several other areas are either undergoing development or exploration or have programs planned in the future. The most significant mining area currently under development is the Las Vacas mine, which is being prepared for production in 2010.
The La Parrilla operation consists of numerous silver/lead/zinc underground mines, and a cyanidation and flotation ore processing plant with an installed capacity of 840 tonnes per day (tpd). The plant processes both oxide and sulphide silver ores in two separate 420 tpd parallel circuits. Oxide ores are processed by cyanide leaching to produce Dore bars and sulphide ores are processed by differential flotation to produce a silver-rich lead concentrate.
The La Parrilla Silver Mine is located in the Municipality of Nombre de Dios, Durango State, México approximately 45 minute drive from the City of Durango east along Highway 45. The property covers an area in excess of 53,249 hectares. All the work to date, including, mining, development, resource definition and exploration has taken place on only a small portion of this large property.
2
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
March 5, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. |
|||
Item 4. | Summary of Material Change | ||
The Company is pleased to announce the closing today of the offering announced on February 18 and February 19, 2009. | |||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
March 5, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES |
NEWS RELEASE |
Toronto Stock Exchange FR | March 5, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Closing of $21.2 Million Offering
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") The Company is pleased to announce the closing today of the offering announced on February 18 and February 19, 2009. A syndicate of underwriters led by CIBC World Markets Inc. and including Blackmont Capital Inc., GMP Securities L.P. and Thomas Weisel Partners have purchased 8,487,576 Units (the Units) from First Majestic at an issue price of $2.50 per Unit (the Offering) for gross aggregate proceeds of $21,218,940. Each Unit consists of one common share (a Common Share) in the capital of First Majestic and one-half of one Common Share purchase warrant. Each whole Common Share purchase warrant (a Warrant) entitles the holder to acquire one additional Common Share at a price of $3.50 until March 5, 2011. The underwriters have an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 Common Shares at a price of $2.40 per share and up to an additional 636,568 Warrants at a price of $0.20 per Warrant.
The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the Companys La Encantada Silver Mine, including the completion of a 3,500 tonne-per-day cyanidation plant on the property, and the remainder for general working capital.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
The securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
(Signed) Keith Neumeyer
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
February 26, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. |
|||
Item 4. | Summary of Material Change | ||
In connection with the filing of the Companys Amended and Restated Preliminary Short-Form Prospectus for an offering of $17,000,000, the British Columbia Securities Commission has requested that certain disclosure by the Company be clarified. The Company wishes to clarify the disclosure in its news releases dated December 23, 2008, January 13, 2009 and February 17, 2009. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
February 26, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
Toronto Stock Exchange FR | February 26, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Resource Disclosure Clarification
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") In connection with the filing of the Companys Amended and Restated Preliminary Short-Form Prospectus for an offering of $17,000,000, the British Columbia Securities Commission has requested that certain disclosure by the Company be clarified. The Company wishes to clarify the disclosure in its news releases dated December 23, 2008, January 13, 2009 and February 17, 2009.
In respect of the January 13, 2009 news release, the Company advises that it added Resources and Reserves in compiling its global resource figures. Also, the news releases issued on December 23, 2008, January 13, 2009 and February 17, 2009, added Inferred Resources to other categories of Reserves and Resources. These practices are not permitted under NI 43-101 and the Company has now discontinued this practice. The disclosure in each of the news releases and the Company's technical reports as to each separate category of Resources or Reserves are accurate as of their respective dates, however prior disclosure of global resources and total resources should not be relied upon.
The Company's independent Qualified Persons under the policies of National Instrument 43-101 who have reviewed the contents of this news release and who authored the most recent qualifying report are Leonel López, C.P.G., P.G., and Richard Addison P.E., Principal Process Engineer, of Pincock Allen & Holt, who are employees of PAH and are independent of the Company.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
February 19, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that it has priced its previously announced public offering of units (the Offering). Pursuant to the Offering, the Company will issue 6,800,000 units (Units) at a price of $2.50 per Unit, for aggregate proceeds of $17,000,000. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
February 19, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES |
NEWS RELEASE |
Toronto Stock Exchange FR | February 19, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic Announces Pricing of Offering
FIRST MAJESTIC SILVER CORP. (FR-T) (First Majestic or the Company) is pleased to announce that it has priced its previously announced public offering of units (the Offering). Pursuant to the Offering, the Company will issue 6,800,000 units (Units) at a price of $2.50 per Unit, for aggregate proceeds of $17,000,000. Each Unit consisting of one common share (a Common Share) in the capital of First Majestic and one-half of one Common Share purchase warrant (a Warrant). Each whole Warrant will entitle the holder to acquire one additional Common Share, at a price of $3.50 per Common Share, for a period of 24 months from the closing of the Offering. The Company will file an amended and restated preliminary prospectus in each of the provinces of Canada except Quebec. In addition, the Company has granted the underwriters (1) an option to purchase up to an additional 3,200,000 Units at $2.50 per Unit at any point prior to 48 hours before closing of the Offering, and (2) an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 15% of the Offering to cover overallotments and for market stabilization purposes. CIBC World Markets Inc. is acting as lead underwriter and sole bookrunner in a syndicate which also includes Blackmont Capital Inc., GMP Securities L.P. and Thomas Weisel Partners.
The Company intends to use $15.5 million of the net proceeds of the Offering on mill construction and mine expansion and improvements at the Companys La Encantada property, with the remainder of the proceeds to be used for general working capital.
The Units will be sold publicly in all provinces of Canada except Quebec and on a private placement basis in the United States pursuant to exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended, and internationally pursuant to available exemptions.
Closing of this offering is expected to occur on or about March 5, 2009 and is subject to receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The securities have not been registered under the U.S. Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration or any applicable exemption from the registration requirements. This press release does not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.
2
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
For further information please contact: info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer,
President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
February 18, 2009 | |||
Item 3. | News Release | ||
The press release was disseminated through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that it has filed a preliminary short-form prospectus in connection with a proposed over-night marketed offering of approximately C$25 million of units (Units), with each Unit consisting of one common share (a Common Share) in the capital of First Majestic and one-half of one Common Share purchase warrant (a Warrant). |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
February 18, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES |
NEWS RELEASE |
Toronto Stock Exchange FR | February 18, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic Announces C$25 Million Offering
FIRST MAJESTIC SILVER CORP. (FR-T) (First Majestic or the Company) is pleased to announce that it has filed a preliminary short-form prospectus in connection with a proposed over-night marketed offering of approximately C$25 million of units (Units), with each Unit consisting of one common share (a Common Share) in the capital of First Majestic and one-half of one Common Share purchase warrant (a Warrant). Each whole Warrant will entitle the holder to acquire one additional Common Share for a period of 24 months from the closing of the Offering. The Company will grant the underwriters an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 15% of the number of Common Shares and Warrants at the issue price to cover overallotments and for market stabilization purposes. The underwriting syndicate will be led by CIBC World Markets Inc.
The Company intends to use $15.5 million of the net proceeds of the Offering on mill construction and mine expansion and improvements at the Companys La Encantada property, with the remainder of the proceeds to be used for general working capital.
The Units will be sold publicly in all provinces of Canada except Quebec and on a private placement basis in the United States pursuant to exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended, and internationally pursuant to available exemptions.
Closing of this offering is expected to occur on or about March 5, 2009 and is subject to receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The securities have not been registered under the U.S. Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration or any applicable exemption from the registration requirements. This press release does not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
2
For further information please contact: info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer,
President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
February 17, 2009 | |||
Item 3. | News Release | ||
The Company disseminated a press release through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced an update regarding its activities in Mexico at the La Parrilla Silver Mine (La Parrilla) and a new NI 43-101 Reserve/Resource update with a cut-off date of September 30, 2008. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
February 17, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | February 17, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Parrilla Silver Mine Updates NI 43-101 Resource
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce an update regarding its activities in Mexico at the La Parrilla Silver Mine (La Parrilla) and a new NI 43-101 Reserve/Resource update with a cut-off date of September 30, 2008.
This new NI 43-101 Reserve/Resource update has resulted in a 19.79% increase in overall Resources at the La Parrilla. Total Reserves/Resources have reached 88.75 million equivalent ounces of silver (Proven & Probable Reserves of 5.25 million ounces, Measured and Indicated Resources of 30.70 million ounces and Inferred Resources of 52.80 million ounces).
The La Parrilla Silver Mine is located in the Municipality of Nombre de Dios, Durango State, México approximately 45 minute drive from the City of Durango east along Highway 45. The property covers an area in excess of 53,249 hectares. All of the work to date, including, mining, development, resource definition and exploration has taken place on only a small portion of this large property.
The La Parrilla operation consists of numerous silver/lead/zinc underground mines, and a cyanidation and flotation ore processing plant with an installed capacity of 840 tonnes per day (tpd). The plant processes both oxide and sulphide silver ores in two separate 420 tpd parallel circuits. Oxide ores are processed by cyanide leaching to produce Dore bars; sulphide ores are processed by differential flotation to produce a silver-rich lead concentrate.
First Majestic is operating three separate mines within the La Parrilla property including the La Rosa/Rosario/La Blanca systems which are joined underground into a single mining operation, the San Marcos mine, and the Quebradillas mine. Several additional areas are either undergoing development or exploration or have programs planned in the future. The most significant mining area currently under development is the Las Vacas mine, which is being prepared for production in 2010.
Exploration at La Parrilla to September, 2008, has included; 310 drill holes for a total drilled depth of 72,084 meters (72.1 kms); 274 km of geophysical surveying (IP/AR); 36 sq km of aeromagnetic investigations; and about 4,100 samples for geochemical research; in addition to 17,540 metres (17.5 kms) of underground development .
The following summary tables were taken from the complete La Parrilla Silver Mine NI 43-101 Technical Report released today and prepared by Pincock Allen & Holt, Lakewood, Colorado (PAH). Shareholders and interested parties are encouraged to read this positive report which can be viewed on SEDAR (www.sedar.com) and the Companys web site at www.firstmajestic.com.
2
Total Proven + Probable Mineral Reserves (1,2,3,4,5)
Category
|
Tonnes
|
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc
(4) % |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Proven Reserves
(Oxides plus Sulphides) |
288,468 |
302 |
1.36 |
0.93 |
2,797,487 |
3,064,952 |
Probable Reserves
(Oxides plus Sulphides) |
217,060 |
287 |
1.45 |
1.12 |
2,002,158 |
2,182,002 |
Total Proven
Plus Probable Reserves |
505,528 |
295 |
1.40 |
1.01 |
4,799,645 |
5,246,954 |
Total Measured + Indicated Resources
Category
|
Tonnes
|
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc
% |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Measured Resources
(Oxides plus Sulphides) |
2,195,448 |
264 |
2.59 |
4.54 |
18,637,618 |
22,806,628 |
Indicated Resources
(Oxides Plus Sulphides) |
861,488 |
245 |
3.46 |
6.07 |
6,785,685 |
7,940,379 |
Total Measured
Plus Indicated Resources (Oxides plus Sulphides) (6) |
3,100,000 |
255 |
2.84 |
4.97 |
25,400,000 |
30,700,000 |
Total Inferred Resources
Category
|
Tonnes
|
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc(4)
% |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Total Inferred
Resources (Oxides Plus Sulphides) (6) |
8,000,000
|
169
|
0.87
|
1.49
|
43,900,000
|
52,800,000
|
(1) |
Estimates by First Majestic reviewed by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery included. |
(2) |
Silver equivalent based on sales. Prices used for evaluation: Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb. |
(3) |
Oxides Ag equivalent includes gold credit based on sales. Au Credit = 6 g/tonne Ag. |
(4) |
Sulphides Ag equivalent includes Pb credit = 47 g/tonne Ag. Zinc is considered at 70% met. Recovery = 30 g/tonne Ag. |
(5) |
Cut-off grade estimated as 184 g/tonne Ag net of Au credit in oxide ores; and 246 g/tonne Ag net of Pb credit in sulphide ores. Zinc not considered in COG estimates. |
(6) |
Rounded figures. |
The La Parrilla mine consists of underground workings that include drifts, ramps, raises and stopes along the East-West trending Los Rosarios system. This system consists of a 3 km long mineralized structure that encloses numerous veins that branch out into veinlets and stockwork zones. The Los Rosarios system comprises La Rosa, Rosarios, La Blanca and San José areas and it intersects the NS-trending San Marcos vein. Other mineralized zones are located within the surrounding skarn zone of a regional diorite intrusive stock.
3
These include Quebradillas, Protectora, San Nicolas, San José, Las Vacas, Santa Paula, and others areas. These areas are contained within a core area surrounding the mill consisting of approximately 3500 hectares.
The property's geologic potential remains very high as the current Reserve/Resource definitions have only been focused on the La Rosa, Rosarios, La Blanca, San Marcos, Quebradillas and Las Vacas areas. Mineralization at the La Parrilla property, consisting of over 53,000 hectares in size, is a typical assemblage of metasomatic deposit minerals with a high content of silver. The most important mineralization consists of vein deposits and mineral concentrations within breccias. It mainly consists of pyrite, esphalerite, galena, some chalcopyrite, argentite and other silver sulfosalts associated with calcite and quartz as gangue minerals. Oxidation and secondary enrichment of these sulphides makes up the mineral concentrations in the upper parts of the deposits, and consists of carbonates (cerussite, hydrozincite, hemimorphite), sulfates (anglesite, willemite) and iron oxides (hematite and limonite).
The Company's independent Qualified Persons under the policies of National Instrument 43-101 who have reviewed the contents of this news release and who authored the most recent qualifying report are Leonel López, C.P.G., P.G., and Richard Addison P.E., Principal Process Engineer, of Pincock Allen & Holt, who are employees of PAH and are independent of the Company.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
January 20, 2009 | |||
Item 3. | News Release | ||
The Company disseminated a press release through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced an update regarding its activities in Mexico at the San Martin Silver Mine and a new NI 43-101 Reserve/Resource update. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
January 20, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | January 20, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
San Martin Updated NI 43-101 Report increasing Reserves/Resources by 45.81%
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce an update regarding its activities in Mexico at the San Martin Silver Mine and a new NI 43-101 Reserve/Resource update.
This newly updated technical report with a cut-off date of September 30, 2008 has resulted in a significant increase in overall Reserves and Resources at the San Martin Silver Mine. Total Proven & Probable Reserves have increased by 41.83%, while Total Measured and Indicated Resources declined by 51.55% due to the upgrading of those Resources to Reserves and Total Inferred Resources have increased by 110.94% .
The San Martin Silver Mine is located beside the town of San Martin de Bolaños in the Bolaños River valley, in the northern portion of the State of Jalisco, México. The San Martin operation is 150 kilometres by air or 250 kilometres by paved road north of Guadalajara. The property covers an area in excess of 7,800 hectares of which much remains unexplored.
The San Martin mine and mill has been in operation since 1983 and is a major contributor to the economy of the town of San Martin de Bolaños which has a population of around 3,000 people. The mill for much of 2008 has been operating at 750 tonnes per day. An expansion program launched in June 2008 resulted in the mill capacity reaching 950 tpd in December 2008.
The San Martin drill program from January 1 st , 2007 to September 30 th , 2008 included 127 drill holes with a total depth of 19,619 metres of core, in addition to about 3,906 metres of underground development for mining, drill sites and access preparations.
During the recently completed exploration program, new mineralized zones were discovered in the Zuloaga (Pinolea and Ballenas levels and Cymoid zone), La Blanca, Rosario-Condesa, La Mancha, Huichola and La Hedionda veins.
The following summary tables were taken from the complete San Martin Silver Mine NI 43-101 Technical Report prepared by Pincock Allen & Holt, Lakewood, Colorado (PAH). Shareholders and interested parties are encouraged to read this positive report which can be viewed on SEDAR (www.sedar.com) and the Companys web site at www.firstmajestic.com.
2
Total Proven + Probable Mineral Reserves (Mineable Reserves) (1, 2, 3, 4, 5)
Category
|
Tonnes
|
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc (4)
% |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Proven Reserves
(Oxides) |
527,373 | 273 |
|
|
4,636,211 | 4,805,765 |
Probable Reserves
(Oxides) |
243,091
|
276
|
|
|
2,154,571
|
2,232,727
|
Total Proven and
Probable Reserves |
770,464
|
274
|
|
|
6,790,782
|
7,038,492
|
Total Measured + Indicated Resources (2, 3, 5)
Category | Tonnes | Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc (4)
% |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Measured Resources
(Oxides) |
122,404
|
233
|
|
|
915,774
|
955,128
|
Measured Resources
(Sulfides) |
415,771
|
97
|
0.87
|
2.07
|
1,292,213
|
1,292,213
|
Indicated Resources
(Oxides) |
294,361
|
288
|
|
|
2,729,201
|
2,823,840
|
Indicated Resources
(Sulfides) |
670,684
|
116
|
0.94
|
1.64
|
2,498,639
|
2,498,639
|
Total Measured and
Indicated Resources (Oxides plus Sulfides) |
1,503,220
|
154
|
0.91
|
1.80
|
7,435,827
|
7,569,820
|
Proven and Probable
Reserves Plus Measured and Indicated Resources |
2,273,684 |
195 |
0.91 |
1.80 |
14,226,609 |
14,608,312 |
Total Inferred Resources (2, 3, 5)
Category
|
Tonnes
|
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc(4)
% |
Silver only
oz. |
Silver (oz.)
including Lead Credit |
||
Total Inferred Resources
(Oxides plus Sulfides) |
8,200,000 | 185 | 1.40 | 1.60 | 48,900,000 | 50,037,365 |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Cut Off estimates as 146 g/tonne Ag for oxides, and 87 g/tonne Ag for dump recovered; Ageq=Au/Pb credits= 10g/tonne Ag |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery. |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
3
Oxidized ore is presently being mined from the Zuloaga vein and from the adjacent La Blanca, Rosario and Cinco Señores Veins. Exploration and development is on-going on these vein structures, on other sub-parallel crossing veins and in a recently identified cymoid structure of the Zuloaga vein at the Ballenas level, in the blocks 5,400 and 5,550, as well as on the Rosario-Condesa vein system. Primary mineralization in sulfides with lead, zinc and copper occurs at the deepest levels, San Juan and San Carlos of the Zuloaga vein, however, these areas are not presently being mined.
The mine has been developed primarily on the main Zuloaga vein which has been identified over a strike length of three kilometres, and consists of six main levels spanning a vertical interval of approximately 350 metres. The main access levels, San José, Santa María, Ballenas, Cangrejos, San Pablo, San Juan and San Carlos, are accessible from surface adits and various interconnecting underground ramps totalling over 70 kilometres.
Exploration potential for finding and developing new Resources/Reserves in the San Martin district still remains promising. As a result of this recently completed aggressive exploration program, several targets have been identified for follow up drilling when the Company wishes to commence the next program. Five target zones within the main Zuloaga vein have been identified and six other areas; the Rosario, Escondida, Cangrejos, Ballenas, San José and Cymoid zone, have also been identified as primary targets.
Quality Assurance & Quality Control
To evaluate sample quality control, San Martin performs multiple assays, up to three times on some samples, and periodic check analyses on samples. Since 2004, the San Martin mine has sent approximately 10 pulp samples per month to ALS Chemex Laboratories and duplicate samples to SGS Labs in Guadalajara for analysis, which has had good correlations.
Following detailed geological and geotechnical logging, drill core samples are split on-site by diamond saw. One quarter of the core is submitted to the San Martin certified laboratory for sample preparation and analysis, which are assayed for silver by standard fire assay methods and lead by atomic absorption. The other quarter of the core is shipped to the SGS preparation laboratory in Durango, Mexico for drying, crushing, pulverizing and assaying for gold and silver by fire assay and 30 elements ICP package. Systematic assaying of standards and blanks are performed for precision and accuracy; check assays are regularly conducted by SGS or Chemex. The remaining half core is retained on-site for verification and future reference purposes.
Qualified Person
The Company's independent Qualified Persons under National Instrument 43-101 who have reviewed the contents of this news release and who authored the most recent qualifying report are Leonel López, C.P.G., P.G., and Richard Addison P.E., Principal Process Engineer, of Pincock Allen & Holt, who are employees of PAH and are independent of the Company.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
4
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Cautionary Notes to U.S. Investors Concerning Reserve and Resource Estimates
The definitions of proven and probable reserves used in National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) differ from the definitions in the United States Securities and Exchange Commission (SEC) Industry Guide 7. Under SEC Guide 7 standards, a Final or Bankable feasibility study is required to report reserves, the three year history average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.
In addition, the terms mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. Inferred mineral resources have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.
Form 51-102F3
Material Change Report
Item 1. | Name and Address of Company | ||
FIRST MAJESTIC SILVER CORP. (the Company) | |||
1805 925 West Georgia Street | |||
Vancouver, BC V6C 3L2 CANADA | |||
Telephone: | (604) 688-3033 | ||
Facsimile: | (604) 639-8873 | ||
Item 2. | Date of Material Change | ||
January 13, 2009 | |||
Item 3. | News Release | ||
The Company disseminated a press release through the services of Marketwire. | |||
Item 4. | Summary of Material Change | ||
The Company announced that production in the fourth quarter ending December 31, 2008 increased to 1,070,903 equivalent ounces of silver representing a 27% increase over the prior quarter production and an increase of 6% over the same quarter in the prior year. |
|||
Item 5. | Full Description of Material Change | ||
5.1 | Full Description of Material Change | ||
See Schedule A attached hereto. | |||
5.2 | Disclosure for Restructuring Transactions | ||
Not applicable. | |||
Item 6. | Reliance on subsection 7.1(2) or (3) of National Instrument 51-102 | ||
Not applicable | |||
Item 7. | Omitted Information | ||
Not applicable. | |||
Item 8. | Executive Officer | ||
Keith Neumeyer, President & CEO | |||
Telephone: (604) 688-3033 Facsimile: (604) 639-8873 | |||
Item 9. | Date of Report | ||
January 13, 2009 |
SCHEDULE A |
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | January 13, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Production increases 27% in 4 th Quarter
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the fourth quarter ending December 31, 2008 increased to 1,070,903 equivalent ounces of silver representing a 27% increase over the prior quarter production and an increase of 6% over the same quarter in the prior year.
The equivalent silver production for the quarter consisted of 930,120 ounces of silver, an increase of 29% over the previous quarter and 2,093,987 pounds of lead which represents a 38% increase over the previous quarter. The large increase in lead production was a result of improvements in recoveries of lead and tonnage at the flotation circuit at the La Encantada Silver Mine. Production of gold in the quarter amounted to 403 ounces representing a 25% decrease compared to the prior quarter.
During the quarter, the combined recoveries of silver at the three different mills showed a slight decrease from 67% to 65%. The overall average silver head grade in the quarter improved for the three mines increasing by 6% over the previous quarter to an overall head grade of 207 g/t silver.
The ore processed during the quarter at the Company's three operating silver mines; the La Parrilla Silver Mine, the San Martin Silver Mine and the La Encantada Silver Mine, amounted to 215,646 tonnes representing an increase of 27% over the previous quarter.
Despite the reduction of underground development throughout the Companys three operating silver mines, a total of 5,847 metres of development was completed in the quarter representing a reduction of 34% over the previous quarter. The total development for the year 2008, totalled 27,890 metres. This compares to 20,279 metres of underground developed in the previous calendar year representing an increase of 38%. This development program in 2008 was very important in giving access to new areas within the different mines in order to continue the growth of silver production in the future, and to upgrade current ore resources to reserves.
Reserve and Resource development was a high priority for the Company in 2008. In the quarter, two new NI 43-101 Reports were released. Current global resources now stand at 260,351,425 equivalent ounces of silver. As previously reported, two additional NI 43-101 Reports will soon be released to further increase this number. During most of the year, over 20 drill rigs were operating. During the fourth quarter, a decision was made to reduce the diamond drill program to four drill rigs, which currently remain in operation. A total of 4,193 metres of diamond drilling was completed during the quarter compared to 26,666 in the previous quarter. During the year ending December 31, 2008, a total of 61,440 metres of diamond drilling was completed which compares to 37,176 metres drilled in 2007 representing an increase of 65%.
2
Keith Neumeyer, President & CEO, stated, weve witnessed another significant year of growth in production and Resources as a result of our continued focus on mine and mill improvements throughout the past couple of years. Production increased by 18% year over year and Resources have increased by an impressive 55%. These improvements will translate into higher production for 2009 and with the new La Encantada mill coming online later this year, production will get another significant boost. First Majestic is still a young company that is not without challenges as can be expected as a result of our significant growth to date. I'm continually encouraged by our team of professionals who collectively have over 500 years of mining and management experience and who are all extremely committed to building a leader in the silver sector.
As a result of the work completed in 2008, some of the improvements and advances made during the year include:
At the La Parrilla Silver Mine:
At the La Encantada Silver Mine:
At the San Martin Silver Mine:
At the Del Toro Silver Mine:
Total production during 2008 reached 4,244,756 ounces of silver equivalent representing an increase of 18% compared to the previous year's 3,584,265 ounces silver equivalent. Even though management is pleased with the substantial increase in silver production compared to 2007, production for the year was lower than originally estimated. The heavy rainy season which affected the third quarter had a negative impact on the tonnage feed through the mills at each operation. Also, at the San Martin, maintaining optimal head grade continued to be the primary challenge which required management to try different alternatives to give the development program time to prepare and access new areas within the mine. Given the expansions that were completed in 2008 and the new construction underway at the La Encantada, management is estimating production to be 6,000,000 ounces of silver for 2009.
3
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP.
Suite 1805 925 West
Georgia Street
Vancouver, B.C., Canada V6C 3L2
Telephone: (604) 688-3033
Fax: (604) 639-8873
Toll Free: 1-866-529-2807
Web site:
www.firstmajestic.com; E-mail: info@firstmajestic.com
NEWS RELEASE
Toronto Stock Exchange FR | November 10, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic Completes Acquisition of Surface Rights,
Royalties and
Infrastructure at Real de Catorce Silver
Project
VANCOUVER, November 10, 2010 - First Majestic Silver Corp. ("First Majestic") (TSX: FR) is pleased to announce the closing today of the acquisition of all the real estate interests including the original mill and infrastructure and underlying royalties and bonuses which were associated with the Real de Catorce Silver Project in San Luis Potosi State, Mexico.
The total purchase price of US$3,000,000 consists of US$1,500,000 cash and the issuance of US$1,500,000 in common shares of First Majestic equalling 152,798 shares at a deemed price of $9.91 per share based on the volume weighted average of the past five days trading. The package includes title to all of the land underlying the Santa Ana Hacienda located within the Real de Catorce property, together with all associated buildings and certain historic geological and proprietary mining information relating to the project.
The Real de Catorce Silver Mine which was acquired in November 2009, had been subject to a 3% net smelter royalty (3% NSR), of which 1.75% could be acquired for a total price of US$1.75 million, if paid prior to March 15, 2014, otherwise the total purchase price would increase to US$2.1 million. In addition, the previous owner (Normabec) had agreed to acquire the surface rights, the buildings located thereon which cover the location of the previous mining operations, and all technical and geological information, in consideration for a single payment of US$1.2 million to be made by December 2010. The Company was also obligated upon commencement of commercial production, to pay an additional US$200,000 to the previous owner.
The acquisition by the Company today replaces the above mentioned total cash payments of between $3.15 and $3.4,with a total purchase price of US$3.0 million in cash and shares, and removes entirely any future NSR on the Real de Catorce project.
The Company is currently evaluating its alternatives for future production in the area, including the evaluation of past exploration works in order to plan for future underground development, mining and processing plant alternatives. In the meantime, the Company is planning to rehabilitate the Santa Ana Hacienda for the purpose of opening a mining museum to help the community create new jobs and increase the economic opportunities in the area.
The shares issued in this agreement will be subject to a four month hold period from the date of issuance under applicable Canadian securities laws.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
“signed”
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | November 9, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Another Record Quarter of Earnings and Cash Flows
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company" or First Majestic) is pleased to announce the unaudited financial results for the Company's third quarter ending September 30, 2010. The full version of the financial statements and the managements discussion and analysis can be viewed on the Company's web site at www.firstmajestic.comor on SEDAR at www.sedar.com.
Third Quarter 2010 Highlights ($CAD) | Change from Q3-2009 | |
Gross Revenue | $36.1 million | Up 114% |
Net Revenue | $33.5 million | Up 144% |
Mine Operating Earnings | $16.9 million | Up 307% |
Net Income after Taxes | $10.3 million | Up 458% |
Cash Flow Per Share (non-GAAP measure) | $0.17 per share | Up 279% |
Earnings Per Share basic | $0.11 per share | Up 450% |
Silver Ounces Produced (excluding equivalent ounces of gold and lead) | 1,823,370 ounces Ag | Up 95% |
Silver Equivalent Production | 1,920,498 eq. oz. | Up 76% |
Silver Equivalent Ounces Sold | 1,869,393 eq. oz. | Up 84% |
Total Cash Costs per Ounce | US$ 7.42 | Down 14% |
Direct Cash Costs per Ounce | US$ 5.79 | Up 4% |
Average Revenue per Ounce sold | US$ 18.57 | Up 23% |
Cash and Cash Equivalents (as at Sept 30 th ) | $25.5 million | Up $19.6 million |
Results of Operations
Consolidated gross revenue (prior to smelting & refining charges, and metal deductions) for the quarter ended September 30, 2010 increased 114% to $36.1 million (US$34.7 million) compared to $16.8 million (US$15.4 million) for the quarter ended September 30, 2009, for an increase of $19.2 million. Compared to the second quarter ended June 30, 2010, consolidated gross revenue increased by $4.3 million or 13%. The increase in revenues in the third quarter of 2010 is primarily attributable to a 15% increase in silver ounces sold compared to the previous quarter. The increase in ounces sold is due to increased production from the plant at the La Encantada Silver Mine as well as from improving operating levels at the La Parrilla Silver Mine which combined to contribute a 95% increase in silver production when compared to the third quarter of 2009.
Net sales revenue (after smelting and refining charges and metals deductions) for the quarter ended September 30, 2010 was $33.5 million, an increase of 144% compared to $13.7 million for the third quarter of 2009. Net sales revenue for the quarter ended September 30, 2010 increased by 16% compared to $29.0 million in the second quarter of 2010. Smelting and refining charges and metal deductions decreased to 7% of gross revenue in the third quarter of 2010 compared to 19%of gross revenue in the third quarter of 2009, due to a shift in the production mix toward silver doré which is a benefit from the new cyanidation plant at La Encantada. Average smelting charges for doré in the third quarter of 2010 were US$0.39 per silver ounce as compared to US$3.84 per silver ounce for concentrates.
2
Net income after taxes was $10.3 million in the third quarter of 2010 resulting in basic earnings per common share (EPS) of $0.11, compared to a net income in the third quarter of 2009 of $1.8 million or an EPS of $0.02. Net income for the third quarter of 2010 was after taking a non-cash future income tax provision of $3.5 million or $0.04 per share and a foreign exchange loss (due to a stronger Peso) which increased by $1.0 million or $0.01 per share over the previous quarter, when net income after taxes was $8.9 million and basic EPS was $0.10.
Mine operating earnings for the third quarter of 2010 increased by 307% to $16.9 million, compared to mine operating earnings of $4.1 million for the third quarter of 2009, and are associated with an increase in net revenue during the third quarter of 2010. When compared to the second quarter of 2010, mine operating earnings increased by 29% from $13.1 million to $16.9 million.
Operating income increased by 617%, or $11.8 million, to $13.8 million for the quarter ended September 30, 2010, from $1.9 million for the quarter ended September 30, 2009, due to the 84% increase in ounces sold and the 23% increase in average US$ revenue per ounce of silver sold. When compared to the second quarter of 2010, operating income increased by 38% from $10.0 million to $13.8 million.
Production of silver, excluding any equivalents from gold, lead or zinc, increased 95% compared to the third quarter of 2009. The Company produced 1,823,370 ounces of silver in the current quarter, 1,538,798 ounces of silver in prior quarter and 935,996 ounces in the third quarter of 2009. In the current quarter, 95% of First Majestics revenue resulted from the sale of pure silver making it the purest silver producer relative to its peers.
Total silver equivalents production for the third quarter of 2010 increased 76% from the same quarter of the prior year and 16% from the prior quarter to 1,920,498 ounces of silver equivalents consisting of 1,823,370 ounces of silver, 323 ounces of gold, 1,248,086 pounds of lead and 228,517 pounds of zinc. This compares to the 1,089,481 ounces of silver equivalents produced in the third quarter of 2009, which consisted of 935,996 ounces of silver, 732 ounces of gold, 1,690,354 pounds of lead, and 8,913 pounds of zinc and compares with production in the previous quarter of 1,656,165 ounces of silver equivalents consisting of 1,538,798 ounces of silver, 541 ounces of gold and 1,494,548 pounds of lead.
In the third quarter of 2010, the Company sold 1,869,393 ounces of silver equivalent at an average price of $19.30 per ounce (US$18.57) compared to 1,018,417 ounces in the third quarter of 2009 at an average price of $16.54 per ounce (US$15.07), representing an increase of 84% in shipments over the same quarter in 2009 and a 15% increase over the preceding quarter. The average trading price for silver in the third quarter was US$18.96.
The new La Encantada cyanidation plant achieved average throughput of 3,477 tonnes per day in the third quarter compared to 2,900 tonnes per day in the second quarter. The La Encantada plant produces silver doré bars which are 93-97% silver with small amounts of lead, gold and other metals making up the balance of the contents in these bars. The economic differences between doré and concentrate production are significant and are beginning to reflect in improved financial numbers. The economics of switching from concentrate production to doré production resulted in a 56% savings of smelting and refining costs per silver ounce for consolidated operations in the third quarter of 2010 compared to the third quarter of 2009.
Total cash costs per ounce (including smelting, refining, metal deductions, transportation and other selling costs, and byproduct credits, which is a non-GAAP measure) for the third quarter of 2010 was US$7.42 per ounce of silver compared to US$8.64 per ounce of silver in the third quarter of 2009 and US$8.20 per ounce in the second quarter of 2010. The cost decrease was attributed to reduced smelting & refining costs (US$1.34 per ounce this quarter versus US$3.08 per ounce for the same quarter last year) related to the converting the production at La Encantada plant to doré production instead of concentrate production.
On a year to date basis, the Companys cash position has increased by $19.6 million to $25.5 million at the end of the third quarter, and working capital increased by $19.3 million to $24.1 million over the same period. The Company achieved these increases while also investing $11.6 million in plant and equipment and $10.0 million in its mineral properties. In addition, in September and October the Company repaid in advance 100% of the $4.1 million balance of the FIFOMI loans outstanding leaving the Company debt free, excluding the small prepayment facility and capital leases.
3
In Summary
First Majestic has delivered another quarter of strong operating results thanks to the additional production, earnings and cash flow from operations including the new plant at the La Encantada Silver Mine, which have also come at a time when theres been a significant increase in the price of silver, which combined, have had an extremely positive impact on the Companys balance sheet on a year to date basis.
These are clearly very exciting times in the silver commodity markets and a very exciting time for the Company to be reaping the rewards of over six years of hard work, and which have delivered increased capacities into a very buoyant market. We will continue to focus on the fundamentals of minimizing cash costs and increasing production as we grow First Majestic into a senior silver producer commented Keith Neumeyer, President and CEO of First Majestic.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan of becoming a senior silver producer through the development of its existing mineral property assets and the pursuit through acquisition of additional mineral assets which contribute to the Company achieving its aggressive corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website atwww.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | October 6, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Another New Record for Silver Production; 1,823,370 oz Silver Produced in Q3
Highlights
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the third quarter ending September 30, 2010 increased to a new Company record of 1,920,498 equivalent ounces of silver representing a 16% increase over the previous quarter and a 76% increase over the third quarter of 2009.
The total equivalent silver production for the quarter consisted of: 1,823,370 ounces of silver, representing an 18% increase from the previous quarter; 1,248,086 pounds of lead representing a 16% decrease from the previous quarter; and 377 ounces of gold representing a decrease of 36% compared to the previous quarter. Total silver production compared to the third quarter of 2009 increased by 95%.
The total ore processed during the quarter at the Company's three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to a new record of 434,221 tonnes milled in the quarter representing a 7% increase over the previous quarter.
Production Details Table:
|
Quarter Ended
September 30, 2010 |
Quarter Ended
June 30, 2010 |
% Change
+/- |
Total silver ounces produced | 1,823,370 | 1,538,798 | 18% |
Total equivalent silver ounces produced | 1,920,498 | 1,656,165 | 16% |
Total ore processed/tonnes milled | 434,221 | 404,350 | 7% |
Total pounds of lead produced | 1,248,086 | 1,494,548 | -16% |
Total gold ounces produced | 377 | 593 | -36% |
Other Developments
The Companys underground development in the third quarter consisted of 6,207 metres, compared to 5,063 metres completed in the previous quarter. Diamond drilling activity in the quarter consisted of 7,819 metres compared with 3,090 metres completed in the previous quarter. The expanded drilling program consisted of definition drilling to assist in mining activity and resource upgrading and exploration at the Companys three mines.
Now that the La Encantada mill expansion has effectively achieved full capacity, the Companys focus for the next 15 months will be: 1) expanding the Companys La Parrilla operation, 2) concluding a final decision on size and timing of a new mill construction at the Companys Del Toro Silver Mine, and 3) expanding the NI 43-101 compliant Reserves / Resources at each of the Companys five projects (La Encantada Silver Mine, La Parrilla Silver Mine, San Martin Silver Mine, Del Toro Silver Mine and the Real de Catorce Silver Project).
At the La Encantada Silver Mine:
The new 3,500 tpd cyanidation mill achieved full production during the quarter. Average throughput reached 3,477 tpd for a total of 295,328 tonnes (dry metric tonnes) compared to 2,908 tpd for the second quarter. Full capacity is based on a 330 day work year (85 days for the third quarter) which equates to 297,500 tonnes which confirms the mill is running at 99% of capacity.
Cost efficiencies are expected to improve compared to the second quarter as throughput has reached capacity in the third quarter.
In July, the main access to the mine from Muzquiz, Coahuila, was interrupted by Hurricane Alex. With cooperation with other mining companies in the area, efforts were combined to re-open roads. The interruption was short lived with minimal delays in transportation of supplies. Further work is underway to improve the local infrastructure to prevent future interruptions.
Now that the throughput in the mill has reached capacity, the focus in the fourth quarter will be to refine operations in the areas of recoveries, smelting and other areas which are expected to improve costs and efficiencies going forward.
At the La Parrilla Silver Mine:
Further to the July 8, 2010 news release discussing the plan to expand the La Parrilla operation; final engineering design and planning is expected to be completed in the fourth quarter. Permitting is expected in the first quarter of 2011, with groundbreaking commencing immediately afterwards. The current plan is to expand this operation to 1,600 tpd from its current capacity of 850 tpd, effectively doubling production from current levels by the end of 2011. Once final plans are completed, the Company will announce further details.
During the quarter the Company acquired, through staking, an additional 16,630 hectares of land which created a contiguous land block of 69,867 hectares surrounding the La Parrilla mining operations. Several large geological anomalies are now contained within First Majestics land holdings. Geophysical regional exploration and mapping is currently being carried out in order to define a broad diamond drill program scheduled for 2011.
At the San Martin Mine:
At the Del Toro Silver Mine:
Mr. Keith Neumeyer, President and CEO stated: First Majestics operations are exceeding budgeted levels. This is a real testament to the efforts of our management and staff at all levels of our business. Its nice to see First Majestic shine as it continues to break new records.
Ramon Davila, Ing., M.Sc., Chief Operating Officer for First Majestic, is the Qualified Person pursuant to NI 43-101 who reviewed this news release and oversees the mining operations.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
TSX Exchange FR | August 16, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Record Earnings and Cash Flows. Purest Silver Producer with 93% of Revenue from Silver Production
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company" or First Majestic) is pleased to announce the unaudited financial results for the Company's second quarter ending June 30, 2010. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
Second Quarter 2010 Highlights ($CAD) | Change from Q2-2009 | |
Gross Revenue | $31.8 million | Up 102% |
Net Revenue | $29.0 million | Up 122% |
Mine Operating Earnings | $13.1 million | Up 679% |
Net Income after taxes | $8.9 million | Up 757% |
Earnings Per Share basic | $0.10 per share | Up 900% |
Cash Flow Per Share (non-GAAP measure) | $0.14 per share | Up 1300% |
Silver Ounces Produced (excluding equivalent ounces of gold and lead) | 1,538,798 ounces Ag | Up 86% |
Silver Equivalent Production | 1,656,165 eq. oz. | Up 73% |
Silver Equivalent Ounces Sold | 1,623,844 eq. oz. | Up 51% |
Total Cash Costs per ounce | US$ 8.20 | Down 10% |
Direct Cash Costs per ounce | US$ 6.16 | Down 2% |
Average Revenue per ounce sold | US$ 18.68 | Up 48% |
Results of Operations
Consolidated gross revenue (prior to smelting and refining charges and metal deductions) for the quarter ended June 30, 2010 was $31.8 million (US$30.3 million) compared to $15.8 million (US$13.5 million) for the quarter ended June 30, 2009 for an increase of $16.0 million or 102%. Compared to the first quarter ended March 31, 2010, consolidated gross revenue increased by $9.9 million or 45%. The increase in revenues in the second quarter of 2010 is primarily attributable to a 25% increase in silver ounces sold compared to the first quarter ended March 31, 2010. The increase in ounces sold are due to the launch of the new cyanidation plant at the La Encantada Silver Mine and the improving operating levels at the La Parrilla Silver Mine which combined, contribute a 86% increase in silver production compared to the second quarter of 2009.
In the second quarter of 2010, the Company sold 1,623,844 ounces of silver equivalent at an average price of US$18.68 per ounce compared to 1,073,129 ounces in the second quarter of 2009 at an average price of US$12.60 per ounce, representing an increase of 51% in shipments over the same quarter in 2009 and a 25% increase over the first quarter of 2010. In the first quarter of 2010, the Company sold 1,298,659 ounces of silver equivalents at an average price of US$16.23 per ounce.
2
Production of silver, excluding any equivalents from gold or lead, increased by 9% over the prior quarter and 86% compared to the second quarter of 2009. The Company produced 1,538,798 ounces of silver in the current quarter, 1,409,825 ounces of silver in the first quarter of 2010 (commercial and non-commercial production), and 827,720 ounces in the second quarter of 2009. In the second quarter of 2010, 93% of First Majestics revenue resulted from the sale of pure silver making the Company the purest silver producer relative to its peers.
The new plant at La Encantada achieved commercial production on April 1, 2010. The design of the new plant allows for the production of silver doré bars which are generally 93-97% silver with small amounts of lead, gold and other metals making up the balance of the contents of these bars. During the second quarter, furnaces were installed allowing for the discontinuation of concentrate production. The economic differences are significant and are beginning to reflect in the financial numbers. Management completed a review of the economics of lead production and concluded that, due to the relatively small amount of lead produced historically and the current lead prices, ore was more valuable if processed directly through cyanidation rather than being floated, and thus the flotation circuit was shut down in June 2010. As a result of the discontinuation of flotation, concentrate production decreased in the second quarter and lead as a byproduct decreased by 41% to 1,494,548 pounds. The economics of switching from concentrate production to doré production resulted in a savings for La Encantada of approximately US$2.61 per ounce in the second quarter of 2010 and a savings of $1.10 per ounce for consolidated operations. The new La Encantada cyanidation plant achieved average throughput of approximately 2,900 tonnes per day in the second quarter. This average throughput is expected to increase in the third quarter.
Total commercial production for the second quarter of 2010 increased by 22% compared to the first quarter of 2010. Total production (commercial and non-commercial) for the second quarter of 2010 increased 2% from the prior quarter and 73% from the same quarter of the prior year to 1,656,165 ounces of silver equivalents consisting of 1,538,798 ounces of silver, 541 ounces of gold and 1,494,548 pounds of lead. This compares to the 957,936 ounces of silver equivalents produced in the second quarter of 2009, which consisted of 827,720 ounces of silver, 746 ounces of gold, 1,493,162 pounds of lead, and compares with production in the first quarter of 1,619,403 ounces of silver equivalents consisting of 1,409,825 ounces of silver, 857 ounces of gold and 2,542,071 pounds of lead.
Net sales revenue (after smelting and refining charges, metals deductions, transportation and other selling costs) for the quarter ended June 30, 2010 was $29.0 million, an increase of 122% compared to $13.0 million for the second quarter of 2009. Net sales revenue for the quarter ended June 30, 2010 increased by 59% compared to $18.2 million in the first quarter of 2010. Smelting and refining charges and metal deductions decreased to 9% of gross revenue in the second quarter of 2010 compared to 17% of gross revenue in the second quarter of 2009, due to a shift in the production mix toward silver doré which is a major benefit from the new cyanidation plant at La Encantada.
The Company generated net income of $8.9 million in the second quarter of 2010, or earnings per common share (EPS) of $0.10 compared to a net income in the second quarter of 2009 of $1.0 million or EPS of $0.01. Net income for the second quarter of 2010 included non-cash stock-based compensation expense of $0.6 million and an income tax provision of $1.4 million. In the first quarter of 2010, net income was $3.0 million resulting in EPS of $0.03. If the revenues and expenses of the new plant were deemed commercial in the first quarter (recorded as income rather than capital) an additional $2.3 million of capitalized profits would have increased EPS in the first quarter to $0.06.
Direct cash costs per ounce of silver (a non-GAAP measure) for the second quarter of 2010 were US$6.16, compared to US$6.31 per ounce of silver in the second quarter of 2009 and US$4.94 per ounce of silver in the first quarter of 2010. The cost increase was attributed to an increase in the peso relative to the US dollar, as well as an increase in electricity and diesel costs compared to previous quarters.
Total cash costs per ounce (including smelting, refining, metal deductions, transportation and other selling costs, and byproduct credits, which is a non-GAAP measure) for the second quarter of 2010 was US$8.20 per ounce of silver compared to US$9.15 per ounce of silver in the second quarter of 2009 and US$8.11 per ounce in the first quarter of 2010.
3
Mine operating earnings for the second quarter of 2010 increased by 679% to $13.1 million compared to mine operating earnings of $1.7 million for the second quarter of 2009 and are associated with an increase in net revenue during the second quarter of 2010. When compared to the first quarter of 2010, mine operating earnings increased by 78% from $7.4 million.
Operating income increased by 907%, or $11.2 million, to $10.0 million for the quarter ended June 30, 2010, from an operating loss of $1.2 million for the quarter ended June 30, 2009, due to the 51% increase in ounces sold and the 51% increase in average US$ revenue per ounce of silver sold. When compared to the first quarter of 2010, operating income increased by 114% from $4.7 million.
During the quarter ended June 30, 2010, the Company invested $2.6 million in its mineral properties and a further $3.0 million in additions to plant and equipment on a cash basis. This compares to $3.2 million invested in its mineral properties and a further $5.9 million in additions to plant and equipment on a cash basis in the second quarter ended June 30, 2009. When compared to the first quarter of 2010, the Company invested $3.4 million in its mineral properties and a further $1.4 million in additions to plant and equipment on a cash basis.
In Summary
First Majestic has experienced its first quarter of operating results incorporating the additional production, earnings and cashflow from the operations of its new plant at the La Encantada Silver Mine and, as expected, the results are clearly record breaking. The increased production of silver, reduced smelting and refining costs and firm silver prices are combining to provide the Company a quantum increase in earnings and cashflow for this past quarter.
We would like to thank everyone who assisted in the construction, financing and launching of the impressive La Encantada processing plant and look forward to continued improvements in costs and output as we further increase our daily throughput and improve our operational efficiencies commented Keith Neumeyer, President and CEO of First Majestic. Management looks forward to continued improvements in production, earnings and cashflow as the La Encantada operation matures over the coming quarters.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan of becoming a senior silver producer through the development of its existing mineral property assets and the pursuit through acquisition of additional mineral assets which contribute to the Company achieving its aggressive corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | July 8, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
New Record for Silver Production; Produces 1,538,798 oz Silver
Highlights
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the second quarter ending June 30, 2010 increased to a new company record of 1,651,411 equivalent ounces of silver representing a 2% increase over the previous quarter and a 72% increase over the second quarter of 2009.
The total equivalent silver production for the quarter consisted of 1,538,798 ounces of silver, representing a 9% increase from the previous quarter, 1,494,532 pounds of lead representing a 41% decrease from the previous quarter, and 541 ounces of gold representing a decrease of 37% compared to the previous quarter. Total silver production from operations have increased by 86% when compared with the second quarter of 2009.
The total ore processed during the quarter at the Company's three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to a new record 404,349 tonnes milled in the quarter representing a 20% increase over the previous quarter.
Productions Details Table:
|
Quarter
Ended June 30, 2010 |
Quarter Ended March 31, 2010 |
% Change +/- |
Total Silver ounces produced | 1,538,798 | 1,409,825 | 9% |
Total Equivalent silver ounces produced | 1,651,411 | 1,619,403 | 2% |
Total Ore processed/tonnes milled | 404,349 | 337,110 | 20% |
Total Pounds of lead produced | 1,494,532 | 2,542,071 | -41% |
Total Gold ounces produced | 541 | 857 | -37% |
Other Developments
The Companys underground development in the second quarter consisted of 5,063 metres, compared to 5,100 metres completed in the previous quarter. There was 3,090 meters of diamond drilling completed in the quarter which consisted of definition drilling to assist in mining activity, resource upgrading and exploration at the Companys three mines.
At the La Encantada Silver Mine:
At the La Parrilla Silver Mine:
At the San Martin Mine:
Mr. Keith Neumeyer, President and CEO had the following to say about the recent production results: First Majestic continues to break new records and we are extremely pleased with the second quarter results. Our operational team continues to demonstrate that they are committed to increasing efficiencies to achieve our production goal of 6.35 million silver equivalent ounces in 2010.
Ramon Davila, Ing., Chief Operating Officer for First Majestic, is the Qualified Person who reviewed this news release and oversaw the mining operations.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
SIGNED
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
TSX Exchange FR | May 13, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Quarter Marks 5 th Consecutive Quarter of Net Income
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the unaudited financial results for the Company's first quarter ending March 31, 2010. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
First Quarter 2010 Highlights ($CAD) | ||
Gross Revenue | $21.9 million | |
Net Revenue | $18.2 million | |
Mine Operating Earnings | $7.4 million | |
Net Income after taxes | $3.0 million | |
Earnings Per Share | $0.03 | |
Silver Equivalent Production (1) | 1,619,403 oz. Ag eq. | |
Silver Equivalent Ounces Sold (2) | 1,298,659 oz. Ag eq. | |
Total Cash Costs per ounce | US$8.11 | |
Direct Cash Costs per ounce | US$4.94 | |
Average Revenue per ounce sold | $16.89 (US$ 16.23) | |
(1) |
includes pre-commercial production of 261,193 silver ounces during the quarter ended March 31, 2010. |
|
(2) |
excludes the net margin of $2.3 million of pre-commercial production in connection with the sale of 262,403 silver ounces during the quarter ended March 31, 2010. |
FINANCIAL PERFORMANCE AND HIGHLIGHTS
Consolidated gross revenue (prior to smelting, refining and metal deductions) for the quarter ended March 31, 2010 was $21,935,712 compared to $17,464,137 for the quarter ended March 31, 2009 for an increase of $4,471,575 or 26%. Consolidated gross revenue for the quarter ended March 31, 2010 increased by 2% compared to the prior quarter ended December 31, 2009.
In the first quarter of 2010, the Company shipped (sold) 1,298,659 ounces of silver equivalent at an average price of $16.89 per ounce (US$16.23) compared to 996,595 ounces in the first quarter of 2009 at an average price of $17.52 per ounce (US$14.07), representing an increase of 30% in shipments over the same quarter in 2009 and a 13% increase over Q4 of 2009. In the fourth quarter of 2009, the Company shipped 1,145,562 ounces of silver equivalents at an average price of $18.71 (US$17.72) per ounce.
Total production for the first quarter of 2010 increased 30% from the prior
quarter and 56% from the same quarter of the prior year to 1,619,403 ounces of
silver equivalents consisting of 1,409,825 ounces of silver, 857 ounces of
gold and 2,542,071 pounds of lead. This compares to the
1,040,117 ounces of silver equivalents produced in the first quarter of 2009,
which consisted of 929,964 ounces of silver, 491 ounces of gold, 1,828,739
pounds of lead. In the fourth quarter of 2009, the Company produced 1,249,568
ounces of silver equivalents consisting of 1,103,840 ounces of silver, 701
ounces of gold and 1,571,819 pounds of lead.
2
Net sales revenue (after smelting and refining charges and metals deductions) for the quarter ended March 31, 2010 was $18.2 million, an increase of 27% compared to $14.4 million for the first quarter of 2009. Net sales revenue for the quarter ended March 31, 2010 was virtually unchanged compared to $18.4 million for the fourth quarter of 2009. Smelting and refining charges and metal deductions decreased marginally to 17% of gross revenue in the first quarter of 2010 compared to 18% of gross revenue in the first quarter of 2009. Average smelting charges for doré in the first quarter of 2010 were US$0.52 per equivalent silver ounce whereas for concentrates they were US$4.05 per equivalent silver ounce.
The Company generated net income in the first quarter of 2010 of $3.0 million, or earnings per common share (EPS) of $0.03 compared to a net income in the first quarter of 2009 of $0.9 million or EPS of $0.01. Net income for the first quarter of 2010 was after deducting non-cash stock-based compensation expense of $0.7 million and an income tax provision of $1.1 million. As the new La Encantada plant was not in commercial production until April 1, 2010, generally accepted accounting principles require the revenues and production costs to be recorded as capital costs against the plant rather than being recorded in the Statement of Income for the first quarter of 2010. If the revenues and expenses of the new plant were recorded as income rather than capital, the $2.3 million of capitalized profits would have been adjusted upwards to $0.06 per share rather than $0.03 per share.
Total cash costs per ounce (includes smelting, refining, metal deductions, and by-product credits and is a non-GAAP measure) for the first quarter of 2010 was US$8.11 per ounce of silver compared to US$7.60 per ounce of silver in the first quarter of 2009 and US$8.61 per ounce in the fourth quarter of 2009.
Direct cash costs per ounce of silver (a non-GAAP measure) for the first quarter of 2010 were US$4.94, consistent with the first quarter of 2009 at US$4.94 per ounce of silver. This compares to the direct cash costs of US$5.69 per ounce of silver in the fourth quarter of 2009.
Mine operating earnings for the first quarter of 2010 increased by 62% to $7.4 million, compared to mine operating earnings of $4.5 million for the first quarter of 2009, due to an increase in net revenue during the first quarter of 2010. Mine operating earnings for the first quarter of 2010 decreased by 9% when compared to mine operating earnings of $8.1 million for the fourth quarter of 2009, due to additional depletion expenses recorded in the current quarter. An additional $2.3 million of profits were capitalized due to the pre-commercial nature of the precipitate sales at the La Encantada cyanidation plant in the first quarter and therefore were excluded from the $7.4 million mine operating earnings reported above.
Operating income increased by 155%, or $2.8 million, to $4.7 million for the quarter ended March 31, 2010, from an operating income of $1.8 million for the quarter ended March 31, 2009. Operating income increased by 137%, for the quarter ended March 31, 2010, when compared to an operating income of $2.0 million for the fourth quarter ended December 31, 2009.
The new cyanidation process plant at the La Encantada Silver Mine achieved commercial production effective April 1, 2010 with current throughput at approximately 2,700 tonnes per day and is expected to reach full production by the end of the second quarter and producing at an annualized rate of over four million ounces of silver. Total capitalized construction in progress at La Encantada at March 31, 2010 consisted of $35.9 million (US$35.3 million).
During the quarter ended March 31, 2010, the Company invested $3.4 million in its mineral properties and a further $1.4 million in additions to plant and equipment on a cash basis. This compares to $1.8 million invested in its mineral properties and a further $1.6 million in additions to plant and equipment on a cash basis in the first quarter ended March 31, 2009.
In Summary
First Majestic has now had five consecutive quarters of net income and consistent advancements in production and cash flows due to continuing growth in production resulting from the expansion of operations, the most recent being the completion of the new plant at the La Encantada Silver Mine. As this new plant at La Encantada reached commercial production on April 1, 2010, the net earnings on the sale of silver will now be recorded in the Companys statement of income rather than being capitalized, as it was in the first quarter of 2010. Had the Company included the additional $2.3 million of profit in the first quarter, mine operating earnings would have been $9.7 million rather than $7.4 million resulting in an EPS of $0.06 instead of $0.03.
3
Due to the production of doré bars at La Encantada versus the production of concentrates, we are expecting significant reductions in smelting and refining costs and similar reductions in total cash costs going forward as doré is about one tenth the cost of concentrates to treat.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | April 22, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
2
nd
Year Running
for Mexican Distinction as a
Socially Responsible Business
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce that the Centro Mexicano para la Filantropia (CEMEFI) has once again awarded First Majestic the Socially Responsible Business Distinction award for 2010 (Distintivo Empresa Socialmente Responsable 2010).
This important recognition marks the second consecutive year that First Majestic has received this annual award of distinction. This award is another indication of the Companys commitment to social responsibility and was granted to First Majestic for its many continuous programs in place in the areas of responsibility, transparency and sustainability within its Mexican operations.
The Company accomplished this distinction due to the following relevant activities in which the Company excelled over the past year:
Corporate Governance and Ethical practices,
Quality of work within the Company,
Relationships with the communities in which the Company operates, and
Sustainability, Preservation and Stewardship of the environment.
Mr. Neumeyer, President & CEO stated; management at First Majestic feels strongly that being socially responsible sets the foundation for high values and principles within the Company and supports the mission of growth in a sustainable way, taking care of the Companys most valuable assets, our people and the communities in which we work.
First Majestic Silver Corp. operates three separate mining units within Mexico; First Majestic Plata, S.A. de C.V., which owns the La Parrilla Silver Mine, Minera El Pilon, S.A. de C.V., which owns the San Martin Silver Mine and Minera La Encantada, S.A. de C.V., which owns the La Encantada Silver Mine. Each of these units is 100% held by Corporación First Majestic, S.A. de C.V., a wholly owned subsidiary based in Durango, Mexico.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
2
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | April 13, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Conference Call to discuss First Quarter Silver Production
and Year End Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is re-announcing as a reminder to those interested parties that a conference call and webcast has been scheduled for Tuesday, April 13, 2010 at 1:15 p.m. (Pacific Time) to discuss the results of the Companys first quarter production results and the Companys 2009 year-end financial statements.
To participate in the conference call, please dial the following:
Toll Free Canada & USA: | 1-800-319-4610 | |
Outside of Canada & USA: | 1-604-638-5340 | |
Toll Free Germany: | 0800 180 1954 | |
Toll Free UK: | 0808 101 2791 |
Participants should dial in 15 minutes prior to the conference.
Click on WEBCAST on the First Majestic homepage as a simultaneous audio webcast of the conference call will be posted at www.firstmajestic.com.
The conference call will be recorded and you can listen to an archive of the conference by calling:
Canada & USA Toll Free: | 800-319-6413 | |
Outside Canada & USA: | 1-604-638-9010 | |
Pin Code: | 3928 followed by the # sign |
The replay will be available approximately one hour after the conference and will available for 30 days following the conference. The replay will also be available on the Companys website for one month.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
2
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
Signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | April 12, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
PRODUCTION INCREASES BY 30% TO 1,619,403 EQUIVALENT OUNCES SILVER
Highlights
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that total production at its three mines in Mexico for the first quarter ending March 31, 2010 increased to a new Company record of 1,619,403 equivalent ounces of silver representing a 30% increase over the prior quarter production and a 56% increase over the first quarter of 2009 production (See Production Details Table below).
The total equivalent silver production for the quarter consisted of 1,409,825 ounces of silver, representing a 28% increase from the prior quarter, 2,542,071 pounds of lead representing a 61% increase from the previous quarter, and 857 ounces of gold representing an increase of 22% compared to the previous quarter.
The total ore processed during the quarter at the Company's three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to 337,110 tonnes milled representing a 34% increase over the previous quarter.
As announced on April 8, 2010, the new La Encantada cyanidation plant was deemed commercially operating effective April 1, 2010. Therefore, all production, revenues and operating costs associated with the new mill were capitalized in the first quarter. Effective April 1, 2010, all revenues and costs will be treated as normal course operations and recorded in the Companys income statement rather than being capitalized as pre-production, or pre-operating. For the first quarter, ending March 31 st , non-commercial production includes 261,193 ounces of silver in the form of precipitates produced at the La Encantada cyanidation plant.
The average head grade in the quarter for the three mines increased by 8% over the previous quarter to 253 g/t of silver. The combined recoveries of silver increased from 65% to 66% in the quarter. Noncommercial production was not taken into account when calculating head grades or recoveries.
Production Details Table:
|
Quarter Ended
March 31, 2010 |
Quarter Ended
December 31, 2009 |
% Change
+/- |
Total Ore processed/tonnes milled | 337,110 | 251,258 | 34.2% |
Commercial Ore processed/tonnes milled | 212,602 | 212,412 | 0.1% |
Total production - ounces of silver eqv. | 1,619,403 | 1,249,568 | 29.6% |
Commercial production - ounces of silver eqv. | 1,357,447 | 1,181,542 | 14.9% |
Total Silver ounces produced | 1,409,825 | 1,103,840 | 27.7% |
Commercial silver ounces produced | 1,148,632 | 1,036,137 | 10.9% |
Total Pounds of lead produced | 2,542,071 | 1,574,819 | 61.4% |
Commercial pounds of lead produced | 2,542,071 | 1,574,791 | 61.4% |
Total Gold Ounces produced | 857 | 701 | 22.3% |
Commercial Gold ounces produced | 845 | 696 | 21.4% |
Other Developments
The Companys underground development in the first quarter consisted of 5,100 metres, compared to 5,265 metres completed in the previous quarter. There was 308 meters of diamond drilling completed in the quarter which consisted of definition drilling to assist in mining activity and Reserve definition in the Companys three mines.
At the La Encantada Silver Mine:
At the La Parrilla Silver Mine:
At the San Martin Mine:
At the Del Toro Project:
At the Real de Catorce Mine:
Mr. Keith Neumeyer stated; I am very pleased with our teams efforts and accomplishments during the first quarter of 2010. The completion of the La Encantada construction is obviously a key milestone and production levels at our La Parrilla and San Martin mines continue running above budget for three consecutive quarters. So far, were all very pleased that 2010 is shaping up to be a very good year for First Majestic.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
Signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | April 8, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Encantada Achieves Commercial Production
First Majestic Silver Corp. (the Company) is pleased to announce that the Companys new 3,500 tpd cyanidation plant at its La Encantada Silver Mine in Coahuila, Mexico has reached commercial production effective April 1 st , 2010.
The throughput since April 1 st has averaged 2,600 tpd while the average throughput for the month of March was 1450 tpd. Full capacity at 3,500 tpd is expected to be reached in May 2010 resulting in production at an annualized rate of over 4 million ounces of silver doré bars per year. The new plant is now 98% complete with the only item remaining being the delivery and installation of the Induction Furnaces.
The completion of this new world-class cyanidation plant is beginning to have a significant impact on the Companys production growth. The Company plans to release its first quarter production results on April 12, 2010.
This plant is currently producing silver precipitates which are being shipped regularly to the smelter until the new induction furnaces are installed later this quarter. Once these furnaces are operating, the Company will be producing its own doré bars which will further reduce third party smelting and refining charges.
The last major items installed in the first quarter were the tailings filter-presses which are allowing for the recirculation of 84% of the water circulating in the system. These filters are some of the latest mining technologies available resulting in First Majestic setting an important standard for sustainable operational practices. The plant is using much less water than originally expected and much less than a traditional operation of this type. This state-of-art process is also opening the possibility for immediate reclamation of permanent rejuvenated open space.
The use of this filter press technology will play a central role in achieving superior operational performance in the areas of water use, cyanide use, land use and environmental impact. These three large, heavy duty, 2m x 2m automatic filter presses are dewatering the tailings to 16% moisture levels resulting in substantial savings in pumping, cyanide consumption and power generation. Additionally, the remaining tailings cake is being dry-stacked which eliminates the need for conventional tailings ponds and promotes ongoing reclamation and re-vegetation of the area.
Ongoing daily improvements are underway and being focused in the areas of daily tonnage, recoveries, quality of precipitate production and other plant optimizations.
Ramon Davila, Chief Operating Officer, stated; To have a plant of this size deemed commercial within five months of being inaugurated is an impressive achievement and something our team deserves a lot of credit for. These are exciting times for First Majestic.
In addition to the completion of the new cyanidation plant, the Company also invested in improving the old flotation plant by installing several new flotation cells and ancillary equipment. Improvements in recoveries resulted immediately and will be evident in future production and financial results going forward.
Keith Neumeyer, CEO & President stated; As this major milestone comes to its completion, this will result in our production of silver exceeding 6 million ounces this year and we can now look forward to other exciting challenges ahead. Congratulations should go out to all of our management, staff and construction crew for their professionalism and commitment to our growth strategy. This team is now readying itself for our next stage of expansion. Stay tuned.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | March 24, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Conference Call to discuss First Quarter Silver Production and Year End Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce that a conference call and webcast has been scheduled for Tuesday, April 13, 2010 at 1:15 p.m. (Pacific Time) to discuss the results of the Companys first quarter silver production and the Companys 2009 year-end financial statements.
To participate in the conference call, please dial the following:
Toll Free Canada & USA: | 1-800-319-4610 | |
Outside of Canada & USA: | 1-604-638-5340 | |
Toll Free Germany: | 0800 180 1954 | |
Toll Free UK: | 0808 101 2791 |
Participants should dial in 15 minutes prior to the conference.
Click on WEBCAST on the First Majestic homepage as a simultaneous audio webcast of the conference call will be posted at www.firstmajestic.com.
The conference call will be recorded and you can listen to an archive of the conference by calling:
Canada & USA Toll Free: | 800-319-6413 | |
Outside Canada & USA: | 1-604-638-9010 | |
Pin Code: | 3928 followed by the # sign |
The replay will be available approximately one hour after the conference and will available for 30 days following the conference. The replay will also be available on the Companys website for one month.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
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FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
Signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
TSX Exchange FR | March 22, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Year End & Fourth Quarter Financial Results
FIRST MAJESTIC SILVER CORP. (FR-TSX) (the "Company") is pleased to announce the audited financial results for the Company's year ending December 31, 2009 and its fourth quarter ending December 31, 2009. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
Fourth Quarter Highlights | |
Gross Revenue | CDN$21.4 million |
Net Revenue | CDN$18.4 million |
Mine Operating Earnings | CDN$8.1 million |
Net Income after taxes | CDN$2.5 million |
Earnings Per Share (EPS) | CDN$0.03 |
Silver Equivalent Production | 1,249,568 oz. Ag eq. |
Silver Equivalent Oz. Sold | 1,145,562 oz. Ag eq. |
Direct Cash Costs per ounce | US$5.69 |
Average Gross Revenue per Ounce Sold | CDN$18.71(US$ 17.72) |
2009 ANNUAL AND Q4 FINANCIAL PERFORMANCE AND HIGHLIGHTS
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3
In Summary
First Majestics year ended on a very positive note, with the fourth quarter results being the strongest in the Companys history. It is noteworthy that the strong results in 2009 can be primarily credited to the La Parrilla and San Martin operations as the La Encantada expansion project was commissioned in November and had not delivered significant production increases to year end.
Management is confident that 2010 will be an even better year financially for the Company, due to increases in production and profitability expected from the new 3,500 tpd cyanidation mill at La Encantada which is in the ramp up stage and is expected to reach full production in Q2.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
Signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | January 11, 2010 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Production increases by 18%, reaches new record
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the fourth quarter ending December 31, 2009 increased to 1,249,568 equivalent ounces of silver representing a 15% increase over the prior quarter production and 18% over the fourth quarter of 2008.
The equivalent silver production for the quarter consisted of 1,103,840 ounces of silver, representing an 18% increase from the prior quarter, and 1,574,819 pounds of lead representing a 7% decrease from the previous quarter, and 691 ounces of gold representing a decrease of 6% compared to the previous quarter.
The ore processed during the quarter at the Company's three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to 251,258 tonnes milled in the quarter representing a 17% increase over the previous quarter. The overall average silver head grade in the quarter for the three mines increased by 7% over the previous quarter to an overall head grade of 220 g/t of silver. The combined recoveries of silver decreased slightly from 66% to 62%.
The Company developed 5,265 metres underground in the fourth quarter, compared to 6,597 metres of underground development completed in the previous quarter. The total annual underground development for 2009 totalled 21,391 metres. Development has been focused on increasing the Reserve and Resource preparation ratios at the three operating mines. Also, the diamond drilling programs totalled 1,031 meters of definition drilling in the quarter, for a 2009 annual total of 7,459 metres of definition drilling completed at the Companys three mines.
At the current ramp up rate underway at the La Encantada operation, production is expected to exceed 6.0 million ounces of silver globally in 2010 of which approximately 90% of that production will be in the form of Doré bars.
As a result of the efforts and work completed in 2009, some of the improvements and advances made during the year include:
At the La Encantada Silver Mine:
At the La Parrilla Silver Mine:
At the San Martin Mine:
At the Del Toro Project:
At the Real de Catorce Silver Project:
Mr. Neumeyer stated, I am very pleased with the efforts and accomplishments achieved by all our senior personnel and staff during 2009. The completion of the La Encantada construction was obviously a key milestone, however, it should also be noted that production levels at our La Parrilla and San Martin mines have been running above budget for the past two quarters. Assuming we can maintain our current production levels at La Parrilla and San Martin and with the increases in production coming out of the La Encantada, the year 2010 is shaping up to be a very good year for First Majestic.
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First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
3
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | November 26, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Encantada Opening Ceremony & Production of First Silver Precipitates
First Majestic Silver Corp. is proud to announce that the new La Encantada cyanidation plant was inaugurated in a ceremony on November 19, 2009 in which the Mexican Federal Authorities, represented by the Lic. Ximena Valverde, Under Minister of Mines (Coordinadora General de Mineria) declared that the new plant is officially open.
This new plant has a total capacity of 3,500 tpd, with estimated annual production exceeding four million ounces of silver for an investment of under US$30 million.
Production is expected to reach 2,000 tpd by the end of November and will be further increased to its 3,500 tpd capacity by year end. The filter presses were opened during the ceremony for the first time and represents the first silver precipitate production from this new plant. The first shipments of silver precipitate to the smelter are planned within a few weeks as commercially saleable quantities are accumulated.
The final components of the plant to be installed are the induction furnaces which will allow for melting of the precipitates into silver doré bars. The installation of these furnaces will be completed during the first quarter of 2010.
Keith Neumeyer, President & CEO stated; We are very pleased with the opening of this new facility. The first production of precipitate represents another major milestone in the growth of First Majestic. Our Mexican construction team led by Ramon Davila, COO, should be recognized for their hard work and tireless efforts and should be congratulated for the completion of this very large project. We look forward to the impact that this new facility will have to increased commercial production of silver in the months and years to come.
First Majestic is one of North Americas fastest growing silver producers; its silver production is located in safe jurisdictions in the Americas and remains 100% un-hedged.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
News Release for Immediate Release |
First Majestic Completes Acquisition of Normabec Mining
Resources;
Normabec Spins Out Brionor Resources Inc.
VANCOUVER, November 13, 2009 - First Majestic Silver Corp. ("First Majestic") (TSX: FR), Normabec Mining Resources Ltd. (Normabec) (TSX-V: NMB) and Brionor Resources Inc. (Brionor) are pleased to announce the closing today of the plan of arrangement (the Arrangement) previously announced in the joint news release of First Majestic and Normabec dated September 14, 2009.
Under the Arrangement, First Majestic today acquired all of the issued and outstanding shares of Normabec and Brionor acquired all of the non-Mexican assets of Normabec, including the Pitt Gold Property located in Quebec. Holders of Normabec shares will receive 0.060425 First Majestic shares and 0.25 Brionor shares for each Normabec common share held.
Concurrent with the completion of the Arrangement, First Majestic purchased, via a private placement, 2,115,195 common shares of Brionor for an aggregate purchase price of C$300,000, representing a price per share of approximately C$0.1418. These shares represent 9.9% of the total issued and outstanding shares of Brionor after completion of the transactions.
Shares of Brionor are expected to commence trading on the TSX Venture Exchange under the symbol BNR by Wednesday, November 18, 2009 . Until the shares of Brionor commence trading separately, Normabec will continue to be listed and trading on the TSX Venture Exchange. Shares of Normabec purchased on the Exchange will represent only the right to receive shares of First Majestic and Brionor based on the exchange ratios described above.
Former shareholders of Normabec will receive the shares of First Majestic and Brionor to which they are entitled upon delivery to Computershare Trust Company of Canada of the certificates previously representing their Normabec shares together with a duly completed letter of transmittal. Shareholders are encouraged to contact Computershare for further information concerning the exchange process.
Gryphon Partners acted as financial advisor to First Majestic and Haywood Securities Inc. acted as financial advisor to Normabec in connection with the Arrangement.
About First Majestic
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives. Presently First Majestic owns three operating silver mines in Mexico, the La Encantada, the La Parrilla, and the San Martin Silver Mines, as well as a project undergoing pre-feasibility known as the Del Toro Silver Mine.
About Brionor
Brionor is a junior mining exploration company with a portfolio of exploration projects including the 100% owned Pitt Gold Project in Quebec.
Contact for further details;
First Majestic Silver Corp. | |
TEL: | 604-688-3033 |
EMAIL: | info@firstmajestic.com |
WEBSITE: | http://www.firstmajestic.com |
Brionor Resources Inc. | |
TEL: | 450-441-9177 |
EMAIL: | robert.ayotte@videotron.ca |
First Majestic Silver Corp. | Brionor Resources Inc. | |
(signed) Keith N. Neumeyer | (signed) Robert Ayotte | |
Keith N. Neumeyer, President & CEO | Robert Ayotte, President & CEO |
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
The securities issuable under the Arrangement have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any state, and are expected to be issued pursuant to exemptions from such registration requirements.
TSX Exchange FR | November 12, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Record Third Quarter Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the unaudited financial results for the Company's third quarter ending September 30, 2009. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
3 rd Quarter Highlights ($CAD) | |
Gross Revenue | $16.8 million |
Net Revenue | $13.7 million |
Mine Operating Earnings | $4.1 million |
Net Income after taxes | $1.8 million |
Direct Cash Costs per ounce | US$5.56 |
Silver Equivalent Production | 1,089,481 oz. Ag eq. |
Silver Equivalent Oz. Sold | 1,018,417 oz. Ag eq. |
Average Revenue per Ounce Sold | $16.54 (US$ 15.07) |
FINANCIAL PERFORMANCE AND HIGHLIGHTS
Mine operating earnings increased 141% from $1.7 million to $4.1 million due to operational efficiencies, higher production and higher metals prices in the third quarter.
Consolidated gross revenue for the third quarter ended September 30, 2009, increased 22% to $16.8 million (US$15.4 million) compared to $13.9 million (US$13.3 million) in the third quarter of 2008, and increased 6% compared to $15.8 million (US$13.5 million) in the second quarter of 2009.
The Company generated net income of $1.8 million or $0.02 per common share for the quarter ended September 30, 2009 compared to a net loss of $0.4 million or $(0.01) per common share for the quarter ended September 30, 2008, and a net income of $1.0 million or $0.01 per common share for the second quarter ended June 30, 2009. The net income for this quarter was after recording non-cash stock-based compensation expense of $0.5 million, a foreign exchange loss of $0.4 million, and an income tax recovery of $0.6 million.
Direct cash costs per ounce of silver for the quarter ended September 30, 2009, decreased 27% to US$5.56 per ounce of silver, compared to US$7.65 per ounce of silver for the quarter ended September 30, 2008. During the quarter ended September 30, 2009, the Companys operations achieved operational efficiencies including reductions in production costs per tonne and cash costs per ounce. Direct cash costs for the quarter ended June 30, 2009 and the nine months ended September 30, 2009, were US$6.31 per ounce and US$5.58 per ounce, respectively.
Total production for the quarter ended September 30, 2009, was up 30% to 1,089,481 ounces of silver equivalents, consisting of 935,996 ounces of silver, 732 ounces of gold, 1,690,354 pounds of lead and 8,913 pounds of zinc, when compared to 840,918 ounces of silver equivalents produced in the quarter ended September 30, 2008, consisting of 719,399 ounces of silver, 536 ounces of gold and 1,518,271 pounds of lead. Total production for quarter was up 14% when compared to the second quarter ended June 30, 2009, which consisted of 957,936 ounces of silver equivalents which included 827,720 ounces of silver, 746 ounces of gold and 1,493,162 pounds of lead.
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In the third quarter ended September 30, 2009, the Company sold 1,018,417 silver equivalent ounces including 38,088 ounces of coins, ingots and bullion, with a combined average price of $16.54 (US$15.07) per ounce compared to 850,461 equivalent ounces of silver (with no coin sales) in the quarter ended September 30, 2008 at an average price of $16.29 (US$15.64) per ounce and 1,073,129 equivalent ounces, with 103,867 ounces of coins, ingots and bullion (none in 2008), at a combined average price of $14.70 per ounce (US$12.60) in the second quarter ended June 30, 2009. The LBMA average spot price of silver in the third quarter of 2009 was US$14.69 per ounce compared to US$15.09 per ounce in the third quarter of 2008, and US$13.76 per ounce in the second quarter ended June 30, 2009.
Sales revenue (after smelting and refining charges and metals deductions) for the quarter ended September 30, 2009 was $13.7 million, an increase of 27% compared to $10.8 million for the quarter ended September 30, 2008. Smelting and refining charges and metal deductions decreased to 19% of gross revenue in the third quarter ended September 30, 2009 compared to 22% in the third quarter ended September 30, 2008 but increased slightly from 17% of gross revenue in the second quarter ended June 30, 2009. Average smelting charges for doré in the quarter ended September 30, 2009 were US$0.54 per equivalent silver ounce whereas for concentrates average smelting charges were US$4.34 per equivalent ounce.
The Company had operating income of $1.9 million for the third quarter ended September 30, 2009 compared to an operating loss of $0.8 million for the quarter ended September 30, 2008, an increase of $2.8 million or 329%. The operating loss for the second quarter ended June 30, 2009 was $1.2 million.
During the third quarter of 2009, the commissioning process of the new La Encantada plant was initiated and is expected to conclude during the fourth quarter. Once completed, this new plant will have a capacity of 3,500 tpd and is expected to produce more than four million ounces of silver annually in the form of doré.
During the quarter ended September 30, 2009, the Company invested $4.1 million in its mineral properties, including $1.7 million in Mineral La Encantada, $1.8 million in La Parrilla and $0.6 million in San Martin, and a further $6.9 million in additions to plant and equipment on a cash basis. This compares to $11.3 million invested in its mineral properties, and a further $8.5 million in additions to plant and equipment in the quarter ended September 30, 2008. $3.2 million was invested in mineral properties, and a further $5.9 million in additions to plant and equipment in the second quarter ended June 30, 2009.
In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. Finder's fee in the amount of $101,016 and 50,000 warrants were paid in respect to a portion of these private placements. The finders warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011. The net proceeds of the offering are being used for general working capital purposes.
During the third quarter of 2009, the Company reduced current liabilities by $19.1 million by: (1) derecognizing $14.3 million pursuant to a consent order with respect to the vendor liability and interest relating to the acquisition of First Silver (the consent order requires that the $14.3 million be held in trust pending the outcome of litigation); (2) settling certain current liabilities amounting to $2.7 million by the issuance of 1,191,852 common shares of the Company; and (3) through a $2.1 million reduction of accounts payable and accrued liabilities from cash flow.
In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, US$1.5 million was advanced against the Companys lead production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required.
In September 2009, First Majestic agreed to acquire Normabec Mining Resources Ltd. (Normabec). The acquisition will be an all-share transaction by way of plan of arrangement (the "Arrangement"). The agreement provides that First Majestic will acquire Normabec in exchange for the issuance directly to Normabec's shareholders of 0.060425 First Majestic shares for each Normabec common share outstanding. Normabec's primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí state, Mexico. The proposed Arrangement has already received shareholder approval, regulatory and court approvals, and is expected to close on November 13, 2009.
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In Summary
First Majestic has had a very active quarter of operations with a significant improvement in cash flow from operations related to lower costs of operations combined with higher production and increased revenues from silver sales. The Company is now commissioning the new La Encantada plant which will increase daily production significantly, taking the Company from current levels to approximately 6.3 million ounces in 2010. The Inaugural Ceremony at the La Encantada Silver Mine is being held on November 19, 2009.
The Company has also been focused on completing the acquisition of Normabec thereby adding another valuable asset to the Companys portfolio, the Real de Catorce Silver Project which management expects will ultimately become a producing mine in the future.
In the third quarter the Company has also strengthened its balance sheet with a $9.4 million private placement, a $4.3 million development loan, and a $2.7 million settlement of current liabilities and a further reduction of accounts payable of $2.1 million. With the completion of the capital investment at the La Encantada Silver Mine, the focus of the Company is now on generating cash flow from operations to further bolster our balance sheet.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
News Release for Immediate Release | |
NORMABEC SHAREHOLDERS APPROVE | |
PLAN OF ARRANGEMENT WITH FIRST MAJESTIC |
Montreal, November 6, 2009. Normabec Mining Resources Ltd . (" Normabec ") (TSX-V:NMB) is pleased to announce that its shareholders have overwhelmingly voted in favour of the proposed arrangement involving First Majestic Silver Corp (" First Majestic ") (TSX:FR), Normabec and Brionor Resources Inc. ( Brionor ), a wholly-owned subsidiary of Normabec. Following the unanimous recommendation by the Normabec Board of Directors, the transaction was approved by over 99% of the votes cast at the special shareholders meeting held today in Montreal. The Final Court Order approving the Arrangement will be sought on November 9, 2009. The effective date of the arrangement is expected to be November 13, 2009.
We are excited that the shareholders of Normabec have approved the transaction with First Majestic said Robert Ayotte, President of Normabec. Brionor will hold Normabecs interest in the Pitt Gold Property, and all other Québec mineral interests currently held by Normabec, and will continue to be managed by the existing Normabec management. First Majestic will also invest, via a private placement, $300,000 in Brionor, representing 9.9% of the outstanding capital of Brionor after closing.
This transaction is expected to substantially benefit Normabec shareholders by not only allowing them to participate in the future upside of First Majestic, a producing silver company focused in Mexico, but also allowing them to retain the growth potential of the Pitt Gold Project located in Québec.
Contact
TEL: 450-441-9177 | Robert Ayotte, President & CEO |
EMAIL: | info@normabec.com |
WEBSITE: | http://www.normabec.com |
TEL: 604-688-3033 | Keith Neumeyer, President & CEO |
First Majestic Silver Corp. |
EMAIL: | info@firstmajestic.com |
WEBSITE: | http://www.firstmajestic.com |
Neither the TSX Venture Exchange (TSX Venture) nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | October 13, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Encantada Expansion Nearing Completion
First Majestic Silver Corp. (the Company) is pleased to announce that the Companys new 3,500 tpd Cyanidation Plant at its La Encantada Silver Mine in Coahuila, Mexico is in the final stages of construction and the commissioning process commenced in last week of August.
The completion of this new world-class cyanidation plant will have a significant impact on the Companys production growth going forward. The first deliveries of silver precipitates are expected by mid November. Full production, at an annualized rate of over 4 million ounces of silver doré bars is expected to be achieved by year end.
All major components of this new mill have either been constructed and / or installed with only some final wiring and piping required for completion. Testing of the major components and equipment have been ongoing for the past few weeks.
The mill input plan during the coming weeks is as follows: initial production reaching 1000 tpd by the end of October, ramping up to 2000 tpd by the end of November, and full production at the rate of 3500 tpd anticipated by the end of December.
The Company will hold the official inauguration on November 19, 2009. Over 300 people are expected to attend the inaugural ceremonies, including; state and federal government officials, business partners, shareholders, analysts and brokers.
Keith Neumeyer, CEO & President stated; As the completion of construction draws near and the testing and commissioning process continues, another major milestone for First Majestic is approaching. This state of the art, large scale operation has been constructed during a very difficult economic environment and under a very tight timeline. Congratulations should go out to all our management, staff and construction crew for their perseverance, resolve and commitment. Our attention is now turning to the production and shipment of the first precipitates for doré production, and reaching the full operating capacity of the plant.
Ramon Davila, COO commented, This plant has been constructed using the best design elements, and using state of the art equipment. When full production rates for this plant have been reached, our achievements will definitely be noticed in the mining and investment communities. These are exciting times for First Majestic; particularly for our construction crew, management and staff.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | October 6, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Third Quarter Production Results
First Majestic Silver Corp. ("First Majestic" or the "Company") announces today that production in the third quarter ending September 30, 2009 reached 1,089,481 equivalent ounces of silver, representing a 14% increase over the previous quarters production and a 30% increase over the same quarter in 2008.
The equivalent silver production for the third quarter consisted of 935,996 ounces of silver, representing a 13% increase from the previous quarter and 30% increase over the third quarter of the previous year, 1,690,354 pounds of lead, representing a 13% increase from the previous quarter and an increase of 11% over the same quarter of the previous year and 732 ounces of gold, representing a decrease of 2%, compared to the previous quarter and an increase of 37% over the same quarter in 2008.
During the quarter the combined recoveries of silver at the three operating silver mines in Mexico showed an increase from 64% to 66%. The overall average silver head grade in the quarter for the three mines increased to 205 g/t of silver, compared to the previous quarter of 196 g/t of silver.
The ore processed during the quarter at the Company's three mines; the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine increased to 215,459 tonnes, representing a 5% increase over the previous quarter and an increase of 27% when compared to the third quarter of 2008.
The Company's development programs resulted in 6,597 metres of underground development globally over all mines, which represented an increase of 34% when compared to the 4,919 metres of underground development completed in the previous quarter. The diamond drill programs underway are for the purpose of assisting in mining activities only, and consisted of 498 meters of definition drilling in the quarter compared to 363 metres of drilling in the previous quarter, all of which was at the San Martin mine.
Keith Neumeyer, CEO & President stated; our operations team deserves to be congratulated for delivering a solid quarter. Even though our focus continues to be on the completion of the large construction project at La Encantada, this quarters results are an excellent accomplishment. It should be further noted, that even though commissioning of our new 3500 tpd plant commenced in the third quarter, no production in this quarter was attributed to this expansion as first revenues wont be recognized until the fourth quarter.
2
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | September 18, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Settlement of Current Liabilities Closes
First Majestic Silver Corp. (the "Company") is pleased to announce that it has settled certain current liabilities amounting to $1,919,209 by the issuance of 834,438 common shares of the Company at a deemed price of CDN$2.30 per common share. This completes a onetime process of converting some old payables related to a select group of drilling and development partners, and demonstrates the strength and support of our business relationships in Mexico. With this settlement and the prior one announced on August 20th, we have reduced our current liabilities by more than $2.7 million and have further strengthened the Companys balance sheet after our recent $9.6 million private placement commented Raymond Polman, First Majestics Chief Financial Officer. First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | September 16, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Second Tranche of Non-Brokered Private Placement Closes
First Majestic Silver Corp. (the "Company") is pleased to announce the closing of the second and final tranche of the non-brokered private placement (the Offering) consisting of 668,478 units (a Unit) at a price of CDN$2.30 per Unit for gross proceeds of CDN$1,537,500. Each Unit consists of one common share and one-half of one common share purchase warrant (a Warrant), with each full Warrant entitling the holder to purchase one additional common share of the Company (the Warrant Share) at an exercise price of CDN$3.30 per Warrant Share for a period of two years after the closing of the Offering.
The Company plans to use the net proceeds of the Offering as general working capital in respect to its three operating silver mines; the La Encantada Silver Mine, La Parrilla Silver Mine, and the San Martin Silver Mine, all located in Mexico.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
News Release for Immediate Release |
First Majestic to Acquire Normabec Mining Resources
VANCOUVER, September 14, 2009 - First Majestic Silver Corp. ("First Majestic") (TSX: FR) and Normabec Mining Resources Ltd. (Normabec) (TSX-V: NMB) have entered into a definitive agreement (the Agreement) whereby First Majestic will acquire Normabec. The transaction will be an all-share transaction by way of plan of arrangement (the Arrangement).
The Agreement, among other things provides that First Majestic will acquire Normabec in exchange for the issuance directly to Normabecs shareholders of 0.060425 First Majestic shares for each Normabec common share outstanding (the Exchange Ratio). In addition to Normabecs current shareholders receiving shares in First Majestic, they will also receive shares in a newly formed public company (NEWCO) which will hold Normabecs interest in the Pitt Gold Property (and all other Quebec mineral interests currently held by Normabec) which will continue to be managed by the existing Normabec management. Subsequent to the completion of the Arrangement, First Majestic will invest, via a private placement, C$300,000 in this public company which will represent approximately 10% of NEWCO.
The Agreement implies a value for each Normabec share of C$0.1806 (C$0.1406 in First Majestic shares and C$0.04 in NEWCO shares) and represents a premium of 47.7% to Normabec shareholders based on the average prices of First Majestic's and Normabec's common shares for the 20 trading days ended September 11, 2009. Normabec has approximately 75.3 million shares issued and outstanding.
Normabecs primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí state, Mexico. The property consists of approximately 6326 hectares of mineral rights which contains a drilled NI 43-101 compliant resource of 33.69 million Measured & Indicated silver ounces plus 13.10 million Inferred silver ounces.
Keith Neumeyer, President & CEO of First Majestic stated We are continually looking for ways to expand our business including potential acquisitions. Based on our due diligence we believe the Real de Catorce Silver Project is an excellent strategic fit and has the potential to become another important asset for our company. We believe this transaction will also substantially benefit Normabec shareholders by not only allowing them to participate in our future upside, but also allowing them to retain 100% of the growth potential of the Pitt Gold Project in Quebec.
Robert Ayotte, CEO and President of Normabec stated; Our strategic approach has always been to speedup the development of the tremendous Real de Catorce Silver District. By this agreement we feel that our shareholders will participate not only in the development of this key asset but also in other divisions of First Majestic in production. Their talented technical and mining team have been a key factor for this association.
The proposed Arrangement has the unanimous support of the boards of directors of both Normabec and First Majestic and the Normabec board of directors has resolved to recommend that the Normabec shareholders vote in favour of the Arrangement at the special meeting. Lockup and support agreements have been signed by each officer and director and the largest shareholder of Normabec to support the Arrangement. An information circular is expected to be mailed to all shareholders by no later than mid-October and the proposed Arrangement is expected to close in early November. The Agreement includes representations, warranties and covenants typical of a transaction of this nature. The proposed Arrangement is subject to the approval of at least 66 2/3% of the votes of Normabec shareholders represented in person or by proxy at a special meeting of Normabec shareholders and the approvals of the Quebec Superior Court and other appropriate regulatory authorities and certain other conditions customary for transactions of this nature. A break-up fee of $350,000 is payable by either party in the event the Agreement is terminated in certain circumstances, including in connection with Normabec entering into a superior transaction.
First Majestic has engaged Gryphon Partners as its financial advisor and McCullough OConnor Irwin LLP as its Canadian legal advisor. Normabec has engaged Haywood Securities Inc. as its financial advisor and Miller Thomson LLP as its Canadian legal advisor. Haywood Securities Inc. has provided an opinion to the board of directors of Normabec that, subject to Haywood Securities' assumptions and limitations and its review and analysis of current market conditions, the consideration to be received by the shareholders of Normabec, other than First Majestic and its affiliates or associates, pursuant to the Agreement is fair, from a financial point of view.
About First Majestic
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives. Presently First Majestic owns three operating silver mines in Mexico, the La Encantada, the La Parrilla, and the San Martin Silver Mines, as well as a project undergoing pre-feasibility known as the Del Toro Silver Mine. In 2009, First Majestic expects to produce approximately five million ounces of silver eqv. from its Mexican silver mines.
About Normabec
Normabec is a junior mining exploration company with a portfolio of advanced exploration projects including: the 100% owned Pitt Gold Project in Quebec and the 100% owned Real de Catorce Silver Project in Mexico.
Contact
TEL: 450-441-9177 | Robert Ayotte, President & CEO |
Normabec Mining Resources Ltd. |
EMAIL: | info@normabec.com |
WEBSITE: | http://www.normabec.com |
TEL: 604-688-3033 | Keith Neumeyer, President & CEO |
First Majestic Silver Corp. |
EMAIL: | info@firstmajestic.com |
WEBSITE: | http://www.firstmajestic.com |
First Majestic Silver Corp. | Normabec Mining Resources Ltd | |
(signed) Keith N. Neumeyer | (signed) Robert Ayotte | |
Keith N. Neumeyer, President & CEO | Robert Ayotte, President & CEO |
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
The securities issuable under the Arrangement have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any state, and are expected to be issued pursuant to exemptions from such registration requirements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | August 20, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Tranche of Non-Brokered Private Placement Closes
First Majestic Silver Corp. (the "Company") is pleased to announce the closing of the first tranche of the non-brokered private placement (the Offering) consisting of 3,499,000 units (a Unit) at a price of CDN$2.30 per Unit for gross proceeds of CDN$8,047,700. Each Unit consists of one common share and one-half of one common share purchase warrant (a Warrant), with each full Warrant entitling the holder to purchase one additional common share of the Company (the Warrant Share) at an exercise price of CDN$3.30 per Warrant Share for a period of two years after the closing of the Offering. A finders fee in the amount of $101,016 cash and 50,000 Finders Warrants are payable in respect to a portion of this private placement. The Finders Warrants are subject to the same terms and conditions as those issued to the subscribers. It is anticipated that the balance of the private placement announced on August 12, 2009 will close on or before September 25, 2009.
The Company plans to use the net proceeds of the Offering as general working capital in respect to its three operating silver mines; the La Encantada Silver Mine, La Parrilla Silver Mine, and the San Martin Silver Mine, all located in Mexico.
The Company is also pleased to announced that it has settled certain current liabilities amounting to $822,053 by the issuance of 357,414 common shares of the Company at a deemed price of CDN$2.30 per common share.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
TSX Exchange FR | August 14, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Second Quarter Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the unaudited financial results for the Company's second quarter ending June 30, 2009. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com. Below are the highlights of the results.
2 nd Quarter Highlights | |
Gross Revenue | $15.8 million |
Net Revenue | $13.0 million |
Mine Operating Earnings | $1.7 million |
Net Income after taxes | $1.0 million |
Direct Cash Costs per ounce | US$6.31 |
Silver Equivalent Production | 957,936 oz. Ag eqv. |
Silver Equivalent Oz. Sold | 1,073,129 oz. Ag eqv. |
FINANCIAL PERFORMANCE AND HIGHLIGHTS
For the second consecutive quarter in 2009, the Company generated net income, with $1.0 million earned in the quarter ended June 30, 2009, and a total of $2.0 million earned on a year to date basis. This compares with a net loss after taxes of $0.3 million for the quarter ended June 30, 2008, and a net income after taxes of $0.8 million for the year to date ended June 30, 2008.
In the second quarter ended June 30, 2009, the Company sold more silver than it produced, selling 1,073,129 silver equivalent ounces including 103,867 ounces of coins, ingots and bullion, which is 115,193 ounces or 11% more silver than it produced in the current quarter. This is compared to 892,406 equivalent ounces, with no sold ounces of coins, ingots and bullion for the quarter ended June 30, 2008.
Gross revenue for the second quarter ended June 30, 2009, prior to smelting and refining charges and metal deductions, was $15.8 million (US$13.5 million) compared to $14.3 million (US$14.1 million) in the second quarter of 2008, an increase of 9.5%.
2
Smelting and refining charges and metal deductions decreased to 17% of gross revenue in the second quarter ended June 30, 2009, compared to 20% in the second quarter ended June 30, 2008, and 18% in the first quarter ended March 31, 2009. Net sales revenue (after smelting and refining charges and metals deductions) for the quarter ended June 30, 2009 was $13.0 million, an increase of 14% compared to $11.4 million for the quarter ended June 30, 2008. This decrease in charges is attributed to the revised smelting and refining agreements renegotiated effective December 1, 2008; as well as the new smelting and refining relationships entered into in February and May 2009.
Total production for the quarter ended June 30, 2009 was 957,936 ounces of silver equivalents consisting of 827,720 ounces of silver, 746 ounces of gold and 1,493,162 pounds of lead. This compares to the 1,271,141 ounces of silver equivalents produced in the quarter ended June 30, 2008, which consisted of 1,109,821 ounces of silver, 482 ounces of gold, 1,987,551 pounds of lead and 134,644 pounds of zinc. Total production for the quarter ended March 31, 2009 was 1,040,117 ounces of silver equivalents which included 929,964 ounces of silver, 491 ounces of gold and 1,828,739 pounds of lead.
Mine operating earnings for the quarter ended June 30, 2009 were $1.7 million, a decrease of $0.5 million or 23% compared to mine operating earnings of $2.2 million for the quarter ended June 30, 2008, and mine operating earnings of $4.5 million for the quarter ended March 31, 2009.
Direct cash costs per ounce of silver for the quarter ended June 30, 2009 increased to US$6.31 per ounce of silver, compared to US$4.84 per ounce of silver for the quarter ended June 30, 2008, due to the reduced silver production at La Encantada, lower by-product credits, lower average head grades and lower recoveries in the second quarter of 2009. Direct cash costs for the quarter ended March 31, 2009 and the six months ended June 30, 2009 were US$4.94 per ounce and US$5.58 per ounce, respectively.
The Company had an operating loss of $1.2 million for the second quarter ended June 30, 2009 compared to an operating loss of $0.6 million for the quarter ended June 30, 2008, an increase of $0.6 million or 110%. Operating income for the first quarter ended March 31, 2009 was $1.8 million.
At the La Encantada Silver Mine, construction is progressing on the new 3,500 tpd cyanidation plant. The plant is scheduled to begin commissioning in September 2009 and to be fully operational by the end of 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of doré bars. The Company has revised its estimated capital expenditures for the completion of the La Encantada construction project from US$24.5 million to US$27.5 million. The primary reason for the increase in capital expenditures is related to a decision to revise the tailings pond design to a paste and filter design which will allow the new plant to significantly savings in power and water consumption once operational.
In Summary & Outlook
First Majestic has been making excellent progress on the 3,500 tpd expansion projection at La Encantada while simultaneously making operational improvements at the La Parrilla and San Martin mines.
3
Production at both La Parrilla and San Martin are on budget while the La Encantada was under budget in the quarter. Third quarter production is anticipated to be back on track.
As a result of engineering changes and the extension of the timeline of the completion and commissioning of the new plant, the Company has revised its forecast for production for 2009 to 5 million eqv silver ounces. The addition of this new operation to the Companys assets is expected to have a dramatic effect on revenues and profitability. The La Encantada is anticipated to produce over 60% of the Companys production in 2010 and thus its successful completion has been managements primary focus. The recently announced private placement will assure this project comes online within the new schedule.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | August 13, 2009 |
OTCQX FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic Silver Joins OTCQX
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") announces that it is now trading on the OTC Markets prestigious tier, OTCQX International under the symbol FRMSF. The Pink OTC Markets Inc. is a leading electronic inter-dealer quotation system, trading technology and financial information provider for over-the-counter (OTC) securities in the United States. Investors can find current financial disclosure and real-time Level 2 quotes for the Company on www.otcqx.com and www.pinksheets.com.
As an OTCQX-listed company, First Majestic is expected to benefit from being associated with the top segment of the United States OTC Market and anticipated increased investor visibility. As an OTCQX-listed company, First Majestic joins several large and well known international companies who have also elected to access the US markets.
Mr. Keith Neumeyer stated; in reviewing the alternatives to satisfy the many requests by our US shareholders and potential US investors who have asked First Majestic to list its shares in the United States, we felt that the OTCQX offered a win-win solution for all concerned. We are optimistic that our new US listing will bring extra attention to the many exciting developments that are taking place within our Company.
Dorsey & Whitney LLP will serve as First Majestics Principal American Liaison (PAL) on OTCQX, responsible for providing guidance on listing requirements.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | August 12, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Non-Brokered Private Placement and Debt Settlement
First Majestic Silver Corp. (the "Company") is pleased to announce a proposed non-brokered private placement offering consisting of up to 4,000,000 units (Units) of the Company to be issued at a price of CDN$2.30 per Unit (the Offering) for gross proceeds of up to $9,200,000. Each Unit will consist of one common share (a Unit Share) and one-half of one common share purchase warrant (a Warrant), with each full Warrant entitling the holder to purchase one additional common share of the Company (Warrant Shares) at an exercise price of CDN$3.30 per Warrant Share for a period of two years after the closing of the Offering.
The Company is also pleased to announce that it will settle certain debts of its subsidiaries in the aggregate amount of up to $4,000,000 and has entered into debt settlement agreements with those creditors to settle such debt by the issuance of up to 1,739,130 common shares (the Debt Shares) of the Company at a deemed price of CDN$2.30 per Common Share.
The Company plans to use the net proceeds of the Offering as general working capital in respect to its three operating silver mines; the La Encantada Silver Mine, La Parrilla Silver Mine, and the San Martin Silver Mine all located in Mexico.
A finders fee of 6% cash will be payable on a portion of this private placement to an arms length party. Closing of the private placement and the debt settlement is subject to receipt of all required regulatory approvals, including the consent of the Toronto Stock Exchange.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
2
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | July 20, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Second Quarter Production Results
First Majestic Silver Corp. ("First Majestic" or the "Company") announces that production in the second quarter ending June 30 th , 2009 equalled 957,937 equivalent ounces of silver which consisted of 827,719 ounces of silver, 1,493,162.02 pounds of lead and 746 ounces of gold.
Overall recoveries of silver at the Company's three operating silver mines; the La Encantada Silver Mine the La Parrilla Silver Mine and the San Martin Silver Mine increased in the quarter from 60% to 64%. The ore processed during the quarter, amounted to 204,574 tonnes with an overall average silver head grade in the quarter of 196 g/t of silver.
The Companys production levels are slightly behind schedule mostly due to the enormous efforts going into completing the major construction project at the La Encantada mine. The completion of this new 3500 tpd mill is expected to have such a dramatic effect on production and profitability and as a result management has focused most of its efforts on completing this project.
This major construction project at the La Encantada continued into the second quarter. This new 3500 tpd Cyanidation mill is expected to begin the commissioning process in a few weeks and will result in doré production being ramped up over a three month period. The new plant is expected to be fully commissioned by the end of October and once completed will produce 4.3 million ounces of silver doré annually.
With the completion of the La Encantada construction project coming to an end in October, production levels in the third and fourth quarter are expected to improve significantly. Once this occurs, management can then focus its efforts on its other projects in order to further increase production levels.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
2
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
Toronto Stock Exchange FR | July 16, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Update of Litigation
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") wishes to provide an update on the status of its ongoing litigation with Hector Davila Santos, the prior majority shareholder of First Silver Reserve, Inc. (FSR) with respect to alleged interference with FSRs opportunity to acquire the Bolanos mine in Mexico. FSR later became a wholly owned subsidiary of the Company.
In November 2007, an action was commenced in British Columbia by the Company and its wholly owned subsidiary, FSR against Hector Davila Santos and Minera Arroyo Del Agua, S.A. de C.V. whereby the Company and FSR allege that while holding the positions of director, President and Chief Executive Officer and Chairman of the Board of FSR, Mr. Davila Santos wrongfully interfered with FSRs opportunity to acquire the Bolanos mine and breached his fiduciary and statutory duties owed to FSR, which resulted in Mr. Davila Santos personally or through Minera Arroyo, acquiring the Bolanos mine from Grupo Mexico for his own interests. The court has yet to rule on these allegations.
Pending resolution of this action the Company withheld certain amounts owing to Mr. Davila Santos with respect to the purchase of shares in FSR which the Company acquired from Mr. Davila Santos in 2006. The withheld amounts consist of quarterly instalments of interest due on November 30, 2007, February 29, 2008 and May 30, 2008, as well as the final principal payment of $13,341,380 due to Mr. Davila Santos on May 30, 2008. The total amount withheld from Mr. Davila Santos and due as at May 30, 2008 was $13,940,097. A letter of credit in the amount withheld plus interest, amounting to $14,485,759 was previously posted by First Majestic with the courts and a reserve of cash equalling this amount has been maintained by the Company.
On March 14, 2008, Mr. Davila Santos filed a statement of defence and counter-claim in respect of the action referred to above. Pursuant to the counterclaim, Mr. Davila Santos has claimed, among other things, for payment of the amounts referred to above.
The parties have now agreed to a consent order with respect to the funds represented by the letter of credit. Pursuant to the order, $14,258,332 will be paid out of the letter of credit to the trust account of Mr. Davila Santos lawyers. The remaining $227,420 will be paid out to the Company and the letter of credit will be cancelled. The amounts paid to the Company may be used as the Company sees fit. The consent order requires that the funds be held in the lawyers' trust account pending the outcome of the litigation, with trial scheduled to commence in the Supreme Court of British Columbia, Vancouver, British Columbia on April 12, 2010. If the trial has not commenced by June 30, 2011 the funds will be released on that date to Mr. Davila Santos, unless otherwise ordered by the court. The consent order does not affect the standing of the Companys claims against Mr. Davila Santos.
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The effect of the consent order on the Companys financial position will be to simultaneously reduce Vendor Liability and Interest as well as Restricted Cash by offsetting amounts of $14,485,759, with $227,420 of cash being reclassified from Restricted Cash to Cash (i.e. unrestricted Cash). The net assets of the Company will not be increased or decreased as a result of this order.
The Companys President and Chief Executive Officer, Keith Neumeyer stated We think that this consent order is a reasonable compromise with Mr. Davila Santos and gives First Majestic comfort that if our action against Mr. Davila Santos is successful we will be able to enforce the judgment against these monies which will continue to reside within Canada and be subject to the jurisdiction of the British Columbia courts.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | May 14, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Quarter Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the unaudited financial results for the Company's first quarter ending March 31, 2009. The full version of the financial statements and the management discussion and analysis can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com.
1 st Quarter Highlights | |
Gross Revenue | $17.5 million |
Net Revenue | $14.4 million |
Mine Operating Earnings | $4.5 million |
Net Profit after taxes | $0.9 million |
Direct Cash Costs per ounce | US$4.94 |
Silver Equivalent Production | 1,040,117 oz. Ag eq. |
Silver Equivalent Oz. Sold | 996,595 oz. Ag eq. |
FINANCIAL HIGHLIGHTS
Total production for the quarter ended March 31, 2009 was 1,040,117 ounces of silver equivalents consisting of 929,964 ounces of silver, 491 ounces of gold and 1,828,739 pounds of lead. This compares to the 1,061,720 ounces of silver equivalents produced in the quarter ended March 31, 2008, which consisted of 895,358 ounces of silver, 240 ounces of gold, 1,857,897 pounds of lead and 318,539 pounds of zinc. Total production for the quarter ended December 31, 2008 was 1,056,219 ounces of silver equivalents which included 930,120 ounces of silver, 403 ounces of gold and 2,093,988 pounds of lead.
Gross revenue for the quarter ended March 31, 2009, prior to smelting, refining, transportation charges and metal deductions, was $17.5 million compared to $16.2 million in the same quarter of 2008; an increase of 8%. In the quarter ended March 31, 2009, the Company shipped 996,595 silver equivalent ounces including 67,620 ounces of coins, ingots and bullion at an average price of $17.52 per ounce (US$14.07) compared to 1,019,490 equivalent ounces in the quarter ended March 31, 2008 at an average price of $15.94 (US$15.87) per ounce. The Company has been successful in realizing an average selling price of US$14.07, higher than the average trading price of silver in the quarter of US$12.61 per ounce (Source - London Bullion Marketing Association). Compared to the quarter ended December 31, 2008, the Company increased shipped ounces by 20% compared to the 827,845 ounces of silver equivalent previously shipped, at an average price of $14.15 per ounce (US$11.67).
The Company generated net income after taxes of $0.9 million for the first quarter ended March 31, 2009 compared to net income after taxes of $1.1 million for the quarter ended March 31, 2008, and a net loss after taxes of $5.5 million for the fourth quarter ended December 31, 2008. The net income after taxes for this quarter was after recording non-cash stock- based compensation expense of $0.9 million, a foreign exchange loss of $1.0 million and an income tax recovery of $0.1 million.
2
Sales revenue (after smelting, refining, transportation charges and metals deductions) for the quarter ended March 31, 2009 was $14.4 million; an increase of 11% compared to $13.0 million for the quarter ended March 31, 2008. Smelting, refining, transportation charges and metal deductions decreased by 3.3% of gross revenue to $3.1 million in the quarter ended March 31, 2009 compared to $3.3 million in the quarter ended March 31, 2008, and $2.6 million in the quarter ended December 31, 2008. This was attributed to the revised smelting and refining agreements renegotiated effective December 1, 2008; as well as the new smelting and refining relationships entered into in February 2009. Average smelting and transportation charges for doré in the quarter ended March 31, 2009 were US$0.51 per equivalent ounce whereas for concentrates were US$3.23 per equivalent ounce. The smelting rates for concentrate were higher than expected as final settlements of concentrates occur 60 days after shipment, therefore the settlement lag resulted in older shipments of November and December settling in Q1-2009 under previous smelting agreements.
Direct cash costs per ounce of silver for the quarter ended March 31, 2009 decreased to US$4.94 per ounce of silver, compared to US$6.51 per ounce of silver for the quarter ended March 31, 2008, due to higher silver ounces produced in 2009 and reduction of mining expenses and indirect costs. Direct cash costs for the quarter ended December 31, 2008 were US$6.37 per ounce.
Mine operating earnings for the quarter ended March 31, 2009 were $4.5 million, a decrease of $0.2 million or 4% compared to mine operating earnings of $4.7 million for the quarter ended March 31, 2008, and a mine operating loss $1.1 million for the quarter ended December 31, 2008.
The Company had operating income of $1.8 million for the first quarter ended March 31, 2009 compared to operating income of $1.5 million for the quarter ended March 31, 2008, an increase of $0.3 million or 23%. Operating loss for the fourth quarter ended December 31, 2008 was $3.8 million.
At the La Encantada Silver Mine, construction is progressing according to plan on the US$21.6 million, 3,500 tonnes per day (tpd) cyanidation plant. The plant is scheduled to commence operations in July 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of doré bars. Total capitalized construction in progress consisted of $12.9 million with a further $1.4 million being un-capitalized advances to contractors.
During the quarter ended March 31, 2009, the Company invested $1.8 million on its mineral properties and a further $1.6 million on additions to plant and equipment on a cash basis. This compares to $4.6 million invested on its mineral properties, and a further $3.0 million on additions to plant and equipment in the quarter ended March 31, 2008, and $0.7 million invested on its mineral properties, and a further $0.4 million on additions to plant and equipment in the quarter ended December 31, 2008.
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940.
OPERATIONAL HIGHLIGHTS
The primary focus in the first quarter of 2009 was reducing operating costs and completing the La Encantada mill expansion program. As shown in the financial results, the Company has been successful in reducing operating costs across all of its mines. Presently, only two drill rigs are operating compared with 23 drill rigs in the third quarter of 2008. In addition, underground mine development is being financed from cash flow versus capital as was the case in 2008. These scaled back exploration and development measures will remain in force for the balance of 2009.
Prior to the decision to reduce the Companys exploration program, the Company met its target on Resource development. The Company released two NI 43-101 Reports on both the La Parrilla Silver Mine and the San Martin Silver Mine in the first quarter which substantially increasing previously released estimates. As at the latest NI 43-101 Reports published in Q1, the Company has defined a global Resource of 300 million ounces of silver equivalents in all categories.
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La Parrilla Silver Mine
At the La Parrilla mine, production continued from the Rosarios/La Blanca and Quebradillas areas. The flotation circuit was operating more efficiently and recoveries are now closer to the target of 75%, however, at the cyanidation circuit recoveries had been affected by the mix of ores and short leaching times. Efforts are being made in order to improve the recoveries by increasing leaching time increasing the oxygenation in the cyanidation circuit.
During the quarter, the La Parrilla mine received the Clean Industry Certification from PROFEPA (Procuradoria Federal de Protecion al Ambiente). This certification resulted from a concerted effort over a period of more than two years.
San Martin Silver Mine
During the quarter the production at the San Martin was focused on improving head grades and reducing operating costs. Management was very pleased with the progress at this operation as can be seen by the cost reductions achieved in the quarter. These improvements were largely achieved due to a better mix of ore produced from the mine and the recovery of some backfills and dumps, which allowed the mine to operate in a more efficient way which resulted in a cost reduction of 61% compared to the first quarter of 2008.
La Encantada Silver Mine
At the La Encantada mine, a special effort is underway to improve the recoveries at the flotation plant which had been affected in the last few quarters by the mix of ore from the Azul y Oro vein which was found to contain manganese. Several new reagents and different mixes of ores are being tested in order to improve recoveries. In addition a new washing screen has been installed in order to wash the dump material which is anticipated to increase the grades of the recovered ore. This new process is expected to be operational during the last part of May.
Construction of the new 3500 tpd cyanidation mill continues to be the primary focus at the La Encantada and is proceeding well. All the leaching tanks and CCD thickeners are constructed with the installation of the mechanisms now underway. New pieces of equipment are arriving regularly and the plant is still anticipated to be commissioned in July. Once this new circuit is completed, the silver precipitates produced from the concentrates will be shipped to the La Parrilla mill for the production of doré bars.
In Summary
Equally important to increasing silver production is further cost reductions where possible. The 2009 operating plan thus far represents a year of reduced operating costs as a result of the Companys pursuit of aggressive growth based on the expansion of its operations and Resources. Management is pleased with the many cost cutting measures underway, and it is believed that further improvements in profitability can be achieved with additional improvements expected going forward.
Finally, in this turbulent financial and commodity environment, First Majestic has been reacting by cutting costs wherever possible. The Company is continuing to analyze various options to reduce operating costs and to squeeze out the most optimum margins possible. During the quarter a new smelting agreement was executed for the sale of all the lead concentrates produced in 2009, and a new agreement was also signed for the sale of all doré produced by the Company in 2009. Both these agreements include terms better than previous agreements and are expected to go a long way in improving profitability.
First Majestic is a producing silver company focused in México and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
4
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | April 27, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Silver production increases 4% in 1 st Quarter
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the first quarter ending March 31, 2009 consisted of 1,040,117 equivalent ounces of silver.
The equivalent silver production for the quarter consisted of 929,964 ounces of silver representing an increase of 4% compared with the first quarter of 2008 and a minor decrease of 156 ounces of silver when compared with the fourth quarter of 2008. 1,828,739 pounds of lead were produced in the quarter representing a 2% decrease over the first quarter of 2008 and a decrease of 13% or 265,248 pounds when compared with the fourth quarter of 2008. 491 ounces of gold were produced in the quarter representing an increase of 105% when compared with the first quarter of 2008 and an increase of 22% compared with the fourth quarter of 2008.
The ore processed during the quarter at the Company's three operating silver mines: La Parrilla Silver Mine, the San Martin Silver Mine and La Encantada Silver Mine; amounted to 216,047 tonnes showing an increase of 36% over the same quarter of 2008 and a modest increase of 401 tonnes over the fourth quarter of 2008.
The overall average silver head grade in the quarter for the three mines increased to 222 g/t silver compared to 207 g/t Ag achieved in the fourth quarter of 2008.
Total combined recoveries of silver at the Companys three different mills were 60% compared to 65% in the prior quarter. At the La Encantada operation low recoveries were caused by high manganese in the ore and increased throughput through the mill. At the San Martin operation, some high carbonaceous ore affected metallurgy however this was compensated by increased head grades. Steps are being taken at La Encantada to improve recoveries; however, until the new 3500 tpd cyanidation plant is completed in June of this year, recoveries are only expected to increase modestly.
As reported previously the Company has reduced exploration and development programs at each of its operations in the fourth quarter of 2008. The Company continues to analyze its expenditures in order to optimize the operations and improve profitability.
A total of 4,610 meters of underground development was completed in the quarter compared to 6,006 metres of development completed in the first quarter of 2008 and 5,847 metres completed in the fourth quarter of 2008. This program is important as it provides access to new areas within the different mines and prepares the mines for continued growth of silver production going forward. The Company has recently reduced its drilling program to two rigs operating at San Martin only; however, in the first quarter 31 holes were completed marking an end to those drill programs commenced last year. A total of 5,048 meters of diamond drilling was completed during the quarter compared to 10,256 metres drilled in Q1 2008 and 4,193 metres drilled in Q4 2008.
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First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | March 31, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
2008 Year End Financial Results
FIRST MAJESTIC SILVER CORP. (FR-T) (the "Company") is pleased to announce the annual financial results for the Company's year ended December 31, 2008. The full version of the financial statements can be viewed on the Company's web site at www.firstmajestic.com or on SEDAR at www.sedar.com. The following are highlights from the year end and fourth quarter. Shareholders or interested parties are encouraged to review the complete financial statements for further details.
FINANCIAL PERFORMANCE AND HIGHLIGHTS
Total annual production for 2008 increased by 18% to 4,229,998 ounces of silver equivalents, including 3,654,698 ounces of silver, 1,661 ounces of gold, 7,457,707 pounds of lead and 425,710 pounds of zinc. This compares to the 3,584,265 ounces of silver equivalents produced in 2007 consisting of 3,170,139 ounces of silver, 2,049 ounces of gold and 2,924,146 pounds of lead.
Gross revenue for 2008, prior to smelting charges, was $56.1 million compared to $45.8 million in 2007, an increase of 22.4%. In 2008 the Company shipped 3,590,202 ounces of silver equivalents at an average price of $15.63 per ounce (US$14.66) compared to 3,461,560 ounces in 2007 at an average price of $13.24 (US$12.33).
2
Due to low metal prices in the latter half of 2008, the Company elected to carry 553,923 ounces of equivalent silver in inventory over the year end from its annual production. The inventory at year end consisted of 429,652 ounces in stockpiles, 101,755 ounces of finished product and 22,516 ounces in process. These ounces are expected to be sold throughout 2009.
Sales revenue (after smelting, refining and transportation charges) for the year ended December 31, 2008 was $44.3 million; an increase of 3% compared to $42.9 million for the year ended December 31, 2007. Smelting, refining and transportation charges increased from $2.9 million in 2007 to $11.8 million in 2008. A primary focus of the Company in 2009 is to increase its scale of operations and to shift its mix of production from concentrates toward Doré production to reduce its smelting charges and increase net revenues. Average smelting and transportation charges for Doré in 2008 were US$0.39 per equivalent ounce whereas for concentrates were US$4.78 per equivalent ounce.
Direct cash costs per ounce of silver for the year ended December 31, 2008 decreased to US$5.87 per ounce of silver, compared to US$7.06 per ounce of silver for the year ended December 31, 2007 and US$6.37 per ounce of silver for the fourth quarter of 2008 compared to US$7.97 per ounce of silver for the fourth quarter of 2007 due to higher silver ounces produced in 2008.
Effective December 1, 2008, smelting and refining charges were reduced. In addition, in February 2009, the Company entered into two new smelting agreements which further reduced smelting charges for Doré and concentrate smelting which have positively impacted costs for 2009.
At the La Encantada Silver Mine, construction began in June 2008 on the new US$21.6 million cyanidation plant which will have a capacity of 3,500 tonnes per day (tpd) once completed. The plant is scheduled to commence operations in July 2009. Once completed, the new plant is anticipated to produce over four million ounces of silver annually in the form of Doré bars.
Reserve and Resource development was a high priority for the Company in 2008, leading to substantial increases in Reserves and Resources at all of its operating mines. On a consolidated basis, Proven and Probable Reserves increased by 102% to 47.8 million equivalent ounces of silver, compared to 23.7 million equivalent ounces of silver at the end of 2007. Measured and Indicated Resources increased by 9% to 92.3 million equivalent ounces of silver in 2008, compared to 85.1 million equivalent ounces of silver at the end of 2007. Inferred Resources increased by 113% to 158.8 million equivalent ounces of silver in 2008, compared to 74.7 million equivalent ounces of silver at the end of 2007.
During 2008, the Company invested $30.1 million in capital expenditures on its mineral properties, and a further $18.0 million on additions to plant and equipment.
Mine operating earnings for the year ended December 31, 2008 was $7.5 million, an increase of 7% compared to mine operating earnings of $7.0 million for the year ended December 31, 2007.
The Company reduced its operating loss for 2008 to $3.7 million, a 14% reduction compared to an operating loss of $4.3 million for the year ended December 31, 2007.
The Company incurred a net loss after taxes of $5.1 million for the year ended December 31, 2008, compared to a net loss after taxes of $7.2 million for the year ended December 31, 2007. The net loss after taxes for this year was after deducting a non-cash stock-based compensation expense of $3.7 million (2007 - $3.9 million) and recording a recovery for future income taxes of $2.1 million.
Subsequent to December 31, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for gross proceeds to the Company of $21,218,940. The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the La Encantada Silver Mine, including the completion of the 3,500 tonne-per-day cyanidation plant, and the remainder for general working capital.
3
On February 25, 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a CLEAN INDUSTRY CERTIFICATE to one of the Companys wholly owned subsidiaries, First Majestic Plata, SA de CV, regarding its activities at the La Parrilla Silver Mine (La Parrilla). This Certificate is a significant milestone for the Company and was achieved after twenty nine months of Voluntary Environmental Audit work, which demonstrates the Companys sustained focus in complying with international and Mexican mining standards.
On March 12, 2009, the Centro Mexicano para la Filantropia (CEMEFI) awarded First Majestic the Socially Responsible Business Distinction for 2008 (Distintivo Empressa Socialmente Responsable 2008). This marks the first time that First Majestic has achieved this annual award of distinction. This award is a significant milestone for the Company and was accomplished after having demonstrated responsibility, transparency and sustainability within its operations and projects in Mexico.
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2009 Outlook
PRODUCTION DATA | La Encantada | La Parrilla | San Martin | Consolidated |
Tonnes Milled | 611,800 | 275,358 | 307,753 | 1,194,911 |
Silver head grades (grams/tonne) | 212 | 250 | 150 | 205 |
Silver recoveries | 60% | 75% | 80% | 68% |
Silver ounces | 2,572,301 | 1,604,776 | 1,187,470 | 5,364,547 |
Gold ounces | 15 | 465 | 1,187 | 1,667 |
Lead tonnes | 944 | 1,322 | - | 2,266 |
Silver equivalent ounces (1) | 2,668,627 | 1,769,154 | 1,266,625 | 5,704,406 |
AVERAGE COSTS | ||||
Production costs per ounce (US$) | 4.71 | 6.83 | 9.10 | 6.40 |
Smelting/refining per ounce (US$) | 1.38 | 1.23 | 0.28 | 1.09 |
Transport and marketing per ounce (US$) | 0.17 | 0.18 | 0.16 | 0.17 |
Production costs per tonne (US$) | 21.72 | 39.79 | 35.10 | 28.84 |
(1) Pricing assumptions for equivalents Au = US$800/oz., Pb = US$0.55/oz. , Zn = US$0.50/oz.
Silver production is expected to increase in mid 2009 when the La Encantada plant expansion is completed and plant capacity has been increased from the current 1,000 tpd to 3,500 tpd. The Company expects to gradually bring the new cyanidation plant into production beginning with production of 1,000 tpd in July, 2,000 tpd in August, 3,000 tpd in September, and achieving full capacity in October. Capital expenditures at the La Encantada mine are expected to amount to US$21.6 million upon completion.
Smelting and refining charges are expected to decrease in 2009 due to new refining and smelting agreements entered into in February 2009 for Doré and concentrate production. With the shift in production at the La Encantada mine from concentrate to Doré, the global mix of Doré and concentrate production will increase from the current 49% to 92% Doré production by the fourth quarter of 2009.
Sales of coins, ingots and bullion will increase in the year from 5% of production in Q1/09, to approximately 10% by the end of Q2/09 and will remain at that level for the balance of 2009. These sales result in approximately a 10% increase in selling price over normal quoted selling prices in any quarter. Additional information on the Companys silver coins, ingots and bullion, including how to place an order, may be found on the Companys website at www.firstmajestic.com.
5
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | March 23, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic receives Mexican Distinction as a
Socially Responsible Business
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce that on March 12 th , 2009 the Centro Mexicano para la Filantropia (CEMEFI) awarded First Majestic the Socially Responsible Business Distinction for 2008 (Distintivo Empressa Socialmente Responsable 2008).
This marks the first time that First Majestic has achieved this annual award of distinction. This award is a significant milestone for the Company and was accomplished after having demonstrated responsibility, transparency and sustainability within its operations and projects in Mexico.
Relevant activities that the Company excelled in to accomplish this distinction included:
Mr. Neumeyer, President & CEO stated, Management at First Majestic feel strongly that being socially responsible sets the foundation for high values and principles within the Company and supports the mission of growth in a sustainable way taking care of the most valuable assets; our people and the communities in which we work.
First Majestic Silver Corp. operates three separate mining units within Mexico; First Majestic Plata, S.A. de C.V., which owns the La Parrilla Silver Mine, Minera El Pilon, S.A. de C.V., which owns the San Martin Silver Mine and Minera La Encantada, S.A. de C.V., which owns the La Encantada Silver Mine. Each of these units is 100% held by Corporación First Majestic, S.A. de C.V., a wholly owned subsidiary based in Durango, Mexico.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
TSX Exchange FR | March 17, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Parrilla receives Clean Industry Certification
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce that on the February 25 th , 2009, the Mexican Environmental Authority PROFEPA (Procuradoria Federal Proteccion al Ambiente) awarded a CLEAN INDUSTRY CERTIFICATE to one of the Companys wholly owned subsidiaries, First Majestic Plata, SA de CV., regarding its activities at the La Parrilla Silver Mine (La Parrilla).
This Certificate is a significant milestone for the Company and was achieved after twenty nine months of Voluntary Environmental Audit work, which demonstrates the Companys sustained focus in complying with international and Mexican mining standards.
Relevant activities undertaken in order to achieve this Certificate included:
First Majestic is operating three separate mines within the La Parrilla property including the La Rosa/Rosario/La Blanca systems which are joined underground into a single operation, the San Marcos mine, and the Quebradillas mine. Several other areas are either undergoing development or exploration or have programs planned in the future. The most significant mining area currently under development is the Las Vacas mine, which is being prepared for production in 2010.
The La Parrilla operation consists of numerous silver/lead/zinc underground mines, and a cyanidation and flotation ore processing plant with an installed capacity of 840 tonnes per day (tpd). The plant processes both oxide and sulphide silver ores in two separate 420 tpd parallel circuits. Oxide ores are processed by cyanide leaching to produce Dore bars and sulphide ores are processed by differential flotation to produce a silver-rich lead concentrate.
The La Parrilla Silver Mine is located in the Municipality of Nombre de Dios, Durango State, México approximately 45 minute drive from the City of Durango east along Highway 45. The property covers an area in excess of 53,249 hectares. All the work to date, including, mining, development, resource definition and exploration has taken place on only a small portion of this large property.
2
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES |
NEWS RELEASE
Toronto Stock Exchange FR | March 5, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Closing of $21.2 Million Offering
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") The Company is pleased to announce the closing today of the offering announced on February 18 and February 19, 2009. A syndicate of underwriters led by CIBC World Markets Inc. and including Blackmont Capital Inc., GMP Securities L.P. and Thomas Weisel Partners have purchased 8,487,576 Units (the Units) from First Majestic at an issue price of $2.50 per Unit (the Offering) for gross aggregate proceeds of $21,218,940. Each Unit consists of one common share (a Common Share) in the capital of First Majestic and one-half of one Common Share purchase warrant. Each whole Common Share purchase warrant (a Warrant) entitles the holder to acquire one additional Common Share at a price of $3.50 until March 5, 2011. The underwriters have an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 Common Shares at a price of $2.40 per share and up to an additional 636,568 Warrants at a price of $0.20 per Warrant.
The Company plans to use $15.5 million of the net proceeds of the offering for mill construction and mine improvements at the Companys La Encantada Silver Mine, including the completion of a 3,500 tonne-per-day cyanidation plant on the property, and the remainder for general working capital.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
The securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
(Signed) Keith Neumeyer
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE
Toronto Stock Exchange FR | February 26, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Resource Disclosure Clarification
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") In connection with the filing of the Companys Amended and Restated Preliminary Short-Form Prospectus for an offering of $17,000,000, the British Columbia Securities Commission has requested that certain disclosure by the Company be clarified. The Company wishes to clarify the disclosure in its news releases dated December 23, 2008, January 13, 2009 and February 17, 2009.
In respect of the January 13, 2009 news release, the Company advises that it added Resources and Reserves in compiling its global resource figures. Also, the news releases issued on December 23, 2008, January 13, 2009 and February 17, 2009, added Inferred Resources to other categories of Reserves and Resources. These practices are not permitted under NI 43-101 and the Company has now discontinued this practice. The disclosure in each of the news releases and the Company's technical reports as to each separate category of Resources or Reserves are accurate as of their respective dates, however prior disclosure of global resources and total resources should not be relied upon.
The Company's independent Qualified Persons under the policies of National Instrument 43-101 who have reviewed the contents of this news release and who authored the most recent qualifying report are Leonel López, C.P.G., P.G., and Richard Addison P.E., Principal Process Engineer, of Pincock Allen & Holt, who are employees of PAH and are independent of the Company.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES |
NEWS RELEASE |
Toronto Stock Exchange FR | February 19, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic Announces Pricing of Offering
FIRST MAJESTIC SILVER CORP. (FR-T) (First Majestic or the Company) is pleased to announce that it has priced its previously announced public offering of units (the Offering). Pursuant to the Offering, the Company will issue 6,800,000 units (Units) at a price of $2.50 per Unit, for aggregate proceeds of $17,000,000. Each Unit consisting of one common share (a Common Share) in the capital of First Majestic and one-half of one Common Share purchase warrant (a Warrant). Each whole Warrant will entitle the holder to acquire one additional Common Share, at a price of $3.50 per Common Share, for a period of 24 months from the closing of the Offering. The Company will file an amended and restated preliminary prospectus in each of the provinces of Canada except Quebec. In addition, the Company has granted the underwriters (1) an option to purchase up to an additional 3,200,000 Units at $2.50 per Unit at any point prior to 48 hours before closing of the Offering, and (2) an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 15% of the Offering to cover overallotments and for market stabilization purposes. CIBC World Markets Inc. is acting as lead underwriter and sole bookrunner in a syndicate which also includes Blackmont Capital Inc., GMP Securities L.P. and Thomas Weisel Partners.
The Company intends to use $15.5 million of the net proceeds of the Offering on mill construction and mine expansion and improvements at the Companys La Encantada property, with the remainder of the proceeds to be used for general working capital.
The Units will be sold publicly in all provinces of Canada except Quebec and on a private placement basis in the United States pursuant to exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended, and internationally pursuant to available exemptions.
Closing of this offering is expected to occur on or about March 5, 2009 and is subject to receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The securities have not been registered under the U.S. Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration or any applicable exemption from the registration requirements. This press release does not constitute an
- 2 -
offer to sell or the solicitation of an offer to buy nor will there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
For further information please contact: info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer,
President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES |
NEWS RELEASE |
Toronto Stock Exchange FR | February 18, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
First Majestic Announces C$25 Million Offering
FIRST MAJESTIC SILVER CORP. (FR-T) (First Majestic or the Company) is pleased to announce that it has filed a preliminary short-form prospectus in connection with a proposed overnight marketed offering of approximately C$25 million of units (Units), with each Unit consisting of one common share (a Common Share) in the capital of First Majestic and one-half of one Common Share purchase warrant (a Warrant). Each whole Warrant will entitle the holder to acquire one additional Common Share for a period of 24 months from the closing of the Offering. The Company will grant the underwriters an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 15% of the number of Common Shares and Warrants at the issue price to cover overallotments and for market stabilization purposes. The underwriting syndicate will be led by CIBC World Markets Inc.
The Company intends to use $15.5 million of the net proceeds of the Offering on mill construction and mine expansion and improvements at the Companys La Encantada property, with the remainder of the proceeds to be used for general working capital.
The Units will be sold publicly in all provinces of Canada except Quebec and on a private placement basis in the United States pursuant to exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended, and internationally pursuant to available exemptions.
Closing of this offering is expected to occur on or about March 5, 2009 and is subject to receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The securities have not been registered under the U.S. Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration or any applicable exemption from the registration requirements. This press release does not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and
- 2 -
the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
For further information please contact: info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer,
President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | February 17, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
La Parrilla Silver Mine Updates NI 43-101 Resource
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce an update regarding its activities in Mexico at the La Parrilla Silver Mine (La Parrilla) and a new NI 43-101 Reserve/Resource update with a cut-off date of September 30, 2008.
This new NI 43-101 Reserve/Resource update has resulted in a 19.79% increase in overall Resources at the La Parrilla. Total Reserves/Resources have reached 88.75 million equivalent ounces of silver (Proven & Probable Reserves of 5.25 million ounces, Measured and Indicated Resources of 30.70 million ounces and Inferred Resources of 52.80 million ounces).
The La Parrilla Silver Mine is located in the Municipality of Nombre de Dios, Durango State, México approximately 45 minute drive from the City of Durango east along Highway 45. The property covers an area in excess of 53,249 hectares. All of the work to date, including, mining, development, resource definition and exploration has taken place on only a small portion of this large property.
The La Parrilla operation consists of numerous silver/lead/zinc underground mines, and a cyanidation and flotation ore processing plant with an installed capacity of 840 tonnes per day (tpd). The plant processes both oxide and sulphide silver ores in two separate 420 tpd parallel circuits. Oxide ores are processed by cyanide leaching to produce Dore bars; sulphide ores are processed by differential flotation to produce a silver-rich lead concentrate.
First Majestic is operating three separate mines within the La Parrilla property including the La Rosa/Rosario/La Blanca systems which are joined underground into a single mining operation, the San Marcos mine, and the Quebradillas mine. Several additional areas are either undergoing development or exploration or have programs planned in the future. The most significant mining area currently under development is the Las Vacas mine, which is being prepared for production in 2010.
Exploration at La Parrilla to September, 2008, has included; 310 drill holes for a total drilled depth of 72,084 meters (72.1 kms); 274 km of geophysical surveying (IP/AR); 36 sq km of aeromagnetic investigations; and about 4,100 samples for geochemical research; in addition to 17,540 metres (17.5 kms) of underground development .
The following summary tables were taken from the complete La Parrilla Silver Mine NI 43-101 Technical Report released today and prepared by Pincock Allen & Holt, Lakewood, Colorado (PAH). Shareholders and interested parties are encouraged to read this positive report which can be viewed on SEDAR (www.sedar.com) and the Companys web site at www.firstmajestic.com.
2
Total Proven + Probable Mineral Reserves (1,2,3,4,5)
Category |
Tonnes |
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc
(4) % |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Proven Reserves
(Oxides plus Sulphides) |
288,468 |
302 |
1.36 |
0.93 |
2,797,487 |
3,064,952 |
Probable Reserves
(Oxides plus Sulphides) |
217,060 |
287 |
1.45 |
1.12 |
2,002,158 |
2,182,002 |
Total Proven
Plus Probable Reserves |
505,528 |
295 |
1.40 |
1.01 |
4,799,645 |
5,246,954 |
Total Measured + Indicated Resources
Category |
Tonnes |
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc
% |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Measured Resources
(Oxides plus Sulphides) |
2,195,448 |
264 |
2.59 |
4.54 |
18,637,618 |
22,806,628 |
Indicated Resources
(Oxides Plus Sulphides) |
861,488 |
245 |
3.46 |
6.07 |
6,785,685 |
7,940,379 |
Total Measured
Plus Indicated Resources (Oxides plus Sulphides) (6) |
3,100,000 |
255 |
2.84 |
4.97 |
25,400,000 |
30,700,000 |
Total Inferred Resources
Category |
Tonnes |
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc(4)
% |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Total Inferred
Resources (Oxides Plus Sulphides) (6) |
8,000,000 |
169 |
0.87 |
1.49 |
43,900,000 |
52,800,000 |
(1) |
Estimates by First Majestic reviewed by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery included. |
(2) |
Silver equivalent based on sales. Prices used for evaluation: Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb. |
(3) |
Oxides Ag equivalent includes gold credit based on sales. Au Credit = 6 g/tonne Ag. |
(4) |
Sulphides Ag equivalent includes Pb credit = 47 g/tonne Ag. Zinc is considered at 70% met. Recovery = 30 g/tonne Ag. |
(5) |
Cut-off grade estimated as 184 g/tonne Ag net of Au credit in oxide ores; and 246 g/tonne Ag net of Pb credit in sulphide ores. Zinc not considered in COG estimates. |
(6) |
Rounded figures. |
The La Parrilla mine consists of underground workings that include drifts, ramps, raises and stopes along the East-West trending Los Rosarios system. This system consists of a 3 km long mineralized structure that encloses numerous veins that branch out into veinlets and stockwork zones. The Los Rosarios system
3
comprises La Rosa, Rosarios, La Blanca and San José areas and it intersects the NS-trending San Marcos vein. Other mineralized zones are located within the surrounding skarn zone of a regional diorite intrusive stock.
These include Quebradillas, Protectora, San Nicolas, San José, Las Vacas, Santa Paula, and others areas. These areas are contained within a core area surrounding the mill consisting of approximately 3500 hectares.
The property's geologic potential remains very high as the current Reserve/Resource definitions have only been focused on the La Rosa, Rosarios, La Blanca, San Marcos, Quebradillas and Las Vacas areas. Mineralization at the La Parrilla property, consisting of over 53,000 hectares in size, is a typical assemblage of metasomatic deposit minerals with a high content of silver. The most important mineralization consists of vein deposits and mineral concentrations within breccias. It mainly consists of pyrite, esphalerite, galena, some chalcopyrite, argentite and other silver sulfosalts associated with calcite and quartz as gangue minerals. Oxidation and secondary enrichment of these sulphides makes up the mineral concentrations in the upper parts of the deposits, and consists of carbonates (cerussite, hydrozincite, hemimorphite), sulfates (anglesite, willemite) and iron oxides (hematite and limonite).
The Company's independent Qualified Persons under the policies of National Instrument 43-101 who have reviewed the contents of this news release and who authored the most recent qualifying report are Leonel López, C.P.G., P.G., and Richard Addison P.E., Principal Process Engineer, of Pincock Allen & Holt, who are employees of PAH and are independent of the Company.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | January 20, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
San Martin Updated NI 43-101 Report increasing Reserves/Resources by 45.81%
FIRST MAJESTIC SILVER CORP. (FR-T) ("First Majestic" or the "Company") is pleased to announce an update regarding its activities in Mexico at the San Martin Silver Mine and a new NI 43-101 Reserve/Resource update.
This newly updated technical report with a cut-off date of September 30, 2008 has resulted in a significant increase in overall Reserves and Resources at the San Martin Silver Mine. Total Proven & Probable Reserves have increased by 41.83%, while Total Measured and Indicated Resources declined by 51.55% due to the upgrading of those Resources to Reserves and Total Inferred Resources have increased by 110.94% .
The San Martin Silver Mine is located beside the town of San Martin de Bolaños in the Bolaños River valley, in the northern portion of the State of Jalisco, México. The San Martin operation is 150 kilometres by air or 250 kilometres by paved road north of Guadalajara. The property covers an area in excess of 7,800 hectares of which much remains unexplored.
The San Martin mine and mill has been in operation since 1983 and is a major contributor to the economy of the town of San Martin de Bolaños which has a population of around 3,000 people. The mill for much of 2008 has been operating at 750 tonnes per day. An expansion program launched in June 2008 resulted in the mill capacity reaching 950 tpd in December 2008.
The San Martin drill program from January 1 st , 2007 to September 30 th , 2008 included 127 drill holes with a total depth of 19,619 metres of core, in addition to about 3,906 metres of underground development for mining, drill sites and access preparations.
During the recently completed exploration program, new mineralized zones were discovered in the Zuloaga (Pinolea and Ballenas levels and Cymoid zone), La Blanca, Rosario-Condesa, La Mancha, Huichola and La Hedionda veins.
The following summary tables were taken from the complete San Martin Silver Mine NI 43-101 Technical Report prepared by Pincock Allen & Holt, Lakewood, Colorado (PAH). Shareholders and interested parties are encouraged to read this positive report which can be viewed on SEDAR (www.sedar.com) and the Companys web site at www.firstmajestic.com.
2
Total Proven + Probable Mineral Reserves (Mineable Reserves) (1, 2, 3, 4, 5)
Category |
Tonnes |
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc (4)
% |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Proven Reserves
(Oxides) |
527,373 |
273 |
|
|
4,636,211 |
4,805,765 |
Probable Reserves
(Oxides) |
243,091 |
276 |
|
|
2,154,571 |
2,232,727 |
Total Proven and
Probable Reserves |
770,464 |
274 |
|
|
6,790,782 |
7,038,492 |
Total Measured + Indicated Resources (2, 3, 5)
Category |
Tonnes |
Grade | Metal Contained | |||
Silver
g/tonne |
Lead
% |
Zinc (4)
% |
Silver only
oz. |
Silver (oz.) including
Lead Credit |
||
Measured Resources
(Oxides) |
122,404
|
233
|
|
|
915,774
|
955,128
|
Measured Resources
(Sulfides) |
415,771
|
97
|
0.87
|
2.07
|
1,292,213
|
1,292,213
|
Indicated Resources
(Oxides) |
294,361
|
288
|
|
|
2,729,201
|
2,823,840
|
Indicated Resources
(Sulfides) |
670,684
|
116
|
0.94
|
1.64
|
2,498,639
|
2,498,639
|
Total Measured and
Indicated Resources (Oxides plus Sulfides) |
1,503,220
|
154
|
0.91
|
1.80
|
7,435,827
|
7,569,820
|
Proven and Probable
Reserves Plus Measured and Indicated Resources |
2,273,684 |
195 |
0.91 |
1.80 |
14,226,609 |
14,608,312 |
Total Inferred Resources (2, 3, 5)
Category |
Tonnes |
Grade | Metal Contained | |||
Silver g/tonne |
Lead % |
Zinc(4) % |
Silver only oz. |
Silver (oz.) including Lead Credit |
||
Total Inferred Resources (Oxides plus Sulfides) |
8,200,000 |
185 |
1.40 |
1.60 |
48,900,000 |
50,037,365 |
(1) Estimated Reserves are exclusive of Resources.
3
(2) Cut Off estimates as 146 g/tonne Ag for oxides, and 87
g/tonne Ag for dump recovered; Ageq=Au/Pb credits= 10g/tonne Ag
(3) Metal
prices at $708/oz-Au, $12.00/oz -Ag, $0.75/lb -Pb, $0.50/lb -Zn.
(4)
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not
include mining recovery.
(5) Base metals, Lead and Zinc are not recovered
due to low market prices.
Oxidized ore is presently being mined from the Zuloaga vein and from the adjacent La Blanca, Rosario and Cinco Señores Veins. Exploration and development is on-going on these vein structures, on other sub-parallel crossing veins and in a recently identified cymoid structure of the Zuloaga vein at the Ballenas level, in the blocks 5,400 and 5,550, as well as on the Rosario-Condesa vein system. Primary mineralization in sulfides with lead, zinc and copper occurs at the deepest levels, San Juan and San Carlos of the Zuloaga vein, however, these areas are not presently being mined.
The mine has been developed primarily on the main Zuloaga vein which has been identified over a strike length of three kilometres, and consists of six main levels spanning a vertical interval of approximately 350 metres. The main access levels, San José, Santa María, Ballenas, Cangrejos, San Pablo, San Juan and San Carlos, are accessible from surface adits and various interconnecting underground ramps totalling over 70 kilometres.
Exploration potential for finding and developing new Resources/Reserves in the San Martin district still remains promising. As a result of this recently completed aggressive exploration program, several targets have been identified for follow up drilling when the Company wishes to commence the next program. Five target zones within the main Zuloaga vein have been identified and six other areas; the Rosario, Escondida, Cangrejos, Ballenas, San José and Cymoid zone, have also been identified as primary targets.
Quality Assurance & Quality Control
To evaluate sample quality control, San Martin performs multiple assays, up to three times on some samples, and periodic check analyses on samples. Since 2004, the San Martin mine has sent approximately 10 pulp samples per month to ALS Chemex Laboratories and duplicate samples to SGS Labs in Guadalajara for analysis, which has had good correlations.
Following detailed geological and geotechnical logging, drill core samples are split on-site by diamond saw. One quarter of the core is submitted to the San Martin certified laboratory for sample preparation and analysis, which are assayed for silver by standard fire assay methods and lead by atomic absorption. The other quarter of the core is shipped to the SGS preparation laboratory in Durango, Mexico for drying, crushing, pulverizing and assaying for gold and silver by fire assay and 30 elements ICP package. Systematic assaying of standards and blanks are performed for precision and accuracy; check assays are regularly conducted by SGS or Chemex. The remaining half core is retained on-site for verification and future reference purposes.
Qualified Person
The Company's independent Qualified Persons under National Instrument 43-101 who have reviewed the contents of this news release and who authored the most recent qualifying report are Leonel López, C.P.G., P.G., and Richard Addison P.E., Principal Process Engineer, of Pincock Allen & Holt, who are employees of PAH and are independent of the Company.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its corporate growth objectives.
4
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Cautionary Notes to U.S. Investors Concerning Reserve and Resource Estimates
The definitions of proven and probable reserves used in National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) differ from the definitions in the United States Securities and Exchange Commission (SEC) Industry Guide 7. Under SEC Guide 7 standards, a Final or Bankable feasibility study is required to report reserves, the three year history average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.
In addition, the terms mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. Inferred mineral resources have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.
FIRST MAJESTIC SILVER CORP. |
Suite 1805 925 West Georgia Street |
Vancouver, B.C., Canada V6C 3L2 |
Telephone: (604) 688-3033 Fax: (604) 639-8873 |
Toll Free: 1-866-529-2807 |
Web site: www.firstmajestic.com; E-mail: info@firstmajestic.com |
NEWS RELEASE |
TSX Exchange FR | January 13, 2009 |
Pink Sheets FRMSF | |
Frankfurt FMV (WKN: A0LHKJ) |
Production increases 27% in 4 th Quarter
First Majestic Silver Corp. ("First Majestic" or the "Company") is pleased to announce that production in the fourth quarter ending December 31, 2008 increased to 1,070,903 equivalent ounces of silver representing a 27% increase over the prior quarter production and an increase of 6% over the same quarter in the prior year.
The equivalent silver production for the quarter consisted of 930,120 ounces of silver, an increase of 29% over the previous quarter and 2,093,987 pounds of lead which represents a 38% increase over the previous quarter. The large increase in lead production was a result of improvements in recoveries of lead and tonnage at the flotation circuit at the La Encantada Silver Mine. Production of gold in the quarter amounted to 403 ounces representing a 25% decrease compared to the prior quarter.
During the quarter, the combined recoveries of silver at the three different mills showed a slight decrease from 67% to 65%. The overall average silver head grade in the quarter improved for the three mines increasing by 6% over the previous quarter to an overall head grade of 207 g/t silver.
The ore processed during the quarter at the Company's three operating silver mines; the La Parrilla Silver Mine, the San Martin Silver Mine and the La Encantada Silver Mine, amounted to 215,646 tonnes representing an increase of 27% over the previous quarter.
Despite the reduction of underground development throughout the Companys three operating silver mines, a total of 5,847 metres of development was completed in the quarter representing a reduction of 34% over the previous quarter. The total development for the year 2008, totalled 27,890 metres. This compares to 20,279 metres of underground developed in the previous calendar year representing an increase of 38%. This development program in 2008 was very important in giving access to new areas within the different mines in order to continue the growth of silver production in the future, and to upgrade current ore resources to reserves.
Reserve and Resource development was a high priority for the Company in 2008. In the quarter, two new NI 43-101 Reports were released. Current global resources now stand at 260,351,425 equivalent ounces of silver. As previously reported, two additional NI 43-101 Reports will soon be released to further increase this number. During most of the year, over 20 drill rigs were operating. During the fourth quarter, a decision was made to reduce the diamond drill program to four drill rigs, which currently remain in operation. A total of
2
4,193 metres of diamond drilling was completed during the quarter compared to 26,666 in the previous quarter. During the year ending December 31, 2008, a total of 61,440 metres of diamond drilling was completed which compares to 37,176 metres drilled in 2007 representing an increase of 65%.
Keith Neumeyer, President & CEO, stated, weve witnessed another significant year of growth in production and Resources as a result of our continued focus on mine and mill improvements throughout the past couple of years. Production increased by 18% year over year and Resources have increased by an impressive 55%. These improvements will translate into higher production for 2009 and with the new La Encantada mill coming online later this year, production will get another significant boost. First Majestic is still a young company that is not without challenges as can be expected as a result of our significant growth to date. I'm continually encouraged by our team of professionals who collectively have over 500 years of mining and management experience and who are all extremely committed to building a leader in the silver sector.
As a result of the work completed in 2008, some of the improvements and advances made during the year include:
At the La Parrilla Silver Mine:
At the La Encantada Silver Mine:
At the San Martin Silver Mine:
At the Del Toro Silver Mine:
3
Total production during 2008 reached 4,244,756 ounces of silver equivalent representing an increase of 18% compared to the previous year's 3,584,265 ounces silver equivalent. Even though management is pleased with the substantial increase in silver production compared to 2007, production for the year was lower than originally estimated. The heavy rainy season which affected the third quarter had a negative impact on the tonnage feed through the mills at each operation. Also, at the San Martin, maintaining optimal head grade continued to be the primary challenge which required management to try different alternatives to give the development program time to prepare and access new areas within the mine. Given the expansions that were completed in 2008 and the new construction underway at the La Encantada, management is estimating production to be 6,000,000 ounces of silver for 2009.
First Majestic is a producing silver company focused in Mexico and is aggressively pursuing its business plan to become a senior silver producer through the development of its existing assets and the pursuit through acquisition of additional assets that contribute to achieving its significant corporate growth objectives.
FOR FURTHER INFORMATION contact info@firstmajestic.com, visit our website at www.firstmajestic.com or call our toll free number 1.866.529.2807.
FIRST MAJESTIC SILVER CORP.
signed
Keith Neumeyer, President & CEO
This press release includes certain "Forward-Looking Statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and reserves, exploration results and future plans and objectives of First Majestic Silver Corp. are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.
Richard Addison |
165 So. Union Blvd., Suite 950 |
Lakewood, CO 80228 |
Phone (303) 986-6950 |
Fax (303) 987-8907 |
dick.addison@pincock.com |
I, Richard Addison, P.E., C. Eng., Eur. Ing. for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the San Martin Silver Mine, State of Jalisco, México dated February 26, 2009 (the Technical Report).
1. |
My residential address is: 857 S. Van Gordon Court, #G207, Lakewood, Colorado 80228. |
2. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
3. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EEC. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
4. |
I have worked as a metallurgical engineer for a total of 38 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
5. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
6. |
I am responsible for the preparation of Sections 3.6, Processing Facilities; Section 18, Mineral Processing and Metallurgical Testing; Section 25.3, Ore Processing; Section 25.4, Infrastructure; and Section 25.7.4, Product Marketing. I visited the San Martín project in November 2008. |
7. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
8. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
Pincock, Allen & Holt | REVISED | 24.3 |
90535 February 26, 2009 |
9. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
10. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 26 th day of February 2009
Richard Addison | |
Richard Addison, P.E., C. Eng., Eur. Ing. |
Pincock, Allen & Holt | REVISED | 24.4 |
90535 February 26, 2009 |
24.0 | DATE AND SIGNATURE PAGE |
Leonel López, C.P.G. |
165 S. Union Blvd. Suite 950 |
Lakewood, Colorado 80228 |
Phone (303)986-6950 |
Fax (303)987-8907 |
leonel@pincock.com |
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the San Martin Silver Mine, State of Jalisco, México dated February 26, 2009 (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, a Member (No. 1943910RM) as SME Founding Registered Member, a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, other short courses and seminars on mineral economics, and other technical subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and economic evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the San Martín de Bolaños mine, as an independent engineer in 1991 and in 2005. I have previously visited the operation during the periods of May 16-19, 2005 and January 23-26, 2007. As part of this study, I visited the project site from November 2 to 4, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, inspecting exploration drilling locations, reviewing sampling |
Pincock, Allen & Holt | REVISED | 24.1 |
90535 February 26, 2009 |
procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
|
7. |
I am the primary author of the Technical Report. I am responsible for and supervised the preparation of all report sections. I have visited the project in January 2007 and November 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 26 th day of February 2009
Leonel López, C.P.G. | |
Leonel López, C.P.G. |
Pincock, Allen & Holt | REVISED | 24.2 |
90535 February 26, 2009 |
Technical Report for the | |
San Martín Silver Mine, | |
State of Jalisco, México | |
Prepared for | |
First Majestic Silver Corp. | |
January 15, 2009 | |
90535 | |
AMENDED AND RESTATED | |
February 26, 2009 |
Technical Report for the |
San Martín Silver Mine, |
State of Jalisco, México |
Prepared for |
First Majestic Silver Corp. |
January 15, 2009 |
90535 |
AMENDED AND RESTATED |
February 26, 2009 |
Prepared by |
Pincock, Allen & Holt |
Richard Addison, P.E. |
Leonel López, C.P.G. |
1.0 | TITLE PAGE |
This technical report has been prepared in accordance with the National Instrument 43-101 standards of disclosure for mineral projects (NI 43-101) and the contents herein are organized and in compliance with form 43-101F1 contents of the technical report (43-101F1). This technical report is an update of Technical Report Amended for the San Martín Silver Mine, State of Jalisco, México; which was prepared for First Majestic Silver Corp. dated July 24, 2007 and published in SEDAR in July 25, 2007. The first two items are the title page and table of contents that are presented previously in this report and are simply mentioned herein to maintain the specific report outline numbering contained in form 43-101F1 contents of the technical report.
Pincock, Allen & Holt | REVISED | 1.1 |
90535 February 26, 2009 |
2.0 | TABLE OF CONTENTS |
See discussion in Section 1.
Pincock, Allen & Holt | REVISED | 2.1 |
90535 February 26, 2009 |
Pincock, Allen & Holt | REVISED | Page i |
90535 February 26, 2009 |
Pincock, Allen & Holt | REVISED | Page ii |
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Pincock, Allen & Holt | REVISED | Page iii |
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Pincock, Allen & Holt | REVISED | Page iv |
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Pincock, Allen & Holt | REVISED | Page v |
90535 February 26, 2009 |
3.0 | SUMMARY |
Pincock, Allen & Holt (PAH), a division of Runge, Inc. (Runge) was retained by First Majestic Silver Corp. (FMS), to conduct an independent reserve audit, project update, and prepare a Technical Report in accordance with Canadian National Instrument 43-101 for its San Martín Silver Mine (San Martín) operation, as represented and in operation by its wholly-owned Mexican subsidiary, Minera El Pilón, S.A. de C.V. (El Pilón).
Preparation of this Technical Report for FMS by PAH included a site visit (November 2-4, 2008) to review the San Martín mining operation current status, including underground mine, processing plant facilities and present environmental and infrastructure conditions. This Technical Report is also based on the previous Technical Report for the San Martín Silver Mine, State of Jalisco, México prepared for First Majestic Silver Corp., dated July 24, 2007 Amended and published in SEDAR on July 25, 2007. The PAH site visit also included a visit to El Pilón administrative and support office at Durango city, where Mr. Ramón Dávila, FMS Chief Operating Officer, provided all requested data on the Companys financial statements.
The San Martín mine includes underground operations that have opened six main drifts with levels at an approximate 35-meter vertical separation. Each one of the drifts has been developed to a maximum extension of approximately 3,000 meters, with interconnecting ramps between levels, and all have surface access to the Cerro Colorado hillside. Since 1983, when El Pilón initiated operations in the area, to September 30, 2008, about 4.3 million tonnes of silver ore have been extracted and processed, to produce sales of approximately 33.6 million ounces of silver, including some gold and lead. Most of the San Martín ore production has been mined out from the Zuloaga vein, with minor production extracted from the La Blanca, Rosario and Cinco Señores veins.
3.1 | Location |
The San Martín mine is located near the town of San Martín de Bolaños on the Bolaños River valley, in the northern portion of the State of Jalisco, México. The San Martín operation is 150 kilometers by air or 250 kilometers by paved road north from Guadalajara. Driving time is four to five hours and flying time is about 45 minutes by commuter or charter plane. The town of San Martín de Bolaños has a population of about 3,000 and the mine is a major contributor to the economy of the town and area.
The plant is located southeast of the town at an elevation of 850 meters asl. The mine is 10 kilometers northwest of the town at elevations between 1,080 and 1,600 asl. The Distance from the mine to the plant is about 13 km.
UTM coordinates at the central part of the San Martín mine operation area are as follows:
North 2,375,500; | East 615,000 |
Pincock, Allen & Holt | REVISED | 3.1 |
90535 February 26, 2009 |
3.2 | Ownership |
Minera El Pilón S.A. de C.V. (El Pilón) is a wholly owned subsidiary of First Majestic Silver Corp., which is based in Vancouver, British Columbia. El Pilón corporate offices are located in Durango city and operates the San Martín underground silver mine and ore processing facility near the town of San Martín de Bolaños in the State of Jalisco. Oxidized ore is being mined primarily from the Zuloaga vein and from the adjacent La Blanca, Rosario and Cinco Señores Veins. Exploration is on-going on these vein structures, on other sub-parallel, crossing veins and in a recently identified cymoid structure of the Zuloaga vein at the Ballenas level, in the blocks 5,400 and 5,550, as well as on the Rosario-Condesa vein system. Primary mineralization in sulfides with lead, zinc and copper occurs at the deepest levels, San Juan and San Carlos of the Zuloaga vein. FMS has withheld investigations and development of the sulfides mineralization due to currently low metal prices.
El Pilón holds 31 contiguous mining concessions in the San Martín de Bolaños mining district that cover mineral rights for 7,841 hectares.
3.3 | Geology and Mineralization |
The project area lies in the southern part of the Sierra Madre Occidental, an extensive volcanic terrain starting near the United States-Mexican border and trending southeast into the states of Zacatecas and Jalisco. The terrain is characterized by Tertiary age volcanic rocks that have been divided into a lower andesitic sequence of early Tertiary age (40 to 70 million years) and an upper rhyolitic sequence of middle Tertiary age (20 to 40 million years). Volcanism, structural development and mineralization in the San Martín area occurred during late Miocene, resulting in a complex geologic framework, (Starling, 2001). Two distinct features have been recognized by different authors, the pre and post mineralization rock formations, and the indicator Guásima Formation.
The mine has been developed on the Zuloaga vein, which has by far been the most extensively developed vein in the district, having accounted for about one-half of the silver production in the district. Production also occurs from the La Blanca vein, a vertical split off of the Zuloaga vein. The Zuloaga vein occurs along an east-west trending normal fault zone that dips an average 75 degrees to the north, with the hanging wall of the fault down-dropped 100 to 200 meters relative to the footwall. The vein has been identified over a strike length of 3 kilometers, with a developed vertical extent of about 350 meters. El Pilón is developing exploration and rehabilitation of workings along crosscutting veins to the Zuloaga structure, at the Rebaje 40 Oriente on the Cangrejos Level, and at the Rebaje 1100 on the Ballenas Level; in both cases NS veins intersecting the Zuloaga vein show high grade mineralization in widths of up to 10 meters to the hanging wall of previously mined narrow structures. Recent FMS exploration works have identified a Cymoidal structure of the Zuloaga vein at the mine levels 5,400 to 5,550 and it is preparing access and drilling to evaluate its potential.
La Blanca vein is a near-vertical split off of the Zuloaga vein that cuts upward through the Zuloaga hanging wall. La Blanca vein is typically irregular and narrow, but where mineralized, has higher silver and zinc grades.
Pincock, Allen & Holt | REVISED | 3.2 |
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Two additional veins, the Condesa and Rosario, occur to the southwest and have northwest trends. Access to these veins is from the town of San Martín via an 11.4 kilometer gravel road. The Condesa structure strikes N 40° W and dips 81° SW. The Condesa workings show mineralization over 150 meters along strike, with mineralized zone ranging from 1.5 to 2.0 meters in width and occurring in a quartz-cemented andesitic breccia. The Rosario mine is located within the Santa Rosa arroyo at an elevation of 1,600 meters. The Rosario mine is 11.7 kilometers from the town of San Martín on the same gravel road leading to the Condesa mine. These vein trends intersect the Zuloaga vein in an area below mineralized surface outcrops of the vein and represent a potential exploration target.
3.4 | Exploration and Project Data |
Exploration potential for finding and developing new resources/reserves in the San Martín district appears to be promising. Ore bodies in the mine are typically indicated at depth beneath zones of alteration on the surface expression of the Zuloaga vein. The Zuloaga vein projections from developed mine levels towards its outcropping is under development, since it may hold a significant amount of oxides mineralization. Access to the zone is difficult due to topographic constrains; however, FMS is developing access from the La Escondida level, at the Pinolea level. The vein outcroppings show alteration zones that may be correlated to indicate ore concentrations in the upper portion of the Zuloaga vein.
Direct exploration development is integrated into the mine preparation programs, and for vein deposits this has proven to be the most effective method of exploration. For the year 2007, the El Pilóns drilling program completed 3,900 meters from underground access, while for the year 2008, the program of exploration included drilling 15,719 meters from underground workings, in addition to about 3,770 meters of underground development in drifts and crosscuts for exploration and drill site access.
The 2009 drilling program designed for the San Martín mine includes 93 drill holes to explore the La Escondida level, Rosario, Condesa, Providencia, La Esperanza, Cymoid and other areas below the known ore shoots on the Zuloaga vein. These 93 drill holes with a total of 13,400 meters are directed to investigate areas of resources with the objective to increase reserves, and if it is successful, the program should result in additional resources for the mine. Due to current market conditions at the time of writing this report, FMS has delayed this program; however, the estimated investment of drilling from underground workings is US$1.80 million.
Exploration sampling for reserve delineation in the San Martín mine is conducted by drifting along the mineralized zone so that channel samples can be taken and diamond drilling can be conducted. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structure, across the back of the drift. Sampling crews take channel samples at irregular intervals, typically with one sample every 2 to 3.5 meters along new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles.
Core drilling is conducted locally to test the upward and downward projections of the structural zone at a distance from the drifts. Core samples are BQ size, 36 millimeters in diameter, and holes are reportedly
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of generally good recovery (90 percent), with the remaining bad ground having modest recovery (50 to 60 percent).
Channel, exploration, mine development and production, and plant samples are sent to San Martins on site laboratory for chemical analysis of silver and gold. In more recent years additional analyses by atomic absorption for lead and zinc in geology samples have become routine. To evaluate sample quality control, San Martin performs multiple assays, up to three times on some samples, and periodic check analyses on samples. Since 2004, the San Martin mine has sent about 10 pulp samples each month to ALS Chemex Laboratories, amount of duplicate samples to SGS Labs in Guadalajara city, for duplicate analysis, obtaining good correlation in silver values and poor correlation in gold assays. The latter is probably a consequence of the very low gold content of the samples.
3.5 | Mining Methods |
Current mine production has been averaging about 775 tonnes per day (tpd) from stopes located on La Escondida, San José, Ballenas, Congrejos, San Pablo, San Juan, Santa Elena, and San Carlos levels. Underground drilling is performed using jackleg drills, and blasting is accomplished with ANFO explosives. Underground loading and haulage is performed with 2 cy, 3 cy and 5 cy LHD's (scooptrams) and 10 to 13 tonne-capacity trucks. Opening sizes are driven at 4.0 meters by 3.5 meters. Ramp inclinations are generally limited to about 12 percent. Typically, the total advance for drifting, ramping and raising is about 550 meters per month. The average productivity in headings is 0.7 meters per manshift, which is in the normal range for this type of development.
Mechanized, cut and fill stopes now account for 100 percent of the production, and these are developed either directly on the vein or by first driving a drift on the vein and then driving a parallel drift about 8 meters away, leaving a pillar between the drifts. Crosscuts are then driven about every 10 meters from the parallel drift through the pillar to the vein for ore extraction. Raises are driven as needed to provide access, services and ventilation.
Ore is trammed to surface with LHDs or low-profile dump trucks and stockpiled at surface dump sites. On the surface, the ore is loaded from stockpiles into 22-tonne trucks for transport to the mill some 13 kilometers away over a gravel road. The ore haulage from the mine to the mill is performed by a contractor.
3.6 | Processing Facilities |
The San Martín processing plant has been in operation since 1983 at an increasing capacity that has reached 750 tonnes per day and is currently being expanded to 1000 tonnes per day. Silver ore is processed by conventional cyanidation, using agitation in tanks, counter-current decantation (CCD) thickening, and precipitation of the dissolved silver and gold by cementation with zinc dust in the Merrill-Crow process. The precipitate is then smelted to produce doré for shipment to commercial refineries. In addition to the cyanidation system, the plant also produces a gravity concentrate which is sold to a smelter; the gravity system recovers about 1 percent of the silver and 3 percent of the gold in the ore.
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Since 1983, the San Martin mine has produced more than 33.3 million ounces of silver together with small amounts of gold.
Plant statistics indicate that during the first three quarters of 2008 plant feed rock (a combination of mine ore and fines screened from waste dumps) averaged 131 g/t silver and about 0.23 g/t gold. Silver and gold recovery into Doré and gravity concentrates for the first three quarters of 2008 were 76.39 and 54.91 percent, respectively. FMS built a 500 tpd flotation circuit which was commissioned during the year and is not in operation due to the low lead and zinc prices and higher smelter costs.
3.7 | Mineral Reserves/Resources |
The San Martin mine uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineable reserves. Reserves are calculated annually, at the end of each calendar year. For this report, PAH has reviewed the reserve dated September 30, 2008 (referred to subsequently as the September 30, 2008 Reserve).
Table 3-1 shows a summary of Mineral Reserves and Resources for the San Martín Silver Mine to September 30, 2008.
3.7.1 | Reserve Estimates |
Reserve blocks have been defined at the various drift levels in the mine where sampling has found economically mineable mineralization within the Zuloaga, La Blanca and two NS newly-accessed veins. The reserve tonnage and grade are based largely on channel samples, locally with some influence from drill core samples. Reserve blocks range from 10 to 50 meters in length along the vein trend, with proven reserve blocks projected up to 25 meters from the drift in which the channel samples were taken, and probable blocks extending another 25 meters beyond the proven blocks.
For the present (September 30, 2008) mineable reserve, PAHs economic breakeven cutoff grade calculation was based (G ag ), solely on a projected $12.00 per ounce for silver, and the total 2008 operating cost and process recoveries as follows:
G ag = $43.09/( $12.00 x 0.775 X 0.99 ) = 4.68 oz/tonne or 146 g Ag/tonne
All 2007 and 2008 production has come from the mechanized cut and fill mining.
The gold contained in Doré and concentrates was 19,770 grams (635 ounces), which would indicate a recovered grade of about 0.14 g/t. For each ounce of silver paid there were 0.001 ounces of gold paid (635 ounces Au/724,239 ounces Ag). At a gold price of US$708/oz, this represents a contribution of US$0.62 per ounce of silver.
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TABLE 3-1 |
First Majestic Silver Corp. |
Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Mineral Reserves Prepared by FMS, Reviewed by PAH as of September 30, 2008 |
CATEGORY | Mineralization | Metric | Width | Ag | Pb | Zn | METAL CONTAINED | |
Proven Reserves | Type | Tonnes | m | g/tonne | % | % | Silver (Only) oz. | Silver Eq oz. |
SUBTOTAL - 1 | Oxides | 527,373 | 2.72 | 273 | 4,636,211 | 4,805,765 | ||
Probable Reserves | ||||||||
SUBTOTAL - 2 | Oxides | 243,091 | 2.56 | 276 | 2,154,571 | 2,232,727 | ||
Proven and Probable Reserves | ||||||||
TOTAL | Oxides | 770,464 | 2.67 | 274 | 6,790,782 | 7,038,492 | ||
Mineral Resources | ||||||||
Measured Resources | ||||||||
SUBTOTAL - 3 | Oxides | 122,404 | 4.95 | 233 | 915,774 | 955,128 | ||
SUBTOTAL - 4 | Sulfides | 415,771 | 3.23 | 97 | 0.87 | 2.07 | 1,292,213 | 1,292,213 |
Indicated Resources | ||||||||
SUBTOTAL - 5 | Oxides | 294,361 | 4.49 | 288 | 2,729,201 | 2,823,840 | ||
SUBTOTAL - 6 | Sulfides | 670,684 | 4.95 | 116 | 0.94 | 1.64 | 2,498,639 | 2,498,639 |
Measured and Indicated Resources | ||||||||
TOTAL | Oxides plus Sulfides | 1,503,220 | 4.38 | 154 | 0.91 | 1.80 | 7,435,827 | 7,569,820 |
Proven and Probable Reserves plus Measured and Indicated Resources. | ||||||||
TOTAL RESERVES AND RESOURCES | Oxides plus Sulfides | 2,273,684 | 3.80 | 195 | 0.91 | 1.80 | 14,226,609 | 14,608,312 |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Cut Off estimates as 146 g/tonne Ag for mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits = 10g/tonne Ag. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
Inferred Resources | ||||||||
Inferred Resources | ||||||||
TOTAL (6) | Oxides plus Sulfides | 8,200,000 | 5.33 | 185 | 1.40 | 1.60 | 48,900,000 | 50,000,000 |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Inferred Resources are especulative in nature and may not become Reserves. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
(6) |
Rounded figures. |
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90535 February 26, 2009 |
In addition to the Doré sales, a gravity concentrate is produced. During 2008, 43.6 tonnes of concentrate were sold that contained 4,400 kilograms (9,698 lbs) of lead in the concentrates. For each ounce of silver sold, approximately 0.013 kilograms (0.03 lbs) of lead were sold. At US$0.75/lb of lead, this contributes another US$0.02 per ounce of silver.
This would indicate a total contribution of gold and lead of US$0.64 per ounce of silver.
The silver equivalent breakeven cutoff grade (G ag eq ), considering the gold/lead contribution, converted to an equivalent silver grade, would be as follows. Since the metal quantities and values shown in the gold/lead contribution include process recoveries, they are not repeated in the cutoff estimation.
G ag eq = $43.09/(( $12 .00 x0.775 X 0.99) + $0.64)) = 4.38 oz Ag eq./tonne, or about 136 grams Ag eq/tonne.
Most of the January through September 2008 production has been derived from the mechanized cut and fill mining of oxide ores, however, a small amount was obtained from the recovery of old dumps at the mine site. Possible resources of dump material remain, and PAH also calculated a cutoff grade for this material as follows:
C Ag = $25.63/( $12.00 X 0.775 X 0.99) = 2.78 oz Ag/tonne or 87 g Ag/tonne
Milled oxide ore production for the first 9 months of 2008 was 145,592 tonnes, at an average grade of 131 g Ag/t, and 0.25 g Au/t. Milling of oxide ore from the underground mine totaled 132,043 tonnes at an average grade of 133 g/t Ag, and that from the mine dump recovery totaled 13,549 tonnes at an average grade of 111 g/t Ag. Gold is present in payable quantities in many areas and lead in some. In the cutoff grade calculation the small gold and lead credits are already included as an operating cost deduction (see Table 25-6).
There was a significant tonnage of sulfide material (57,072 tonnes) extracted from the mine and transported to the mill patios during the first 9 months of 2008, however, only small amounts of this material were processed in the new flotation plant, as test material. The sulfide material remains stockpiled on the mill patios and will not be processed until market conditions improve for lead and zinc, nor will any additional sulfides be extracted from the mine. In view of the foregoing, PAH has not calculated a cutoff grade for San Martín sulfide material.
From the 145,592 tonnes of production, the silver sold in Doré and concentrates during the first 9 months of 2008 was 22.5 million grams (724,239 ozs.). The gold sold in Doré and concentrates during the 9-month period of 2008 was 19,770 grams (635 ounces). The estimated process recovery for gold was 55.4 percent. For each ounce of silver paid there were 0.001 ounces of gold paid (635 ounces Au/ 724,239 oz. Ag). At a gold price of US$708/oz, this represents a contribution of US$0.62 per ounce of silver.
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In addition to the Doré sales, a gravity concentrate is produced. During 2008, 43.6 tonnes of gravity concentrates were sold that contained silver, gold and lead values, and the payable lead content was approximately 4,400 kilos of lead. For each ounce of silver sold, approximately 0.01 kilograms (0.02 lbs) of lead were sold. At a price of $0.75/lb of lead, this contributes another $0.02 per ounce of silver.
This would indicate a total contribution of gold and lead of $0.64 per ounce of silver, which have been included a by-product credit to operating costs (see Table 25-6).
This cutoff estimate was the basis that PAH used to calculate the September 2008 Reserves. PAH notes that that the reserve is in addition to the material considered as resources.
PAH believes that these reserve estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves. PAH believes that the classification of the reserves meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
3.7.2 | Resource Estimates |
The resource calculations by FMS are based on projections of the mineralized zones of 50 meters beyond the areas of the reserves for the measured resources, and another 50 meters beyond the boundaries of the measured resources for the blocks of indicated resources. The grade for these blocks is determined from the grade estimated for the adjacent reserve blocks, and sampling in mine workings and drill holes located within the block area.
In addition to the reserves, FMS has estimated resources in blocks along the Zuloaga, La Blanca, Plomosa Rosario, and Rosario Condesa veins, and in two other NS newly accessed veins that cross the main mineralized structure. These blocks were estimated in the same manner as that described previously for the reserve blocks, with the additional calculation of lead and zinc assays where they are available. During the period of 2006, the San Martin generated production of lead and gold in gravity concentrates adding some contributions for these metals to the silver recovery and sales. The estimated contribution for these metals was approximately 8 percent for the year; therefore, it is reasonable to add that value to the estimated silver grade, but with no additional contribution of zinc.
FMSs estimated resource blocks do not include the estimated reserve blocks since these have been projected at distances that are adjacent and beyond the reserve blocks boundaries.
Mineral resources do not include development details for underground mine accessibility and mine planning; therefore, in PAHs opinion these resources are appropriately reported as resources, with estimated tonnage and grade calculated from available data on an in-situ basis.
Based on these assumptions, and in the mines silver COG, PAH reviewed FMSs estimates, resulting in measured and indicated resources of silver equivalent, which includes credit for lead and gold at projected prices for the silver US$12/oz, for lead $0.75/lb and for zinc $0.50/lb, which equates to about
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10 grams of silver per tonne of ore. These estimates do not take in consideration mine dilution nor mine and metallurgical recoveries, or S&R charges. The resources are estimated as In Situ material as shown in Table 3-1. At the current rate of San Martíns production, the resources may add about five more years of life to the mine, with additional potential of inferred resources.
The mineral resources estimated by FMS and reviewed by PAH are presented in Table 3-1. PAH notes that these resources are in addition to the previously reported reserve.
PAH believes that these resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of resources. PAH believes that the classification of the resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The reserves and resources herein reported by FMS for the San Martín Silver Mine were reviewed by PAH and constitute part of the San Martin mining operation. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these reserves and resources may not be materially affected by issues that could prevent their extraction and processing.
3.8 | Environmental |
The San Martín mine has been operating since 1983 with the necessary land-use and water extraction permits in effect for the operation. El Pilón has purchase the land surface rights where the mine and plant installations are located to better manage the property. Through the years and changes in regulatory framework, El Pilón has been required to update the necessary operation permits.
PAHs environmental and safety review consisted of discussions with site management and supervision Ing. Juan Francisco Díaz de León V., Mine Manager of Security and Environmental, and the site visit to observe the current site safety and environmental conditions and to identify any potential liabilities having significant economic impacts. Our assessment is not intended as an environmental and safety compliance audit, although prudent practices were considered in our review. In PAHs opinion, the San Martin mine is in compliance with the required permits and authorizations.
Periodic regulatory inspections of the site by SEMARNAP and the Mines Department are being performed to observe compliance. PAH has reviewed permits and authorizations for the San Martín operation and believes it is in compliance with applicable regulations and obtains permits as required.
3.9 | Conclusions |
The San Martín Silver Mine is a modest-sized underground operation that has utilized used equipment, whenever possible, and expensed its replacement equipment to a large extent. However, according to a new FMS policy, new equipment has been purchased as part of the capital expenditure program. This program of equipment replacement by FMS has been in place for the last two years, including 7 scoop trams, 5 underground trucks and 1 jumbo.
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Capital forecast for San Martín during the last quarter of 2008 and 2009 is presented in Table 25-9 and totals $1.6 million and $2.1 million. An amount of $150,000 has been estimated for portal closures (ten at $10,000 each) and for tailings pond reclamation. Salvage of plant equipment is forecast to just equal dismantling.
A summary of production including oxides and sulfides is presented in Table 3-2. Production costs for the mine in January to September, 2008 are provided in Table 25-6, based on mine accounting records. A total of US$7.9 million was expended during the 9-months period to produce roughly 184,440 tonnes of ore, containing saleable silver amounting to 796,524 ounces. On a unit basis, cash production costs were $40.87/tonne of ore, and $10.40/oz of silver produced. Unit costs of $41.30/tonne of ore are projected for the rest of 2008 and subsequent years.
TABLE 3-2 |
First Majestic Silver Corp. |
Cia. Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Summary of Economic Analysis - Sensitivity |
Case | Discount | NPV, US$ M |
Base | 12 % | 15.00 |
Increase Silver price | 10 % | 18.60 |
Decrease Silver price | 10 % | 11.60 |
Increase Operating costs | 10 % | 13.40 |
Decrease Operating costs | 10 % | 16.80 |
Increase Capital costs | 10 % | 14.80 |
Decrease Capital costs | 10 % | 15.30 |
A simplified cash flow forecast has been prepared and is presented as Table 25-10. The economics covers the period through December 2011, at which time the known proven/probable reserves will be exhausted. In the interim, of course, it is expected that underground exploration will be advanced through both diamond drilling and drifting, and that reserves will continually be added over time from the strong resource base of the mine. FMS has allocated a high capital investment for San Martín to develop reserves and extend the mine life.
Basic premises for the cash flow involve silver prices, which are taken at $12/ounce for 2008, 2009 and 2010 and $13/ounce thereafter. Gold sales are presented at a percentage of silver revenues and are predicated on historical returns in the past. Operating costs and expenses are projected to be decreased by 24 percent annually. Reclamation expenditures are considered spent in the remaining months of 2008. It can be seen from the table that a net present value for the project at a 12-percent discount rate is approximately $15.00 million.
As expected, the operation exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally. In all cases, however, the San Martín mine shows positive economics as measured by a cash flow exercise, and thus the postulated reserve position is accepted.
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4.0 |
INTRODUCTION |
4.1 |
Terms of Reference |
Pincock, Allen & Holt (PAH), a division of Runge, Inc. (Runge) was retained by First Majestic Silver Corp. (FMS), to conduct an independent reserve audit and project update, and prepare a Technical Report in accordance with Canadian National Instrument 43-101 for its San Martín Silver Mine operation, as represented by its wholly-owned Mexican subsidiary, Minera El Pilón, S.A. de C.V., (El Pilón).
FMS of Vancouver, British Columbia (traded as FR on the Toronto Stock Exchange and as FMV on the Frankfurt Stock Exchange) has been operating the San Martín mine since its acquisition in June 2006, while the mine has been in continuous production since 1983. Total recorded production from the San Martín mine to September 2008, is 33.6 million troy ounces of silver including some gold and lead from 4.3 million tonnes of ore. The operation consists of an underground silver mine and an 800-metric-tonne-per-day (tpd) capacity processing plant that produces Doré and gravity concentrates for shipment to Met-Mex Peñoles (Met-Mex) smelter in Torreón, Coahuila, México. During the first 9 months of 2008, San Martin processed 184,440 tonnes of ore and shipped Doré product that contained 724,240 troy ounces of silver and 691 troy ounces of gold. El Pilón also shipped 43.6 tonnes of gravimetric concentrates to Met-Mex smelter that contained 4,400 kilograms of lead, for a total production of 796,524 ounces of silver equivalent.
4.2 | Purpose of the Technical Report |
Preparation of this Technical Report for FMS by PAH included a site visit to review the San Martín mining operation current status, including underground mine, processing plant facilities and present environmental and infrastructure conditions. PAH site visit also included a visit to San Martín administrative and support office at Durango city, where Mr. Ramón Dávila, FMS Chief Operating Officer provided all requested data on the Companys financial statements.
During the site visit to San Martín, PAHs personal had the opportunity to interview technical and operative personal for the mine, plant, laboratory, administration, and from other areas of responsibility within the operation. PAH greatly appreciates the support and cooperation provided by FMS Ing. Florentino Muñoz and Ing. Ricardo Flores during the trip and other employees and administrators, including Ing. J. Miguel Ríos G., Mine Manager of Operations, Ing. Rafael Romo Gaucin, Mine Chief Geologist, and Ing. Sergio Oliva, Plant Superintendent, Ing. Cristóbal Jiménez, Geologist, and many others.
The San Martín mining operation is protected by the mineral rights of 31 valid concessions that cover 7,841 hectares (19,375 acres). PAH has not reviewed the legal status of the mineral concessions; however, in title opinion provided to FMS by the legal firm of Carlos Galván Pastoriza from Durango City, dated September 30, 2008, is stated that all mining rights described in Table 6-1 hereto have been validly issued and recorded properly in the Public Registry of Mining when required by law and are in full
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force and effect. This Technical Report was completed to meet the requirements of Canada National Instrument 43-101.
4.2.1 | Sources of Information |
Technical data on the San Martín mining operation was provided by FMS and or its subsidiarys to PAH, including information, maps, and reports generated by its own personnel, as well as reports prepared on behalf of FMS. A list of reports and files is presented in Section 21.0, References.
In addition to the above indicated sources of information, PAHs own references included various Technical Reports (public information) on behalf of FMS, including Technical Report for the San Martín Silver Mine, State of Jalisco, México Amended prepared for First Majestic Silver Corp. dated July 24, 2007 and published at SEDAR on July 25, 2007.
Previous studies by PAH in the San Martín mining district included geologic and exploration investigations of the Bolaños mine, which is located at about 20 kilometers to the North, within the same San Martín mining district.
4.3 | Site Visit |
The San Martín mine was visited from November 2-4, 2008, by PAH team members Leonel López, Jack Haptonstall and Richard Addison, as PAH representatives, as Independent Engineers and Qualified Persons for the purpose of auditing the reserves, observing the operation of the mine and process facilities, inspecting the condition of support facilities and infrastructure, and observing the general site environmental conditions.
PAH previously visited the San Martín mine to perform independent reserve audits and project updates in late 2001, February 1999, in February 1998, in early 1997, and in 1996 to prepare a valuation of El Pilóns operation prior to First Silver Reserves acquisition of the company in early 1997, and on behalf of FSR during the period of May 1619, 2005 and January 23-26, 2007. Personnel assigned for this study includes the following:
4.4 | Terms and Definitions |
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INEGI refers to Instituto Nacional de Estadística, Geografía e Informática.
Ing. refers to engineer, a University professional graduate.
PAH refers to Pincock, Allen and Holt, Inc., a division of Runge, Inc.
Peñoles or Met-Mex refers to Metalúrgica Mexicana Met-Mex Peñoles, S.A. de C.V.
El Pilón refers to Minera El Pilón, S.A. de C.V., a Mexican corporation wholly-owned subsidiary of First Majestic Silver Corp.
San Martín, San Martín mine or San Martín operation refers to the San Martín Silver Mine and mining operation sometimes referred to in other publications as the San Martín de Bolanos Silver Mine, which includes underground mine, processing plant and ancillary installations, and operated by Minera El Pilón, S.A. de C.V.
Zuloaga mine also refers to San Martín mine, which is developed on the Zuloaga vein.
TSX refers to Toronto Stock Exchange.
RC refers to reverse circulation drilling.
COG refers to Cutoff Grade.
g/t Ag or g/tonne Ag refer to grams per metric tonne.
g/t Au refers to grams per metric tonne.
Pb (%) refers to the grade of lead in percent.
Zn (%) refers to the grade of zinc in percent.
tpd refers to metric tonnes per day.
m refers to meter.
km refers to kilometers, 1,000 meters.
mm refers to millimeters.
asl refers to elevations above sea level.
SEMARNAP refers to Secretaría del Medio Ambiente, Recursos Naturales y Pesca.
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CAN$ refers to Canadian currency.
$ refers to US currency, and
$ Pesos refers to Mexican currency.
4.5 | Units |
Units in this report are metric unless otherwise noted.
Tonnage figures are dry, metric tonnes, unless otherwise stated.
Precious metal content is reported in grams per metric tonne (g/t) or grams (g), except where otherwise stated.
Elevations reported as meters above mean sea level (asl).
All coordinates used for location and elevations referenced on maps and text in this report are based on newly obtained Universal Transverse Mercator and have been referred to by project personnel as the Global UTM system, and they are based on the Map Datum NAD27-México.
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5.0 | RELIANCE ON OTHER EXPERTS |
This Technical Report was prepared for First Majestic Silver Corp. (FMS) by the independent consulting firm of Pincock, Allen & Holt (PAH), to report the results of a review performed on its San Martín Silver Mine operations. The mine is operated by FMS through its wholly-owned Mexican subsidiary, Minera El Pilón, S.A. de C.V.
The Technical Report is based on information available and provided to PAH at the time of the report, largely including data by FMS and its subsidiarys and to a lesser extent including information by third parties and generated by PAH. PAH believes that the information contained herein will be reliable under the conditions and subject to the limitations set forth herein. For mineral rights legal title, as well as assessment works and permits required by Mexican Mining and Environmental Laws, PAH has only relied on previous public reports, Legal Opinions, verbal assessments and confirmations by FMS personnel and consultants who are experienced professionals.
According to the Durango-based Legal Firm of Carlos Galván Patoriza, San Martín mining operations are currently and have always been conducted, in compliance with all applicable laws and regulations of the jurisdiction in which the property is located or in which San Martín mining operations are conducted, dated September 30, 2008.
Some parts of this Technical Report have not been included to avoid duplication of information that has not been modified or changed from previous Technical Reports prepared by PAH for First Silver Reserves Inc. regarding the same mining operation of San Martín de Bolaños dated June 23, 2005 and published at SEDAR on July 5, 2005 and Technical Report for the San Martín de Bolaños Silver Mine, State of Jalisco, México Amended dated July 24, 2007 and published in SEDAR on July 25, 2007 prepared by PAH on behalf of FMS.
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6.0 |
PROPERTY DESCRIPTION AND LOCATION |
6.1 |
Property Description |
First Majestic Silver Corp. operates the San Martín Silver Mine that consists of a predominantly silver mine and processing plant through its wholly owned Mexican subsidiary Minera El Pilón, S.A. de C.V. (El Pilón), the project is located near the town of San Martín de Bolaños, in the State of Jalisco, México.
The San Martín mine includes underground operations that have opened six main drifts with levels at an approximate 35-meter vertical separation. Each one of the drifts has been developed to a maximum extension of approximately 3,000 meters, with interconnecting ramps between levels, and all have surface access to the Cerro Colorado hillside. Since 1983, when El Pilón initiated operations in the area, to September 2008, over 4.3 million tonnes of silver ore have been extracted and processed, for sales of approximately 33.6 million ounces of silver, including some gold and lead. Most of the San Martín ore production has been mined from the Zuloaga vein, with only minor production extracted from the La Blanca, Rosario, Cinco Señores and Condesa veins.
The San Martín ore is transported via a 13-kilometer dirt road from the mine installations to the processing plant from an elevation of 1,080-meter above-sea-level (asl), to about 850. The processing plant consists of crushing, grinding and conventional cyanidation by agitation in tanks. Silver and gold values in solution are then precipitated by the Merrill-Crow method, by adding zinc dust and smelting the resulting precipitates into Doré bars for shipment to a smelter. A gravity separation circuit, consisting of two Falcon concentrators and one vibrating Wilffley table has been added to the processing system to recuperate coarse grains of gold and silver and some sulfides that are not recovered in the cyanidation circuit.
Other installations include laboratory facilities, offices, dining room, and some housing for key employees.
In addition to the mineral rights covered by 31 mining concessions that include 7,841 hectares (19,375 acres), El Pilón has purchased the surface rights for 1,295.81 hectares (3,202 acres) of land that include the mine and mine installations, part of the access roads, and surrounding areas. Additionally, El Pilón has acquired the surface rights of 159.52 hectares (394 acres) of land where the plant installations and camp are located.
El Pilóns corporate activities are maintained within FMSs head Mexican offices located in the capital city of Durango, State of Durango, where purchasing, legal and accounting administrative functions provide support to each of FMSs subsidiarys and mining operations.
6.2 | Location |
The San Martín mine is located near the town of San Martín de Bolaños on the Bolaños River valley, in the northern portion of the State of Jalisco, México. The San Martín operation is 150 kilometers by air or
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250 kilometers by paved road north from Guadalajara city. Driving time is four to five hours and flying time is about 45 minutes by charter plane. The town of San Martín de Bolaños has a population of about 3,000 and the mine is a major contributor to the economy of the town and area.
The plant is located southeast of the town at an elevation of 850 meters asl. The mine is 10 kilometers northwest of the town at elevations between 1,080 and 1,190 asl. Figure 6-1 shows a general location map.
UTM coordinates at the central part of the San Martín mine area are as follows:
North | | 2,375,500 | |
East | | 615,000 |
6.3 | Property Ownership |
Minera El Pilón was a wholly owned subsidiary of First Silver Reserve Inc. which was acquired in September 2006 by First Majestic Silver Corp. and subsequently delisted from the Toronto Stock Exchange. FMS is based in Vancouver, British Columbia. El Pilóns corporate offices are located in Durango, México. El Pilón operates the San Martín silver mine, an underground silver mine and ore processing facility near San Martín de Bolaños. Ore is being mined primarily from the Zuloaga Vein. Exploration is on-going on the Zuloaga vein and in other sub-parallel and crossing veins that have been uncovered recently on the San Carlos level, as well as on the Rosario-Condesa vein system. Figure 6-2 depicts El Pilóns San Martín general layout.
El Pilón holds 31 contiguous mining concessions in the San Martín mining district that cover mineral rights for 7,840.5692 hectares. These include 31 mining concessions with exploitation rights.
The process to acquire mineral rights from the Mining Department in México (Dirección General de Minas) is initiated by surveying the area of coverage. The applicant must present a location map of the area requested for mineral rights, which includes description of local prominent features and relative position with regards to other adjacent and nearby pre-existing claims. If the claimed area is free at the time of presenting the application, then a Mining Concession is granted for a 50-year term, which may be renewed for similar duration. The Dirección General de Minas issued new Regulations, by Presidential decree, regarding mining concessions in April 26, 2005, to be applied from January 1, 2006, whereby all the Exploration and Exploitation mining claims were transformed to a unique type of Mining Concession for a renewable duration of 50 years. Previous mining claims were automatically adjusted to a 50 year- term from the date of their registration in the Mining Public Registry. The El Pilón title records are maintained in Guadalajara, the state capital city of Jalisco, at the Mining Agency (Agencia de Minería), and at the Central Mining Registry in México City (Dirección General de Minas).
According to El Pilóns concession title dates, mineral rights are due for the earliest titled concessions in the year 2035 (Ampl. Patricia), and most other claims have expiration dates to the years 2050s; these however, may be renewed for another 50 years. PAH reviewed the legal opinion on the current legal
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status of the properties, which was issued by the legal firm of Carlos Galván Pastoriza from Durango City, where the concessions legal status is confirmed as in good legal standing. Table 6-1 presents a list of El Pilóns mining concessions. Figure 6-3 shows San Martín mining concessions map.
6.4 | Mineral Tenure |
According to El Pilóns personal and Mr. Carlos Galván Pastorizas legal opinion, all mineral concessions are current in assessment work, property taxes and other obligations required by Mexican Mining and Environmental Laws and Regulations.
No royalties or any other encumbrances are due on El Pilón mining concessions.
El Pilón also reported that it owns two lots that cover 1,295.8163 hectares (3,202 acres) of surface land surrounding the mine, and owns another 159.520 hectares (394 acres) of surface land in five lots that include the plant site, camp and tailings areas.
All mining and environmental activities in México are regulated by the Dirección General de Minas and by the SEMARNAP from México City, under the corresponding Laws and Regulations. All minerals below-surface rights lie with the State; while surface rights are owned by ejidos (communities) or private individuals, allowing them the right of access and use of their land.
At the San Martín and nearby areas there are no ejidos; most land is privately owned.
Provisions are included in the Mexican Mining Law to permit expropriation of surface rights for development of projects that are of general economic interest, including mining operations.
6.5 | Surface Land Ownership |
The surface rights to the San Martín mine are mostly owned by El Pilón and only part of the access roads are in land of other private owners. El Pilón has negotiated surface rights agreements with some individual owners for parts of the road of access. An important consideration is the traditional use of land, which in fact, recognizes that mining is the preferred use of the land in and around old mining workings, as well as current conditions for the proper use of the land. In fact, the right of way provisions allow for free access to mining claims despite land ownership. Topographic conditions at the San Martín mine area do not allow for proper development of other economic activities for the use of the land.
According to FMS, there is a good working relationship with people of the town of San Martín de Bolaños, since many of the inhabitants are necessarily employed in the exploration or mining operations. No labor or access problems have been reported by FMS within the area.
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TABLE 6-1 |
First Majestic Silver Corp. |
Minera El Pilón, S.A de C.V. |
San Martín Silver Mine |
Mining Concessions - September 30, 2008 |
No. | Concession Name | Title No. | Surface Ha. |
1 | La Zuloaga | 178831 | 9.0000 |
2 | La Mancha | 172212 | 270.0000 |
3 | Polo | 178829 | 88.0000 |
4 | San Judas | 179604 | 140.0000 |
5 | Santitos | 179605 | 69.4479 |
6 | Zuloaga Dos | 185281 | 168.8724 |
7 | Pinalillo Dos | 185284 | 79.7712 |
8 | Zuloaga Tres | 185307 | 220.0000 |
9 | Zuloaga Cuatro | 188862 | 282.5180 |
10 | Zuloaga Cinco | 191989 | 245.0970 |
11 | Zuloaga Seis | 188867 | 425.2678 |
12 | Zuloaga Siete | 218104 | 2,102.2937 |
13 | Pinalillo | 181758 | 37.9645 |
14 | La Esperanza | 175485 | 12.5631 |
15 | San Eduardo | 206208 | 51.2962 |
16 | Luis Tres | 218872 | 1,091.9181 |
17 | Ampl. Verónica | 218866 | 148.6571 |
18 | Ampl San Martín de Porres | 221206 | 17.2641 |
19 | Ampl A San Eduardo | 186428 | 71.0181 |
20 | San Martín de Porres | 160810 | 91.4350 |
21 | San Judas Tadeo | 160811 | 94.8922 |
22 | Ampl Patricia | 187325 | 150.0000 |
23 | Santa Elena | 216187 | 322.7636 |
24 | Luis Dos | 220312 | 459.0367 |
25 | Los Cinco Metros | 185282 | 0.1479 |
26 | El Pilón Fracc.I | 124219 | 4.2244 |
27 | El Pilón Fracc.II | 220480 | 187.1202 |
28 | La Condesa | 221189 | 300.0000 |
29 | La Providencia | 221137 | 100.0000 |
30 | Luis Uno | 226108 | 300.0000 |
31 | Luis Cuatro | 226447 | 300.0000 |
TOTAL AREA SAN MARTIN UNIT | 7,840.5692 |
6.6 | Environmental and Permitting |
PAH is not aware of any environmental liabilities in the San Martín mining district; most of the area covered by El Pilón concessions is mining and prospective land for mineral exploration and mine development. Local topographic conditions are rough. The San Martin mine consists of underground workings, and relatively small waste dumps have been constructed near the mine portals. Mining operations throughout the District present only minor surface disturbances. Most of the mine operations are located within land holdings owned by El Pilón. The San Martín underground operation has been developed on the Zuloaga vein, which strike intersects the western slope of the Cerro Colorado hill,
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extracting selected ores, and only relatively small waste dumps have been formed during the long history of production. Currently San Martin operates in part with Cut-and-Fill mining methods to avoid accumulation of large waste dumps on surface.
PAHs environmental and safety review consisted of discussions with site management. Personnel interviewed include Ings. J. Miguel Ríos G., Mine Manager of Operations, and Ing. Rafael Romo Gaucin, Mine Chief Geologist and other plant personnel. PAH also observed the current site safety and environmental conditions to identify any potential liabilities that may have significant economic impacts. A brief review was made of file records provided us during the site visit. Other public references have reported full compliance by El Pilón in Mining and Environmental Regulations (Peter Megaw, May 2003). Our assessment is not intended as an environmental and safety compliance audit, although prudent practices were considered in our review. In PAHs opinion, the San Martin mine is in compliance with the safety and environmental laws and regulations.
PAH has received a copy of document dated October 27, 2008 that presents a list of the permits and authorizations for the San Martín operation and believes that El Pilón is in compliance with applicable regulations and obtains permits as required. Environmental permits in the state of Jalisco are issued by the Subdelegación de Gestión para la Protección Ambiental y Recursos Naturales, Unidad de Gestión Ambiental located in Guadalajara City. This Institution has recently renewed, on November 6, 2006, the Licencia Ambiental Unica No. 14/LU-117/11/06 on behalf of Minera El Pilón, S.A. de C.V. for operating the San Martín mine. The Licencia Ambiental Unica is issued for the duration of the operation, and is subject to compliance with existing regulations and some other requirements. Periodic site inspections by regulators are being performed by Mexican Official Inspectors to observe site safety and environmental conditions.
Environmental studies developed and reported by El Pilón include the following:
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7.0 |
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY |
7.1 |
Topography and Accessibility |
The San Martín Silver Mine is located on the eastern slopes of the Sierra Madre Occidental, alongside the Bolaños River valley, in the northern portion of the State of Jalisco. It is located within the jurisdiction of the municipality of San Martín de Bolaños. The village of San Martín de Bolaños is located by the Bolaños River, at an elevation of 820 meters asl, while the San Martín processing plant is at about 850 meters and the mine portals at 1,080 to 1,600 meters. The Bolaños River has established a 10 to 15 km broad valley that runs north-south and presents abrupt escarpments of volcanic rocks on both sides. Figure 6-2 shows a topographic map of the area.
Access to the San Martín mine area is from Guadalajara city by a 250-km paved road or by air in small aircraft to the San Martín de Bolaños airstrip located to the northwest of the village. Driving time from Guadalajara city to the mine is approximately four to five hours, and flying time is 45 minutes from the International Airport at Guadalajara city. Please refer to Figure 6-1 that shows a general location and access map of the area.
Access from the mine to the plant is by a 13.5 -km road, built and maintained by El Pilón, which includes a concrete pad at the part that crosses the village, and is constantly irrigated to avoid dust generation.
7.2 | Climate and Physiography |
The San Martín mine is located at the coordinates 21° 45 North latitude, and 103° 45 West longitude, by the Bolaños river valley. Climate in this area is, according to INEGI (Instituto Nacional de Geografía y Estadística de México) generally warm and semi-wet with rain in the summer season. It presents an average temperature of about 22°C, with the lowest monthly average (19.7°C) in February, and highest in May (30.5° C). Annual freezing temperatures in the region are recorded, mostly during the month of February, from 0 to 20 days, while hail occurs during the rainy season on less than five days per year. Yearly accumulated rainfall in San Martín de Bolaños is registered as 592.1 mm, most of which occurs during June through October. The highest rate of precipitation is recorded at 197.0 mm during the month of October.
The Bolaños River constitutes one of the most important water flows in the State; it forms the Bolaños Hydrological basin that covers approximately 5,100 sq. km. within three States, Aguascalientes, Jalisco, and Nayarit. The Bolaños River discharges its waters into the Santiago River to the south, which drains into the Pacific Ocean. Figure 7-1 shows the San Martin Silver Mine operations.
Climate and topographical conditions in the San Martín de Bolaños area may only support farming and cattle by the river valley; however, in the surrounding areas, only sparse to moderately dense desert vegetation of bushes and shrubs cover the hill slopes. Within the mine area, is a transition zone that
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changes from the desert grasses in the lower elevations to evergreens, pines and oaks and other types of trees at higher elevations.
7.3 | Local Resources and Infrastructure |
The town of San Martín de Bolaños constitutes the commercial center for the population living in the region around the San Martín de Bolaños mining district. San Martín de Bolaños offers retail, medical (including General and Seguro Social hospitals), educational (including Jr. and High School), and communications facilities; however, major facilities, including International Airport, are located in the cities of Guadalajara, Zacatecas and Aguascalientes.
The municipality of San Martín de Bolaños holds 5,400 inhabitants according to INEGIs 2000 census data, in a range of 0-10 inhabitants per sq. km. The town includes approximately 3,000 people, with El Pilón probably being the largest employer. The town is connected to the national power grid (Comisión Federal de Electricidad - CFE), and it has standard telephone lines and satellite communications. Water for the town inhabitants consumption is pumped from wells.
Most of the people living in nearby villages or other small congregations within the area, and mostly along the Bolaños river valley, depend on small scale farming, raising livestock, and growing fruit.
The San Martín mine is also connected to the CFE power grid through a substation located at about 20 km to the north, at the Bolaños mine. Mine and plant are connected to the national power grid. Water source for the processing plant is the Bolaños River, a permanent flow. Mine and plant installations, including camp facilities, tailings storage and waste disposal areas required for the mining and milling operation of San Martín are located on land owned by El Pilón.
The infrastructure on site includes the support facilities for the operations, which are located near the plant and include the main administrative offices, warehouse, assay laboratory, tailings facilities, maintenance buildings, cafeteria and other employee housing. The Maintenance Department operates from the extensive shops and warehouses located at the plant site. Maintenance personnel are supplied for mine and plant requirements from this department. A large fleet of mobile equipment consisting of track type tractors (bulldozers), wheel loaders and road graders are available for feeding ore to the crushing circuit and site and road maintenance.
Power is supplied by the grid at 33 kva and 60 cycle. Two 1,000-volt transformers supply power to the plant. Diesel generators are located at the plant for emergency and stand-by power in case of power interruptions. Air compressors are located at the plant to supply low-pressure air to the leach tanks.
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8.0 |
HISTORY |
8.1 |
Property History |
The San Martín mining district is located in the southern portion of the Bolaños District, which consists of a geologic setting (graben) that includes, 20 km to the north of San Martín, the old Bolaños mine. Most of the historical mining production from the area was extracted since colonial times, from the Bolaños mine, which was developed by Kennecott, Cyprus and other operators, into a 1,500 tpd underground mining and processing operation in recent times (1980s). At the San Martín area, past mining developments included underground workings and partial discoveries of the Zuloaga, Blanca, Condesa, Cinco Señores, and Rosario veins, with some drifting at the Ballenas, Mancha, Plomosa, Melón and Hedionda among other smaller mine developments. Reportedly over 33.6 million ounces of silver have been extracted from about 4.3 million tonnes of silver ore of the Zuloaga and adjacent veins to September 30, 2008.
8.2 | Exploration Programs |
At San Martin, traditional exploration programs implemented have been based on direct development workings and complemented with limited drilling. This allows for mine preparation at the same time as the exploration advances along the mineralized structures. Topographic characteristics in the mine area do not permit easy drilling from surface access due to the veins strike and dip into the mountain range. However, in recent years, and particularly since the year 2002 when the prices of the precious metals have improved a more aggressive program has been carried out consisting of exploration based on diamond drilling, both from underground accesses and surface sites.
To date, September 30, 2008, drilling has totaled 570 diamond drill holes with a total depth of 61,132 meters, at an average depth per hole of about 107.3 meters. All of the drill core has been kept after logging and sampling.
FMSs staff prepares yearly reports of the San Martín mine silver ore reserves in order to keep accurate accounting records. These reports have been reviewed by PAH since 1996 to 2001, 2005, 2007, and in 2008. PAHs reviews the reserve estimates, including past audits as well as this last visit of November 2008, have concluded that these were prepared in a reasonable manner, and in conformance to acceptable engineering standards for reporting of reserves, and meet the standards for classification of reserves established by Canadian National Instrument 43-101, and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum. Table 8-1 shows San Martín reserve history.
For 2007 and 2008, an aggressive program of exploration based on direct underground exploration/development and diamond drilling at an estimated cost of about $5,000,000 were executed. This program is an on-going effort, and included approximately 19,600 meters of diamond drilling, and 3,900 meters of crosscuts and drifts. As a consequence, the results are advancing resources to reserves and opening other areas for further exploration and development, such as the Cymoid zone of the
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Zuloaga vein at the La Escondida mine Level 5900, at the Ballenas mine Level 5550, at the La Blanca vein Stope 5735 and at the San Pablo Stope 5920, where sampling and development works have shown high grade silver mineralization. FMSs geological staff at the San Martin includes 8 active and experienced geologists and other company geologists active throughout FMSs other operations within Mexico with full support from Management, to carry out and supervise the exploration efforts in addition to 19 samplers and contractors for field work.
TABLE 8-1 |
First Majestic Silver Corp. |
Minera El Pilón, S.A de C.V. |
San Martín Silver Mine |
Proven and Probable Reserves |
Year
|
Silver Ore |
Average Grade
Rec. Silver/MT |
Metric Tonnes | ||
1994 | 790,889 | 396 |
1995 | 1,020,044 | 361 |
1996 | 1,271,495 | 355 |
1997 | 1,421,578 | 358 |
1998 | 1,322,437 | 336 |
1999 | 811,695 | 346 |
2000 | 1,350,615 | 343 |
2001 | 634,555 | 421 |
2002 | 614,419 | 384 |
2003 | 397,403 | 305 |
2004 | 676,000 | 273 |
2005 | 619,480 | 277 |
2006 | 414,879 | 302 |
2007 | 492,022 | 314 |
2008 | 770,464 | 274 |
(*) Minera El Pilón data.
8.3 | San Martín Silver Production |
In 1981, Mr. Héctor Dávila Santos purchased the San Martín property, developed the mine, constructed the process plant, and then began production in 1983. In 1997 First Silver Reserve, Inc. (FSR) by way of reverse takeover, acquired all the shares of the Mexican company Minera El Pilón, S.A. de C.V., owner and operator of the San Martín Silver Mine. In April 2006 First Majestic Resource Corp. entered into an irrevocable share purchase agreement to acquire majority shares of First Silver Reserve Inc. FMS took control of FSR and the San Martin mine in June 2006 and subsequently a business combination was arranged and approved on September 14, 2006. Upon acquisition of First Silver Reserve Inc. by First Majestic Resource Corp. the name was changed to First Majestic Silver Corp. To September 30, 2008, El Pilón has recorded a production of 33.6 million ounces of silver from 4.3 million tonnes of ore. Table 8-2 presents the San Martín mines historical silver production
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TABLE 8-2 |
First Majestic Silver Corp. |
Minera El Pilon, S.A. de C.V. |
San Martín Silver Mine |
Historical Silver Production |
Year |
Silver Ore |
Silver Ounces Sold |
Average Grade
Rec. Silver oz/Tonne |
Metric
Tonnes |
|||
1984 | 110,468 | 566,726 | 5.13 |
1985 | 104,707 | 517,265 | 4.94 |
1986 | 108,837 | 579,022 | 5.32 |
1987 | 106,958 | 412,844 | 3.86 |
1988 | 105,419 | 244,554 | 2.32 |
1989 | 88,987 | 206,304 | 2.32 |
1990 | 99,947 | 484,704 | 4.85 |
1991 | 89,816 | 669,121 | 7.45 |
1992 | 72,105 | 563,868 | 7.82 |
1993 | 71,777 | 548,337 | 7.64 |
1994 | 77,313 | 812,650 | 10.51 |
1995 | 135,690 | 1,684,508 | 12.41 |
1996 | 171,099 | 2,148,719 | 12.56 |
1997 | 206,770 | 2,258,759 | 10.92 |
1998 | 257,924 | 2,337,123 | 9.06 |
1999 | 273,791 | 2,288,608 | 8.36 |
2000 | 262,768 | 2,315,143 | 8.81 |
2001 | 260,660 | 2,393,186 | 9.18 |
2002 | 258,219 | 2,399,494 | 9.29 |
2003 | 234,539 | 2,291,955 | 9.77 |
2004 | 266,592 | 2,312,745 | 8.68 |
2005 | 249,239 | 1,957,645 | 7.85 |
2006 | 261,834 | 1,688,564 | 6.45 |
2007 | 239,796 | 1,129,220 | 5.50 |
2008 (1) | 184,440 | 796,525 | 4.30 |
TOTAL | 4,299,695 | 33,607,559 | 7.82 |
(1) January - September 30, 2008
(*) From 2004 Silver ounces
equivalent, including gold.
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9.0 | GEOLOGICAL SETTING |
This section describes the geology for the San Martín mine and is based on reports provided by El Pilón, previous Technical Reports and observations made during site visits. A discussion of the regional and deposit geology has been previously published in a report entitled Geology, Tectonic Environment and Structural Controls in the San Martín de Bolaños District, Jalisco, Mexico by F. R. Scheubel, et. al., published in Economic Geology, Vol. 83, 1988, p. 1703-1720.
On the first Technical Report for the San Martín Silver Mine, State of Jalisco, México prepared by PAH for First Silver Reserve Inc., dated June 23, 2005 as project PAH-9161.01, which was published on the SEDAR web site in July 5, 2005 and also, on the SM 43-101 made for FMS by PAH on March 06, 2007 and Amended on July 24, 2007 contain descriptions of the San Martín mine Geological Setting, including District Regional Geology, Bolaños Regional Stratigraphy, Bolaños Regional Structure, and the San Martín deposit Geology, which have not changed since publication of the Technical Report; therefore, PAH does not consider it necessary to repeat these sections. Figure 9-1 shows the Regional Geological Map.
9.1 | Bolaños Mining District Regional Geology |
Please refer to Technical Report Amended July 24, 2007, published in SEDAR on July 25, 2007.
9.2 | Bolaños Regional Stratigraphy |
Please refer to Technical Report Amended July 24, 2007, published in SEDAR on July 25, 2007.
9.3 | Bolaños Regional Structure |
Please refer to Technical Report Amended July 24, 2007, published in SEDAR on July 25, 2007.
9.4 | San Martín Deposit Geology |
Please refer to Technical Report Amended July 24, 2007, published in SEDAR on July 25, 2007.
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10.0 | DEPOSIT TYPES |
For a more detailed description of this Reports section please refer to Technical Reports dated June 23, 2005, published in SEDAR on July 5, 2005 and July 24, 2007, published in SEDAR on July 25, 2007.
Most of the ore extracted from San Martíns Zuloaga vein includes oxidized mineralization with native silver, secondary acanthite and chlorargyrite; however, at the deepest levels, such as San Juan and San Carlos, some primary sulfides occur associated within the transition zone, such as galena, sphalerite and pyrite. No typical mineral zoning has been defined at the San Martín mine due to the structural complexity of the area. Gold is present in minor amounts in the upper parts of the mine and shows poor correlation with silver, with typical ratios that range from 1:300 to 1:800, averaging about 1:600. Figure 10-1 shows the Deposit Types.
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11.0 | MINERALIZATION |
Mineralization at the San Martín mining area is exposed in three main structural systems that include sup-parallel veins and faults. Mineralization at San Martín is enclosed by the rhyolites of the formation Zuloaga, with projected base to the top of the andesites of the Guásima formation; meanwhile, the high grade concentrations of silver mineralization encountered at the San Martin mine is capped by the base of the Guásima formation. This may indicate that there is a high possibility to uncover important mineral concentrations under the Guásima formation at San Martín.
Descriptions of the San Martín mineralized structures are taken from the Technical Report for the San Martín de Bolaños Silver Mine, State of Jalisco, México was prepared by PAH for First Silver Reserve Inc., dated June 23, 2005 as project PAH-9161.01 and published in the SEDAR site in July 5, 2005 and Technical Report for the San Martín Silver Mine, State of Jalisco, México Amended prepared by PAH for First Majestic Silver Corp. dated July 24, 2007 and published in SEDAR on July 25, 2007.
11.1 | Zuloaga System (EW) |
The Zuloaga system includes the La Huichola, La Mancha and El Melón veins. These mineralized structures are oriented mostly EW (from N60ºE to EW), although the La Mancha tends to joint the Zuloaga vein at their western extension. These mineralized structures present recognized outcroppings of 2.5 to 4.0 km, excepting the El Melón which only appears to be mineralized in the faults NE extension (500 m). Some blind veins may be associated to these structures, as is the case of the La Blanca vein which splits off the Zuloagas hangingwall in underground workings, and the parallel vein to hangingwall off Zuloaga at the Rebaje 40 Oriente. This system is the most important in San Martín due to its development along the Zuloaga vein, and it offers important future potential for exploration in the other veins within the system, as well as to depth. Geological reinterpretations of some the Zuloaga vein areas have resulted in identification of the Cymoid zone, which occurs vertically along the Zuloaga vein from the mine Levels of San Juan at 1,400 masl to above the San José Level, with extension along strike from the 5450 E to the 5700 E sections.
11.2 | Rosario Condesa System (NS) |
This system consists of NS-trending faults and mineralized structures. It has been partially developed along the Rosario, Condesa and Hedionda veins. Mineralization generally occurs in these structures for about 1,000 m, although the fault zones extend to over 4,000 m in the Rosario-Condesa vein (the SE extension of the structure where the two veins form one structure). Other semi parallel structures within this system include Plomosa and a series of faults in the central and eastern parts of the mine area.
Some other NS blind veins have been uncovered in the Zuloaga underground workings, such as the vein at Sección 6195 at San Carlos level, and the vein at Crucero 6231 also at the San Carlos level. These NS structures appear to be narrow veins with high-grade silver mineralization. Some of the most important faults within the mining district are oriented NS.
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11.3 | Plomosa System (NW) |
The Plomosa system consists of NW-trending fault zones and veins. Generally this system shows lower intensity of mineralization with only partial exposure in the Plomosa structure. The SE extension of the Rosario-Condesa occurs parallel to this system, as well as numerous unnamed faults located in the north zone of the mine area.
The surface geologic map appears to indicate a structural window at the San Martín mining area, by showing older rocks of the Toba Alacrán as being pushed up by the Porphyry Rhyolite stock. Strong fracturing, alteration and disseminated mineralization are associated with the Porphyry Rhyolitic stock that occurs in the central portion of the San Martín mining area. This stock has also been identified in the underground workings, by the Section 6405 in the San Carlos level, where it occurs as a mineralized breccia with disseminated sulfides, pyrite, galena and sphalerite, as well as strong propylitic alteration. NS vein structures associated to this stock have shown high grade silver mineralization (350 to 400 grams) in considerable vein widths or brecciated zones. This area is known at the mine as Plutonic Breccia.
Silver occurs in the veins primarily as argentite and was deposited after the base metals. Native silver and possibly chlorargyrite occurs below the surface outcrops and in the upper workings, a product of surficial oxidation of the sulfide mineralization. Gold is only present in minor amounts and shows no correlation with silver, suggesting different mineralizing events. Silver to gold ratios typically range from 300:1 to 800:1 and average about 650:1 for recent production.
Alteration consists predominantly of limited silicification around and next to the veins, with argillic or kaolinization alteration in the surrounding area and a propyllitic halo that extends up to 400 meters from the mineralized zones (Scheubel and others, 1988). X-ray and petrographic investigations (Albison, 2002) concluded that the propyllitic alteration is composed of chlorite-epidote-adularia-calcite with an increase in iron-rich chlorite to the west and depth. It was also concluded that the argillic alteration along vein segments containing high-grade mineralization is dominated by Illite-smectite, and to a lesser degree, kaolinite clays.
El Pilón has commissioned several fluid inclusion studies that show a typical epithermal range of temperatures for the ore formation, from 200ºC to 300ºC, with 1-10 weight percent NaCl equivalent.
Table 11-1 presents a summary of the known extent of the various veins and faults in the San Martín mine area.
Pincock, Allen & Holt | REVISED | 11.2 |
90535 February 26, 2009 |
TABLE 11-1 |
First Majestic Silver Corp. |
Minera El Pilon, S.A. de C.V. |
San Martín Silver Mine |
General Veins and Faults Systems |
System | Veins and Faults | Estimated Extension |
Zuloaga
(EW) |
Zuloaga (*)
La Mancha El Melón (Three veins) La Huichola La Blanca (Blind vein) Cymoid Zone Other Blind veins |
3,500 m; w-0.1 to 10.0 m; depth-+400 m
4,000 m (500 m) 3,000 m; w-1.-0 to 2.0 m each. 2,500 m Unknown From 5450 E to 5700 E and San Juan to San José Mine Levels. Unknown |
Rosario Condesa
(NS) |
Condesa
Rosario Hedionda Two Faults in central zone (South of Zuloaga) NS vein off Zuloaga (Blind vein) Rebaje 40 Oriente NS Rebaje 6231 San Carlos (Blind vein) Section 6195 San Carlos (Blind vein) Faults to the East of mine area East limiting faults |
1,000 m; w-1.5 to 2.0 m
1,000 m; w 1.5 to 2.0 m 1,000 m; w 1.0 to 2.0 m 1,000 m each Unknown Unknown Unknown 1,000 to 2,000 m 5,000 to 7,000 m |
Plomosa
(NW) |
Plomosa
Rosario-Condesa North and East zones of mine area |
(1,000 m) 2,000 m; w 1.0 to 2.0 m
3,000 m; w 1.5 to 2.0 m 1,000 to 2,000 m |
(*) The Zuloaga vein has been developed to a depth of approximately 400 meter and it remains open to depth and along strike. All other known veins are undeveloped to depth and strike.
Pincock, Allen & Holt | REVISED | 11.3 |
90535 February 26, 2009 |
12.0 | EXPLORATION |
Nearly 70 million ounces of silver have been recorded as being extracted from the Bolaños Mining District until 2008. To the mid 1980s, most of the mining activities within the district took place at the Bolaños mine 20 km away and has not operated since 1998. Partial and limited mining works were developed at the San Martín mine, and the majority of its silver ore has been extracted from the Zuloaga vein. Numerous other veins occur within the San Martín area, which appear to represent similar structural and mineral characteristics as those of the Zuloaga vein.
The San Martín exploration targets were described in Technical Report of July 24, 2007 that was published in SEDAR on July 25, 2007 on behalf of First Majestic Silver Corp. New geologic interpretation of the Zuloaga vein sections have resulted in the Cymoid zone with additional potential. Other sections of the mine remain the same as of 2008 and are copied below.
Exploration potential for finding and developing new resources/reserves in the San Martín district appears to be promising. Ore bodies in the mine are typically indicated at depth beneath zones of alteration on the surface expression of the Zuloaga Vein. Surface alteration zones have been correlated to indicate ore concentrations in the present mine workings.
X-ray and petrographic studies (Albinson, 2002) developed on alteration zones associated with the mineralization, have identified, and confirm, the geologic evidences for interpretation of mineral concentrations along the veins. Propylitic alteration with argillaceous, kaolinitic and limited silicification appears to indicate high-grade concentrations, as evidenced by a probable correlation with the deposits temperature of deposition; however, consideration must be made regarding the effects that the local structural conditions may have imposed on the original mineral deposit. It is evident that the structural conditions at Zuloaga have caused deep oxidation and originated the concentrations of native silver and oxides accessible to the actual underground workings. It appears that at some deeper parts of the mine, such as at the San Carlos level, the transition zone of oxides/sulfides may have been reached, but this stratigraphic level may vary according to local structural conditions.
An aggressive exploration programs based on economics, direct exploration development and diamond drilling by in-house operators and with contractors for deep drilling has been underway during the period this report covers. During the period from February 1 st , 2007 to September 30 th , 2008 127 drill holes with a total depth of 19,619 meters including underground and surface drilling has been completed. For the year 2009, a program consisting of drilling 26 holes from surface with a depth of 6,900 meters in addition to 67 drill holes from underground with a projected depth of 6,500 meters are planned. The exploration program includes investigation of the Rosario vein, deeper zones into the Gúasima Formation, vetas Condesa and Plomosa, and the La Mancha vein from surface, and upper parts of the Escondida area and deeper zones of the Zuloaga vein from underground access. Due to market conditions at the time of this report, FMS has delayed the 2009 exploration program until conditions change.
Pincock, Allen & Holt | REVISED | 12.1 |
90535 February 26, 2009 |
Direct exploration development is integrated into the mine preparation programs and in vein deposits which has proven to be the most effective method of exploration. For the year 2007, the program of underground development completed about 136 meters for exploration and drill site access preparation, while the 2008 program included 3,770 meters.
The drilling program is based on underground drilling with FMSs own equipment, which includes a Diamec 232 electric drilling machine, a Longyear 38, Longyear 44, Onram 1000, CS-1000, LF-70 and a CP 65. This equipment is utilized for drilling shallow to medium depths, while the contracted equipment is only used for deep and surface drilling.
The drilling program is focused in developing accessible resources along the Zuloaga vein in the Cymoid zone in the Ballenas, Cangrejos and San José mine levels. These 93 drill holes planned are directed to investigate areas of resources with the objective to increase reserves, and if it is successful, the program should result in additional reserves for the mine, according to FMSs Geology Department projections. Figure 12-1 shows a long term exploration program along the Zuloaga vein.
Target zones that may result in considerable bulk mineral concentrations are numerous in San Martín, and care must be taken to prioritize the exploration objectives. Some of these zones remain to be investigated from previous programs and are the following:
Resource blocks Nos. 1, 2, 3 and 4 of the Zuloaga vein appear to represent the most significant potential to hold oxides mineralization in the Zuloaga vein. Access to these blocks is difficult due to topographic and underground conditions. Development was initiated along the Pinolea Mine Level; however, more than 800 m of drifting and additional development by raises are required to reach these blocks by underground development.
The Cymoid zone represents additional oxides mineralization and is under exploration drilling and development for extraction along the Zuloaga vein. It holds in parts some filling materials with low grade, which may be recuperated.
Area under the Guásima formation. This stratigraphic area has resulted in large, high-grade mineral concentrations at the nearby Bolaños mine. San Martín and Bolaños mines are located in the same mining district. The exploration blocks 9 to 13 of the Zuloaga vein include deep drilling for this area. This area; however, appears to hold potential for sulfides, which have been placed on hold due to currently low metals prices.
Los Bancos area. Several mineral structures may be intersecting at this zone, such as Zuloaga, La Mancha, Rosario, Condesa and Hedionda. Exploration Block III Los Bancos 7500 includes drilling for this area.
Breccia zone. This area represented by the Porphyry Rhyolite stock in the central portion of the mine area, and localized at the San Carlos level, may indicate one of the mineralizing channels and
Pincock, Allen & Holt | REVISED | 12.2 |
90535 February 26, 2009 |
Other veins of the Zuloaga system may present mineral occurrences similar to the Zuloaga vein concentrations, such as the La Mancha and La Huichola veins.
The Rosario-Condesa access and haulage adit is being driven alongside the Rosario-Condesa fault, allowing an excellent opportunity for exploration along this zone; it has advanced to reach the Zuloaga Ballenas level; however, a caved in zone (approximately 150 meters) has not allowed access to this communication.
The La Blanca Vein is a near-vertical split off of the Zuloaga Vein that cuts upward through the Zuloaga hanging wall. The La Blanca Vein is typically irregular and narrow, but were mineralized has higher silver and zinc grades. Sulfides occur as dissemination and clots in the breccia matrix, and locally as massive sulfide lenses. Sulfides consist of galena and sphalerite, with lesser pyrite. Calcite is the predominant gangue mineral.
Two additional veins, the Condesa and Rosario, occur to the southwest and have northwest trends. No production has come from these veins in recent years. The Condesa mine is located on the south side of the Las Peñitas arroyo at an elevation of 1,450 meters. Access is obtained from the town of San Martín via an 11.4 -kilometer gravel road. The Condesa structure strikes N 40° W and dips 81° SW. The Condesa workings show mineralization over 150 meters along strike, with mineralization ranging from 1.5 to 2.0 meters in width and occurring in a quartz-cemented andesitic breccia. The Rosario mine is located within the Santa Rosa arroyo at an elevation of 1,600 meters. The Rosario mine is 11.7 kilometers from the town of San Martín on the same gravel road leading to the Condesa mine. Documented production figures for the Condesa mine, as well as the others in the area, are either not available or incomplete. These vein trends intersect the Zuloaga Vein in an area below mineralized surface outcrops of the vein and represent an encouraging exploration target.
Pincock, Allen & Holt | REVISED | 12.4 |
90535 February 26, 2009 |
13.0 | DRILLING |
The San Martin drill program for the dates from January 1, 2007 to September 30, 2008 included 127 drill holes with a total depth of 19,619 meters of core, in addition to about 3,906 meters of underground development for drill sites and access preparations. Estimated cost for this program was $4.9 million. Tables 13-1 and 13-2 show 2007 and 2008 exploration programs.
TABLE 13-1 |
First Majestic Silver Corp. |
Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Drilling Program Completed in 2007 |
TABLE 13- 2 |
First Majestic Silver Corp. |
Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Density Determinations, 2008 |
2008 |
Minera El Pilon
Equipment
|
Contractor | Total | ||||||||
Perfomin | Causa | Tecmin | meters | ||||||||
Drilling Equipment | Month | ||||||||||
Diamec-232 | CP-65 | LY-38 | LY-44 | Onram 1000 | CS-1000 | LF-70 | LY-44 | Onram 1000 | |||
January | 40.80 | 84.40 | 160.50 | 72.70 | - | - | - | - | - | 358.40 | |
February | 80.20 | 46.75 | 156.10 | 0.00 | - | - | - | - | - | 283.05 | |
March | 74.95 | 38.25 | 183.20 | 127.90 | 136.85 | 51.30 | - | - | - | 612.45 | |
April | 163.10 | 50.95 | 313.10 | 354.00 | 315.00 | 247.65 | - | 96.60 | - | 1,540.40 | |
May | 61.60 | 38.00 | 176.10 | 254.10 | 320.60 | 410.85 | 432.75 | 615.85 | 830.05 | 3,139.90 | |
June | 102.25 | 79.35 | 177.00 | 193.50 | 252.30 | 326.70 | 628.95 | 355.00 | 743.30 | 2,858.35 | |
July | 118.45 | 127.60 | 83.50 | 331.85 | 178.90 | 390.05 | 150.45 | 288.45 | 247.40 | 1,916.65 | |
August | 38.70 | 131.65 | 92.00 | 253.30 | 289.47 | 33.50 | 317.85 | 627.00 | 453.35 | 2,236.82 | |
September | 123.15 | 47.75 | 63.80 | 58.60 | 27.56 | 104.30 | 361.45 | 436.75 | 488.15 | 1,711.51 | |
October | 100.80 | 56.70 | 0.00 | - | - | - | - | 453.35 | 451.00 | 1,061.85 | |
November | 0.00 | ||||||||||
December | 0.00 | ||||||||||
Total | 15,719.38 | ||||||||||
Minera El Pilon Equipment | Contractor | Pilon & Contractor | |||||||||
Perfomin | Causa | Tecmin | |||||||||
Diamec-232 | CP-65 | LY-38 | LY-44 | Onram 1000 | CS-1000 | LF-70 | LY-44 | Onram 1000 | El Pilon | Contractor | |
Total | 904.00 | 701.40 | 1,405.30 | 1,645.95 | 1,520.68 | 1,564.35 | 1,891.45 | 2,873.00 | 3,213.25 | 3,010.70 | 3,166.63 |
Even though exploration activities at San Martin are on hold due to the present market environment, a program consisting of 93 drill holes for the year 2009, including 67 core holes from underground workings and 26 ore holes to be drilled from surface to investigate deep targets is planned. Total
Pincock, Allen & Holt | REVISED | 13.1 |
90535 February 26, 2009 |
estimated cost for the exploration program is about $2.50 million. If this program is successful in proving economic mineralization within the target areas, it may result in additional resources for the mine.
Underground drilling at San Martín is carried out with Company owned equipment. This includes electric powered drilling machines for underground operations, such as a Diamec 232, a CP 55, and a LY 38. Long Year 38 and 44 are utilized to core drill from surface access. Deep drilling is normally assigned to independent contractors.
Core drilling is incorporated in the regular mining operations to test the vertical vein projections and both walls for mine planning as well as for geologic investigations. FMSs Geology staff reports core recoveries of about 90 percent with exceptions in brecciated rock where it may drop to 50 percent. Core diameter used at San Martín is generally BQ (36 mm) for underground drill holes and NQ diameter for surface drilling. The core is logged by the Geology staff and sampled, including all the core.
Most of the exploration activity at San Martín was based on direct underground development, particularly during the earlier stages of the operation. In recent years this has been complemented with diamond drilling. The total length of the underground development has not been estimated; however, drifting along the Zuloaga vein as shown on the longitudinal section may add to more than 50 to 70 kilometers, including crosscuts, interconnecting ramps and stopes areas. All this work adds up to a recorded production of 33.6 million ounces of silver to September 30, 2008.
Pincock, Allen & Holt | REVISED | 13.2 |
90535 February 26, 2009 |
14.0 | SAMPLING METHOD AND APPROACH |
PAH reviewed, with more detail, San Martins sampling program for the preparation of a Technical Report of April 2001, in May 2005 and again in November 2008. San Martins current sampling team consists of four sampling crews with three employees each. Channel samples are taken with chisel and hammer, collected in a canvas tarp and deposited in numbered bags for transportation to the laboratory. Core samples are taken at the camp facilities after the core logging has been completed.
Exploration sampling for reserve delineation in the San Martín mine is conducted by drifting along the mineralized zone so that channel samples can be taken and diamond drilling can be conducted. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structure, across the back of the drift. Sampling crews take channel samples at irregular intervals, typically with one sample every 2 to 3.5 meters along new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles.
Channel samples consist of shallow chips broken off the back of the drift. A channel line typically consists of two or more individual samples taken to reflect changes in geology and/or mineralogy across the structural zone. Each sample weighs approximately 4 kilograms. Locally, the drift is completely enclosed by the structural zone, and the full thickness of the vein is not sampled.
Core drilling is conducted locally to test the upward and downward projections of the structural zone at a distance from the drifts. Core samples are BQ size, 36 millimeters in diameter, and holes are reportedly of generally good recovery (90 percent), with the remaining bad ground having modest recovery (50 to 60 percent). Drill hole data are locally included in the reserve calculations, but given the relatively small size of the core sample, it is applied with conservatism. Drilling results are applied in the grade calculations giving more weight to the larger-size channel sample data.
Pincock, Allen & Holt | REVISED | 14.1 |
90535 February 26, 2009 |
15.0 |
SAN MARTIN SAMPLE PREPARATION, ANALYSIS AND SECURITY |
15.1 |
Sample Preparation |
Channel, exploration, mine development and production, and plant samples are sent to San Martins on-site laboratory for chemical analysis of silver and gold. In more recent years additional analyses by atomic absorption for lead and zinc in geology samples have become routine. A typical channel sample received by the laboratory, weighing approximately 4 kilograms, is passed through a jaw crusher to reduce it to a 1.3 -centimeter (1/2) size. A 500-gram split is taken and passed through a gyratory crusher to reduce it to a 10-mesh (1/8) size. A 200 to 300 gram split is taken and placed in a drying oven at 150°C. After drying, the material is put into two pulverizers, one disk pulverizer and one ring pulverizer, to control the metallic minerals, and to ground the rock to minus 100 mesh. The resulting pulp is homogenized and 10 grams taken for fire assay analysis of silver and gold for geology samples and concentrates; 20 grams for head samples and 1 gram for precipitate samples.
The 10-gram pulps are placed in fusion crucibles and placed into a diesel-fired furnace for fusion into a lead button. PAH notes that the diesel furnace does not have any temperature control and as a result temperatures fluctuate. The lead buttons are placed in cupellation cupels and placed into an electric furnace for cupellation into a silver-gold bead. The bead is weighed and then put into nitric acid to dissolve away the silver and then the remaining gold bead is weighed again. The final gold bead weight is the gold content, while the difference in weight is the silver content for the samples. The microbalance used has a sensitivity of + 1 milligram (equivalent to an actual grade of + 1 gram per tonne), while the gold beads commonly range in weight from 100 milligrams down to less than 1 milligram. As a result, the determination of the smaller bead weight is at or below the detection limits of the microbalance.
15.2 | Laboratory Facilities |
PAH notes that the laboratory facilities have been upgraded during 2007 and 2008 and are adequate, with reasonable cleaning and organization. The laboratory currently conducts about 200 to 250 assays per day, including exploration samples, development samples, and mill samples. Laboratory personnel include two sample prep operators, one person in the refinery, two weighing samples and reporting results and one Chief Chemist/AA operator.
The on-site laboratory has an electric muffle furnace and an electric cupelling furnace for fire assaying. Solution samples are analyzed with a Perkins Elmer 2380 Atomic Absorption unit. Mine samples are periodically sent to an outside laboratory, usually Chemex and more recently splits of the same samples are also sent to two other Peñoles labs for check assays. No plant samples are sent to outside laboratories. All plant feed and tailings assays are run as triplicate samples and the average value is reported unless the silver values vary by more than 20 g/t. Then the triplicate samples are repeated. Six replicates of Gravity Concentrate are assayed and the average value is reported unless the silver varies by more than 300 g/t. Then, the six replicate samples are repeated. Doré is drilled and six replicates are
Pincock, Allen & Holt | REVISED | 15.1 |
90535 February 26, 2009 |
assayed and the average value reported unless the assay varies by more than 400 g/t. All geological samples are run as triplicates and the samples repeated if the assay exceeds 300 g/t.
15.3 | Check Assaying |
To evaluate sample quality control, San Martin performs periodic check analyses on samples. Since 2004, samples have been sent each month, from about 10 to 30 samples to Chemex Laboratories, to SGS Laboratory, to Met Mex Peñoles laboratory, and to Laboratorio Industrial Metalúrgica Herrera, for duplicate samples and duplicate pulp samples analysis.
PAH has reviewed assays of duplicated samples from 2007 and 2008 as indicated in Table 15-1. The samples were sent to SGS Lab and included a range of silver grades from 3 to 3,870 g/tonne. The results show that of 54 duplicated samples, the average silver grade at SGS (207 g/tonne) is higher by about 60 percent than at the San Martin laboratory (127 g/t), while the average lead grade resulted in 0.16 percent at SGS and 0.18 percent at the San Martin lab. The samples were also assayed for zinc, resulting in an average grade of 0.23 percent for SGS and 0.22 percent for the San Martin laboratory. The silver assay results present a very close correlation at 92 percent, except for a high grade sample that assayed 3,870 g/tonne at SGS and 1,575 g/tonne at San Martin.
Duplicate pulp samples were also checked by CHEMEX Lab in comparison to the San Martin lab. This check included 53 duplicated samples, which resulted in close correlation for silver at an average of 486 g/tonne for CHEMEX and 485 g/tonne for San Martin. Copper, Lead and zinc check resulted in a correlation of 88 percent, 96 percent and 93 percent respectively, while the gold assays show a poor correlation in pulp duplicate assays due probably to erratic distribution within the ore.
The sample assays obtained at the San Martin laboratory appear conservative. The San Martin laboratory assays are used as a basis for mine reconciliation and production recovery estimates, therefore, these would reflect conservative estimates as well.
In PAH opinion the assay check procedure appears to be adequate and it should be continued as established by comparing duplicate and pulp samples between ALS Chemex and SGS Labs and those obtained at San Martin laboratory.
Table 15-1 shows the assay results and statistics of 54 samples duplicated at SGS Lab and at San Martin laboratories. These samples were assayed between January 2007 and September 2008. Figure 15-1 shows graphic correlation of assay results for duplicate samples. Table 15-2 shows the assay results and statistics of 53 sample pulps duplicated at CHEMEX Lab and at San Martin laboratories. These samples were assayed between January 2007 and September 2008. Figure 15-2 shows graphic correlation of assay results for duplicated sample pulps.
The samples mineral content range includes assays that vary from 3 to 3,870 g/t Ag. Average correlation of the results is 92 percent for the duplicate samples silver assays within a broad range, while the pulp duplicates show results close to 100 percent. High discrepancies occur in the gold assays. PAH reviewed
Pincock, Allen & Holt | REVISED | 15.2 |
90535 February 26, 2009 |
TABLE 15-1 |
First Majestic Silver Corp. |
Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Duplicate Samples, 2008 |
Sample No. |
Laboratory | |||||
SGS | EL PILON | SGS | EL PILON | SGS | EL PILON | |
Ag g/tonne | Pb % | Zn % | ||||
119 | 190 | 161 | 0.032 | 0.198 | 0.042 | 0.056 |
122 | 675 | 655 | 0.403 | 0.642 | 0.417 | 0.522 |
124 | 43 | 68 | 0.085 | 0.113 | 0.049 | 0.084 |
125 | 107 | 106 | 0.046 | 0.408 | 0.050 | 0.155 |
126 | 39 | 49 | 0.029 | 1.188 | 0.048 | 0.123 |
127 | 137 | 73 | 0.030 | 0.143 | 0.057 | 0.112 |
129 | 72 | 71 | 0.079 | 0.326 | 0.245 | 0.410 |
130 | 113 | 72 | 0.066 | 0.145 | 0.215 | 0.240 |
131 | 111 | 80 | 0.059 | 0.228 | 0.074 | 0.110 |
133 | 36 | 30 | 0.042 | 0.106 | 0.054 | 0.090 |
134 | 98 | 103 | 0.063 | 0.206 | 0.065 | 0.130 |
1161 | 77 | 8 | 1.000 | 0.052 | 1.000 | 0.001 |
1238 | 77 | 3 | 0.933 | 0.473 | 1.000 | 0.700 |
1239 | 43 | 9 | 0.366 | 0.126 | 0.891 | 0.329 |
1240 | 88 | 7 | 1.000 | 0.304 | 0.779 | 0.083 |
1314 | 229 | 160 | 0.188 | 0.287 | 0.195 | 0.200 |
1315 | 48 | 10 | 0.031 | 0.119 | 0.054 | 0.092 |
1317 | 35 | 7 | 0.033 | 0.074 | 0.064 | 0.143 |
1400 | 337 | 170 | 0.278 | 0.177 | 0.327 | 0.052 |
1401 | 181 | 268 | 0.181 | 0.230 | 0.184 | 0.041 |
1413 | 168 | 160 | 0.125 | 0.194 | 0.153 | 0.049 |
1414 | 47 | 9 | 0.154 | 0.213 | 0.205 | 0.023 |
4287 | 116 | 9 | 0.052 | 0.064 | 0.021 | 0.217 |
4288 | 68 | 71 | 0.026 | 0.001 | 0.081 | 0.089 |
4289 | 263 | 150 | 0.032 | 0.030 | 0.083 | 0.150 |
4290 | 93 | 40 | 0.020 | 0.035 | 0.124 | 0.283 |
4291 | 114 | 79 | 0.035 | 0.011 | 0.039 | 0.062 |
4327 | 1,470 | 1,363 | 0.151 | 0.334 | 0.680 | 1.050 |
4328 | 3,870 | 1,575 | 0.820 | 1.000 | 1.000 | 1.363 |
4336 | 44 | 47 | 0.047 | 0.074 | 0.063 | 0.001 |
4348 | 367 | 115 | 0.113 | 0.029 | 0.135 | 0.001 |
4349 | 81 | 116 | 0.022 | 0.024 | 0.051 | 0.001 |
4352 | 38 | 42 | 0.030 | 0.001 | 0.042 | 0.001 |
4365 | 187 | 7 | 0.001 | 0.040 | 0.000 | 0.069 |
4445 | 70 | 37 | 0.018 | 0.017 | 0.028 | 0.081 |
4457 | 73 | 49 | 0.044 | 0.003 | 0.111 | 0.137 |
4458 | 60 | 52 | 0.015 | 0.001 | 0.058 | 0.103 |
4463 | 37 | 10 | 0.130 | 0.086 | 0.105 | 0.166 |
4472 | 64 | 10 | 0.043 | 0.001 | 0.065 | 0.100 |
4474 | 58 | 10 | 0.046 | 0.008 | 0.137 | 0.095 |
4475 | 65 | 91 | 0.078 | 0.033 | 0.053 | 0.107 |
4476 | 102 | 107 | 0.034 | 0.015 | 0.043 | 0.076 |
4477 | 47 | 44 | 0.024 | 0.084 | 0.067 | 0.148 |
4478 | 161 | 137 | 0.044 | 0.044 | 0.137 | 0.177 |
4498 | 53 | 13 | 0.055 | 0.041 | 0.086 | 0.100 |
4500 | 54 | 11 | 1.000 | 1.280 | 1.000 | 2.444 |
5040 | 63 | 57 | 0.042 | 0.040 | 0.024 | 0.070 |
5162 | 50 | 29 | 0.189 | 0.108 | 0.274 | 0.213 |
5163 | 97 | 86 | 0.086 | 0.096 | 0.326 | 0.071 |
5164 | 38 | 10 | 0.114 | 0.018 | 0.363 | 0.073 |
5177 | 77 | 20 | 0.084 | 0.060 | 0.318 | 0.274 |
5178 | 140 | 59 | 0.159 | 0.080 | 0.217 | 0.187 |
5179 | 39 | 21 | 0.082 | 0.069 | 0.252 | 0.221 |
5183 | 185 | 110 | 0.034 | 0.059 | 0.133 | 0.215 |
Pincock, Allen & Holt | REVISED | 15.3 |
90535 February 26, 2009 |
TABLE 15-2 |
First Majestic Silver Corp. |
Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Duplicate Pulp Samples, 2008 |
Sample Description |
LABORATORY | |||||||||
CHEMEX | El PILON | CHEMEX | El PILON | CHEMEX | El PILON | CHEMEX | El PILON | CHEMEX | El PILON | |
Au g/tonne | Au g/tonne | Ag g/tonne | Ag g/tonne | Cu % | Cu % | Pb % | Pb% | Zn % | Zn % | |
Z-474 17.20-17.80 | 0.05 | 16 | 33 | 0.01 | 0.00 | 0.01 | 0.01 | 0.02 | 0.01 | |
Z-469 187.55-188.25 | 0.05 | 7 | 15 | 0.01 | 0.00 | 0.03 | 0.12 | 0.05 | 0.05 | |
FTE. E 0.0-0.7 | 0.17 | 134 | 147 | 0.02 | 0.00 | 0.64 | 0.38 | 0.97 | 0.48 | |
Z-472 9.00-9.35 | 0.07 | 34 | 11 | 0.01 | 0.00 | 0.29 | 3.10 | 0.84 | 0.15 | |
CONDEZA | 0.43 | 800 | 805 | 0.03 | 0.00 | 0.25 | 0.30 | 0.57 | 0.72 | |
R-6409 2.00-2.90 | 0.56 | 3,460 | 3,539 | 0.03 | 0.00 | 0.09 | 0.01 | 0.25 | 0.20 | |
SUPERFICIE Po19 | 0.42 | 521 | 502 | 0.04 | 0.00 | 0.65 | 0.10 | 0.16 | 0.02 | |
SUPERFICIE Po20 | 0.07 | 65 | 66 | 0.02 | 0.00 | 0.08 | 0.00 | 0.05 | 0.02 | |
ESCONDIDA F 5900 SECC 5904 1.2-1.9 TA | 0.06 | 0.00 | 176 | 181 | 0.01 | 0.01 | 0.05 | 0.20 | 0.12 | 0.12 |
S. CARLOS R 5526 SECC 5557 1.2-1.9 | 3.49 | 0.00 | 4,280 | 4,226 | 0.12 | 0.12 | 1.25 | 1.31 | 1.33 | 1.31 |
CONDEZA FTE ORIENTE 03 10.4 0-1.0 TOPE | 0.10 | 0.00 | 40 | 34 | 0.01 | 0.01 | 0.06 | 0.10 | 0.10 | 0.12 |
S. JUAN Xo ESTACION BARRENACION 3.4-4.0 | 2.44 | 0.00 | 102 | 116 | 0.37 | 0.33 | 10.85 | 8.83 | 0.51 | 0.45 |
BARRENO Z467 66.05-66.25 | 0.07 | 0.00 | 154 | 96 | 0.01 | 0.04 | 0.07 | 0.16 | 0.06 | 0.05 |
BARRENO Z467 71.40-72.05 | 0.05 | 0.03 | 6 | 12 | 0.01 | 0.03 | 0.04 | 0.16 | 0.04 | 0.02 |
BARRENO Z470 8.05-8.65 | 6.07 | 0.00 | 291 | 188 | 0.02 | 0.04 | 0.44 | 0.39 | 0.70 | 0.63 |
BARRENO Z470 9.05-9.50 | 0.66 | 0.00 | 105 | 113 | 0.01 | 0.04 | 0.43 | 0.62 | 0.67 | 0.65 |
BARRENO Z470 18.00-18.60 | 0.13 | 0.00 | 27 | 21 | 0.01 | 0.02 | 0.09 | 0.20 | 0.24 | 0.19 |
Z 479 (6.50-6.80) | 0.40 | 0.03 | 218 | 218 | 0.01 | 0.03 | 0.02 | 0.09 | 0.03 | 0.06 |
Z 480 (11.50-11.90) | 0.05 | 0.03 | 193 | 189 | 0.01 | 0.01 | 0.05 | 0.18 | 0.07 | 0.06 |
Z 481 | 0.60 | 0.03 | 727 | 680 | 0.03 | 0.01 | 0.17 | 0.24 | 0.77 | 0.12 |
Z 483 (9.80-10.20) | 0.05 | 0.00 | 25 | 11 | 0.01 | 0.01 | 0.01 | 0.10 | 0.02 | 0.74 |
Z 484 (4.75-5.15) | 0.05 | 0.00 | 5 | 5 | 0.01 | 0.01 | 0.01 | 0.07 | 0.01 | 0.03 |
Z 485 (8.35-8.75) | 0.05 | 0.00 | 43 | 50 | 0.01 | 0.01 | 0.02 | 0.10 | 0.04 | 0.03 |
Z 487 (51.75-52.35) | 0.05 | 0.03 | 2,720 | 2,593 | 0.16 | 0.23 | 0.43 | 0.69 | 0.55 | 0.46 |
Z 489 (59.30-59.75) | 0.05 | 0.00 | 305 | 322 | 0.02 | 0.02 | 0.12 | 1.00 | 0.27 | 0.09 |
Z 490 (25.00 25.40) | 0.05 | 0.03 | 955 | 967 | 0.01 | 0.01 | 0.53 | 0.48 | 0.78 | 0.59 |
PLOMOSA TOPE 2.30-310 | 4.71 | 0.00 | 268 | 363 | 0.45 | 0.45 | 11.15 | 10.50 | 0.68 | 0.50 |
PLOMOSA 0.40-1.0 | 0.86 | 0.00 | 45 | 57 | 0.49 | 0.49 | 2.83 | 0.93 | 4.07 | 2.06 |
RPA-6120 TOPE 0.60-1.20 | 0.05 | 0.03 | 1,935 | 1,871 | 0.12 | 0.22 | 2.39 | 4.64 | 5.57 | 5.62 |
R-5526 2.60-3.40 | 0.66 | 0.00 | 68 | 143 | 0.14 | 0.14 | 4.63 | 4.59 | 5.71 | 5.24 |
TOPE E 0-1.00 | 0.46 | 0.00 | 69 | 110 | 0.05 | 0.05 | 1.57 | 1.50 | 3.86 | 3.60 |
REPETICION R-008 | 0.05 | 0.05 | 440 | 444 | 0.07 | 0.05 | 0.24 | 0.33 | 0.70 | 0.60 |
CIRUELO POZO 0.20 | 0.05 | 0.00 | 147 | 204 | 0.01 | 0.02 | 0.20 | 0.23 | 0.26 | 0.16 |
CRO-7240 0-1.10 | 0.53 | 0.00 | 224 | 273 | 0.14 | 0.20 | 3.45 | 3.34 | 5.79 | 4.69 |
FTE 5705-W 1.0-1.50 | 1.17 | 0.00 | 256 | 294 | 0.15 | 0.22 | 6.51 | 5.01 | 3.95 | 6.34 |
BNO Z-493 15.7-16.4 | 0.05 | 0.03 | 835 | 807 | 0.02 | 0.01 | 0.05 | 0.10 | 0.30 | 0.47 |
BNO Z-493 23.8-24.2 | 0.05 | 0.00 | 166 | 142 | 0.01 | 0.31 | 0.02 | 0.72 | 0.06 | 0.69 |
BNO 495 - 42.15-42.65 | 0.05 | 0.03 | 290 | 277 | 0.01 | 0.01 | 0.03 | 0.04 | 0.06 | 0.01 |
BNO 497 - 33.90-34.1 | 0.05 | 0.00 | 93 | 134 | 0.01 | 0.02 | 0.01 | 0.18 | 0.04 | 0.03 |
BNO 498 - 20.10-21.10 | 0.05 | 0.00 | 339 | 349 | 0.01 | 0.02 | 0.04 | 0.07 | 0.08 | 0.02 |
M 100707-02 | 0.07 | 0.00 | 11 | 27 | 0.01 | 0.02 | 0.07 | 0.04 | 0.04 | 0.99 |
M 250707-06 | 0.17 | 0.00 | 63 | 76 | 0.03 | 0.02 | 0.21 | 0.24 | 0.89 | 0.22 |
M 250707-66 | 1.26 | 0.00 | 177 | 192 | 0.07 | 0.06 | 1.16 | 1.04 | 1.80 | 0.73 |
J 050707-01 | 0.14 | 0.00 | 129 | 150 | 0.03 | 0.03 | 0.29 | 0.34 | 0.75 | 0.64 |
S CARLOS R6405 (0-0.9) | 0.97 | 0.00 | 345 | 388 | 0.02 | 0.21 | 0.55 | 0.33 | 0.71 | 0.70 |
S CARLOS Rpa 6120 (2.80-3.20) | 0.05 | 0.00 | 7 | 21 | 0.01 | 0.03 | 0.05 | 0.10 | 0.08 | 0.63 |
S CARLOS X06166 (0-0.70) | 0.24 | 0.03 | 1,195 | 1,043 | 0.01 | 0.01 | 0.17 | 0.11 | 0.32 | 0.70 |
CONDESA RRCI 92.25-94.65 | 0.05 | 0.05 | 5 | 4 | 0.01 | 0.01 | 0.02 | 0.01 | 0.05 | 0.05 |
SANTA ELENA X O 59 43 | 0.05 | 0.00 | 89 | 97 | 0.01 | 0.01 | 0.01 | 0.01 | 0.04 | 0.04 |
SEÑORES M190607-08 | 0.07 | 0.00 | 258 | 276 | 0.04 | 0.06 | 0.33 | 0.28 | 0.25 | 0.16 |
SEÑORES V220607-14 | 0.18 | 0.03 | 410 | 394 | 0.10 | 0.11 | 0.26 | 0.07 | 0.22 | 0.32 |
LOS CIRUELOS L 280507-8 | 0.05 | 0.00 | 64 | 72 | 0.01 | 0.01 | 0.16 | 0.34 | 0.17 | 0.04 |
CANG REB 1140 | 0.63 | 0.50 | 2,410 | 2,350 | 0.04 | 0.04 | 4.95 | 4.50 | 0.67 | 0.50 |
Min. | 0.05 | 0.00 | 5 | 4 | 0.01 | 0.00 | 0.01 | 0.00 | 0.01 | 0.01 |
Max. | 6.07 | 0.50 | 4,280 | 4,226 | 0.49 | 0.49 | 11.15 | 10.50 | 5.79 | 6.34 |
Std | 1.15 | 0.07 | 884 | 869 | 0.10 | 0.11 | 2.40 | 2.16 | 1.50 | 1.48 |
Correlation | -0.05 | 1 | 0.88 | 0.96 | 0.93 | |||||
Average | 0.55 | 0.02 | 486 | 485 | 0.06 | 0.07 | 1.09 | 1.10 | 0.87 | 0.81 |
this data in order to evaluate the accuracy of the San Martin laboratory. PAH believes that the reproducibility of silver grades is acceptable and somewhat conservative, considering that the reported values from the San Martin laboratory tend to be lower, but within acceptable industry practices. Gold assays present high variations. Because the gold beads are so small, the assayer is forced to estimate the bead weight in the measurement gold grades in the tenths of a gram per tonne range. PAH believes that the reproducibility of gold grades is reasonable, with some of the variability between sample pairs due to the relatively small quantity of pulp (10 grams) used for the assays. Since the gold values are not
Pincock, Allen & Holt | REVISED | 15.6 |
90535 February 26, 2009 |
used in the determination of the reserve block delineation and stope layouts, PAH does not view this as a significant issue.
PAH recommends that San Martin consider using larger sample pulp quantities in the assaying of silver and gold in order to reduce variability. The San Martin laboratory has been upgraded by replacing the diesel furnace with an electrical furnace, and the micro-balance has also been replaced by better instrument to weight the fire assay beads.
15.4 | Conclusion |
Overall, PAH found that the results from the check assaying are reasonable. PAH recommends the inclusion of standard samples to assess analytical precision. In addition, field duplicate samples and blank samples would allow for an assessment of sample preparation procedures.
It is PAHs opinion that the sample methods and analyses are representative of the deposits at the San Martín mine, and that most of the data was generated by San Martín by procedures that were carried out according to accepted industry standards using accepted practices.
PAH finds that the exploration, sampling, and laboratory analysis for the San Martín operation is being conducted by San Martin in a reasonable manner consistent with standard industry practices. PAH would expect the sampling results to be reasonably representative of the deposit mineralization and believes that they be used with acceptable confidence in the estimation of the mineable reserves.
Pincock, Allen & Holt | REVISED | 15.7 |
90535 February 26, 2009 |
16.0 | DATA VERIFICATION |
PAH has not taken independent samples from the surface or underground exposures of the vein deposits at San Martín, as other Qualified Persons have previously sampled the mineralization as discussed in this report, and the production records are the most reliable data of mineralization contained in the ore deposits under development at the mine.
The San Martin mine has established a systematic procedure to verify data and quality control which has proven effective and accurate by many years of operation. Assay data and information generated by the operation is transmitted by manual procedures; however, all the paper trail is accessible and available for inspection.
Table 16-1 presents a summary of selected smelter payments data comparison for assays at Met Mex Peñoles Lab and at the San Martin laboratory.
PAH believes that an adequate amount of checking has been conducted and that the results are representative of the mineralization in the deposit. PAH recommends to continue the QA/QC program for field duplicate samples and pulp duplicate samples to check assay results as established at San Martin; however, PAH also recommends to add blank and standard samples to the chain of sampling for a better control of the QA/QC program. PAHs conclusion is that the results from check assaying were reasonable, including appropriate preparation procedures; that the sampling results appear to be reasonably representative of the deposit mineralization and should be usable with acceptable confidence in the estimation of the mineable reserves.
TABLE 16-1 |
First Majestic Silver Corp. |
Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Selected Smelter Payments Assay Comparison, 2007-2008 |
Shipment | Gold Assays, Grams | Silver Assays, Kilograms | ||
Date | Met Mex Peñoles | El Pilón | Met Mex Peñoles | El Pilón |
November 20, 2007 | 1,244 | 1,236 | 964.842 | 958.507 |
November 22, 2007 | 8,010 | 8,380 | 7.122 | 7.164 |
January 7, 2008 | 420 | 420 | 962.925 | 961.841 |
January 21, 2008 | 1,159 | 1,158 | 958.282 | 957.196 |
March 31,2008 | 1,159 | 1,153 | 954.024 | 948.969 |
July 14, 2008 | 1,226 | 1,224 | 847.653 | 846.176 |
Correlation | 1.000 | 1.000 | ||
SUM | 13,218 | 13,571 | 4,694.848 | 4,679.853 |
Average | 2,203 | 2,262 | 782.475 | 779.976 |
Pincock, Allen & Holt | REVISED | 16.1 |
90535 February 26, 2009 |
17.0 | ADJACENT PROPERTIES |
The San Martín mining operation is located within the Bolaños Mining District. The Bolaños District comprises approximately 20 kilometers of NS extension, from the San Martín mine in the South to the old Bolaños mine in the northern part.
The Bolaños mine has been inactive since about 1998 and is the only other significant mineral deposit located near the San Martín area. Reportedly, the Bolaños mine has produced approximately 36 million ounces of silver throughout its historical operation.
No other mining property exists adjacent to San Martín. All surrounding areas to San Martín have been claimed, and are owned by FMS through its Mexican subsidiary El Pilón, excepting one concession located near the northwestern part of the area. Please refer to the claims map, Figure 6-3.
The San Martín mine is located within an isolated Mining District in the northwest trending Sierra Madre Occidental. Other operating mines and Mining Districts within the Sierra Madre Occidental range include multi-million ounce producers of precious metals, such as the Zacatecas and the Fresnillo Districts (currently the largest silver producer in the World), in operation by Grupo Peñoles and other operators to the North of San Martín. These other mining districts, however, are located hundreds of kilometers away from San Martín, within the State of Zacatecas, México.
Pincock, Allen & Holt | REVISED | 17.1 |
90535 February 26, 2009 |
18.0 | MINERAL PROCESSING AND METALLURGICAL TESTING |
Since the San Martín processing plant has been in operation since 1983 at an increasing capacity that has exceeded 800 tonnes per day, although at the time of PAHs site visit it was not operating at about 750 tonnes per day, no testing is required to establish the viability of processing the ore or the processing parameters. The ore is processed by conventional cyanidation. It is evident from plant operating data that recoveries are related to grade, for both gold and silver. Ore grades have been lower for the past two years, in comparison with the past and in comparison with what is projected for the future, and the lower plant feed grades have resulted in lower recoveries.
An ore processing scheme for the sulfide mineralization has been established. Initial attempts at treating the sulfide ore within the previously existing plant were not successful. Subsequently, a new separate, independent plant was determined to be required to process the sulfide ores. Commissioning of a new 500 tpd flotation plant took place in the first and second quarters of 2008. Due to the low market prices of the metals, and the low lead and zinc grade of the feed material and the high smelter costs, the flotation circuit has been put in care and maintenance.
Pincock, Allen & Holt | REVISED | 18.1 |
90535 February 26, 2009 |
19.0 | MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES |
The San Martin mine uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineable reserves. Reserves are calculated annually, at the end of each calendar year. For this report, PAH has reviewed the reserve dated September 30, 2008 (referred to subsequently as the September 30, 2008 Reserve).
19.1 | Introduction |
Reserve blocks have been defined at the various drift levels in the mine where sampling has found economically mineable mineralization within the Zuloaga, La Blanca and two NS newly-accessed veins. The reserve tonnage and grade are based largely on channel samples, locally with some influence from drill core samples. Reserve blocks range from 10 to 150 meters in length along the vein trend, with proven reserve blocks projected up to 25 meters from the drift in which the channel samples were taken, and probable blocks extending another 25 meters beyond the proven blocks.
To estimate the reserve block tonnages, San Martin has prepared north-south cross sections for the entire mine, perpendicular to the structural zone, at ten-meter intervals. From each section that crosses a reserve block, the cross sectional area of the mineralized zone is measured by AutoCAD methods and sample lengths. The reserve block volume for each 10-meter section is then calculated from the cross sectional area and the vertical projection of the block area measured by AutoCAD in longitudinal section.
The density factor used to convert reserve block volumes into tonnes has been determined as a weighted average from ore samples representative of the vein deposit, including oxides ore, sulfides ore and transition zone ore. The density tests were performed by Ing. Armando Gabriel Hernández a research metallurgist in a commercial lab in Guadalajara, by applying the Le Chatelier methodology to eight mine samples (December 2004). San Martins estimated average density is 2.80. During the period of 20072008, San Martin has taken additional density measurements from representative samples of the various working stopes and veins to confirm the density applied to resource/reserves estimates. These results are shown in Table 19-1.
PAH believes that on average the density for mineralization appears to be reasonable. PAH recommends that samples be periodically taken as checks for bulk density determination to ensure the application of an appropriate density factor.
To estimate the average grade and thickness for each 10-meter section that crosses a reserve block, San Martin composites all sample grades in the drift that occur within five meters on either side of the section. San Martin investigated three methods to filter the outlier samples greater than 1,000 g/t Ag, and determined that, based on statistical analysis performed on 3,040 samples the most appropriate filter was to assign a top grade of 800 g/t Ag to those samples. The total length of samples in the composite is then divided by the total number of composites, giving the average width of the mineralization in the drift
Pincock, Allen & Holt | REVISED | 19.1 |
90535 February 26, 2009 |
TABLE 19-1 |
First Majestic Silver Corp. |
Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Density Determinations, 2008 |
at that section. Similarly, the average silver grade of the samples, weighted by length, gives the average silver grade for the drift at that section.
The tonnes and grade for each reserve block are then determined by combining the tonnes and grade results obtained for each 10-meter section that crosses the block. The resource block tonnes and grade are tabulated by San Martin on a series of spreadsheet summaries.
PAH notes that the sampling conducted across the vein for use in the reserve estimate is done without regard to economic cutoff grade or mineable width considerations, resulting in maximum vein widths. This maximum width typically includes zones within the veins that are above the cutoff grade, as well as sub-ore grade mineralization below the cutoff grade. PAH recommends that both cutoff grade and mineable width be taken into consideration in the compositing of samples across the vein in order to help optimize ore production. Reserve blocks delineated on this basis would need to be mined accordingly by San Martin, using appropriate grade control practices to insure that the selective mining of the ore proceeds as envisioned by the reserve estimates and, where practical, leaving sub-ore grade parts.
PAH also notes that in a few local areas, the drift is wholly enclosed by the vein zone and unless there are some additional cross cuts or drilling, the vein width is taken as that measured across the confines of the drift opening. In these areas, the use of the less than actual vein width leads to underestimation of the block reserves. PAH recommends that the true vein widths, measured by cross cuts and/or the drill holes, be used as much as possible in the ore reserve estimation.
Pincock, Allen & Holt | REVISED | 19.2 |
90535 February 26, 2009 |
The reserve blocks estimated are not included within the resource blocks.
19.2 | Cutoff Grade Calculation |
The estimation of the San Martín mineable reserve is very dependent on metal prices, especially in this current period of economic turmoil. PAH had customarily used the rolling averages for the prior three years, but these appear much too high in view of current trends. Therefore for the purposes of this report, PAH has taken some conservative price projections and used these in this 43-101 report. A summary of price comparisons is shown in Table 19-2.
TABLE 19-2 |
First Majestic Silver Corp. |
Cia. Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Comparison of Metal Prices for 43-101 (US$) |
Commodity |
First Majestic
Average Prices |
3-Year Rolling
Average Prices |
Average
September 2008 |
PAH Prices |
Gold ($/oz.) | $699 | $699 | $830 | $708 |
Silver ($/oz.) | $12.70 | $13.15 | $12.37 | $12.00 |
Lead ($/lb.) | $0.90 | $0.89 | $0.85 | $0.75 |
Zinc ($/lb.) | $0.85 | $1.29 | $0.79 | $0.50 |
For the present (September 30, 2008) mineable reserve, PAH has calculated an economic breakeven cutoff grade, based on the parameters shown in Table 19-3.
TABLE 19-3 |
First Majestic Silver Corp. |
Cia. Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Mineable Reserve Cutoff Grade Parameters |
Concepts |
Costs, Prices
(US $) & Other |
Average Total Operating Costs (per tonne U/G oxide ore) | $43.09 |
Average Total Operating Costs (per tonne dump oxide ore) | $25.63 |
Mill Recovery Oxides (%Ag only) | 77.50% |
Refinery Recovery and Payable Metal (% Ag only, doré & gravity) | 99.00% |
Silver Price ($/oz) | $12.00 |
Gold Price ($/oz) | $708.00 |
Lead Price ($/lb) | $0.75 |
Gold:Silver Price Ratio | $0.50 |
Monetary Exchange Rate (Pesos/US $) | 12.50:1.00 |
Cutoff Grade (U/G oxides only) | 146 g/t Ag |
Cutoff Grade (Mine dump oxides only) | 87 g/t Ag |
Equating these parameters, the breakeven cutoff grade for silver (G ag ) mined from underground oxideresources becomes:
G ag = $43.09/( $12.00 x 0.775 X 0.99) = 4.68 oz Ag/tonne or 146 g Ag/tonne
Pincock, Allen & Holt | REVISED | 19.3 |
90535 February 26, 2009 |
Most of the January through September 2008 production has been derived from the mechanized cut and fill mining of oxide ores, however, a small amount was obtained from the recovery of old dumps at the mine site. Some preparation work of the deep sulfide zones was commenced during the year, but this was abandoned during the third quarter due to the low-grade of the sulfide material and severely depressed lead and zinc prices. No separate cutoff grades were calculated for the sulfide material due to the lack of separate operating cost data from these efforts. Possible resources of dump material remain, and PAH also calculated a cutoff grade for this material as follows:
C Ag = $25.63/( $12.00 X 0.775 X 0.99) = 2.78 oz Ag/tonne or 87 g Ag/tonne
Milled oxide ore production for the first 9 months of 2008 was 145,592 tonnes, at an average grade of 131 g Ag/t, and 0.25 g Au/t. Milling of oxide ore from the underground mine totaled 132,043 tonnes at an average grade of 133 g/t Ag, and that from the mine dump recovery totaled 13,549 tonnes at an average grade of 111 g/t Ag. Gold is present in payable quantities in many areas and lead in some. The actual gold head grade is not well known because of the problems in assaying as previously discussed in the laboratory analysis section. In the cutoff grade calculation the small gold and lead credits are already included as an operating cost deduction (see Table 25-6).
There was a significant tonnage of sulfide material (57,072 tonnes) extracted from the mine and transported to the mill patios during the first 9 months of 2008, however, only small amounts of this material were processed in the new flotation plant, as test material. The sulfide material remains stockpiled on the mill patios and will not be processed in the near future, nor will any sulfides be extracted from the mine. In view of the foregoing, PAH has not calculated a cutoff grade for San Martín sulfide material.
From the 145,592 tonnes of oxides ore production, the silver sold in Doré and concentrates during the first 9 months of 2008 was 22.5 million grams (724,240 ounces). The gold sold in Doré and concentrates during the 9-month period of 2008 was 19,875 grams (691 ounces). The estimated process recovery for gold was 55.4 percent. For each ounce of silver paid there were 0.001 ounces of gold paid. At a gold price of $708/oz, this represents a contribution of $0.62 per ounce of silver.
In addition to the Doré sales, a gravity concentrate is produced. During 2008, 43.6 tonnes of gravity concentrates were sold that contained silver, gold and lead values, and the payable lead content was approximately 4,400 kilos of lead. For each ounce of silver sold, approximately 0.01 kilograms (0.02 lbs) of lead were sold. At a price of $0.75/lb of lead, this contributes another $0.02 per ounce of silver.
Lead and zinc production during the first nine months of 2008, at San Martin, resulted in 164,393 lbs Pb and 401,297 lbs Zn. PAH was not provided with costs or recovery information.
This would indicate a total contribution of gold and lead of $0.64 per ounce of silver, which have been included a by-product credit to operating costs (see Table 25-6).
Pincock, Allen & Holt | REVISED | 19.4 |
90535 February 26, 2009 |
This cutoff estimate was the basis that PAH used to calculate the September 2008 Reserves. PAH notes that that the reserve is in addition to the material considered as resources.
19.3 | Reserve Estimate |
PAH has reviewed the San Martin annual reserve update of January 1, 2007, along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
San Martin has estimated the mineable reserve for the main Zuloaga Vein, as well as for Rosario and Cinco Señores and the La Blanca veins. For the Zuloaga Vein, San Martin has tabulated an in-situ reserve, with only consideration for mining dilution to a minimum mining width of 2.00 meters but no mining extraction experienced by the cut and fill operations, and without contribution of zinc content.
The total in-situ diluted reserve to minimum mining width of 2.00 meters, as tabulated by San Martin and reviewed by PAH, is shown in Table 19-4 at a 146 gram Ag only cutoff grade for the Zuloaga vein and for the NS veins at the San Carlos level. The total in-situ reserve and with Au/Pb credits added, as reviewed by PAH, is 0.770 million tonnes averaging 274 grams per tonne silver, for a total of 6.8 million contained ounces of silver. As discussed previously in the calculation methodology section, the proven ore category has been projected 25 meters from the drift sample data, while the probable ore category is projected another 25 meters beyond the proven ore. No material is currently classified beyond the probable category. Broken ore is material blasted in the stopes and awaiting extraction.
Figure 19-1 shows the longitudinal section of the Zuloaga vein; Figure 19-2 shows longitudinal section of the Zuloaga vein at the Cymoid Zone; Figure 19-3 shows the La Blanca Vein, and Figure 19-4 shows Condesa Vein with location of the reserve and resource blocks included in FMS estimates.
During 2007 and 2008, all of the production was derived from cut and fill stopes. In the cut and fill stopes, where the width is less than about 3 meters, the ore is blasted and removed (reused) before blasting the waste onto the stope floor for fill. A minimum mining width of 2 meters is required in the cut and fill stopes for the mechanized equipment in use at the mine.
With an average width in the cut and fill stopes of approximately 2.0 meters, the typical dilution from the walls of the Zuloaga Vein would be that estimated to mine the minimum width of extraction at the 2.00 m width. A mechanized cut and fill mining method will typically (using dry fill) result in an overall mining recovery of approximately 95 percent.
A review of the assays beyond the silver equivalent grade boundary on the walls of the Zuloaga Vein indicated an average diluting grade of approximately 10 to 200 g Ag/t. However, since there is about a one percent difference between the mine feed grades to the mill and the mill calculated feed grade, some
Pincock, Allen & Holt | REVISED | 19.5 |
90535 February 26, 2009 |
TABLE 19-4 |
First Majestic Silver Corp. |
Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Mineral Reserves Prepared by FMS, Reviewed by PAH as of September 30, 2008 |
CATEGORY | Mineralization | Metric | Width | Ag | Pb | Zn | METAL CONTAINED | |
Proven Reserves | Type | Tonnes | m | g/tonne | % | % | Silver (Only) oz. | Siver eq. oz. |
La Blanca Vein | Oxides | 78,651 | 2.42 | 312 | 787,827 | 813,114 | ||
Veta Zuloaga | Oxides | 374,746 | 2.78 | 280 | 3,376,926 | 3,497,410 | ||
Lazo Cimoide Zone | Oxides | 54,624 | 2.88 | 207 | 364,123 | 381,685 | ||
Rosario Vein | Oxides | 9,944 | 2.23 | 173 | 55,309 | 58,506 | ||
Cinco Señores Vein | Oxides | 9,408 | 2.58 | 172 | 52,026 | 55,050 | ||
SUBTOTAL - 1 | Oxides | 527,373 | 2.72 | 273 | 4,636,211 | 4,805,765 | ||
4,636,211 | 4,805,765 | |||||||
Probable Reserves | ||||||||
La Blanca Vein | Oxides | 24,634 | 2.05 | 339 | 268,716 | 276,636 | ||
Lazo Cimoide Zone | Oxides | 19,105 | 2.71 | 273 | 167,581 | 173,724 | ||
Veta Zuloaga | Oxides | 195,427 | 2.62 | 270 | 1,696,443 | 1,759,275 | ||
Rosario Vein | Oxides | 3,925 | 2.23 | 173 | 21,831 | 23,093 | ||
SUBTOTAL - 2 | Oxides | 243,091 | 2.56 | 276 | 2,154,571 | 2,232,727 | ||
2,154,571 | 2,232,727 | |||||||
Proven and Probable Reserves | 6,790,782 | |||||||
TOTAL | Oxides | 770,464 | 2.67 | 274 | 6,790,782 | 7,038,492 |
(1) |
Estimated Reserves are exclusive of Resources. Estimates by FMS reviewed by PAH. |
(2) |
Cut Off estimates as 146 g/tonne Ag for mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits = 10g/tonne Ag. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Cut Off estimates as 146 g/tonne Ag for mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits = 10g/tonne Ag. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
Proven and Probable Reserves plus Measured and Indicated Resources. | |||||||
TOTAL RESERVES
AND RESOURCES |
Oxides plus Sulfides 2,273,684 |
3.80 |
195 |
0.91 |
1.80 |
14,226,609 |
14,608,312 |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Cut Off estimates as 146 g/tonne Ag for mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits = 10g/tonne Ag. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
Inferred Resources | ||||||||
La Blanca Vein | Oxides | 221,166 | 1.93 | 345 | 2,452,132 | 2,523,239 | ||
Lazo Cimoide Zone | Oxides | 497,337 | 2.75 | 292 | 4,669,008 | 4,828,906 | ||
Zuloaga Vein | Oxides | 2,277,399 | 2.33 | 289 | 21,160,600 | 21,892,801 | ||
Rosario Vein | Oxides | 557,838 | 6.24 | 153 | 2,735,614 | 2,914,964 | ||
Condesa Vein | Oxides | 87,376 | 6.00 | 63 | 176,980 | 205,072 | ||
SUBTOTAL - 8 | Oxides | 3,641,116 | 3.05 | 266 | 31,194,335 | 32,364,981 | ||
31,194,335 | 32,364,981 | |||||||
La Huichola Vein | Sulfides | 236,065 | 1.87 | 389 | 0.48 | 0.53 | 2,952,380 | 2,952,380 |
Condesa Vein | Sulfides | 61,193 | 1.19 | 293 | 0.26 | 0.53 | 576,345 | 576,345 |
La Hedionda Vein | Sulfides | 118,057 | 1.52 | 134 | 0.34 | 0.63 | 508,615 | 508,615 |
Zuloaga Vein | Sulfides | 4,157,817 | 7.70 | 102 | 1.52 | 1.73 | 13,635,045 | 13,635,045 |
SUBTOTAL - 9 | Sulfides | 4,573,132 | 7.15 | 120 | 1.42 | 1.62 | 17,672,384 | 17,672,384 |
17,672,384 | 50,037,365 | |||||||
Inferred Resources | ||||||||
TOTAL (6) | Oxides plus Sulfides | 8,200,000 | 5.34 | 185 | 1.40 | 1.60 | 48,900,000 | 50,000,000 |
(1) |
Estimated Reserves are exclusive of Resources. |
(2) |
Inferred Resources are especulative in nature and may not become Reserves. |
(3) |
Metal prices at $708/oz-Au, $12.00/oz-Ag, $0.75/lb-Pb, $0.50/lb-Zn. |
(4) |
Mine dilution is included at a minimum mining width of 2.00m. Estimates do not include mining recovery . |
(5) |
Base metals, Lead and Zinc are not recovered due to low market prices. |
(6) |
Rounded figures. |
Pincock, Allen & Holt | REVISED | 19.6 |
90535 February 26, 2009 |
additional dilution is being introduced in the stopes. The recognition and correction of the various excess dilution sources will help the mine reconcile the differences in grade between the mine and mill.
PAH recommends that San Martin assign a geologist to spray paint the boundaries of the economic mineralization along the stopes to avoid higher dilution during the mining activities.
Table 19-4 summarizes the diluted, recovered with credits added for Au/Pb, proven and probable reserves at San Martin as reviewed by PAH. PAH notes that the reserve is in addition to the material considered as resources.
PAH notes that the current mining across the width of the Zuloaga Vein is often conducted with limited regard to economic cutoff grade or mineable width considerations, resulting in taking maximum vein widths. This maximum width typically includes zones within the veins that are above the cutoff grade, as well as sub-ore grade mineralization below the cutoff grade. PAH believes that San Martin can be more selective in mining across the veins to extract the ore above cutoff grade, without taking as much of the sub-ore grade mineralization. Reducing the amount of the lower grade material taken during mining will potentially reduce mining costs, haulage costs, and processing costs, and allow for a more efficient and economic operation. In PAH review San Martins blocks of the Cinco Señores vein were discounted from the probable reserves and added to resources due to lower average grade than the COG estimated for silver only.
19.3.1 | Conclusion |
PAH believes that these reserve estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves. PAH believes that the classification of the reserves meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
19.4 | Resource Estimation |
The Resource calculations by San Martin are based on projections of the mineralized zones of 50 meters beyond the areas of the reserves for the measured resources, and another 50 meters beyond the boundaries of the measured resources for the blocks of indicated resources. The grade for these blocks is determined from the grade estimated for the adjacent Reserve blocks, and sampling in mine workings and drill holes located within the block area.
San Martins estimated mineral resources are considered conservative, since only adjacent blocks are projected from the reserve blocks. Mineralization in the Zuloaga vein has shown an estimated 70/30 percent ore to waste ratio within the mineralized structure; therefore, based on mining records the resource projections above and below the reserve blocks may be extended to the length of the known structure.
Pincock, Allen & Holt | REVISED | 19.11 |
90535 February 26, 2009 |
In addition to the Reserves, San Martin has estimated Resources in blocks along the Zuloaga vein, La Blanca vein, the PlomosaRosario vein, the RosarioCondesa vein, and in two other NS newly accessed veins that cross the main mineralized structure. These blocks were estimated in the same manner as that described previously for the reserve blocks, with the additional calculation of lead and zinc assays where they are available, however no additional contribution was considered for zinc.
The mineralized veins within the deeper parts of the mine, as well as in some other localized areas, contain variable amounts of base metals, particularly zinc, which is locally present in sufficient quantities to potentially be considered as an additional metal product for revenue generation. The Zuloaga Vein contains resource areas that are locally as high as 5 percent zinc. The La Blanca Vein also contains higher zinc values. Zinc grade distribution is not well defined as sample analysis for zinc has historically been limited, but is being conducted routinely for the exploration drilling in more recent sampling.
Metallurgical studies have been performed by experts at the Universidad Autónomade San Luis Potosí, México, and a vertical flotation cell has been installed on site for producing a lead/silver concentrate. The long-term plans are to make both a lead/silver and a zinc concentrate that would be shipped to the Peñoles smelter in Torreón, México or sold internationally. However, the final flow sheet design has not been completed, and to-date, only testwork has been developed in a column flotation cell that has been installed within the plant area, producing minor amounts of lead/silver and zinc concentrates, although it appears that zinc and lead concentrate production could potentially be feasible. FMS has determined to postpone further research on sulfides recoveries due to the current low lead and zinc prices.
PAH has reviewed the preliminary technical and economic information for the potential processing of the zinc and has found that although the potential processing of zinc is encouraging and should be pursued, the current degree of evaluation is not sufficiently high to add the zinc contribution to the resource grade. In current Resource grade estimates the zinc has been only indicated as part of the blocks grade, but not included in value or silver equivalent.
San Martins estimate of measured and indicated resource blocks is shown in Table 19-4. The measured and indicated silver resource consists of 1,503,000 tonnes averaging 154 grams per tonne silver only, for a total content of 7,570,000 ounces of silver equivalent. The resource grade has not been discounted by San Martin for a metallurgical recovery or mine dilution, and it is only estimated for silver only grade.
San Martin has also estimated Inferred resources that have resulted in silver equivalent of 50 million ounces contained in 8.2 million tonnes of inferred resources.
San Martins estimated resource blocks do not include the estimated reserve blocks since these have been projected at distances that are adjacent and beyond the reserve blocks boundaries.
San Martins mineral resources do not include development details for underground mine accessibility and mine planning, therefore, in PAH opinion these resources are appropriately reported as resources, with estimated tonnage and grade calculated from available data on an in-situ basis.
Pincock, Allen & Holt | REVISED | 19.12 |
90535 February 26, 2009 |
Based on these assumptions, and in the mines silver COG, PAH reviewed the San Martin estimates. The resulting resources were not credited with the contribution for gold/lead to the silver grade, which at the current San Martín rate of production, may add over 20 years of life to the mine. These resources were not adjusted for mine dilution, mine or metallurgical recovery, or S&R charges.
The mineral resources estimated by San Martin and reviewed by PAH are presented in the lower part of Table 19-4. PAH notes that these resources are in addition to the previously reported reserves.
San Martin has estimated additional silver resources at a distance beyond the proven and probable reserves. These additional resources lack sufficient drifting, raising, sampling, drill holes or old workings with production data and are estimated at a lower degree of confidence than the other reserve or resource categories. PAH considers these additional resources to be of an inferred category and they are based on projections of presumed vein continuity ahead, above, and below current mining; and based on very widely-spaced drill holes, surface sampling or old surface workings. Exploration and development of these inferred resources is presented in the corresponding section of this report. Those inferred resources are presented in separate line at bottom of the Table 19-4.
The inferred resources need considerable grade and tonnage information before they can be proved up to mineable reserves. In addition, historically about 70 percent of the vein has been mined due to the normal low grade, narrow zones or waste areas contained within the vein. To date, the Zuloaga Vein has demonstrated a continuity along 3.0 kilometers of strike length and down dip to about 400 meters; so it is reasonable to assume that in the future resources will continue to be converted to ore as additional drifting, crosscutting and raising define vein configurations, sampling and assaying determine the grade, and diamond drilling confirms vein extensions and fills in data gaps.
19.5 | Conclusion |
PAH believes that these resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of resources. PAH believes that the classification of the resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The reserves and resources herein reported by FMS for the San Martín mine were reviewed by PAH and constitute part of an operation by FMS. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these reserves and resources may not be materially affected by issues that could prevent their extraction and processing.
Pincock, Allen & Holt | REVISED | 19.13 |
90535 February 26, 2009 |
20.0 | OTHER RELEVANT DATA AND INFORMATION |
The San Martín mine is an operation focused on extracting ore from the Zuloaga vein its workings have reached nearly 3,000 meters along strike, at different levels of approximately 400 meters in vertical development. Sub-parallel and crossing veins to the Zuloaga have been discovered along the main structure, such as the La Blanca vein, the Cymoid zone, and the parallel vein at the Crucero 6409 in the San Carlos level, as well as the crossing NS veins at Crucero 6231 and at the Sección 6195.
While the extracted ore is mainly oxidized material, at the San Carlos level an increasing presence of sulfides may indicate the transition zone between oxides and sulfides; however, the mineralization occurs in strong concentrations, with more zinc, lead, copper and possibly gold associated in the primary mineralization zone. Another interesting target for exploration within the mine area is known as Plutonic Breccia, which may represent a Porphyry Rhyolite Stock, and this could be related to the mineralizing channels, and the recently defined Cymoid Zone which represents a split of the Zuloaga vein.
Numerous other veins, sub-parallel to the Zuloaga vein and in a crossing pattern appear to indicate an important geologic potential to be investigated within the San Martín de Bolaños District, and within the FMS holdings.
The San Martín mine is managed by a professional staff that FMS and its Mexican subsidiaries has contracted and trained in the operation throughout the many years of work in this District. The San Martín mine appears as a stable, progressive mining and metallurgical operation.
San Martíns future is founded on the timely and proper manner of reserve development to sustain the operation. The San Martin should focus efforts in mining the reserves to develop a profitable operation with supporting investments for continued exploration. As of September 2008, San Martín mineral reserves amounted to about three years of continued operation at current production capacity; however, if the current measured and indicated resources were developed into reserves, the operation may be projected to about 5 years more in addition to significant inferred resources.
Pincock, Allen & Holt | REVISED | 20.1 |
90535 February 26, 2009 |
21.0 | INTERPRETATION AND CONCLUSIONS |
In 1981, Mr. Héctor Dávila Santos founded the Mexican corporation Minera El Pilón, S.A. de C.V. and purchased the San Martín property, developed the mine, constructed the process plant, and then began production in 1983. In 1997 First Silver Reserve Inc. (FSR), by reverse takeover, acquired all the shares of the Mexican company Minera El Pilón, S.A. de C.V., owner and operator of the San Martín mine. In September 2006 First Majestic Resource Corp. acquired FSR, and consequently is now the owner and operator of the San Martin Silver Mine and other assets once owned by FSR. Subsequently to First Majestics acquisition of First Silver, the corporate name of the Company was changed to First Majestic Silver Corp.
The San Martín mine includes underground operations that have opened six main drifts with levels at an approximate 35-meter vertical separation. Each one of the drifts has been developed to a maximum extension of approximately 3,000 meters, with interconnecting ramps between levels, and all have surface access to the Cerro Colorado hillside. Since 1983 to September 30, 2008, over 4.3 million tonnes of silver ore have been extracted and processed, to produce sales of approximately 33.6 million ounces of silver, including some gold and lead. Most of the San Martín ore production has been mined from the Zuloaga vein, with only minor production extracted from the La Blanca vein, which branches out from the hanging wall of the main structure.
The processing plant consists of crushing, grinding and conventional cyanidation by agitation in tanks. Silver and gold values in solution are then precipitated by the Merrill-Crow method, by adding zinc dust and smelting the precipitates into doré bars for shipment to a smelter. A gravity separation circuit consisting of two Falcon concentrators and one vibrating Wilffley table have been added to the processing system to recover coarse grains and some sulfides that are not leached in the cyanidation circuit.
Other installations include laboratory facilities, offices, dining room and some housing for key employees.
In addition to the mineral rights covered by 31 mining concessions that include 7,841 hectares (19,375 acres), FMS also has purchased the surface rights for 1,300 hectares (3,212 acres) of land that include the mine installations, part of the access roads, and surrounding areas. Additionally, San Martin has acquired the surface rights of 107 hectares (264 acres) of land where the plant installations and camp are located.
San Martins corporate offices are located in the State of Durango capital city of Durango, where purchasing, legal and accounting administrative functions give support to the mining operation. FMS head offices for all its Mexican subsidiaries and operations are located at the same offices in the state of Durango capital city of Durango.
Mine and plant statistics for the first nine months of 2008 indicate that the Run-of-Mine (ROM) Ore averaged 169 g/t silver. The total 2008 silver and gold recovery from Doré 724,239 ounces and 635
Pincock, Allen & Holt | REVISED | 21.1 |
90535 February 26, 2009 |
ounces respectively. During this period, 43.6 tonnes of gravity concentrates were also produced containing about 4,400 kilograms of lead with some silver and gold values. Contribution of the lead and gold per ounce of silver was estimated at $0.64 as by-product credit to operating costs.
Estimated reserves for September 30, 2008, as reviewed by PAH resulted in:
Proven and Probable Reserves:
Tonnes | Ag only(*) | Ag eq. Contained Ounces. |
770,000 | 274 g/t | 7,038,000 |
(*) - Ag includes added value for gold/lead credits.
These estimated reserves indicate about 3.0 years of operation from October 2008.
At the San Martín mine, the majority of its silver ore has been extracted from the Zuloaga vein. Numerous other veins occur within the San Martín area that appear to represent similar structural and mineral characteristics as those of the Zuloaga vein.
Exploration potential for finding and developing new resources/reserves in the San Martín district still appears to be promising. FMS has been developing an aggressive exploration program based on economics, direct exploration development and diamond drilling by in-house operators and with contractors for deep drilling.
Direct exploration development is integrated into the mine preparation programs and in vein deposits this has proven to be the most effective method of exploration. For the year 2009, a program of underground development includes about 450 meters for exploration and drill site access preparation has been planned including an aggressive drilling program for both, underground and surface drilling. This program includes 93 drill holes with a total programmed depth of 13,400 meters at an estimated cost of about $1.70 million. At the time of writing this report FMS has delayed the 2009 program due to market conditions.
To date, the drilling program has identified 5 target zones with 26 drill holes from surface along the Zuloaga vein in the San Martín mine. These 26 drill holes are directed to investigate areas of resources with the objective to increase reserves, and if it is successful, the program should result in additional resources/reserves for the mine, according to FMSs Geology Department projections. FMS has also programmed 67 drill holes with a total length of 6,500 meters from underground sites to investigate six targets in the Rosario, Escondida and the Zuloaga veins at the Cangrejos, Ballenas, San José and Cymoid zone.
Current estimated Resources for the San Martín mine include Measured and Indicated Resources calculated by FMS and reviewed by PAH, as follows:
Pincock, Allen & Holt | REVISED | 21.2 |
90535 February 26, 2009 |
In-Situ Measure and Indicated Resources as of September 30, 2008.
Tonnes | Ag only (*) | Ag eq. Contained Ounces |
1,500,000 | 154 | 7.6 million |
(*) Ag grade includes added value for Au/PB credits.
Resources in-situ with no mine dilution or recovery considerations. These resources, estimated along the Zuloaga vein, if proven to reserve certainty may add about five more years to the mine life.
The reserves and resources herein reported by FMS for the San Martín mine and reviewed by PAH constitute part of a mineral deposit that is currently under operation, without technical, legal, environmental, political or of any other kind of restrictions, therefore, in PAHs opinion these reserves and resources may not be materially affected by relevant issues that may prevent their extraction and processing.
PAH is not aware of any environmental liabilities in the San Martín mining district. Most of the area covered by the concessions is mining and prospective land for mineral exploration and mine development in rough topography. San Martin workings are of limited extent with relatively small waste dumps that have been developed with minor surface disturbances. Most of the mine operations are located within land holdings owned by FMS or its subsidiaries. The San Martín underground operation has been developed on the Zuloaga vein, the strike of which intersects the western slope of the Cerro Colorado hill. Selected ores are extracted in the mining operation and only relatively small waste dumps have been formed during the long history of production. Currently San Martin operates mainly with Cut-and-Fill mining methods to avoid accumulation of large waste dumps on surface, and most waste generated from development is used for stope backfill.
San Martin has two regular annual contracts with the Smelter and Refinery of MET-MEX Peñoles located in the city of Torreón, Coahuila State, México. Peñoles is the largest silver refinery in México and the World, with a capacity of approximately 100 million ounces of silver per year. The contracts between San Martin and Peñoles for sales of Doré and concentrates are typical for those kinds of minerals.
During 2008 San Martin shipped Doré and gravimetric concentrates containing a total of 0.5 million ounces of silver, 600 ounces of gold and 4.5 tonnes (12,000 lbs) of lead to Peñoles.
San Martin ships Doré bars by armored truck to Torreon, where they are delivered to a purchasing representative for deliver to Peñoles. San Martin gravity concentrates, sold to Peñoles during 2008, contained about 10 percent lead, 2 percent zinc, 20 percent sulfur, 4 kg/t silver and 20 g/t of gold. Gravity concentrates are shipped by truck from the mine to Torreón, Coahuila, to MET-MEX Peñoles Smelter and Refinery.
Pincock, Allen & Holt | REVISED | 21.3 |
90535 February 26, 2009 |
Production costs for the San Martín mine in 2008 for January to September, totaled $7.9 million to produce approximately 184,440 tonnes of ore, containing saleable silver amounting to 724,240 ounces and 691 ounces of gold. On a unit basis, cash production costs were $40.87/tonne of ore.
As expected the project exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally.
In all cases, however, the San Martin mine shows positive economics as measured by a cash flow exercise, and thus the postulated reserve position is acceptable.
Pincock, Allen & Holt | REVISED | 21.4 |
90535 February 26, 2009 |
22.0 | RECOMMENDATIONS |
The San Martín mine has been in operation since 1983, with a long history of mineral reserves development, until about the year 2000, when the precious metals prices forced reduction of the exploration budget; however, in recent years with improved metal prices personnel and budgets have increased to escalate the exploration programs.
PAH highly recommends a continued support for the exploration activities in San Martín to develop resources into reserves and extend the mine life. Care must be taken to prioritize the exploration targets since the area holds a broad potential for development and possible discovery of new ore bodies. Underground access to the areas of exploration must be a primary objective to investigate identified resource targets.
In the past, San Martín had expensed most mine development, exploration and used equipment purchases; however, FMS has instituted a new fiscal policy, and many previously expensed costs and equipment purchases are now capitalized. The anticipated year-end 2008 expenditures are consistent with the mine's plans to continue increasing ore reserves and improve the overall efficiency of the present operation. Most of the mine capital expenditures spent in the first three quarters of 2008 were for mine development and exploration, mine and mill equipment and other ancillary equipment and administrative expenditures. See projected capital expenditures in Table 25-9.
PAH recommends that San Martín proceed with the projected capital expenditures.
Subject to improving market conditions, FMS has authorized a $2.476 million exploration budget for 2009, which should result in a significant increment of reserves. This program includes approximately 450 meters of underground exploration development for drifting, crosscutting and drill sites preparation, in addition to 67 drill holes with a total programmed depth of over 6,500 meters. This program also includes 26 drill holes with total projected depth of 6,900 meters to be drilled from surface sites. Budget for this program is approximately $2.5 million, although part of the expenditures, are usually included into the operating costs. The capital expenditures in budget for 2009 include $96,000 for direct investments in geophysical studies, $52,000 for geochemical sampling, and $650,000 for access roads and rill sites construction on surface, to support the diamond drilling program.
The San Martín mine includes now a long underground development of about 3,000 meters in some of the levels, for over 25 km in workings along the main operating levels. Maintenance of the access roads for transportation of the ores from different stopes makes this task complicated and expensive; however, the San Martin mine has recently acquired additional special equipment to accomplish this task, including a small bulldozer and an underground grader. To maintain clean underground roads will help in equipment maintenance.
With the possibility of establishing sufficient resources of sulfide ore to warrant the use of the newly constructed of a sulfide-ore processing plant (flotation area), PAH considers it worthwhile conducting
Pincock, Allen & Holt | REVISED | 22.1 |
90535 February 26, 2009 |
mineral processing testwork on samples from the mine as they become available, in preparation for future higher prices of the metals, particularly Lead and Zinc.
In PAH opinion the programmed capital expenditures for the fourth quarter of 2008 and the year 2009, for a total of US$3.45 million are scheduled to improve the operation and through a successful exploration program, increase the mines reserves and therefore the mine life.
Details of recommended investments are presented in Table 22-1.
TABLE 22-1 |
First Majestic Silver Corp. |
Cia. Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Recommended Program of Exploration for 2009 |
Exploration Activities |
Objective |
Area |
Quantity |
Total Estimated
Cost US$ |
Geophysical Survey IP | Define areas | Rosario | 15 km | 24,000 |
for drilling | Condesa | 15 km | 24,000 | |
Los Bancos | 30 Km | 48,000 | ||
Total | 96,000 | |||
Geochemical Survey | Define areas | Rosario | 200 samples | 10,000 |
for drilling | Condesa | 250 samples | 10,000 | |
Los Bancos | 300 samples | 8,000 | ||
Providencia | 150 samples | 12,000 | ||
La Esperanza | 300 samples | 12,000 | ||
Total | 52,000 | |||
Surface Diamond Drilling | Develop resources | Ciruelo | 1,460 m (9 dh) | 146,000 |
Mina de Agua | 1260m (4 dh) | 126,000 | ||
Los Bancos (Zuloaga) | 1780 m (5 ddh ) | 178,000 | ||
Providencia | 1200 m (4 dh) | 120,000 | ||
Hedionda | 1200 m (4 dh) | 120,000 | ||
Total | 690,000 | |||
Underground Diamond Drilling | Develop resources | Rosario | 930 m (6 dh) | 93,000 |
at depth | Escondida | 1080 m (9 dh) | 108,000 | |
San Jose | 820 m (8 dh) | 82,000 | ||
Ballenas | 1470 m (7 dh) | 147,000 | ||
Cangrejos | 1500 m (9 dh) | 150,000 | ||
Lazo Cimoide | 700 m (28 dh) | 70,000 | ||
Total | 650,000 | |||
Zuloaga (cruceros / bdd) | ||||
Underground development | Develop reserves and Resources | 450 m | 337,500 | |
Road Surface Diamond Drilling | Develop reserves and resources | Los Bancos - Rosario | 1000 m | 650,000 |
Grand Total | 2,475,500 |
Pincock, Allen & Holt | REVISED | 22.2 |
90535 February 26, 2009 |
23.0 | REFERENCES |
1. |
Albinson-F., T., 2002, Estudio de microtermometría y análisis de arcillas de muestras del barreno Z-211, Distrito San Martín de Bolaños, Jalisco, México. Unpublished, private report to Minera El Pilón, 10p. |
2. |
Ibarra Amaya Armando, Ing. 2,002, Operations costs memorando to Minera El Pilón dated December 5, 2002. |
3. |
Garcia Jiménez & Associados, June 2005, Legal opinion on Pilón mining concessions. |
4. |
Lyons, J.I., 1988, Geology and Ore Deposits of the Bolaños Silver District, Jalisco, México: Economic Geology, v.83, p. 1560-1582. |
5. |
Lyons, J. I., 2000, San Martín de Bolaños, Minera El Pilón, S.A. de C.V. Unpublished Exploration Report to Minera Pilón, dated April 25, 2000. |
6. |
Motilla, Luis, 1998, unpublished company report. |
7. |
Megaw, Peter K.M., May 2003, Technical Report for the Minera El Pilón S.A. de C.V. Properties San Martín de Bolaños District, San Martín de Bolaños, Jalisco, México, for Minera El Pilón, S.A. de C.V. and First Silver Reserve Inc. |
8. |
Pincock, Allen & Holt, Inc. (King, W.D., Milne, S., Stinnett, L.A. and Walter, K.) 1996, Minera El Pilón, San Martín Unit Valuation: Project 9161.00: Qualifying report for First Silver Reserve Inc., December 13, 1996. |
9. |
Scheubel, F. R., Clark, K.F., and Porter, E.W., 1988, geology, Tectonic Environment and Structural Controls in the San Martín de Bolaños District, Jalisco, México Economic Geology, v.83, p. 1703-1720. |
10. |
Pincock, Allen & Holt, Inc. (King, W.D., Milne, S., Stinnett, L.A.), 2001, Minera El Pilón, San Martín Unit Reserve Audit and Project Update: Project 9206.02: Technical Report for First Silver Reserve Inc., April 19, 2001. |
11. |
Gabriel Hernández, Ing. Armando, Metalurgista de Investigación, 25 Noviembre, 2004, Determinación de la Densidad de Sólidos. 8 muestras de mineral de la mina Zuloaga, San Martín de Bolaños, unpublished report on behalf of Minera El Pilón, S. A. De C. V. |
12. |
INEGI (Instituto Nacional de Estadística, Geografía e Informática), XII Censo General de Población y Vivienda 2,000. Estadísticas generales de población y climatología.. |
Pincock, Allen & Holt | REVISED | 23.1 |
90535 February 26, 2009 |
13. |
Minera El Pilón, S.A. de C.V., May 2005, data supplied to PAH for this report preparation, including operating records, estimates, and projections, maps, etc. |
14. |
This Technical Report was based on Mr. Stevens, Mr. López, Mr. Milne, Mr. Stinnett, and Mr. Hyyppa opinions of the current conditions at the mine, on incorporation of the last operating and exploration results developed by technical representatives and contractors for Minera El Pilón, upon review and verification of the database and of the geologic interpretations to determine mineral reserves and resources; and on great part of the analysis for the San Martín Unit operation as presented on PAHs previous reports, data base and various site visits. |
15. |
Technical Report for the San Martín de Bolaños Silver Mine, State of Jalisco, México. June 23, 2005, prepared for First Silver Reserve Inc. by Pincock, Allen & Holt, Inc. as Project No. 9161.01. This Technical Report was published in SEDAR on July 5, 2005. |
16. |
Lic. Carlos Galván Pastoriza, September 30, 2008. Legal opinion on the mining concessions held by Minera El Pilón in the San Martín de Bolaños mining district, State of Jalisco, México. |
17. |
Permisos y Autorizaciones Ambientales, October 27, 2008, provided by Ing. José Luis Hernández Ibañez, Manager of Environmental and Permitting for First Majestic Silver Corp. at Corporate offices in Durango city, State of Durango, México. |
18. |
Technical Report for the San Martín de Bolaños Silver Mine Amended, State of Jalisco, México. July 24, 2007, prepared for First Majestic Silver Corp. by Pincock, Allen & Holt, Inc. as Project No. 70540. This Technical Report was published in SEDAR on July 24, 2007. |
19. |
Data and estimates prepared by Minera El Pilón at San Martín and at FMS Corporate offices in Durango city, State of Durango, México. |
20. |
Observations by PAH during site visit to the San Martín Silver Mine in Jalisco State, México during the period of November 24, 2008 and during other previous visits to the operation in 2006 and 2007. |
Pincock, Allen & Holt | REVISED | 23.2 |
90535 February 26, 2009 |
24.0 | DATE AND SIGNATURE PAGE |
Leonel López, C.P.G. |
165 S. Union Blvd. Suite 950 |
Lakewood, Colorado 80228 |
Phone (303)986-6950 |
Fax (303)987-8907 |
leonel@pincock.com |
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the San Martin Silver Mine, State of Jalisco, México dated February 26, 2009 (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, a Member (No. 1943910RM) as SME Founding Registered Member, a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, other short courses and seminars on mineral economics, and other technical subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and economic evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the San Martín de Bolaños mine, as an independent engineer in 1991 and in 2005. I have previously visited the operation during the periods of May 16-19, 2005 and January 23-26, 2007. As part of this study, I visited the project site from November 2 to 4, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, inspecting exploration drilling locations, reviewing sampling |
Pincock, Allen & Holt | REVISED | 24.1 |
90535 February 26, 2009 |
procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
|
7. |
I am the primary author of the Technical Report. I am responsible for and supervised the preparation of all report sections. I have visited the project in January 2007 and November 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 26 th day of February 2009
Leonel López, C.P.G. | |
Leonel López, C.P.G. |
Pincock, Allen & Holt | REVISED | 24.2 |
90535 February 26, 2009 |
Richard Addison |
165 So. Union Blvd., Suite 950 |
Lakewood, CO 80228 |
Phone (303) 986-6950 |
Fax (303) 987-8907 |
dick.addison@pincock.com |
I, Richard Addison, P.E., C. Eng., Eur. Ing. for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the San Martin Silver Mine, State of Jalisco, México dated February 26, 2009 (the Technical Report).
1. |
My residential address is: 857 S. Van Gordon Court, #G207, Lakewood, Colorado 80228. |
2. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
3. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EEC. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
4. |
I have worked as a metallurgical engineer for a total of 38 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
5. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
6. |
I am responsible for the preparation of Sections 3.6, Processing Facilities; Section 18, Mineral Processing and Metallurgical Testing; Section 25.3, Ore Processing; Section 25.4, Infrastructure; and Section 25.7.4, Product Marketing. I visited the San Martín project in November 2008. |
7. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
8. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
Pincock, Allen & Holt | REVISED | 24.3 |
90535 February 26, 2009 |
9. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
10. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 26 th day of February 2009
Richard Addison | |
Richard Addison, P.E., C. Eng., Eur. Ing. |
Pincock, Allen & Holt | REVISED | 24.4 |
90535 February 26, 2009 |
25.0 |
ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT PROPERTIES AND PRODUCTION PROPERTIES |
25.1 |
Introduction |
The San Martín Silver Mine has been in operation since 1983 by the Mexican corporation, Minera El Pilón, S.A. de C.V. (El Pilón), once a wholly-owned subsidiary of First Silver Reserve Inc., which was purchased by First Majestic Silver Corp. (FMS) in 2006. Since that time, FMS has undergone a reorganization whereby all the operating assets of the Company are now owned by a 100 percent wholly owned subsidiary Corporación First Majestic, S.A. de C.V.
The San Martín mine has produced an aggregate amount of 33.6 million ounces of silver including gold and lead as by-products through September 30, 2008. It currently operates a conventional cyanidation plant at a nominal rate of 800 tonnes per day with slurry agitation in tanks, precipitation by the Merrill-Crow method, and generation of gravimetric concentrate in a gravity concentration circuit with a Falcon concentrator. Production is shipped primarily as Doré, together with a limited amount of gravimetric concentrate, to the smelter and refinery facility of Met-Mex Peñoles in Torreón, México.
The company has also recently constructed a 800 tpd flotation plant to process low-grade sulfide ore from resources on the deep-level Zuloaga vein. This plant was started up and some ore milled in the first quarter of 2008 as a test but due to the low metal prices, the operation was suspended. It was intended to produce both a silver-lead and a zinc concentrate. The current low prices of both lead and zinc, coupled with the very low grade of the sulfide feed material and high smelter costs will probably preclude operation of the flotation plant for the foreseeable future.
25.2 |
Mining Review |
25.2.1 |
Mine Design and Production |
The principal vein that is being exploited in the San Martín mine is the wide, continuous Zuloaga vein from which mainly oxide ore has been extracted. The operators, however, plan to soon have the ancillary La Blanca vein in production.
The San Martín mine is developed by a series of trackless levels from the surface, and most were commenced as adits from the mountainside. Levels from the lowest to the highest are the San Carlos, San Juan, San Pablo, Cangrejos, Ballenas, Santa María, San José, Santa Elena, La Escondida and Pinolea levels. The San Carlos and Pinolea levels are currently under exploration and development. The levels are spaced approximately 35 meters apart vertically, except that the spacing between the Pinolea and La Escondida levels is 70 meters. In the future, the engineers plan the spacing between all new levels at a minimum of 60 meters.
Pincock, Allen & Holt | REVISED | 25.1 |
90535 February 26, 2009 |
Underground development is normally performed by mine employees and a mining contractor. The total January through September 2008 development was 7,763 meters, including 3,458 meters of exploration, 597 meters of stope development and 3,708 meters of general mine development. A summary of the January through September 2008 mine development advances is shown in Table 25-1.
TABLE 25-1 |
First Majestic Silver Corp. |
Minera El Pílon, S.A. de C.V. |
San Martín Silver Mine |
Summary of Mine Exploration and Development, 9 months 2008 (meters) |
Mine development in 2008 in all categories (exploration, general mine development and stope development) are below budget. 2007 exploration and development were also significantly under budget. A comparison of the mine exploration and development results for both years is shown in Table 25-2.
TABLE 25-2 |
First Majestic Silver Corp. |
Minera El Pílon, S.A. de C.V. |
San Martín Silver Mine |
Comparison of 2007 and 2008 ( 9 months) Mine Exploration and Development (meters) |
Year |
Exploration | Stope Preparation | General Mine Development | Totals | ||||||||
Real | Plan | Difference | Real | Plan | Difference | Real | Plan | Difference | Real | Plan | Difference | |
2007 | 4,245.6 | 4,624.0 | (378.4) | 842.0 | 1,995.0 | (1,153.0) | 2,925.4 | 6,597.0 | (3,671.6) | 8,013.0 | 13,216.0 | (5,203.0) |
2008 (9 mos.) | 3,458.3 | 4,099.0 | (640.7) | 596.8 | 1,969.0 | (1,372.2) | 3,707.8 | 7,667.0 | (3,959.2) | 7,762.9 | 13,735.0 | (5,972.1) |
Current mine production has been averaging about 490 tonnes per day (tpd) from stopes and development located on La Escondida, San José, Ballenas, Cangrejos, San Pablo, San Juan, and Sta. Elena levels. Underground drilling is performed using jackleg drills. Blasting is accomplished with ammonium nitrate/fuel oil (ANFO) explosives. Underground loading and haulage is performed with 2-yd 3 , 3-yd 3 and 5-yd 3 LHD's (scooptrams) and 10- to 22-tonne capacity trucks. Opening sizes are typically about 3.5 meters by 3.5 meters and ramp gradients are generally limited to about 12 percent. The average productivity in headings is about 0.74 meters per man shift, which is in the normal range for this type of development.
Mechanized, cut and fill stopes now account for most of the mine production, which are developed either directly on the vein, or by first driving a drift on the vein, and then driving a parallel drift about 8 meters away, leaving a pillar between the drifts. Crosscuts are then driven about every 10 meters from the parallel drift through the pillar to the vein for ore extraction. Raises are driven as needed to provide access, services and ventilation. Stopes are mined by breasting down, and drilling is with hand-held jackleg air drills. Blasting is with ANFO primed with a water gel primer which is initiated with a Non-El cap. Productivities in stopes have averaged about 40 tonnes per man-shift during 2008. A diagram of a typical cut and fill stope is shown in Figure 25-1.
Pincock, Allen & Holt | REVISED | 25.2 |
90535 February 26, 2009 |
In the near future, the La Blanca vein will be placed in production. The principal method for extraction of La Blanca will be overhand shrinkage stoping, with drawhole extraction of the stopes using LHD equipment. Drilling in the stopes will be with hand-held drills and a manway and serviceway will be carried on one end of the stope. A diagram of one of the planned shrinkage stopes is shown in Figure 25-2.
During 2008, the operators were preparing a few sulfide blocks for sub-level stoping with long-hole drilling, utilizing a pneumatic single-boom Boart ® Stopemate drillrig for drilling both up and down 2½-inch-diameter holes from sub-levels spaced about 15 meters apart (Figure 25-3). However, the low grade of the material, coupled with the recent severe decline in the prices for lead and zinc has forced the cessation of this effort, and it is unlikely that the sulfide areas will be extracted in the foreseeable future or at least until metal prices improve. A longitudinal section of a typical San Martín long hole stope is shown in Figure 25-3.
Ore from the underground workings is hauled to stockpile areas near the main adits. This ore is loaded from the stockpiles with front-end loaders into 22-tonne trucks for transport to the mill, situated about 15 kilometers away via a gravel road. Ore haulage from the mine to the mill is performed by a contractor. To eliminate the rehandling and loading of ore from surface stockpiles, construction of a truck load-out with chutes on the San Juan level was underway, and all mine ore will pass through a raise system to an excavated holding bin above the truck-loading level. This project has involved the slashing out of about 300 meters of the San Juan level to about 5.0 X 5.0 meters to accommodate highway-type dump trucks in the mine as far as the truck loading chute.
The current mine ventilation system appears adequate for the production rate and the amount of diesel equipment in the mine. PAH did not observe any areas with excessive heat build-up or with stagnant air. Ventilation to the working areas flows through portals at the east end of the mine and into the mines development and production areas. The ventilation flows are assisted by a series of booster fans installed in the circuit and also by a large (250,000 cfm) exhaust fan installed at the west portal of the Santa Maria level. The adit was rehabilitated in 2005 for use as the principal west-end exhaust for the mine. Smaller, axial-vane fans are available for local ventilation. Within the mine, ventilation is controlled with brattice doors. Recently, the mine operators have been drilling a series of rise bore holes (6-ft diameter) on the west-end and near the center of the mine, primarily to improve ventilation exhaust flows.
Dewatering has never been a major problem for the mine and the mine is basically dry. In most work areas the mine is dry and dewatering is minimal. There are four small, 30 hp, centrifugal pumps installed on sumps in the San Pablo, Ballenas, San Juan, and Escondida levels, for intermittent pumping. Most water drains to the San Juan level, where it flows in a ditch out the portal.
Since early summer, the operators have been recovering old dumps, which are located near the major mine portals. This operation is similar to FMSs La Encantada mine, where a similar dump recovery operation is underway. San Martin recovers the dump material by simply excavating it with a front-end
Pincock, Allen & Holt | REVISED | 25.4 |
90535 February 26, 2009 |
loader (Komatsu WA 320), and passing it through a Locotrack W 348 portable screening plant, where the coarse, plus 2-inch material is screened out from the dump rock and the upgraded fines fraction sent to the mill. During nine months of 2008, the total screened dump production (oxides) was 13,549 tonnes, which averaged about 111 g/t Ag per tonne. A summary of the 2008 January through September mine and dump production is shown in Table 25-3.
TABLE 25-3 |
First Majestic Silver Corp. |
Minera El Pilon, S.A. de C.V. |
San Martín Silver Mine |
2008 Production By Area |
Months |
Mine Production 2008 (9 mos.) | |||||||||||||||
Stopes | Development | Mine Dump Recovery | TOTALS 2008 (9 mos.) | |||||||||||||
Tonnes | Ag (g/t) | Pb (%) | Zn (%) | Tonnes | Ag (g/t) | Pb (%) | Zn (%) | Tonnes | Ag (g/t) | Pb (%) | Zn (%) | Tonnes | Ag (g/t) | Pb (%) | Zn (%) | |
January | 13,401 | 194 | 1160 | 208 | 14,561 | 195 | ||||||||||
February | 3,771 | 159 | 603 | 176 | 4,374 | 161 | ||||||||||
March | 10,717 | 175 | 460 | 193 | 11,177 | 176 | ||||||||||
April | 14,382 | 184 | 1766 | 180 | 16,148 | 184 | ||||||||||
May | 21,799 | 169 | 378 | 152 | 22,177 | 168 | ||||||||||
June | 12,080 | 191 | 100 | 170 | 3,758 | 108 | 15,937 | 172 | ||||||||
July | 11,807 | 183 | 306 | 147 | 6,528 | 113 | 18,641 | 158 | ||||||||
August | 18,314 | 152 | 96 | 135 | - | 18,410 | 151 | |||||||||
September | 8,682 | 169 | 318 | 173 | 3,263 | 110 | 12,263 | 153 | ||||||||
October | ||||||||||||||||
November | ||||||||||||||||
December | ||||||||||||||||
Totals 2008 | 114,952 | 175 | 5,187 | 182 | 13,549 | 111 | 133,688 | 169 |
As a check of the gold head assays at San Martin, PAH recalculated the gold contribution for the cutoff grade based on the total gold and silver produced in Doré during 2008. This provides an independent check that the empirically assigned gold grade is both justified and representative. PAHs methodology for completion of this independent check was as follows:
Based on the kilos of silver and gold contained in Doré and concentrates during the first three quarters of 2008, the silver:gold ratio would be 779:1.
Gold recovered grade = 0.128 g Au/t (18,636 g Au produced/145,592 t)
At 55.0 percent recovery for gold, the indicated feed grade to the mill would have been about 0.232 g/t.
The assayed silver head grade was 131 g/t, which checks with the process recoveries and kilos of silver produced.
25.2.2 | Mine Equipment |
Mine equipment includes several brands of used equipment that have been rehabilitated by the mine mechanics and some new mobile equipment, including two Toro 6 3.3 -m³ LHDs and two Sandvik EJC-522 22-t mine trucks. All of the equipment appears to be in fair operating condition and is being maintained in good mechanical condition. FMS management has established a policy of standardization of mobile equipment for its various operations, which has been the case for recent equipment purchases at all of its operations.
Pincock, Allen & Holt | REVISED | 25.7 |
90535 February 26, 2009 |
All mechanical repairs are performed in a surface shop outside of the Ballenas level portal. There are no underground shops, and there is still no preventive maintenance program in effect. Underground roads are in fair condition (rough, with ponded water and muck spillage) which adversely impacts the mobile equipment traveling the roads. Although there are no records on the equipment availability or utilization, the availability is reported to be in the 60 to 70 percent range. The mine has acquired a small bulldozer (D-4) and a small underground road grader for maintaining the roads, but the roads still need better attention. The road grader, however, has not been operational since its arrival at the mine in 2005. A summary of all the major stationary and mobile mine equipment is found in Table 25-4.
TABLE 25-4 |
First Majestic Silver Corp. |
Minera El Pílon, S.A. de C.V. |
San Martín Silver Mine |
Major Mine Equipment List 2008 |
Quantity | Description | Capacity | Notes |
9 | Wagner ST 3.5 B LHD | 3.5 c.y | |
2 | Wagner ST 5A, 5B & 5H LHD | 5.0 cy | |
1 | Wagner Mine Truck | 12 tonne | |
2 | TORO LH 203 | 2.0 cy | |
3 | TORO 6 LHD | 4.3 cy | New |
1 | DUX DT-12 Mine Truck | 12 tonne | |
4 | Jarvis Clark JDT-413 Mine Truck | 12 tonne | |
2 | Jarvis Clark JDT-413 Mine Truck | 12 tonne | |
1 | Jarvis Clark JDT-413 Mine Truck | 15 tonne | |
2 | Sandvik EJC-417 Mine Truck | 15 tonne | |
2 | Sandvik EJC-522 Mine Trucks | 22 tonne | New |
1 | Quasar Sandvik Jumbo model DD-210 | N.A | |
1 | Front-End Loader, Komatsu WA 370-5 | N.A | |
1 | CRIBA Lokotrack SW-348 | ||
N.A. | Pneumatic Jackleg drills | ||
N.A. | Pneumatic Stoper drills | ||
1 | Diamec 232 Diamond Drill | N.A | |
1 | Diamec 250 Diamond Drill | N.A | |
3 | Longyear 34 to 65 Diamond Drills | N.A | |
1 | Onram 1000 Diamond Drill | N.A | |
5 | New Holland NH 5610 Boss Buggy Tractors | N.A | |
3 | CASE 621 B Front end loaders (surface) | 3.5yd³ | |
1 | CAT 966C Front end loader (surface) | N.A | |
1 | Fortress SG-10 Motorgrader | N.A | |
1 | CAT 14G Motorgrader | N.A | |
1 | CAT D8K Bulldozer | N.A | |
2 | Komatsu Track Dozers | N.A | |
1 | John Deere 310D Backhoe | N.A | |
1 | Gardner-Denver ESRF-300 Air Compressor | 1400 cfm | |
1 | Ingersoll-Rand XLE Air Compressor | 1600 cfm | |
2 | Sullair S25-350 Air Compressor | 1500 cfm | |
1 | Atlas Copco Portable Air Compressor | 750 cfm | |
1 | Grimer Schmidt Portable Air Compressor | 335 cfm | |
1 | Allis Chalmers ACP-60C-2PS Fork Lift | N.A | |
3 | Aliva Lanz-01, 02 & 03 Shotcrete Machines | N.A | |
1 | Rosario Exhaust Fan (200 hp) | 150,000 cfm | |
1 | Escondida Exhaust Fan (100 hp) | 60,000 cfm | |
1 | San Jose Fan (40 hp) | 50,000 cfm | |
11 | Axial Ventilation Fans (7 ½ to 30 hp) | Variable | |
5 | Fairbanks-Morse 2-stage Water Pumps; model 5592 | 25 & 30 hp | |
1 | Tsurumi Submersible Water Pump; model KTV2_37H | N.A | |
1 | Tsurumi Submersible Water Pump; model LH-311W-60 | N.A | |
1 | Motor-Generator Sets | 250 kVA |
Pincock, Allen & Holt | REVISED | 25.8 |
90535 February 26, 2009 |
25.3 | Ore Processing |
Ore is transported approximately 13 km to the processing plant located on the east side of the town of San Martín de Bolaños and the Bolaños River. Support facilities for the operations are also near the plant and include the main administrative offices, warehouse, assay laboratory, tailings facilities, maintenance buildings, cafeteria and some employee housing.
The general layout of the plant site, tailings containments, and the support facilities are shown in Figure 25-4 and the layout of the mill facilities are shown in Figure 4-2. The process plant flowsheet and listing of major process plant equipment are shown in Figure 25-5. Figure 25-5 also shows modifications and additions currently in progress to expand plant capacity.
The plant operates on a 24-hour day schedule, seven days per week at a nominal 800 tonne-per-day feed rate. As a consequence of the modifications and additions it projected that the production rate will rise to a nominal 900 tonnes per day. The ore receiving, crushing and screening and ore storage facilities operate on a schedule of two each 10-hour per day shifts, allowing four hours per day for scheduled maintenance.
The remaining plant facilities operate on three of each 8-hour shifts. Scheduled maintenance is conducted for four hours each Monday.
Plant statistics indicate that during the first three quarters of 2008 plant feed rock (a combination of mine ore and fines screened from waste dumps) averaged 131 g/t silver and about 0.23 g/t gold. Silver and gold recovery into Doré and gravity concentrates for the first three quarters of 2008 were 76.39 and 54.91 percent, respectively.
25.3.1 | Ore Receiving |
Ore, which consists of both run-of-mine ore and fines fraction screened from old waste dumps, is delivered by a contract trucker in 22-tonne-capacity end-dump trucks. The ore haul consists of two shifts per day on a six day per week schedule. Each truck is weighed on a scale upon entering the site. The ore is normally dumped directly onto the Coarse Ore Grizzly and into the 200-tonne bin. If the Coarse Ore Bin is full, the trucks dump into a stockpile near the bin. Run-of-mine ore appears to normally be 100 percent passing 24-inch although boulders as large as 36 inch can be seen in the oversize pile near the bin. Oversize is removed from the grizzly with a Front-End Loader, transferred to a hydraulic breaker where it is broken and then returned to the Coarse Ore Grizzly. The grizzly consists of parallel lengths of mine rail mounted upside down and spaced approximately 12 inches apart.
At the time of PAHs visit about 80 percent of the mill feed was screened minus 2-inch dump material and this had been the principal feed mix for the prior three weeks.
The ore contains variable quantities of clay and clay-like minerals which can cause material handling problems in the crushing plant and screening plant and in later operations. Major silver minerals are
Pincock, Allen & Holt | REVISED | 25.9 |
90535 February 26, 2009 |
argentite, Ag 2 S, and stromeyerite, (Ag,Cu) 2 S. Both minerals are highly soluble in dilute Sodium Cyanide (NaCN) solution. Galena and sphalerite are also present and are partially recovered by gravity processing within the grinding circuit.
25.3.2 | Crushing |
Material is withdrawn from the Coarse Ore Bin with a 42-inch x 18-foot Apron Feeder and fed across a stationary grizzly with 4-inch spacing. Rock smaller than 4-inch drops directly to No.1 Conveyor while the plus 4-inch rock drops into a 30 x 40-inch Primary Jaw Crusher. Crushed ore joins the fines on No.1 Conveyor. A stationary magnet is located at the head pulley of No. 1 Conveyor to remove tramp steel. No.1 Conveyor feeds ore over a 5 x 14-foot single-deck Vibrating Screen equipped with a 3/8-inch woven wire deck. Screen fines are finished product and report to No. 4 Conveyor while the screen oversize drops into a 4-1/4-foot Symons Standard Secondary Crusher. The crusher discharges onto No.2 Conveyor. The No.2 Conveyor transfers the crushed ore to a second 5 x 14-foot single-deck screen also equipped with a 3/8-inch woven wire deck. Screen fines are also finished product and drop to No. 4 Conveyor while screen oversize is transferred by No. 3 Conveyor over a third 5 x 14-foot vibrating screen also equipped with a 3/8-inch woven wire deck. Screen fines drop to No. 4 Conveyor and the oversize drops into the Tertiary Crusher, a 4-1/4-foot Symons Short-Head. This crusher discharges onto No.2 Conveyor and joins the discharge of the Secondary Crusher.
The crushed ore is 100 percent passing 13 mm and 80 percent passing 5.2 mm and is discharged from No.4 Conveyor into a 2,200-tonne capacity covered Fine Ore Stockpile. The Bond Ball Mill Work Index is reported to be 13.5 kwh/tonne.
New, larger crushing and screening equipment is currently on site but has yet to be installed. This includes a 36 by 42-inch jaw crusher, two cone crushers, and an 8 x 16-ft double-deck vibrating screen.
25.3.3 | Grinding and Gravity Concentration |
The Fine Ore Stockpile is fitted with two reclaim chutes. The chutes are fitted with manually-adjustable vertical gates through a rack-and-pinion drive. The chutes discharge onto the No.5 Conveyor, which feeds the 8-1/2-foot x 12 foot Primary Ball Mill equipped with a 450 Hp motor. A belt scale and an automatic sampler are located on No.5 Conveyor. The belt scale is used to feed approximately 33 tonnes per hour of feed to the Primary Ball Mill. The automatic sampler is fitted with a 1-inch wide cutter set on a 10-minute cycle. A sample is discharged into a bucket for a shift sample. Each shift sample weighs approximately 20 kg and this is reduced to approximately 1 kg with the use of a Jones-type splitter.
The Primary Mill operates in closed-circuit with one D20 hydrocyclone (Cyclone) (with one installed spare). In the past approximately 70 percent of the cyclone underflow reported directly back to the feed of the Primary Mill while approximately 30 percent was sent to a SB21 Falcon Gravity Separator.
Falcon tails are pumped back to the cyclone feed box of the Primary mill while the Falcon Concentrate flows to a rectangular concrete storage tank in the mill area.
Pincock, Allen & Holt | REVISED | 25.12 |
90535 February 26, 2009 |
The Primary Mill cyclone overflow is feed to the Secondary Ball Mill, a 9-foot x 9-foot Ball Mill with a 450 Hp motor. The Secondary Mill discharges pulp to the Secondary Cyclone Feed Sump. This sump and pump feeds one D20 Cyclone (with one installed spare) which discharges cyclone underflow back to the feed of the Secondary Mill. Approximately 50 percent of the cyclone underflow goes directly into the mill feed while the remaining 50 percent is sent to a SB38 Falcon Gravity Separator. Falcon tailings are pumped to a separate D20 cyclone. Cyclone underflows return to the feed of the Secondary Ball Mill while cyclone overflows at 70 percent passing 200 mesh (74 microns), are pumped to the Pre-Leach Thickener. The gravity concentrate flows to a rectangular concrete storage tank.
The gravity concentrate from the SB38 Falcon Separators is periodically passed-over a table concentrator. Table tails are pumped to the Secondary Mill cyclone feed box. Table concentrates are air-dried and bagged and shipped to the Peñoles smelter in Torreón for treatment. For the first three quarters of 2008, approximately 1 percent of the silver and 3 percent of the gold in the ore was recovered into the gravity concentrates.
About 60 percent of the total NaCN consumed is added to the feed of the Primary Ball and the remaining 40 percent is added in the Leach Tanks. The entire lime requirement for the plant is added to the feed or the Primary Ball Mill. The Primary Ball Mill is charged with 3-inch grinding balls while 1 ½ inch balls are used in the Secondary Mill. Total cyanide and lime consumption for the first three quarters of 2008 were 1.2 and 4 kg/t of ore respectively. Total ball consumption averaged 0.8 kg/t of ore for the first three quarters of 2008.
Plans are to modify the existing grinding circuit to switch it to two parallel lines instead of two lines in series. Work has been partially completed on the installation of a 10- x 10-ft used, refurbished ball mill intended for processing sulfide ore, but this work is on hold at present.
25.3.4 | Leaching |
The Secondary Ball Mill cyclone overflow is pumped to a 50-foot diameter Pre-Leach Thickener. Approximately 40 percent of the precious metals are dissolved in the grinding and Pre-Leach thickener. The remainder must be dissolved in the Leach Circuit. The Pre-Leach Thickener overflow is stored in 3 each 240 m 3 tanks as feed to the Merrill-Crowe Circuit. Thickener Underflow at approximately 50 percent solids is leached in a series of 8 each 26-foot diameter x 30-foot agitated tanks. This provides approximately 78-hours of leach time at the nominal 750-tonne per day feed rate. Sodium cyanide solution is added in Tank No.1 and Tank No. 5 to maintain a NaCN concentration of approximately 1,100 ppm in No.1 Tank, 900 ppm in No.5 Tank, and 600 pp, in the tails.
The Leach Tanks are constructed and piped to allow the by-passing of any tank. Each tank is taken out of service twice each year for approximately one week for scheduled maintenance. Air for the plant is supplied by a 350-horsepower Sullair compressor. This compressor can deliver about 1,200 cubic-feet-per minute (cfm) of 50-60 pounds-per square inch (psig) air. This allows approximately 100 cfm per leach tank to assist in tank agitation and to supply air to oxidize the precious metals. The discharge from the No.8 Leach Tank flows by gravity to the feed of No.1 CCD Thickener.
Pincock, Allen & Holt | REVISED | 25.13 |
90535 February 26, 2009 |
The feed to each leach tank is sampled once each shift and placed in a bucket for a 24-hour composite sample.
25.3.5 | Counter-Current-Decantation (CCD) |
The CCD Circuit consists of four each 50-foot diameter thickeners. The No. 1 Thickener overflow is referred to as Semi-Rich Solution and is pumped to a 450 m 3 tank. Semi-Rich Solution is used as dilution water in the Primary Ball Mill and the excess is recycled to the feed of the Pre-Leach Thickener, thus the tenor of the Rich Solution (Pre-Leach Thickener) is increased. The CCD Thickener underflow pulp densities range form 50 to 56 percent solids. Soluble recovery in the CCD Circuit is approximately 97 percent. Approximately 150 cubic meters per hour of Barren Solution and 15 cubic meters per hour of Fresh Water are added as Wash Water in the No.4 CCD Thickener. The Wash Ratio (tonnes of wash: tonnes of dry ore) is approximately 5 at the nominal 750-tonne per day feed rate. The underflow from No.4 CCD Thickener is pumped to one of two Tailings dams located near the plant. The underflow of each CCD Thickener is sampled once per day. Flocculant is added to the Pre-Leach Thickener and each of the four CCD Thickeners at a total rate of 20 gms/t of ore.
Work has been partially completed on the installation of an additional 50-ft diameter thickener for the CCD Circuit but further work has been put on hold for the present.
25.3.6 | Merrill-Crowe |
The Rich Solution containing approximately 25 ppm silver from the three 240 m 3 storage tanks is filtered in four Butters Filters. Anti-scalant is added to the feed of the Butters Filters. These open-top tanks are fitted with pre-coated filter bags to remove fine solids associated with the Rich Solution. The filtered solution contains less than 5 ppm of suspended solids. Twin De-aeration Towers are used to remove oxygen from this solution to approximately 0.5 ppm prior to zinc precipitation in one of four Plate & Frame Filters. Zinc consumption for 2006 averaged 0.20 kg/t of ore and 1 kg/kg of doré.
Barren solution from the precipitation filters is pumped to a 450 m 3 Barren Solution Tank. Approximately 150 m 3 per hour of Barren Solution is then pumped to No.4 CCD Thickener as wash water. Each Precipitate Filter is shut-down and precipitates removed about once per month. Precipitate averages about 75 percent silver.
Barren Solution is sampled once each shift and analyzed as a shift sample. A sample of Pregnant Solution is taken from the feed to the Butters Filters each shift.
25.3.7 | Refinery |
The Zinc Precipitate is dried in an open oven prior to being fluxed and smelted. A mixture of 5 to 6 percent Borax, 2 to 3 percent Na 2 CO 3 and 1 percent broken glass is used for the flux. Fume hoods are mounted over the Drying Oven and the Smelting Furnace for dust collection. The Doré averages about 94 percent silver. In August 2008, 8.5 tonnes of accumulated slag, crushed to minus ¾-inch, was
Pincock, Allen & Holt | REVISED | 25.14 |
90535 February 26, 2009 |
shipped to the smelter at Torreon. Prior to this time slag was crushed and passed over a shaking table to recover metal prills and the table tails recycled to the mill.
25.3.8 | Reagent Preparation |
Plant reagents include sodium cyanide, lime, and flocculant. Lime is received in 2-tonne Super Sacks. A crane is used to transfer a Super Sack over an unloading hopper located above a mixing tank. Sodium cyanide is received in drums and manually scoped into a mixing tank. The operator wears a face mask, face shield and rubber gloves while mixing. The drums are stored in a fenced and locked area near the mixing facilities. Flocculant is received as dry powder in 25 kg bags, mixed and diluted to 0.5 percent for use in the thickeners.
25.3.9 | Tailings |
The plant tailings are pumped to one of two tailings facilities. The tailings normally report to the No.1 dam during wet months and No. 2 dam during dry periods. The No. 1 tailings dam is located to the east of the plant and was the first of the two facilities. The No. 2 tailings dam is located to the north of the plant. Both tailings dams are located close to and north of the plant as shown in Figure 6-2. The No. 1 dam was built first and the No. 2 dam later. There are about five years of additional capacity remaining in the existing tailings facilities and there is plenty of space available for future expansion. The perimeter walls of the dam are built using cycloned tailings. Water is reclaimed from the tailings dams and returned to the plant.
25.4 | Infrastructure |
The Infrastructure site includes the support facilities for the operations are located near the plant and include the main administrative offices, warehouse, assay laboratory, tailings facilities, maintenance buildings, cafeteria and other employee housing. The Maintenance Department operates from the extensive shops and warehouse located at the plant site. Maintenance personnel are supplied for mine and plant requirements from this department. A large fleet of mobile equipment consisting of track type tractors (bulldozers), wheel loaders and road graders are available for feeding ore to the crushing circuit and site and road maintenance.
Power is supplied by the grid at 33 kva and 60 cycle. Two 1,000-volt transformers supply power to the plant. Plant power consumption for the first three quarters of 2008 was 40 kWh/tonne; average load was 1.2 megawatts. Diesel generators are located at the plant for emergency and stand-by power in case of power interruptions.
Make-up water is pumped from the Bolaños River located about 1 km west of the plant. The water is purchased from the government; the cost is approximately $0.38/m 3 .
Pincock, Allen & Holt | REVISED | 25.15 |
90535 February 26, 2009 |
25.5 | Personnel |
A summary of the San Martín manpower, including company personnel, temporary company employees and contractors is shown in Table 25-5.
TABLE 25-5 |
First Majestic Silver Corporation |
Cia. Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
Manpower Summary, September 30, 2008 |
Supervision | Laborers | Temporary Workers | Total | |||||||||
Department or Area | Company | Contractors | Total | Company | Contractors | Total | Company | Contractors | Total | Company | Contractors | Total |
Mine | 12 | 9 | 21 | 95 | 88 | 183 | 0 | 0 | 0 | 107 | 97 | 204 |
Mill & Process Plant | 9 | 2 | 11 | 37 | 13 | 50 | 0 | 0 | 0 | 46 | 15 | 61 |
General Maintenance | 14 | 1 | 15 | 44 | 8 | 52 | 0 | 0 | 0 | 58 | 9 | 67 |
Construction | 1 | 0 | 1 | 4 | 0 | 4 | 0 | 0 | 0 | 5 | 0 | 5 |
Exploration | 0 | 2 | 2 | 4 | 11 | 15 | 0 | 0 | 0 | 4 | 13 | 17 |
Geology | 9 | 0 | 9 | 17 | 0 | 17 | 0 | 0 | 0 | 26 | 0 | 26 |
Engineering | 3 | 0 | 3 | 4 | 0 | 4 | 0 | 0 | 0 | 7 | 0 | 7 |
Safety | 1 | 0 | 1 | 2 | 0 | 2 | 0 | 0 | 0 | 3 | 0 | 3 |
Warehouse | 4 | 0 | 4 | 2 | 0 | 2 | 0 | 0 | 0 | 6 | 0 | 6 |
Security | 0 | 1 | 1 | 5 | 7 | 12 | 0 | 0 | 0 | 5 | 8 | 13 |
Assay Lab | 3 | 0 | 3 | 6 | 0 | 6 | 0 | 0 | 0 | 9 | 0 | 9 |
Accounting | 4 | 0 | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 4 | 0 | 4 |
Human Resources | 2 | 0 | 2 | 0 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 2 |
Janitorial & Cleanup | 3 | 0 | 3 | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 | 3 |
Dining Room Catering | 0 | 1 | 1 | 0 | 0 | 0 | 0 | 8 | 8 | 0 | 9 | 9 |
Lamphouse | 0 | 0 | 0 | 3 | 0 | 3 | 0 | 0 | 0 | 3 | 0 | 3 |
Drivers | 0 | 0 | 0 | 2 | 0 | 2 | 0 | 0 | 0 | 2 | 0 | 2 |
Truck Drivers | 0 | 1 | 1 | 0 | 10 | 10 | 0 | 0 | 0 | 0 | 11 | 11 |
General management | 2 | 0 | 2 | 0 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 2 |
TOTALS | 67 | 17 | 84 | 225 | 137 | 362 | 0 | 8 | 8 | 292 | 162 | 454 |
The mine operates three shifts per day, 6.3 days per week, 329 days per year. The current total company hourly mine employment is 225, and including 67 employees in mine management, supervision and technical services, the total is 292 employees. An additional 162 hourly and 17 salaried personnel are currently employed as contractors for development, mining and maintenance. This brings the current total personnel for the entire operation to 454. At this staffing level, the average productivity for a 700-tpd-production rate would be approximately 2.0 tonnes per manshift, which is low compared to other similar Mexican operations.
25.6 | Environmental and Safety Review |
The San Martín has been operating since 1983 with the necessary land-use and water extraction permits in effect for the operation. San Martin owns the land surface rights where the mine and plant installations are located to better manage the property. Through the years and changes in regulatory framework, San Martin has been required to update the necessary operation permits.
In October 1997, the San Martin received a tailings water discharge permit from the National Water Commission (C.N.A.); this permit is in-force for the mine life. San Martin samples water collected at the lowest seepage collection pond below the tailings impoundment. The seepage is collected and pumped back (recycled) to the process facility. Analyses are reported to the authorities and have indicated that the water contains less than 3-ppm free cyanide. According to FMS personnel, no discharge of this seepage has occurred. Site personnel also indicated that regulatory personnel have inspected the seepage collection installation and no water discharge permit violations have been issued to date.
Pincock, Allen & Holt | REVISED | 25.16 |
90535 February 26, 2009 |
PAHs environmental and safety review consisted of discussions with site management and supervision Ing. Juan Francisco Díaz de León V., San Martin Manager of Security and Environmental, and the site visit to observe the current site safety and environmental conditions and to identify any potential liabilities having significant economic impacts. Our assessment is not intended as an environmental and safety compliance audit, although prudent practices were considered in our review. In PAHs opinion, San Martin is in compliance with the required permits and authorizations.
Periodic regulatory inspections of the site by SEMARNAP and the Mines Department are being performed to observe compliance. PAH has reviewed permits and authorizations for the San Martín operation and believes that the mine is in compliance with applicable regulations and obtains permits as required.
In general, surface disturbance related to mining is limited to the access road to the mining levels, waste rock dumps at each portal, and auxiliary support areas. Development waste rock is used for fill inside the mine and limits the size of waste rock dumps at the surface. Most of these activities are carried out on land owned by San Martin. Acid rock drainage (ARD) that may be associated with adit water discharges and waste rock dumps is not visibly evident. We noticed no iron precipitates or oxide stains that indicate ARD. Adit drainage is small and quickly seeps into the waste rock dump and dry arroyo. The arid nature of the area indicates that native soils could have appreciable carbonate content and probably have capacity to neutralize limited amounts of acid rock drainage.
San Martin has constructed several concrete pads with berms for spill containment for recycle, oil, and fuel storage areas and for vehicle washing near the portal area. A new diesel-fuel storage facility is under construction which will incorporate a containment berm. Regular trips by 22-tonne-capacity haul trucks raises dust on the gravel road from the mine to the mill that passes through the southern edge of the town of San Martín de Bolaños. San Martin has the haulage contractor perform periodic watering of haul roads to control dust and the mine has paid for the concrete pavement of the portion of the road that crosses the town of San Martín de Bolanos. A further ½-kilometer of concrete paving will be done.
PAH noted no visible evidence of ARD on the active and historic tailings deposition areas or spent heap leach pile. The surface of the active tailings impoundment is wetted, which controls fugitive dust emissions.
The grinding area, agitated leach tanks, wash thickeners, cyanide mix tank, and several other process vessels in the mill area have little or no spill containment. There are minimal stormwater control measures to route uncontaminated runoff away from the mill or to collect and contain stormwater runoff from around the mill site. Below the mill facilities (west) there are three small unlined and bermed ponds that were constructed to collect surface runoff or major spills from the mill area. These ponds are periodically cleaned and the materials recycled. San Martin purchased a scrubber system for the smelting area to control particulate and gas emissions and installed it in 2008. San Martin has good control of the storage of hazardous chemicals and lubricants at the mill site and has installed concrete pads and fenced areas for drums.
Pincock, Allen & Holt | REVISED | 25.17 |
90535 February 26, 2009 |
The San Martin mine received a permit from the Comisión Nacional de Agua (CONAGUA) May 21, 2008 to draw 300 to 1,400 m 3 per day from the Bolaños river.
In place of several septic waste water systems at present, San Martin is in the process of connecting all the waste water into a single system that connects with the municipal waste water treatment plant.
Although Mexican environmental legislation is not explicit in the requirements for remediation, reclamation, and closure, the SEMARNAP expresses concern for the preservation and restoration of the environment and natural ecosystems in its environmental management guidance for industry. In fact, SEMARNAP recommends that facilities establish and implement a program for remediation of spills and releases to the environment and San Martin has now established such procedures. Annual testing is now done of water discharge, sound, dust, ventilation systems, and heat sources.
San Martin has generated plans and estimated costs for reclamation and mine closure of the mine, mill and tailings containment areas. PAH considers the estimated costs low, despite the fact that El Pilón owns most of the surface rights where the installations and mine are located; therefore, based on local conditions, PAH increased the projected costs to a more reasonable amount.
PAHs estimate for the range of costs required to comply with and remediate the environmental issues for the project is approximately $150,000 in addition to the salvage value of plant and mine equipment. These costs are general ranges based on PAHs experience in mining projects in México, and are not the result of detailed analysis. Actual costs will depend on site conditions and impacts from the operation, regulatory requirements at the time of compliance, and corporate environmental management standards. Salvage of plant equipment is forecast to just equal dismantling.
25.7 |
Economic Analysis |
25.7.1 |
Production |
Past and projected production and cost values for San Martín prepared by FMS are presented in Table 25-6. Production rate projections for the future years, the 5-Year Mine Plan, bear little relation to past operation. For the last several years the plant has been processing about 250,000 tonnes per year. FMS are projecting that the production rate for 2009 onwards will be 323,950 tonnes per year, a 30 percent increase.
The FMS 5-year production plan is shown in Table 25-6. The historic production for 2005 through September 2008 is included for reference. The total tonnes in the plan exceed the Proven and probable ore reserve totals, and include Measured and Indicated Resources. Also included are 100,000 tonnes/year of dump material that have been extracted historically, but are not considered in PAHs totals for Reserves and Resources.
Pincock, Allen & Holt | REVISED | 25.18 |
90535 February 26, 2009 |
TABLE 25-6 |
First Majestic Silver Corp. |
Minera El Pílon, S.A. de C.V. |
San Martín Silver Mine |
Production and Costs, Past and Projected |
|
Units |
<- PAST |
PROJECTED -> |
|||||||
2005 |
2006 |
2007 |
Jan-Sep
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
||
PRODUCTION
Mineral Processed Mine Dumps Total Mineral Grade Silver Gold Recovery Silver Gold Metal Produced Silver Gold |
tonnes tonnes tonnes grams/tonne grams/tonne percent percent ounces ounces |
249,239 243 89.58 |
261,839 209 0.32 89.07 87.09 |
239,796 171 84 1,129,220 1,622 |
184,440 131 0.23 77.39 54.91 724,240 691 |
223,950 100,000 323,950 200 0.15 80 85 1,658,291 1,321 |
223,950 100,000 323,950 200 0.15 80 85 1,658,291 1,321 |
223,950 100,000 323,950 200 0.15 80 85 1,658,291 1,321 |
223,950 100,000 323,950 200 0.15 80 85 1,658,291 1,321 |
223,950 100,000 323,950 200 0.15 80 85 1,658,291 1,321 |
Only 153,146 produced by FMS after acquisition.
Historically FMS San Martin operation has converted Resources to Reserves through the underground development; however, the mineral resources do not have demonstrated economic viability and there is no certainty that these may be evlevated to Reserves.
25.7.2 | Operating Costs |
Production costs for the Unit in 2008 (9 months) and those projected for 2009 through 2013 are found in Table 25-6. A total of $7.9 million was expended during the first 9 months of 2008 which included the mining and processing of 184,440 tonnes from which 145,592 tonnes were of oxide ore and 38,848 tonnes of sulfide ore and extracting 742,240 ounces of silver in addition to 691 ounces of gold. On a unit basis, considering oxide ore alone, 2008 cash production costs were $42.86/tonne of ore and $10.40/oz of silver produced. The 2008 operating costs for the oxide ore are $45.60/tonne of ore.
San Martin direct mine operating cost (w/o depreciation or capitalized development and exploration) for the first nine months of 2008 was $27.47 per tonne milled, based on 132,043 metric tonnes of oxide ore milled. In addition, unit operating costs for the mine dump recovery of 13,549 tonnes was $28.15 per tonne of ore mined, milled and processed. Operating costs continued to be negatively impacted by price increases in major consumables such as diesel fuel, steel, electric power, and repair parts through the first nine months of the year. The 2008 underground mine unit costs by major cost centers are presented in Table 25-7.
Unit site operating costs for 2009 are projected at $46.00 per tonne, based on milling and processing 223,950 tonnes from underground oxides and 100,000 tonnes from old mine dumps and stope backfill. PAH believes that the forecast 2009 unit costs of $40.70 per tonne are reasonably estimated and are in line with present trends. A summary of the 2008 (Jan.Sept.) and 2009 Budgeted unit operating costs is shown in Table 25-8.
Pincock, Allen & Holt | REVISED | 25.19 |
90535 February 26, 2009 |
TABLE 25-7 |
First Majestic Silver Corp. |
Minera El Pílon, S.A. de C.V. |
San Martín Silver Mine |
2008 Direct Unit Mine Operating Costs (US $/t) |
Cost Center | *2008 Unit Costs (9 mos.) |
All Mine | |
Stoping & backfilling | $5.24 |
Exploration & development | 0.01 |
Diamond drilling | 0.00 |
Mucking & haulage | 4.65 |
Ventilation | 0.67 |
Dewatering | 0.27 |
Mine compressed air | 1.45 |
Ground Control | 1.49 |
Mechanical equipment maintenance | 4.87 |
Electrical equipment maintenance | 0.59 |
Surface ore loading & hauling | 4.13 |
Mine General | 4.09 |
Total Mine | $27.47 |
*Based on 132,043 tonnes mined & milled, Jan.- Sept. 2008
TABLE 25-8 |
First Majestic Silver Corp. |
Cia Minera El Pilón, S.A. de C.V. |
San Martín Silver Mine |
2008 (9 mos.) & 2009 (budget) Unit Operating Costs for San Martín Unit |
Cost Center |
*2008 Unit Costs (9 mos.) | ***2009 Unit Costs (budget) |
(US $/tonne) | (US $/tonne) | |
Mine | $19.25 | $15.30 |
Mill & Process Plant | 15.78 | 16.00 |
Site G&A | 10.57 | 10.00 |
SubTotal | $45.60 | $41.30 |
Marketing | 0.55 | 0.00 |
**Smelting & Refining | 3.17 | 1.36 |
*****By-Product Credits | (6.23) | (2.73) |
Sub-Total | ($2.51) | ($1.37) |
TOTAL | $43.09 | $39.93 |
*Based on 145,592 tonnes mined & milled, Jan. -
Sept. 2008
**Doré and gravity concentrates only.
***Based on milling and
processing 323,950 tonnes oxide ores, mine, old fills & dumps
****Based
on production of 1,328 ozs. Au in 2009.
25.7.3 | Capital Costs |
Details of past and projected capital costs are presented in Table 25-9. The table shows actual capital costs for the first three quarters of 2008 and those projected for the last quarter of 2008 and for 2009 through 2013.
Pincock, Allen & Holt | REVISED | 25.20 |
90535 February 26, 2009 |
In the past, San Martín had expensed most mine development, exploration and used equipment purchases; however, FMS has instituted a new fiscal policy, and many previously expensed costs and equipment purchases are now capitalized. The anticipated year-end 2008 expenditures are consistent with the mine's plans to continue increasing ore reserves and improve the overall efficiency of the present operation. Most of the mine capital expenditures spent in the first three quarters of 2008 were for mine development and exploration, mine and mill equipment and other ancillary equipment and administrative expenditures.
FMSs estimated annual capital expenditures for 2009 through 2013 are substantially less than in the recent past and are constant for every year.
TABLE 25-9 |
First Majestic Silver Corp. |
Minera El Pílon, S.A. de C.V. |
San Martín Silver Mine |
Capital Expenditures, Past and Projected |
Category |
<-PAST | PROJECTED-> | |||||
Jan-Sep
2008 |
Oct-Dec
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
|
Mining Rights
Mine Development Exploration Diamond Drilling & Geophysics Mine Equipment (Sandvik) Plant Construction (Flotation) Plant Equipment Fixed Assets & Other Sustaining Capital TOTAL |
6,097,158 642,292 1,113,195 868,002 8,720,647 |
275,000 200,000 617,699 250,000 1,342,699 |
70,000
900,000 600,000 534,660 2,104,660 |
70,000
900,000 600,000 534,660 2,104,660 |
70,000
900,000 600,000 534,660 2,104,660 |
70,000
900,000 600,000 534,660 2,104,660 |
70,000
900,000 600,000 534,660 2,104,660 |
All capital cost estimates are presented in fourth quarter 2008 U.S. dollars, with no allowance for inflation, or peso devaluation. The peso to dollar exchange rate used for the 2009 through 2013 operating and capital cost estimates and budgets is 12.50:1.00.
25.7.4 | Product Marketing |
FMSs Mexican head office in Durango negotiates for all FMS operations including the San Martin. Regular annual contracts with the Smelter and Refinery of MET-MEX Peñoles located in the city of Torreón, Coahuila State, México are normally entered into. Peñoles is the largest silver refinery in México and the world, with a capacity of approximately 100 million ounces of silver per year. The contracts negotiated between FMS Durango and Peñoles for sales of Doré and gravity concentrates are typical for these products.
FMS has most recently begun discussions with other metals purchasers outside of Mexico that appear to offer more competitive terms. Approximately 140 tonnes of zinc concentrates were sold to a dealer who shipped this product to China in August 2008. Further discussions are underway and at the time of writing this report no agreement for the sale of Doré and gravity concentrates from San Martin or any operation of FMS had been entered into for 2009.
Pincock, Allen & Holt | REVISED | 25.21 |
90535 February 26, 2009 |
During the first three quarters of 2008 San Martin produced Doré and gravimetric concentrates containing a total of 0.5 million ounces of silver, 600 ounces of gold and 4.5 tonnes (12,000 lbs) of lead.
San Martin ships Doré bars overland to Torreón where they are delivered to a purchasing representative for deliver to Peñoles. San Martin sales agreement of Doré with Peñoles include typical conditions and related charges as follows:
Each lot is weighed upon receipt, melted, sampled for metal content and then reweighed.
FMS is paid for 99.5 percent of the contained gold and 99.5 percent of the contained silver in U.S. dollars.
Treatment and refining charges were US$0.33 per troy ounce of Doré bullion shipped from the mine.
Freight charges, insurance and other fees equal about US$0.50 per troy ounce Doré bullion shipped from the mine.
San Martin gravity concentrates sold to Peñoles during 2008, typically contain about 10 percent lead, 2 percent zinc, 20 percent sulfur, 4 kg/t silver and 20 g/t of gold. Gravity concentrates are shipped by truck from the mine to Torreón, Coahuila, to MET-MEX Peñoles Smelter and Refinery. San Martin sales agreement with Peñoles include the following typical conditions and related charges:
Smelter charges per tonne of concentrate is $505.00.
Refinery charges per ounce of payable silver is $1.50.
FMS is paid 100 percent of the gold in concentrates, less 1 g/t.
FMS is paid 95 percent of the silver contained in concentrates.
FMS is paid 100 percent of the lead contained in concentrates, less 30 kg/t.
A penalty for zinc content amounts to about $5 per tonne of concentrate.
25.7.5 | Cash Flow Model |
A simplified cash flow forecast has been prepared by FMS and is presented as Table 25-10. The Cash Flow Model is theoretical in that it does not represent what is planned; it merely validates that were nothing but Proven and Probable Ore mined and processed until exhausted, this mineral can be mined and processed at a profit. A major premise of the model is that the mine will increase production rates over 2008 levels and remain at the increased rate throughout the 2-1/3 years presented in the model.
It is expected that underground development and exploration will be advanced through both diamond drilling and drifting, and that reserves will be added over time. The production rate increase is discussed more fully in Section 25.7.1.
Pincock, Allen & Holt | REVISED | 25.22 |
90535 February 26, 2009 |
TABLE 25-10 |
First Majestic Silver Corp. |
Minera El Pílon, S.A. de C.V. |
San Martín Silver Mine |
Cash Flow Model, Excluding Income Tax and Profit Sharing, US$ |
REVENUE | 2008 | 2009 | 2010 | 2011 | ||
Ore Milled | tonnes | 323,950 | 323,950 | 122,564 | ||
Ore Grade | ||||||
Silver | grams/tonne | 274 | 274 | 274 | ||
Gold | grams/tonne | 0.15 | 0.15 | 0.15 | ||
Doré Grade | ||||||
Silver | grams/kilogram | 908.56 | 908.56 | 908.56 | ||
Gold | grams/tonne | 528.47 | 528.47 | 528.47 | ||
Doré Produced | tonnes | 78.16 | 78.16 | 29.57 | ||
Metal Produced | ||||||
Silver | ounces/year | 2,283,018 | 2,283,018 | 863,762 | ||
Gold | ounces/year | 1,328 | 1,328 | 502 | ||
Payable Metal | ||||||
Silver (99.5%) | ounces/year | 2,271,603 | 2,271,603 | 859,443 | ||
Gold (99.5%) | ounces/year | 1,321 | 1,321 | 500 | ||
Metal Prices | ||||||
Silver | $/ounce | 12 | 12 | 13 | ||
Gold | $/ounce | 708 | 708 | 708 | ||
Metal Value | ||||||
Silver | $/year | 27,259,231 | 27,259,231 | 11,172,765 | ||
Gold | $/year | 935,475 | 935,475 | 353,930 | ||
Total | $/year | 28,194,706 | 28,194,706 | 11,526,694 | ||
FSR Charges | ||||||
Frt. & rep. ($0.14/oz doré) | $/year | 351,790 | 351,790 | 133,097 | ||
Refining ($0.33/oz doré) | $/year | 829,220 | 829,220 | 313,729 | ||
Total | $/year | 1,181,010 | 1,181,010 | 446,826 | ||
Net Smelter Return | $/year | 27,013,696 | 27,013,696 | 11,079,868 | ||
COSTS | ||||||
Operating | $/year | 13,379,135 | 13,379,135 | 5,061,893 | ||
Environmental/Reclamation | $/year | 120,000 | 120,000 | 120,000 | ||
Royalty Expense | 0% | - | - | - | ||
Property Tax & Insurance | $/year | 120,000 | 120,000 | 120,000 | ||
Total | $/year | 13,619,135 | 13,619,135 | 5,301,893 | ||
Net Profit | 13,394,561 | 13,394,561 | 5,777,975 | |||
Depreciation | 447,566 | 447,566 | 447,566 | |||
Net taxable income | 12,946,995 | 12,946,995 | 5,330,409 | |||
Profit Sharing | 10% | 1,294,700 | 1,294,700 | 533,041 | ||
Net Profit after profit sharing | 11,652,296 | 11,652,296 | 4,797,368 | |||
Tax | 28% | 3,262,643 | 3,262,643 | 1,343,263 | ||
Net Profit | 8,389,653 | 8,389,653 | 3,454,105 | |||
Depreciation | 447,566 | 447,566 | 447,566 | |||
Cash Flow Before Principal &
Sustaining Capital |
|
|
|
8,837,219 |
8,837,219 |
3,901,671 |
CAPEX EQUITY | 1,342,699 | |||||
Sust. Capital | 534,660 | 534,660 | 534,660 | |||
Excess Cash Flow | 0 | -1,342,699 | 8,302,559 | 8,302,559 | 3,367,011 | |
Cumulative | 0 | -1,342,699 | 6,959,860 | 15,262,419 | 18,629,431 | |
NPV | 12% | 15,085,622 | ||||
15% | 14,368,710 | |||||
20% | 13,290,268 | |||||
25% | 12,336,896 |
Pincock, Allen & Holt | REVISED | 25.23 |
90535 February 26, 2009 |
The Cash Flow Model is based on silver prices assumed at $12/ounce for 2009 and 2010, and $13/ounce in 2011.
It can be seen from the table that a net present value for the project at a 12-percent discount rate is $15 million. Sensitivity analyses were performed at the same discount and show the following NPV:
As expected, the project exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally. In all cases the San Martín mine shows positive economics as measured by a cash flow exercise. Accordingly, the postulated reserve position is accepted.
The San Martín mine is an existing operation, so a discussion of payback period does not have meaning here. It can be seen from Table 25-10 that there is sufficient after-tax operational cash flow in any year to adequately cover projected capital expenditures.
Pincock, Allen & Holt | REVISED | 25.24 |
90535 February 26, 2009 |
26.0 | ILLUSTRATIONS |
All corresponding illustrations for this report have been included within each section.
Pincock, Allen & Holt | REVISED | 26.1 |
90535 February 26, 2009 |
Richard Addison |
165 So. Union Blvd., Suite 950 |
Lakewood, CO 80228 |
Phone (303) 986-6950 |
Fax (303) 987-8907 |
dick.addison@pincock.com |
I, Richard Addison, P.E., C. Eng., Eur. Ing., for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Encantada Silver Mine, Coahuila State, Mexico dated February 26, 2009 (the Technical Report).
1. |
My residential address is: 857 S. Van Gordon Court, #G207, Lakewood, Colorado 80228. |
2. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
3. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EU. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
4. |
I have worked as a metallurgical engineer for a total of 44 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
5. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
6. |
I am responsible for the preparation of the paragraph summarizing ore processing in Section 3.0, Executive Summary; Section 18 Metallurgical Testing and Mineral Processing; those paragraphs covering ore processing in Section 21, Interpretations and Conclusions; Section 25.4, Mineral Processing Plant; and Section 25.7, Product Marketing. |
7. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
Pincock, Allen & Holt | REVISED | 24.3 |
90533 February 26, 2009 |
8. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
9. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
10. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 26 th day of February 2009
Richard Addison | |
Richard Addison, P.E., C. Eng., Eur. Ing. |
Pincock, Allen & Holt | REVISED | 24.4 |
90533 February 26, 2009 |
24.0 | DATE AND SIGNATURE PAGE |
Leonel López, C.P.G. |
165 S. Union Blvd. Suite 950 |
Lakewood, Colorado 80228 |
Phone (303)986-6950 |
Fax (303)987-8907 |
leonel.lopez@pincock.com |
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Encantada Silver Mine, Coahuila State, Mexico dated February 26, 2009 (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, a Member (No. 1943910RM) as SME Founding Registered Member, a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, other short courses and seminars on mineral economics and other technical and economic subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and economic evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the La Encantada Deposit North, as Division Manager of Exploration for Peñoles until 1985. As part of this study, I visited the project site from May 1523, November 11-18, 2007 and October 2931, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, reviewing sampling procedures, |
Pincock, Allen & Holt | REVISED | 24.1 |
90533 February 26, 2009 |
reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
|
7. |
I am the primary author of the Technical Report. I am responsible for and supervised the preparation of all the report sections. I have visited the project in May 2007, and November, 2007 and in July and October-November, 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 26 th day of February 2009
Leonel López | |
Leonel López, C.P.G. |
Pincock, Allen & Holt | REVISED | 24.2 |
90533 February 26, 2009 |
Technical Report for the
La Parrilla Silver Mine,
State of Durango,
México
Prepared for
First Majestic Silver Corp.
February 16,
2009
90534
AMENDED AND RESTATED
February 26, 2009
Prepared by
Pincock, Allen &
Holt
Richard Addison, P.E.
Leonel
López, C.P.G.
1.0
TITLE PAGE
This technical report has been prepared in accordance with the National Instrument 43-101 standards of disclosure for mineral projects (NI 43-101) and the contents herein are organized and in compliance with form 43-101F1 contents of the technical report (43-101F1). This technical report is an update of Technical Reports Amended for the La Parrilla Silver Mine, Durango State, México; which was prepared by Pincock, Allen & Holt, Inc. for First Majestic Silver Corp. dated March 18, 2008 and published in SEDAR in March 19, 2008 and January 25, 2008 and published in SEDAR in January 26, 2008. The first two items are the title page and table of contents that are presented previously in this report and are simply mentioned herein to maintain the specific report outline numbering contained in form 43-101F1 contents of the technical report.
Pincock, Allen & Holt | REVISED | 1.1 |
90534 February 26, 2009 |
2.0 TABLE OF CONTENTS
See discussion in Section 1.
Pincock, Allen & Holt | REVISED | 2.1 |
90534 February 26, 2009 |
Pincock, Allen & Holt | REVISED | i |
90534 February 26, 2009 |
Pincock, Allen & Holt | REVISED | ii |
90534 February 26, 2009 |
TABLES
Pincock, Allen & Holt | REVISED | iii |
90534 February 26, 2009 |
FIGURES
Pincock, Allen & Holt | REVISED | iv |
90534 February 26, 2009 |
Pincock, Allen & Holt | REVISED | v |
90534 February 26, 2009 |
3.0 EXECUTIVE SUMMARY
First Majestic Silver Corp. (FMS) retained Pincock, Allen and Holt (PAH) to prepare a Technical Report covering updated results of operations at La Parrilla Silver Mine (La Parrilla) located in the Municipality of Nombre de Dios, Durango State, México. The objective of this Technical Report is to provide FMS with a report that will comply with existing regulations in Canada. This report meets the requirements for NI 43-101 and conforms to form 43-101F1 for technical reports.
La Parrilla mine is owned and operated by First Majestic Plata, S.A. de C.V. (FMPlata) a wholly-owned subsidiary of FMS through its newly created Mexican holding company, Corporación First Majestic, S.A. de C.V. (CFM) which went into effect on August 14, 2007. La Parrilla Silver Mine was previously operated by First Majestic Resources México, S.A. de C.V.
La Parrilla Silver Mine consists of underground silver/lead/zinc mining operations, and cyanidation and flotation ore processing plants. La Parrilla represents a typical Mexican mining district which was discovered in Colonial times (XVI XVII centuries) and only developed from outcroppings by following mineralization on the structures, until high grade ore shoots were discovered and depleted at times of high prices of the metals.
FMPlata owns mining rights that cover 53,249.22 hectares (131,581.20 acres). The duration of the mineral rights concessions is 50 years, renewable over similar time periods.
La Parrilla mine consists of underground mine development that includes drifts, ramps, raises, stopes and other old workings along the S-SE-trending Los Rosarios system. This system consists of a 2-km-long mineralized structure that encloses numerous veins that branch out into veinlets and stockwork zones. The Los Rosarios system comprises La Rosa, Rosarios, La Blanca and San José mines and it intersects the NS-trending San Marcos vein. Other mineralized zones are located within the surrounding skarn zone of a regional diorite intrusive stock. These include Quebradillas, Protectora, San Nicolas, San José, Las Vacas, Santa Paula, etc.
Historical production records, plus surveys of old stopes within the La Parrilla district, suggest that approximately 1.37 million tonnes of silver ores were extracted from these mines at an estimated average grade of 310 g/tonne Ag, 1.9 percent Pb and 1.5 percent Zn. This estimate includes production by Mina Los Rosarios between 1978 and 1991 and FMSs production from 2004 to September 30, 2008. The production amounts to 13.7 million ounces silver, 58.4 million pounds lead and 44.4 million pounds zinc.
FMPlata has developed an on-going aggressive exploration program that includes ramps, drifting and crosscutting into the old working areas of the Los Rosarios system. The exploration budget proposed for the period of 2009 is $5.18M. It includes 97 drill holes totaling 17,200m, geophysical and geochemical surveying, and approximately 5,800m of drifting, crosscutting and ramps development. This program is based on the following premises:
Pincock, Allen & Holt | REVISED | 3.1 |
90534 February 26, 2009 |
Prepare the La Parrilla operation with sufficient mineral reserves to sustain economic production throughout periods of low metals prices.
Plan and develop systematic production and increase operating capacity.
Recover oxides and sulfides mineralization, consolidating mining blocks, and increasing Reserves to support a reasonable production schedule.
Support exploration activities for development, channel sampling and underground drilling.
Carry out an aggressive exploration program including deep drilling from underground and surface sites.
Focus exploration efforts on regional exploration targets.
PAH has reviewed the La Parrilla mine Reserve update of September 30, 2008, along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several Reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
The La Parrilla mine has estimated mineable Reserves for the following deposits:
The Proven ore category has been projected up to 20 meters from the drift sample data, while the Probable ore category is projected another 20 meters beyond the Proven ore. The total in situ diluted Proven and Probable Reserves at a minimum mining width of 2.00m, as reviewed by PAH, is 0.50 million tonnes of oxides and sulfides averaging 295 grams per tonne silver, 1.40 percent lead and 1.01 percent zinc, for a total of 4.8 million contained ounces of silver only; or 5.2 million ounces of silver equivalent with gold and lead credits.
Resource calculations by FMPlata at La Parrilla are based on projections of the mineralized zones in the underground mine workings, 20m beyond the areas of Reserves for the Measured Resources, and another 20m beyond the boundaries of the Measured Resources for the blocks of Indicated Resources. Inferred Resources are estimated by projecting up to 50m beyond the Indicated Resource block boundaries along mineralized structures, and another 20m beyond the blocks width. La Parrilla mineral resource estimates were applied mostly to diamond drilling intercepts, as well as to some adjacent blocks from the estimated reserves. The grade for these blocks is determined from the grade estimated for the
Pincock, Allen & Holt | REVISED | 3.2 |
90534 February 26, 2009 |
drill hole intercepted grade and from the adjacent Reserve blocks, and sampling in mine workings and drill holes located within the block area.
The Measured and Indicated silver Resources, including oxides and sulfides mineralization, consist of 3.1 million tonnes averaging 255 grams per tonne silver, for a total content of 30.7 million ounces of silver equivalent inclusive of gold credit for oxides and lead and zinc credit for sulfides. The resources grade has been estimated in situ above cutoff grade, and the silver equivalent content is inclusive of gold credit in oxides, at 6 g/tonne Ag, and inclusive of lead and zinc credit for sulfides, at 47 g/tonne Ag and 30 g/tonne respectively, for sulfides. This estimate is based on sales and on the following prices: Ag - $12.00/oz, Au - $708/oz, Pb - $0.75/lb and Zn $0.75/lb.
Table 3-1 presents a summary of the La Parrilla Proven and Probable Reserves and Measured and Indicated Resources, in addition to Inferred Resources at the bottom of the table. These Reserves and Resources are exclusive of each other category. Figure 3-1 shows the Los Rosarios system Reserve/Resource Blocks.
PAH has excluded the zinc mineralization from the Reserve Base. However, zinc may represent a significant value for the La Parrilla operation at better market conditions with higher prices and possibly lower smelter charges. In the current resource grade estimates, the zinc has been considered as part of the blocks grade, and estimated at a 70 percent metallurgical recovery included in the value for silver equivalent calculation.
PAH notes that these Resources are in addition to the previously reported Reserves.
Additional geologic potential exists within the area of La Parrilla to investigate targets that may result in significant resource development for the mining operation. Direct exploration of geophysical anomalies may result in significant target zones for further exploration. FMS has determined anomalous areas of interest for further exploration investigations, which may represent concentrations of sulfides or other conductive minerals.
Other areas representing interesting geologic potential within the FMPlata holdings are the following:
Pincock, Allen & Holt | REVISED | 3.3 |
90534 February 26, 2009 |
TABLE
3-1
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A. de
C.V.
La
Parrilla
Silver Mine
Mineral
Reserves
and
Resources
Prepared
by
FMPlata,
Reviewed
by PAH as of
September
30, 2008
(1) Estimates by First Majestic Plata, reviewed
by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery
included.
(2) Silver equivalent based on sales. Prices used for evaluation:
Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb.
(3) Oxides Ag equivalent includes gold credit based on FMPlata
sales. Au Credit = 6 g/tonne Ag.
(4) Sulfides Ag equivalent includes Pb credit = 47 g/tonne Ag.
Zinc is considered at 70% met. recovery = 30 g/tonne Ag.
(5) Cut Off Grade estimated as 184 g/tonne Ag net of Au credit
in oxide ores; and 246 g/tonne Ag net of Pb credit in sulfide ores. Zinc not
onsidered in COG estimates.
(6) Preliminary Quebradillas Block Model estimate at COG>50
g/tonne Ag.
(7) Reserves and resources in this report are exclusive of each
other.
(8) Rounded figures.
Pincock, Allen & Holt | REVISED | 3.4 |
90534 February 26, 2009 |
Additional Inferred Resources have been projected in Rosarios, Quebradillas, and San Marcos zones.
FMS operates three mines in La Parrilla area. The Rosa/Rosario and La Blanca, the San Marcos, and Quebradillas operations, all are separate mines within an area of about 10 km 2 . The production from the mines during 2008 has been about 143,838 tonnes at an average grade of 213 g/tonne Ag. This production includes about 24,000 tonnes of ore extracted from development workings. Oxide ore mined was about 82,419 tonnes, while sulfide ore mined was about 61,419 tonnes.
The La Parrilla processing plant has both an oxide recovery circuit and sulfide recovery circuit; therefore both doré metal bars and flotation concentrates are produced. Products are marketed to Met-Mex Peñoles’ smelter and refineries, located in Torreón, Coahuila. The tonnes milled during the first 9 months of 2008 totaled 143,838 tonnes. Silver production for the first 9 months was about 731,259 equivalent ounces of silver. The company’s 5-Year Plans requires improvements in production rates, ore head grades and mill recoveries to achieve about 1.94 million ounces of silver equivalent production per year by the end of 2009.
Mining is semi mechanized with trackless loading and hauling. Some drilling is done with a 2-boom and 1-boom electro-hydraulic drill jumbo, but most development and production drilling is accomplished with hand-held jackleg drills. The principal stoping method for the near-vertical veins of La Parrilla is overhand cut and fill, with backfill mainly obtained from development waste. However, the operators are currently experimenting with long-hole open stoping. Drifting and ramping is all trackless, and at times old drifts and other workings that are used in the modern La Parrilla operations are slashed out to accommodate the trackless equipment. Raising is mainly done conventionally as “bald-headed raises,” but some major raises, ventilation, orepasses, etc, are done with contracted raise boring equipment.
The mines are dry and very little water handling is required. Ventilation is primarily by natural flow, and the operators are in the process of boring exhaust ventilation raises for the mines. Compressed air is provided from surface compressor stations in all three operations.
The ore processing plant at La Parrilla processes both oxide and sulfide silver ore in two separate parallel circuits. The oxide circuit has a process capacity of 420 tonnes per day of which during 2008, an average of 300 tonnes per day of ore from La Parrilla containing 211 grams per tonne of silver and recovers about 65 percent of the contained silver as silver bars. The sulfide circuit has a 420 tonnes per day capacity of which during 2008 an of average of 230 tonnes per day of ore were from La Parrilla containing about 218 grams per tonne silver and 2.0 percent lead and recovers about 65 percent of the silver and about 55 percent of the lead into a concentrate containing about 4.0 kilograms per tonne silver and 28 percent lead.
The plant was extensively expanded and modified in 2006 to allow processing of both oxide and sulfide ore at a rate of 420 tonnes per day each. Metal recoveries are expected to gradually rise to 70 percent, and may, perhaps, improve further as the mineral processed is extracted from other areas of the mine outside of the transition zone. In addition to the plant, the tailing containment area with 10 years of life has been built. Figure 3-2 shows the Ore Processing Plant Layout.
Pincock, Allen & Holt | REVISED | 3.6 |
90534 February 26, 2009 |
Infrastructure for the operation is well established with adequate roads, buildings and utility systems. Power and water supply systems were expanded in 2006 to mine and process ore at a higher rate than in the past.
PAH is not aware of any environmental liabilities within the La Parrilla mining district. FMS applied for modifications to the previous operating permits (Permiso Unico Ambiental) to accommodate the expansion for the processing plant installations. This was granted on March 23, 2006.
The mine operations are contracted to outside contractors, and surface ore and waste haulage is also contracted. The administration, beneficiation plant and ancillary functions are all accomplished with company personnel. The total personnel on site at the end of September 2008 totaled 509 people of which 458 were outside contractors. The overall efficiencies achieved to date (September 30) in 2008 were about 1.1 tonnes per man-shift, while that for the mine operation only, were about 2.3 tonnes per man-shift.
Site operating costs have averaged about $47 per tonne mined and milled for the nine-month period of 2008. The all-in costs including mining, milling and downstream processing have averaged about $50 per tonne for oxides and $67 per tonne for sulfides. The mining costs were an average of about $18 per tonne, milling costs were about $24 for oxide ores and $21 for sulfide ores per tonne and site G&A costs averaged about $6.30 per tonne. A summary of the 2008 operating costs is shown in Table 3-2.
TABLE 3-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Summary of Operating Costs
Concept Area | Type of Ore | |
Oxides | Sulfides | |
Mine | 18.50 | 17.52 |
Mill | 23.50 | 20.81 |
Site G&A | 6.32 | 6.32 |
Marketing, SR, Freights, etc. | 1.55 | 22.29 |
Total OC for Cutoff | $49.87 | $66.94 |
Capital expenditures are estimated at about $6.8 million in 2008, including $3.2 million for exploration and mine development. Projected capital expenditures budgets decrease to $3.9 million in 2009 and are at about $2.9 million per year for the remaining three years of the 5-Year Plan. The detail of the capital costs is found in Table 3-3.
An economic analysis of the project, at a discount rate of 10 percent, resulted in a net present value of $13.65M with an Internal Rate of Return of 205 percent. These values show La Parrillas current conditions, which are based on mining lower tonnage at lower grades due to mine preparation developments, and lower metallurgical recoveries due to processing ores from the oxides/sulfides transition zone.
Pincock, Allen & Holt | REVISED | 3.8 |
90534 February 26, 2009 |
TABLE 3-3
First Majestic Silver
Corp
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Projected Capital Expenditures, 2009 through 2013 ($U.S)
AREA | 2008 | 2009 | 010 | 2011 | 2012 | 2013 | TOTALS |
Mine | |||||||
Exploration | 5,103,135 | 600,000 | 600,000 | 600,000 | 600,000 | 600,000 | 8,103,135 |
Mine Development | 3,725,198 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 12,725,198 |
Mine Equipment and Other | 2,372,080 | 525,000 | 525,000 | 530,000 | 530,000 | 530,000 | 5,012,080 |
Sub-total | 11,200,413 | 2,925,000 | 2,925,000 | 2,930,000 | 2,930,000 | 2,930,000 | 25,840,413 |
Plant | |||||||
Equipment & Installations | 980,202 | 980,202 | |||||
Sub-total | 980,202 | 980,202 | |||||
Other G&A, Infrastructure | |||||||
Equipment & Installations | 733,821 | 62,216 | 62,216 | 7216 | 7216 | 7216 | 879,901 |
Grupo Mexico Inc. VAT | 912,233 | 912,233 | |||||
Sub-total | 733,821 | 974,449 | 62,216 | 7216 | 7216 | 7216 | 1,792,134 |
TOTALS | 12,914,436 | 3,899,449 | 2,987,216 | 2,937,216 | 2,937,216 | 2,937,216 | 28,612,749 |
These conditions are also affected by high capital and operating costs generated by equipment acquisitions, an aggressive exploration program and mine preparation investments. In PAHs opinion the La Parrilla mill and process plant will likely reach planned throughput rates in 2009 as shown in Table 3-4.
TABLE 3-4
First Majestic Silver
Corp.
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Economic Analysis Results for 5-year Plan
ECONOMIC EVALUATION |
Discount Rate
(%) |
NPV
($US) |
NPVs |
10%
15% 20% 25% |
13,655,502
11,628,858 9,982,165 8,629,095 |
IRR | 176% |
PAH believes that the La Parrilla Reserve and Resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of Reserves and Resources. PAH believes that the classification of the Reserves and Resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The Reserves and Resources herein reported by FMPlata for the La Parrilla Silver Mine were reviewed by PAH and constitute part of an operation by FMS. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these Reserves and Resources may not be materially affected by issues that could prevent their extraction and processing.
An economic analysis of the La Parrilla operation shows positive economics as measured by a cash flow exercise, and thus the postulated Reserve position is accepted.
Pincock, Allen & Holt | REVISED | 3.9 |
90534 February 26, 2009 |
4.0 INTRODUCTION
First Majestic Silver Corp. (FMS) retained Pincock, Allen and Holt (PAH) to prepare a Technical Report covering the La Parrilla Silver Mine (La Parrilla) located in the Municipality of Nombre de Dios, Durango State, México. This report is an update of Technical Reports for the La Parrilla Silver Mine, Durango State, México, prepared for First Majestic Silver Corp. dated July 24, 2007, Amended by Pincock, Allen & Holt, Inc., and was published in SEDAR on July 25, 2007, and Technical Report for the La Parrilla Silver Mine, Durango State, México, dated January 25, 2008, and published in SEDAR in January 29, 2008, and Technical Report Amended dated March 18, 2008 and published in SEDAR in March 19, 2008, and they are referred to as Technical Reports herein.
The objective of this Technical Report is to provide FMS with an updated report that will follow existing regulations in Canada. This report meets the requirements for NI 43-101 and conforms to form 43-101F1 for technical reports.
4.1 Qualified Person and Participating Personnel
The principal author of this report is Leonel López, a Certified Professional Geologist (AIPG-C.P.G.-08359), Registered Professional Geologist in the State of Wyoming (PG-2407), a Registered Professional Member of The Society of Mining Engineers (No.1943910) and a PAH Principal Geologist. Mr. López has visited the site during the periods of May 1518 and November 13-18, 2007 to review current status of the property. Another team of PAH professionals visited La Parrilla Silver Mine to review environmental, mine, plant and safety issues during the period of April 1315, 2007. Mr. Lópezs prior visit to La Parrilla Silver Mine was in June 21, 2006 as part of a PAH team of professionals to review the operations. Mr. López and Mr. Richard Addison visited the property during the period of October 30 to November 1, 2008 to review available information on La Parrilla Silver Mine and has assembled the location, tenure, history, environmental considerations, and all aspects of the geology, and reviewed the sampling, data verification, drilling and project resources. Other PAH members collaborated in the review of reserve estimates, mine and processing, operations and operating and capital costs for La Parrilla Silver Mine and operation.
4.2 Terms and Definitions
La Parrilla consists of silver/lead/zinc oxidized and sulfides mineral deposits located in the State of Durango, México. La Parrilla comprises numerous mineralized structures, vein, breccia zones and metasomatic mineral concentrations within the area, including additional geologic potential to discover other projected concentrations along regional and local structures and their projected intersections. Some of the known deposits within the La Parrilla area are the following:
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90534 February 26, 2009 |
In this report:
FMS refers to First Majestic Silver Corp.
CFM refers to Corporación First Majestic, S.A. de C.V. a Mexican holding company wholly owned subsidiary of FMS, which was incorporated on July 31, 2007 and effected corporate restructuring on August 14, 2007 by which CFM now holds all ownership, including all shares of La Encantada, El Pilon and FMPlata. FMS Press Release of November 29, 2007 published on SEDAR site.
FMPlata refers to First Majestic Plata, S.A. de C.V. a wholly owned subsidiary of Corporación First Majestic, S.A. de C.V. It was incorporated on July 31, 2007 to hold the La Parrilla Silver Mine mineral rights, ownership and obligations held through First Majestic Resources México, S.A. de C.V. including all FMRM shares and acquisitions from Industrial Minera México, S.A. de C.V., its subsidiaries and other third parties. All changes were effected on August 14, 2007.
FMRM refers to First Majestic Resources México, S.A. de C.V., a wholly-owned Mexican subsidiary of FMS held under the Mexican holding company CFM, and operator of La Parrilla Silver Mine. FMRM ownership and rights were transferred to FMPlata on August 14, 2007.
PAH refers to Pincock, Allen & Holt, Inc., a Division of Runge, Inc., and its representatives.
Peñoles refers to Industrias Peñoles, S.A. de C.V., MET-MEX Peñoles and Grupo Peñoles.
La Parrilla Silver Mine, La Parrilla mine, La Parrilla district or La Parrilla refers to the operating underground mines, processing plants and infrastructure facilities that form this industrial complex and all the surrounding ground owned by FMPlata.
Mina Los Rosarios, S.A. de C.V. is a Mexican mining company owned by Mr. José Antonio Gámiz Quiñones and Family, former operator of the La Parrilla mine and plant. FMRM acquired the rights to La Parrilla from this company.
Grupo México refers to the corporation that holds ownership of ASARCO, former ASARCO Mexicana, and a group of Mexican Companies, subsidiaries of Industrial Minera México, S.A. de C.V., including Minera Montana, S. de R.L. de C.V., Mexicana del Arco, S.A. de C.V. and Minerales Metálicos del Norte, S.A. de C.V., from which FMRM has purchased mining concessions and properties within La Parrilla area.
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Resource and Reserve definitions are as set forth in the CIM Definitions Standards dated December 15, 2005.
Resource definitions are as set forth in an appendix to Companion Policy 43-101CP, Canadian Institute of Mining, Metallurgy and Petroleum Definitions Adopted by CIM Council, August 20, 2000.
CFM refers to Comisión de Fomento Minero, a Mexican Federal Entity responsible for support and promoting mining activities, including financing and exploration, mining and processing through contracting by small-scale miners (gambusinos). It was shut down by the Mexican Federal Government. All former CFM activities were transferred to other Federal Institutions as Fideicomiso de Fomento Minero (FIFOMI) and Servicio Geológico Mexicano (SGM).
4.3 Units
All units are carried in metric units, also unless otherwise noted. Grades are described in terms of percent (%) or grams per metric tonne (gptonne or g/tonne), with tonnages stated in metric tonnes. Salable metals are described in terms of tonnes, or troy ounces (precious metals) and percent weight.
Unless otherwise stated, Dollars are US Dollars. The following abbreviations are used in this report:
Abbreviation | Unit or Term |
Al 2 O 3 | Alumina |
ANFO | Ammonium nitrate/fuel oil |
ASTM | American Society for Testing and Materials |
Sb | Antimony |
Ag | Silver |
As | Arsenic |
Au | Gold |
Bi | Bismuth |
Cd | Cadmium |
Co | Cobalt |
Cu | Copper |
In | Indium |
Fe | Iron |
g/tonne (gptonne) | Grams per tonne |
ha | Hectare (10,000 m 2 ) |
kcal | Kilocalories |
kg | Kilograms |
km | Kilometer |
k | Thousands |
Pb | Lead |
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90534 February 26, 2009 |
LOM | Life of Mine |
Mn | Manganese |
Hg | Mercury |
m | Meters |
masl | Meters Above Sea Level |
mm | Millimeters |
M | Million |
Mt | Million Tonnes |
mtpd | Metric tonnes per day |
Mtpy | Million tonnes per year |
NPV | Net Present Value |
Ni | Nickel |
oz | Ounces |
% | Percent by weight |
Patio | refers to yard, court or stocking ground |
Se | Selenium |
SiO | Silica |
Sn | Tin |
T or t | Metric Tonne (2,204 lbs) |
Te | Tellurium |
Ti | Titanium |
tpa | Tonnes per annum |
tpy | Tonnes per year |
tpd | Tonnes per day |
ug | Underground |
WO | Tungsten Oxide |
Zn | Zinc |
$ | United States Dollars |
MX$ | Pesos, New Mexican Pesos |
CA$ | Canadian Dollars |
4.4 Source Documents
The source documents for this report are summarized in Section 22.
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5.0 RELIANCE ON OTHER EXPERTS
This report was prepared for First Majestic Silver Corp. (FMS) by the independent consulting firm Pincock, Allen & Holt, Inc. (Consultant) and is based in part on information prepared by other parties. PAH has relied primarily on information provided as part of the following reports, investigations and operating results:
• |
Resource and Reserve Estimates by FMS for La Parrilla Silver Mine. Prepared by FMPlata and FMRM staff and reviewed by PAH. September 30, 2008. |
|
• |
Technical Report for the La Parrilla Silver Mine Amended, Durango State, México (Technical Report Amended). Prepared for First Majestic Silver Corp. Prepared by Pincock, Allen & Holt, Inc., March 18, 2008, and published in SEDAR in March 19, 2008. |
|
• |
Technical Report for the La Parrilla Silver Mine Amended, Durango State, México (Technical Report Amended). Prepared for First Majestic Silver Corp. Prepared by Pincock, Allen & Holt, Inc., July 24, 2007, and published in SEDAR on July 25, 2007. |
|
• |
La Parrilla Geologic Report, Durango, México. Prepared by the consulting firm of Exploraciones Geológico-Mineras de Occidente, S.A. de C.V., Ing. Florentino Muñoz Cabral, April 2004. |
|
• |
Legal Opinion First Majestic Plata, S.A. de C.V., a wholly owned subsidiary of Corporación First Majestic, S.A. de C.V. wholly owned subsidiary of First Majestic Silver Corp. Legal Opinion by Durango-based office of legal advisers, by Mr. Carlos Galván Pastoriza, Abogado, prepared on September 30, 2008. |
|
• |
Geological Evaluation of the La Parrilla Property, State of Durango, México. Prepared by: J.N. Helsen, Ph.D., P.Geo. March 27, 2006. |
|
• |
Information provided by FMRM and FMS as owners and operators of La Parrilla mine, including data from January to September 2008. |
|
• |
Information provided by FMS Corporate Manager of Environmental and Permitting, on Permits and Environmental Requirements compliance on behalf of the La Parrilla mining operation. This document of statement and list of permits and requirements was provided to PAH by FMS Corporate Manager of Environmental and Permitting, Mr. José Luis Hernández Santibañez, dated on October 31, 2008. It includes the following: |
|
• |
Delegación Federal de la SEMARNAT, Estado de Durango, Unidad de Gestión Ambiental. April 17, 2006. Authorization to change the Licencia Ambiental Unica No. LAU-10/016-2005 dated March 16, 2005 to updated terms due to increment of operating capacity at La Parrilla, registration No. FMR141001611 dated April 17, 2006. |
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• |
Delegación Federal de la SEMARNAT, Estado de Durango, Unidad de Gestión Ambiental on resolution to authorize construction and use of Tailings dam Parrilla II. Document No. SG/130.2.1.1/000897. Dated April 16, 2007. It includes other documents in which FMRM is authorized to change the use of the land, etc. |
||
• |
State Manager of CNA (Comisión Nacional del Agua), Estado de Durango. Official notification of Concesión Title No. 03DGO102200/11IMGE06 for the use of water at La Parrilla, dated December 18, 2006. Registration of title rights on October 26, 2006. |
||
• |
Delegación Federal de la SEMARNAT, Estado de Durango. Permit as industry that uses and handles dangerous substances, including the use of Sodium Cyanide. Dated June 15, 2006. |
||
• |
Delegación Federal Durango, Subdelegación de Gestión para la Protección Ambiental y Recursos Naturales, Unidad de Aprovechamiento y Restauración de Recursos Naturales. Document No. SG/130.2.2./000979. Authorization to change the use of land for the project construction and operation of the La Parrilla II Tailings Dam of the La Parrilla Mining Operation. Dated on Durango city April 27, 2007. |
||
• |
Program of Environmental Audit has been presented to SEMARNAT with pending resolution for approval. |
||
• |
Permit for the use of explosives. |
||
• |
Permit to allow discharge of fluids. |
||
• |
Annual Operating Permit. |
||
• |
Risk Analysis for the Plant. |
||
• |
Program of Accidents Prevention. |
||
• |
The following studies have been completed on behalf of the La Parrilla Silver Mine operation: |
||
- |
Dust in surrounding areas, May 2005, August 2007 and July 2008. |
||
- |
Sampling and analysis of tailings for cyanide and arsenic, May 2005 and Jun 2008. |
||
- |
Sampling and analysis of water from domestic water wells, May 2005, July 2007 and June 2008. |
||
- |
Program of Environmental Audit in application since February 2006. |
||
- |
Risks study, February 2006. |
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Program of Accidents Prevention, February 2006. |
||
- |
Study of noises in the surrounding areas, May 2006 and July 2008. |
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- |
Study of noises in the working areas, April 2007. |
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- |
Termic conditions study in working areas, April 2007. |
||
- |
Study of illumination conditions in working areas, April 2007. |
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- |
Study of the presence of dust in working areas, April 2007. |
||
- |
Study on characterization of soils and tailings, August 2007. |
||
• |
PAHs observations during site visits on the periods of June 20-25, 2006; April 13-15, 2007; May 1518, 2007 and November 1318, 2007. |
PAH believes that this information is reliable for use in this report. Environmental review of documents, permits and studies for the La Parrilla Silver Mine were provided to PAH by the FMS Corporate Manager of Environmental and Permitting, Mr. José Hernández Santibañez in document dated October 31, 2008.
This information was also reviewed by FMPlata legal advisers and a legal opinion was provided to PAH by the Durango City-based Lawyers Firm of Mr. Carlos Galván Pastoriza, dated September 30, 2008. Therefore, PAH believes all above described documents and information regarding the property current status, legal title and environmental compliance for the La Parrilla Silver Mine mining metallurgical operation to be accurate and current in legal standing.
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6.0 PROPERTY DESCRIPTION AND LOCATION
La Parrilla Silver Mine is owned and operated by First Majestic Plata, S.A. de C.V. (FMPlata) a wholly-owned subsidiary of Corporación First Majestic, S.A. de C.V., a Mexican holding company wholly owned by First Majestic Silver Corp. of Vancouver, Canada (FMS).
Additional details of property description and location are presented in Technical Report Amended for La Parrilla Silver Mine of March 18, 2008 and published in SEDAR on March 19, 2008 and in Technical Report Amended of July 24, 2007 and published in SEDAR on July 25, 2007. Figure 6-1 presents a general site map and Figure 6-2 is a general location map.
Location coordinates to approximate center of La Parrilla Silver Mine are as follows:
Geographic | UTM |
North 23º 44 16 | North 2,625,000 |
West 104º 06 26 | East 591,500 |
6.1 Property Description
This Technical Report presents an update of La Parrillas current operating conditions and projections as planned by FMS. La Parrilla property modifications for the period of January to September, 2008 include the following:
The La Parrilla mining rights covered by First Majestic Resources México, S.A. de C.V. a wholly owned subsidiary of FMS have been transferred to the newly founded First Majestic Plata, S.A. de C.V. a corporation owned by the newly created Mexican holding company Corporación First Majestic, S.A. de C.V. which consolidates all shares and ownership of the Mexican operations by First Majestic Silver Corp. of Vancouver, BC.
All the Mining Concessions legal status was provided by legal opinion, dated September 30, 2008 from the Durango City based firm of Mr. Carlos Galván Pastoriza, legal advisers for FMS in México. PAH also requested and received an updated review by legal advisers of the mining concessions current status showing that all mining claims owned by FMPlata are current in meeting the legal obligations and requirements by Mexican Mining and Environmental Laws and Regulations including assessment works, property taxes and operating permits for the period that covers to December 31, 2008. Figure 6-3 is a mining concessions map.
La Parrilla consists of 38 contiguous mining concessions in the La Parrilla mining district that cover mineral rights for 53,249.21 hectares (131,581.20 acres). All these mining concessions hold exploitation rights for 50 years from the date of registration.
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Table 6-1 presents a list of La Parrilla Silver Mine concessions.
TABLE 6-1
First Majest Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Mining Concessions
No. | Name | Title No. | Surface Ha. | Ownership |
1 | Protectora 2 | 169,302 | 32.3560 | FMPlata |
2 | Extensión Rosa | 169,303 | 6.0000 | FMPlata |
3 | Rosa y Anexas | 169,304 | 4.0000 | FMPlata |
4 | Rosario | 169,305 | 5.3670 | FMPlata |
5 | El Salvador | 169,306 | 1.0000 | FMPlata |
6 | Ampliación Los Rosarios | 169,307 | 4.0000 | FMPlata |
7 | Los Michosos | 169,308 | 15.9673 | FMPlata |
8 | San José | 169,309 | 6.0000 | FMPlata |
9 | San Marcos | 169,310 | 10.0000 | FMPlata |
10 | La Protectora | 169,311 | 83.8767 | FMPlata |
11 | Ampliación del Rosario 2 | 169,312 | 7.5000 | FMPlata |
12 | San Nicolás | 169,313 | 95.4983 | FMPlata |
13 | Los Rosarios | 171,082 | 11.0000 | FMPlata (2) |
14 | La Encarnación | 150,935 | 16.0000 | FMPlata (2) |
15 | San Ignacio Dos | 158,205 | 8.9286 | FMPlata (2) |
16 | Parrilla II | 203,302 | 16.0000 | FMPlata (2) |
17 | Parrilla V | 203,987 | 0.4088 | FMPlata (2) |
18 | El Tecolote | 121,256 | 20.0000 | FMPlata (2) |
19 | Las Vacas | 122,739 | 40.0000 | FMPlata (2) |
20 | La Asunción de Quebradillas | 124,290 | 12.0000 | FMPlata (2) |
21 | El Socorro | 136,808 | 15.3702 | FMPlata (2) |
22 | Parrilla 18 | 210,061 | 9.2208 | FMPlata (2) |
23 | Parrilla 16 | 214,003 | 44.4244 | FMPlata (2) |
24 | Parrilla 19 | 214,557 | 30.0068 | FMPlata (2) |
25 | Parrilla 21 | 216,554 | 26.8962 | FMPlata (2) |
26 | Parrilla 20 | 216,723 | 9.0000 | FMPlata (2) |
27 | Parrilla 22 | 219,888 | 53.9870 | FMPlata (2) |
28 | Parrilla XIV | 198,568 | 33.1581 | FMPlata (2) |
29 | Parrilla Sur | 198,569 | 874.6880 | FMPlata (2) |
30 | Parrilla Norte | 198,570 | 1,742.3879 | FMPlata (2) |
31 | Parrilla III | 204,357 | 32.5267 | FMPlata (2) |
32 | Parrilla VI | 204,358 | 10.0000 | FMPlata (2) |
33 | Parrilla VII | 204,520 | 20.8434 | FMPlata (2) |
34 | Parrilla IV | 211,943 | 38.1396 | FMPlata (2) |
35 | Parrilla 15 | 212,351 | 8.9420 | FMPlata (2) |
36 | La Zacatecana | 217,646 | 88.0107 | FMPlata (2) |
37 | Michis | 230,602 | 31,350.0000 | FMPlata |
38 | La Providencia | 229,493 | 18,465.7120 | FMPlata |
Total Hectares | 53,249.2165 |
(1) |
All concessions have been transferred to FMPlata |
(2) |
Concessions with provisions to pay royalties |
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6.2 Mineral Tenure
FMS acquisition rights of La Parrilla claims purchased from Grupo México include a Net Smelter Return (NSR) of 1.5 percent royalty payments that may be acquired by FMPlata for a total of US$2,000,000. There are no other encumbrances on La Parrilla mining concessions. FMPlata has recently negotiated a lease on the land where the second tailings dam has being built and is now operating; this includes a yearly payment to the Ejido San José de La Parrilla.
6.3 Environmental
All mining and environmental activities in México are regulated by the Dirección General de Minas and by the SEMARNAP from México City, under the corresponding Laws and Regulations. All minerals below surface rights lie with the State; while surface rights are owned by ejidos (communities) or private individuals, allowing them the right of access and use of their land.
La Parrilla area is located, within the Ejido San José de la Parrilla and also within private property. La Parrilla has made an Agreement for the surface rights from Ejido San José de La Parrilla under the provisions included in the Mexican Mining Law to permit the use of surface rights for development of projects that are of general economic interest, including mining operations.
PAH is not aware of any pending environmental liabilities within the La Parrilla area of operations. A list and statement of all operating permits and their current status was provided to PAH by FMS Corporate Manager of Environmental and Permitting regarding the La Parrilla, dated October 31, 2008. Environmental Permits and Requirements are current.
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90534 February 26, 2009 |
7.0 |
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY |
La Parrilla Silver Mine is located in the south-eastern part of the state of Durango, at about 60km to the southeast from the capital city of Durango. It is located in the municipality of Nombre de Dios, at about 1km to the SE of the village of San José de la Parrilla.
Geographic coordinates for the central part of the La Parrilla area are as follows:
N 2,625,000; E 591,500
La Parrilla district consists of numerous silver/gold/lead/zinc underground mines, Los Rosarios, La Rosa, San José, La Blanca, San Marcos, Las Vacas, Quebradillas, Las Víboras, San Marqueña, Sacramento, Cerro Santiago, Santa Paula and other small workings. FMS has consolidated the district into the La Parrilla Silver Mine operation.
Additional details on Accessibility, Infrastructure, Climate, Vegetation, Physiography, Hydrology and Local Resources are presented in Technical Reports. A project access map is shown in Figure 7-1.
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8.0 HISTORY
La Parrilla mining district was discovered during the Spanish Colonial Times of the XVI century, when mining activity began in the region. Mining districts that are still in operation within this region include mines at Fresnillo, San Martín, Sombrerete, La Colorada, Cerro del Mercado, and others.
La Parrilla consists of underground silver-gold-lead mines with a processing facility that was originally constructed in 1956. The mine and plant were operated until 1999, when operations were shut down due to low silver prices. In 1960, the mining claims were acquired by Minera Los Rosarios, S.A. de C.V. who operated the mine until 1999. The Comisión de Fomento Minero (CFM), a Mexican Federal Entity responsible for promoting and supporting mining, constructed a 180 tpd flotation plant at La Parrilla, which operated as a custom mill, processing ores from nearby areas, such as Chalchihuites, Sombrerete, Zacatecas, etc. This plant was purchased in 1990 by Minera Los Rosarios from CFM. Subsequently, in 2004, FMS acquired the mining rights and the plant from Minera Los Rosarios and in 2006 successfully negotiated the acquisition of the mineral rights held by Grupo México which surrounded the original La Parrilla mine. Today FMS has consolidated ownership of the plant and all the land surrounding La Parrilla, where numerous mineral occurrences and mineral deposits are being investigated.
Production records by ASARCO and Consejo de Recursos Minerales, plus surveying volumes of old stopes within La Parrilla district, suggest that approximately 1.37 million tonnes of silver ores have been extracted from the various mines that make up this industrial complex at an estimated grade of 310 g/tonne Ag, 1.9 percent Pb and 1.5 percent Zn.
FMSs production from the La Parrilla area (June 2004 to September 2008) amounts to 443,340 tonnes with recovered average grade of 215 g/tonne Ag and 1.05 percent Pb. These are included in total production within the mining district. Table 8-1 summarizes the La Parrilla districts historical production.
TABLE 8-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Historical Mineral Production (*)
Mine | Metric Tonnes | Average Grade | ||
Silver g/tonne | Pb % | Zn % | ||
Los Rosarios | 530,000 | 450 | 2.60 | 2.80 |
San Marcos | 100,000 | 250 | 2.20 | 0.50 |
San José | 50,000 | 125 | 2.00 | 0.80 |
La Rosa | 20,000 | 350 | 2.50 | 2.00 |
Mina Los Rosarios, SA de CV | 231,000 | 235 | 1.89 | 1.74 |
FMPlata production (2) | 443,000 | 215 | 1.05 | - |
Total Estimated Recovered Production | 1,374,000 | 310 | 1.93 | 1.47 |
Total (ounces, lbs, lbs) = | 13,705,219 | 58,416,698 | 44,443,816 |
(*) Data provided by FMS from ASARCO, Consejo de Recursos Minerales
and FMPlata.
(1) reported production by Mina Los Rosarios, S.A. de C.V. (1978 - 1991). Rounded
figures.
(2) FMS production from Jun 2004 to Sep 2008, including 16,589 tonnes of reprocessed
dumps.
Pincock, Allen & Holt | REVISED | 8.1 |
90534 February 26, 2009 |
FMS has consolidated ownership of the La Parrilla concessions and property under First Majestic Resources, SA de CV and newly renamed (July 31, 2007) the operating company First Majestic Plata, S.A. de C.V. (FMPlata). This operating company is held under FMS’s newly created wholly owned Mexican Holding Company, Corporación First Majestic, S.A. de C.V. (CFM). These changes have been incorporated as of August 14, 2007.
FMS resumed operations at La Parrilla in June, 2004, with plans to improve and expand operations. In 2006 FMS initiated construction of a flotation plant within the cyanidation plant facilities, for total production capacity of 800 tonnes per day, including 400 tpd of oxide ore and 400 tpd of sulfide ore. This flexibility allows for a more efficient processing of the ores extracted from the various mines within the La Parrilla land holdings.
FMPlata has been developing an aggressive exploration program in the area to increase the La Parrilla Resources and Reserves. This program included drilling with six surface drilling rigs operating in the area. During the third quarter of 2008 the drilling activity was reduced to four drill rigs and by September 2008 only one drilling machine was left in operation for underground investigations. The recommended drilling program for 2009 includes 97 drill holes with a total depth of 17,200 meters.
Pincock, Allen & Holt | REVISED | 8.2 |
90534 February 26, 2009 |
9.0 GEOLOGICAL SETTING
Please refer to La Parrilla Silver Mine Technical Reports dated July 24, 2007 and March 18, 2008, which were published on July 25, 2007 and March 19, 2008 respectively in SEDAR.
La Parrilla Silver Mine district is located in the border zone between the physiographic provinces of the Sierra Madre Occidental and the Mesa Central, within the sub-province of Sierras y Llanuras de Durango. La Parrilla Silver Mine is located in the northern side of a contact zone between a dioritic intrusive stock and a sequence of Cretaceous sedimentary rocks. Figure 9-1 shows La Parrilla Silver Mine Regional Geologic Map.
To this date, there are no changes to report regarding the La Parrilla geology.
National Instrument 43-101 Standards of Disclosure for Mineral Projects. Form 43-101F1 Technical Report Instructions (5), December 23, 2005.
Pincock, Allen & Holt | REVISED | 9.1 |
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10.0 DEPOSIT TYPES
La Parrilla Silver Mine mineral deposits consist of structurally-controlled mineral concentrations of silver/gold/lead/zinc and other secondary minerals. These occur associated and partly enclosed by the metasomatic zone created by a stock of dioritic composition intruding a sequence of calcareous rocks of Cretaceous age.
The plutonic cycle originated uplifting and intense faulting and fracturing of the pre-existing sedimentary rocks. A broad zone of metasomatic alteration was developed around the outer zone of the intrusive and into the sedimentary rocks, which may reach up to about 2km in the southern part of the outcropping contact zone at the La Parrilla Silver Mine area. Figure 10-1 shows a sketch of a typical skarn deposit.
To this date, there are no changes to report regarding the La Parrilla Silver Mine geology.
For additional details on the deposit types at La Parrilla Silver Mine, please refer to La Parrilla Silver Mine Technical Report Amended dated July 24, 2007, which was prepared by Pincock, Allen & Holt, Inc. for First Majestic Silver Corp. and published on July 25, 2007 in SEDAR.
National Instrument 43-101 Standards of Disclosure for Mineral Projects. Form 43-101F1 Technical Report Instructions (5), December 23, 2005.
Pincock, Allen & Holt | REVISED | 10.1 |
90534 February 26, 2009 |
11.0 MINERALIZATION
Mineralization at La Parrilla Silver Mine is a typical assemblage of metasomatic deposit and hydrothermal vein deposits with a high content of silver. These mineral assemblages have been affected by processes of oxidation and secondary enrichment. They mainly consist of pyrite, sphalerite, galena, some chalcopyrite, argentite and other silver sulfosalts associated with calcite and quartz as gangue minerals. Oxidation and secondary enrichment of these sulfides makes up the mineral concentrations in the upper parts of the deposits, which consists of sulfosalts (ceragyrite, pyrargyrite, stephanite) carbonates (cerussite, hydrozincite, hemimorphite), sulfates (anglesite, willemite), and iron oxides, hematite, limonite, etc. Figure 11-1 Quebradillas mine High Grade oxides mineralization.
Silver mineralization occurs as argentite and native silver. Lead mineralization is present as carbonates (cerussite) and sulfates (anglesite) and other oxides. Figure 11-2 shows High Grade oxides at Quebradillas vein, Stope 538. Figure 11-3 shows exploration drilling at Stope 7564 of La Rosa vein.
The La Parrilla Silver Mine mineralization occurs along a vertical range of about 600m in vertical extension (2,300m to 1,700m above sea level). This extension is known through underground development and drill holes and it is still open to depth. Known longitudinal extensions vary from about 1,200 meters at the Los Rosarios system, 500 meters at the San Marcos vein system, and about 400 meters at the Quebradillas area; however some of these systems may be continuous, such as Los Rosarios System and San Marcos.
FMS has delineated an area of approximately 200m by 200m for possible open pit mining. Preliminary estimates based on 33 drill holes with a total depth of 2,905m has indicated 3.3m tones at an average grade of 100 g/tonne Ag in oxides mineralization. Figure 11-4 shows the Quebradillas outcropping 3D Block Model representation.
To this date, there are no changes to report regarding the La Parrilla Silver Mine mineralization.
For additional details on the deposit types at La Parrilla Silver Mine, please refer to La Parrilla Silver Mine Technical Report Amended dated July 24, 2007, which was prepared by Pincock, Allen & Holt, Inc. for First Majestic Silver Corp. and published on July 25, 2007 in SEDAR.
National Instrument 43-101 Standards of Disclosure for Mineral Projects. Form 43-101F1 Technical Report Instructions (5), December 23, 2005.
Pincock, Allen & Holt | REVISED | 11.1 |
90534 February 26, 2009 |
12.0 EXPLORATION
12.1 Introduction
La Parrilla Silver Mine represents a typical Mexican mining district which was discovered in Colonial times (XVI XVII centuries) and only developed from outcroppings by following mineralization along the structures, until high grade ore shoots were discovered and depleted at times of high metals prices. Common practice in these districts development was to mine out high grade ores, for the most part, by direct exploration development.
For additional details on the deposit types at La Parrilla Silver Mine, please refer to La Parrilla Silver Mine Technical Report Amended dated July 24, 2007, which was prepared by Pincock, Allen & Holt, Inc. for First Majestic Silver Corp. and published on July 25, 2007 in SEDAR.
FMS through its wholly-owned Mexican subsidiary FMPlata continues development of an aggressive exploration program that includes underground workings, such as ramps of access, drifting and crosscutting into the old working areas of the Los Rosarios System including La Blanca, San Marcos, Quebradillas and Vacas areas. It also includes, for 2009 the completion of investigations for the potential development of the Quebradillas outcroppings area by open pit methods. This program is based on the following premises:
Prepare the La Parrilla Silver Mine operation with sufficient mineral Reserves to sustain economic production throughout periods of low metals prices.
Plan and develop systematic production and increasing operating capacity.
Recover oxides and sulphides mineralization consolidating mining blocks and increasing Reserves to support reasonable production schedule.
Support exploration activities for development, channel sampling and underground drilling.
Carry out an aggressive exploration program including deep drilling from underground and surface sites, and
Focus exploration efforts into regional exploration targets.
FMPlata is focusing exploration efforts on large volume targets while mining small to medium size volume mineral concentrations that were left within blocks and accessible areas along the workings. Part of the efforts during 2008 focused on the probable development of the Quebradillas outcroppings area by open pit methods. Table 12-1 shows the exploration programs at La Parrilla Silver Mine for 2009.
Pincock, Allen & Holt | REVISED | 12.1 |
90534 February 26, 2009 |
TABLE
12-1
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A. de
C.V.
La
Parrilla
Silver
Mine
Exploration
Program
2009
Exploration Activites |
Objective |
Area |
Unit |
Quantity |
Total Estimated
Cost US$ |
Geophysical Survey IP | Define Areas for Drilling | Cerro Santiago | Km | 15 | 45,000 |
La Cruz | " | 15 | 45,000 | ||
30 | 90,000 | ||||
Geochemical Survey | Define Areas for Drilling | Cerro Santiago | Samples | 250 | 10,000 |
Providencia | " | 250 | 10,000 | ||
La Cruz | " | 100 | 8,000 | ||
Michis | " | 300 | 12,000 | ||
Assays DDH | " | 1,000 | 40,000 | ||
1,900 | 80,000 | ||||
Surface Diamond Drilling | Develop Resources | Quebradillas | 20 Drill holes, m | 3,000 | 300,000 |
Vacas | 4 Drill holes, m | 1,000 | 100,000 | ||
Cerro Santiago | 4 Drill holes, m | 1,000 | 200,000 | ||
Sacramento | 15 Drill holes, m | 5,000 | 500,000 | ||
10,000 | 1,100,000 | ||||
Underground Diamond Drilling | Develop Resources at Depth | La Rosa Rosarios | 2 Drill holes, m | 500 | 50,000 |
Quebradillas | 29 Drill holes, m | 4,200 | 420,000 | ||
San Marcos | 8 Drill holes, m | 500 | 50,000 | ||
La Blanca | 15 Drill holes, m | 2,000 | 200,000 | ||
7,200 | 720,000 | ||||
Underground Development Ramps, Drifts, Crosscuts | Develope Reserves and Resources | Quebradillas-Vacas (ramp) | Meters | 5,800 | 3,190,000 |
Total US$ | 5,180,000 |
Pincock, Allen & Holt | REVISED | 12.2 |
90534 February 26, 2009 |
12.2 Exploration Programs
FMPlata exploration programs for the La Parrilla district during 2009 are designed to investigate principally two types of targets:
To increase La Parrilla Reserve/Resource base within currently producing areas. These targets include mine workings and drilling for confirmation of blocks and areas in the Los Rosarios System, La Blanca, San Marcos, Quebradillas, Las Vacas, etc.
To investigate geophysical, geochemical and structural targets that may indicate significant concentrations of minerals. These target areas may represent large-volume exploration targets. These areas are generally associated with the contact zone between the regional intrusive stock and sedimentary formations, or with dykes and sills that may indicate favorable zones for mineral concentrations. Geophysical investigations are programmed for the Cerro Santiago and La Cruz areas. Geochemical sampling is scheduled for Cerro Santiago, Providencia, La Cruz, Michis and additional assays of drill core.
Access, prepare and develop old mine workings such as Quebradillas, Las Vacas, San Marcos, etc.
FMPlata has considered a significant budget for investment in exploration at La Parrilla. This budget includes programs of exploration that have already shown positive results by indicating an important Reserve/Resource base for the mine. It appears that, at no other time during the life of the mine, La Parrilla has shown the Reserves and Resources currently estimated by FMPlata. Estimated budget for exploration during 2009 is shown in Table 12-1. Due to current market conditions, at the time of writing this report, this program is presently on hold.
12.2.1 Geophysical Exploration
FMPlata carried out geophysical investigations during the period of April to June, 2007 to confirm previous studies within the areas of Quebradillas, Sacramento, Las Vacas, and Santa Paula (formerly Los Perros). These investigations have confirmed the presence of Induced Polarization and Resistivity anomalies which will be further investigated by direct methods, such as drilling and underground access where possible. Figure 12-1 shows Resistivity Profile of Line Y-900 at Las Vacas area.
The geophysical survey was developed by Geolinsa, a Monterrey city based geophysical company. Methodology and results were described in Report dated August 30, 2007, Informe Técnico Exploración Geofísica en La Parrilla, Durango. This Surrey consisted in measuring electric resistivity and induced polarization (IP). The data was processed by EarthImager 3D Software including topographic information.
Pincock, Allen & Holt | REVISED | 12.3 |
90534 February 26, 2009 |
The resulting interpretation was presented in plan view to show anomalous zones and projected cross sections indicating electrical resistivity and induced polarization (chargeability) in 2D vertical representation. The survey was completed for the following Areas:
The IP survey was developed by the Dipole Dipole method with readings at 100m along the lines. The topographic survey included location of control points at 50m spacing along the lines.
The geophysical survey resulted in prospective anomalous zones showing high resistivity and high chargeability. Drill sites were recommended to investigate the most outstanding anomalies as indicated above. Figure 12-2 shows Induced Polarization response at Profile Y-900 at the Las Vacas area.
FMPlata has included in 2009 additional exploration programs for IP and Resistivity surveying at the Cerro Santiago and La Cruz areas. Total estimated length of IP surveying is 30km.
12.2.2 Geochemical Exploration
FMPlata exploration program for 2009 includes geochemical investigations to complement exploration investigations by geophysical methods at the Cerro Santiago, Providencia, La Cruz and Michis areas. This program includes about 800 samples to detail, confirm or evaluate some of the geophysically anomalous areas. Additional geochemical sampling has been scheduled to assay about 1,000 representative samples of drill core to investigate probable geochemical signatures. This core sampling is intended to establish a database that may help to make future interpretations of other target zones within the mining district. FMPlata exploration program for La Parrilla during 2009 include geologic mapping and geochemical sampling of the Quebradillas and Víboras areas.
12.3 Drilling
Drilling programs at La Parrilla Silver Mine have been limited by past operations, since the best exploration results may have been obtained through underground development. However, FMPlata has obtained positive results by increasing drilling to define and evaluate new mineralized zones as well as to investigate continuity of ore shoots for development.
FMPlata initiated an aggressive drilling program to explore the various areas of interest within La Parrilla holdings in 2005. The entire program through to September 30, 2008, has consisted of 310 diamond drill holes completed by FMPlata for a total drilled depth of 72,084m at an average depth of 233m per drill
Pincock, Allen & Holt | REVISED | 12.5 |
90534 February 26, 2009 |
hole. FMPlata completed drilling program was developed to investigate 13 areas within the mining district. Table 12-2 shows completed drilling at La Parrilla Silver Mine by FMS through September 2008.
TABLE 12-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
FMPlata Drilling Programs through September 2008
Area | Drilling | |
No. Drill Holes | Meters | |
La Blanca | 31 | 9,153 |
La Rosa | 36 | 6,668 |
Los Rosarios System | 39 | 11,440 |
Oxidos | 17 | 1,565 |
Quebradillas | 42 | 9,042 |
Tajo Quebradillas | 34 | 2,923 |
San José | 4 | 740 |
San Marcos | 41 | 9,480 |
San Nicolás | 9 | 3,143 |
Las Vacas | 45 | 14,995 |
Santa Paula | 4 | 1,107 |
Sacramento | 6 | 1,315 |
Víboras | 2 | 513 |
Total | 310 | 72,084 |
Average drilled depth | 233 |
FMPlata contracted and operated six drill rigs to carry out the 2008 program that included 24,700m of drilling in the Quebradillas, Vacas, San Marcos, Santa Paula, Cerro Santiago, Sacramento and Michis areas. At the time of PAHs visit, four drill rigs were operating, including one underground. Currently, the La Parrilla Silver Mine drilling program comprises one underground drill rig.
Table 12-3 shows exploration programs completed by FMS at La Parrilla through 2007. In addition to these investigation FMS has completed diamond drilling during 2008 as shown in Table 12-2. Figure 12-3 shows the Vacas area surface expression. Figure 12-4 Underground Drilling at Quebradillas vein.
TABLE 12-3
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Exploration Programs Through 2007
Area | Studies | Drilling | Total | UG Development Workings m | Total | |||
No. Drill Holes | Grupo México m | First Majestic m |
m |
Grupo México
m |
First Majestic m |
m |
||
Rosarios | Geology/Geochemistry | 35 | 13,126 | 13,126 | 5776 | 5,776 | ||
La Rosa | " | 30 | 5,748 | 5,748 | - | |||
Rosarios Oxidos | " | 17 | - | 1,623 | 1,623 | - | ||
San Marcos | " | 38 | - | 8,317 | 8,317 | 1097 | 1,097 | |
La Blanca | 29 | 8,416 | 8,416 | 1153 | 1,153 | |||
Quebradillas | 36 | 8,674 | 8,674 | 2580 | 2,580 | |||
Quebradillas/Vacas/Others (G.M) | 85 | 15,563 | 15,563 | 1,663 | 1,663 | |||
Vacas | IP-1200m - 10 Sec. | 22 | 6,745 | 6,745 | - | |||
Santa Paula | IP-1000m - 4 Sec. | 1 | - | 300 | 300 | - | ||
San Nicolás | IP-1000m - 7 Sec. | 5 | - | 1,364 | 1,364 | - | ||
Sacramento A | IP-2000m - 9 Sec. | - | - | |||||
Sacramento B | IP-1000m - 5 Sec. | - | - | |||||
Parrilla District | Airborne magnetometry | - | - | |||||
Total | 298 | 15,563 | 54,313 | 69,875 | 1,663 | 10,606 | 12,269 |
Pincock, Allen & Holt | REVISED | 12.7 |
90534 February 26, 2009 |
12.4 Opinion
In PAHs opinion the exploration programs developed by FMPlata within the La Parrilla Silver Mine district have been successful in testing exploration targets, increasing the mines Reserve/Resource base and indicating new targets of exploration within the mining district. FMPlata has assembled an experienced and enthusiastic team of exploration professionals to cover all facets of the exploration requirements. In PAHs opinion FMPlata exploration programs have established a significant Resource/Reserve base for La Parrilla Silver Mine to sustain continued operation during a significant period of time. Table 12-4 presents FMS all drilling at La Parrilla Silver Mine from 2006 to 2008.
Pincock, Allen & Holt | REVISED | 12.10 |
90534 February 26, 2009 |
13.0 DRILLING
FMPlata has been drilling at La Parrilla Silver Mine since June 2005, shortly after acquisition of the Project took place. FMPlata is currently drilling with one drill rig from underground sites, and has contracted four drill rigs with Cau S.A. de C.V. (Causa). Causa is a Gómez Palacio, Durango, México based drilling company. This program includes drilling from surface and underground sites.
FMPlatas 2009 exploration drilling program, even though it is presently on hold due to market conditions, includes a total of 97 holes planned for a total depth of 17,200m distributed for exploration within the following areas: Quebradillas, Vacas, San Marcos, La Blanca, Cerro Santiago, and Sacramento. This program has been outlined in Table 12-1.
Figure 13-1 shows the La Parrilla general map showing all the areas under exploration within the mining district. Figure 13-2 shows channel sampling at San Marcos Drift 042-N. Figure 13-3 shows channel sampling at La Rosa vein, L-8450.
FMPlatas drill hole database is compiled in electronic format, which contains collar, assay intervals, lithology, and assay information with gold/silver/lead/zinc values. Most of the holes are drilled at an angle to intersect vein or mineralized structures that generally dip at near vertical angles. According to FMPlata, based on geologic interpretations, no apparent deviation has been detected in drill holes. FMPlata has established a surveying procedure which is performed during the drilling due to the fact that most of the holes are now longer than 150 meters. Deviation is defined with one survey reading at the bottom for holes of 150 meters in depth and 2 survey readings for holes longer than 150 meters; one reading at the middle and one reading at the bottom of the hole.
Logging is performed by the project geologist in each of the areas being investigated. The project geologist also determines the sample intervals. Trained assistants are in charge of core splitting and sampling as per the projects geologist indications.
PAH believes that FMPlatas drilling program from surface and underground sites, in combination with underground development, is appropriate and well designed to explore promising targets and ore deposits continuity. Table 13-1 Drilling and mine development for exploration, 2007 2008.
Geologic potential exists to discover additional mineralized zones along the development workings.
In PAHs opinion FMPlatas exploration drilling program is well designed and is justified as an investment as it has consistently developed additional Reserves/Resources for La Parrilla Silver Mine. The estimated budget for the next program anticipated for 2009 is included in Section 22 of this Report - Recommendations.
Pincock, Allen & Holt | REVISED | 13.1 |
90534 February 26, 2009 |
TABLE 13-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Drilling and Mine Development Programs, 2007 and 2008
Month | Drilling, m | UG Development, m | ||
2007 | 2008 | 2007 | 2008 | |
January | 2,345 | 1,690 | 74 | 336 |
February | 2,884 | 2,478 | 94 | 99 |
March | 1,988 | 2,803 | 189 | 199 |
April | 2,163 | 1,632 | 138 | 174 |
May | 3,029 | 2,197 | 6 | 112 |
June | 2,974 | 2,354 | 144 | 182 |
July | 2,712 | 2,791 | 84 | 152 |
August | 2,733 | 2,490 | 115 | 213 |
September | 2,866 | 1,646 | 113 | 183 |
October | 2,964 | 0 | 114 | |
November | 2,293 | 0 | 176 | |
December | 1,530 | 0 | 239 | |
TOTAL | 30,481 | 20,081 | 1,486 | 1,651 |
Pincock, Allen & Holt | REVISED | 13.5 |
90534 February 26, 2009 |
14.0 SAMPLING METHOD AND APPROACH
PAH reviewed La Parrilla Silver Mines sampling program for the preparation of this Technical Report. La Parrilla Silver Mines current sampling team consists of three sampling crews with three employees each for underground sampling, one sampler for drill core, and one sampling supervisor. This process is managed by the mine geologists.
14.1 Channel Sampling
Exploration sampling for Reserve delineation at La Parrilla Silver Mine is conducted by drifting along the mineralized zones so that channel samples can be taken. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structures, across the back of the drift and across the drifts and workings, generally from the footwall towards the hanging wall of the mineralized structure. Sampling crews take channel samples at regular intervals of 2m to 3m, typically with several samples along every sampling channel on new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles. Channel samples are taken in consecutive lengths of less than 1.50m along the channel, depending on geologic features. Channel samples are taken with chisel and hammer, collected in a canvas tarp and deposited in numbered bags for transportation to the laboratory.
A channel line typically consists of two or more individual samples taken to reflect changes in geology and/or mineralogy across the structural zone. Each sample weighs approximately 4kg. All channels for sampling are painted by the geologist and numbered on the drifts walls for proper orientation and identification.
The La Parrilla sampling quality control program consists of checking the assays of one duplicate sample for every 20 regular samples from pulp samples. La Parrilla also includes duplicate drill core samples, at a rate of about 1 duplicate for every 40 samples, to confirm the sample preparation and assaying methods.
La Parrilla Silver Mines duplicate samples for this period included 44 samples from drill core samples of exploration areas. Additionally the program included assays of 31 duplicate pulp samples.
All samples are assayed at La Parrilla Silver Mines lab, while duplicate samples are sent to BSI-Inspectorate laboratory a US lab located in Reno, Nevada with representation and sampling preparation facilities in Durango City, México.
14.2 Drill Core Samples
FMPlata exploration drilling is performed by the contractor firm of Causa. This company is based in the city of Gómez Palacio, Durango State, Mexico and at the time of the PAH visit, presently is operating four drilling rigs within the La Parrilla Silver Mine area.
Pincock, Allen & Holt | REVISED | 14.1 |
90534 February 26, 2009 |
Sampling of the drill core is made after the core has been logged by the mine geologists. The geologist marks the core on the basis of geologic and mineralization features. Then the sampling crew splits the core with diamond saw, as indicated by the geologist and one half of the core is placed in a numbered bag and sent to Inspectorate lab in Durango City. Generally the samples represent core lengths of less than 1.50m. All the core samples are sent for assaying by Inspectorate. The core samples are crushed and pulverized at Inspectorate in Durango City and 250g pulp samples are sent to Reno, Nevada for assaying.
Duplicate core samples are taken by FMPlata crew from the remaining half of the core, by again splitting the core to a one quarter size. Therefore, one quarter of the core still remains in the box for future reference. Duplicate samples are taken at a rate of approximately one duplicate sample from every twenty regular samples. Figure 14-1 shows core samples of the La Blanca Vein, LB-13.
Drill hole data are included in the Resource/Reserve calculations, and are generally applied by La Parrilla Silver Mine in the resource projections. Drilling results are applied in the grade calculations giving more weight to the larger-size channel sample data.
PAH’s opinion regarding the channel sampling applied by FMPlata’s exploration and mining crews, is that it is done carefully and responsibly by well trained samplers. The sampling appears to reconcile with silver production and sales by FMPlata. The channel samples appear to properly represent the mineralization of the various La Parrilla Silver Mine deposits; therefore, they are acceptable for Resource and Reserve estimates.
Pincock, Allen & Holt | REVISED | 14.2 |
90534 February 26, 2009 |
15.0 SAMPLE PREPARATION, ANALYSIS AND SECURITY
15.1 Sample Preparation
La Parrilla FMPlatas sample preparation descriptions were presented in previous PAHs Technical Reports as follows: Exploration, mine development, production, and plant samples are sent to FMPlatas on-site laboratory for chemical analysis of silver/gold/lead/zinc and copper. Silver and gold assays are carried out by fire assaying methods, while the rest of the elements are assayed by atomic absorption (AA).
A typical channel sample received by the laboratory, weighing approximately 4 kilograms, is passed through a jaw crusher to reduce it to a 1.3 -centimeter (1/2) size. A 500-gram split is taken and passed through gyratory or disk crushers to reduce it to a 10-mesh (1/8) size. A 200 to 300 gram split is taken and placed in a drying oven at 120 degrees Centigrade. After drying, the material is put into two pulverizers, one disk pulverizer and one ring pulverizer, to grind the rock to minus 100 mesh. The resulting pulp is homogenized and 10 grams taken for fire assay analysis of silver and gold for geology samples and for concentrates; 20 grams are taken for head samples; and 1 gram is required for precipitate samples.
The 10-gram pulps are placed in fusion crucibles and placed into an electric furnace for fusion into lead buttons. The lead buttons are placed in cupellation cupels and placed into an electric furnace for cupellation into a silver-gold bead. The bead is weighed and then put into nitric acid to dissolve away the silver and then the remaining gold bead is weighed again. The microbalance used has a sensitivity of + 1 per 10,000 (equivalent to an actual grade of +0.1 gram per tonne), while the gold beads commonly range in weight from 100 milligrams down to less than 1 milligram. As a result, the determination of the smaller bead weight is at or below the detection limits of the microbalance. Figure 15-1 shows AA unit at La Parrilla Lab. Figure 15-2 shows La Parrilla sample preparation flow chart.
15.2 Laboratory Facilities
PAH notes that the La Parrilla FMPlata laboratories generally appear to be adequate, with reasonable cleaning and organization. The laboratory currently processes about 250 samples by fire assay and by AA per day, including exploration samples, development samples, and mill samples. Laboratory personnel include five sample preparation operators, one Chief Chemist/AA and one Assistant Operator in fire assay and AA, and one person who weigh samples and reports results. La Parrilla Silver Mine supports students under scholarship programs for practicing at the laboratory during the summer months.
The on-site laboratories consist of two separate buildings for sample preparation and for assaying. The assaying facility includes electric equipment, two crushers, one ball mill and electric and LPG fueled furnaces. Solution samples are analyzed with a Perkin Elmer Analyst 400 Atomic Absorption unit.
Pincock, Allen & Holt | REVISED | 15.1 |
90534 February 26, 2009 |
The La Parrilla lab includes facilities for metallurgical test work. Test work for flotation, cyanidation and gravimetric concentration is done in the lab.
FMPlatas QC procedure consists in sending mine samples and/or pulps to an outside laboratory, usually BSI-Inspectorate Labs in Reno, Nevada. Samples of concentrates are regularly sent to Peñoles for check assays. The laboratory duplicates pulp assays at 1 sample for every 20. FMPlata has established a QC procedure by checking assays. Drill samples are duplicated as one sample for every twenty regular samples. PAH recommends that standard samples and blank samples also be included in the duplicate sampling.
15.3 Check Assaying
To evaluate sample quality control, FMPlata performs periodic check analyses on samples. For the period to September 30, 2008, FMPlata has sent 119 samples to Inspectorate Laboratories, an independent commercial laboratory in Reno, Nevada for duplicate analysis. All core samples are sent to the BSI-Inspectorate lab for assaying; therefore, the assay check was also performed by the same lab. Statistics and correlation were applied to 44 duplicate samples and 31 pulp duplicate samples. Table 15-1 is a list of duplicate core samples for assays check.
Figure 15-3 is a graph that shows the assay check results for silver, lead and zinc from the core samples and comparison of Inspectorate Laboratories assays of regular and duplicate samples, for 44 samples from the period of November, 2007 to September, 2008.
Table 15-2 presents the database for 31 duplicate pulp samples corresponding to V-29 drill hole. These were assayed by the La Parrilla Silver Mine lab and checked by Inspectorate Lab for silver, lead and zinc.
Figure 15-4 shows three graphs representing the assay check results for silver, lead and zinc from the 31 pulp samples and comparison between the Inspectorate Laboratories assays and the La Parrilla Silver Mine lab assays.
No gold assays are performed at the La Parrilla FMPlatas lab. The correlation for silver assays of core samples is excellent at 99 percent while the pulp duplicates correlation is acceptable at 91 percent. The correlation for assays of lead is 97 percent and 81 percent respectively. The correlation for zinc assays is 97 percent for duplicate samples and 40 percent for pulp sample duplicates. The poor correlation for zinc samples is probably due to presence of oxidizes within the mineralization. The range of silver values is from 0 to 1,137 g/tonne, with an average grade of 119 g/tonne, while the range for lead is 0 to 22 percent with an average of 2.44 percent and for zinc is 0 to 19 percent with an average grade of 4.12 percent.
Channel sample checks are performed by analyzing random sample pulps at the La Parrilla lab with assay checking by the SGS de México lab at Durango. The assays include silver, lead and zinc.
Pincock, Allen & Holt | REVISED | 15.4 |
90534 February 26, 2009 |
TABLE 15-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Duplicate Samples Assays Check to September 30, 2008
La Parrilla Lab | Inspectorate Lab | ||||||
Sample ID | Ag g/tonne | Pb % | Zn % | Sample ID | Ag g/tonne | Pb % | Zn % |
9729 | 373 | 6.49 | 10.30 | 9951 | 342 | 6.48 | 15.60 |
9737 | 25 | 0.45 | 9.98 | 9952 | 30 | 0.58 | 8.27 |
9740 | 171 | 4.83 | 7.07 | 9953 | 210 | 5.54 | 8.12 |
10299 | 535 | 5.04 | 9.75 | 9954 | 516 | 5.05 | 9.41 |
12300 | 0 | 0.00 | 0.00 | 9955 | 3 | 0.05 | 0.06 |
12030 | 0 | 0.01 | 0.17 | 9956 | 0.1 | 0.01 | 0.20 |
15310 | 2 | 0.01 | 0.01 | 9957 | 1 | 0.01 | 0.02 |
12226 | 321 | 8.23 | 8.70 | 9958 | 377 | 6.93 | 9.55 |
12367 | 3 | 0.01 | 0.02 | 9959 | 3 | 0.04 | 0.06 |
12207 | 301 | 7.04 | 11.40 | 9960 | 300 | 6.04 | 15.40 |
12212 | 325 | 9.39 | 10.10 | 9961 | 451 | 10.60 | 10.40 |
12339 | 33 | 0.17 | 4.12 | 9962 | 31 | 0.23 | 4.01 |
12349 | 90 | 0.63 | 19.00 | 9963 | 86 | 0.49 | 17.70 |
16264 | 12 | 0.02 | 0.02 | 9964 | 8 | 0.02 | 0.11 |
8010 | 1 | 0.00 | 0.00 | 9965 | 0 | 0.00 | 0.02 |
12352 | 107 | 0.63 | 8.42 | 9966 | 135 | 0.73 | 14.60 |
15485 | 1 | 0.01 | 0.15 | 9967 | 1 | 0.01 | 0.29 |
15500 | 49 | 0.01 | 2.20 | 9968 | 52 | 0.02 | 2.82 |
8036 | 0 | 0.00 | 0.02 | 9969 | 0 | 0.00 | 0.03 |
16270 | 0 | 0.09 | 0.00 | 9970 | 0 | 0.00 | 0.01 |
16279 | 8 | 0.10 | 0.03 | 9971 | 9 | 0.00 | 0.04 |
16154 | 1 | 0.01 | 0.01 | 9972 | 0 | 0.01 | 0.01 |
15325 | 1 | 0.05 | 0.01 | 9973 | 1 | 0.01 | 0.01 |
15332 | 27 | 0.03 | 0.26 | 9974 | 24 | 0.25 | 0.24 |
15337 | 18 | 0.04 | 0.01 | 9975 | 17 | 0.05 | 0.01 |
15478 | 6 | 0.04 | 0.05 | 9976 | 3 | 0.03 | 0.04 |
8056 | 1137 | 22.00 | 10.90 | 9977 | 1206 | 25.20 | 13.50 |
8067 | 295 | 11.30 | 11.00 | 9978 | 352 | 13.10 | 10.40 |
8076 | 369 | 7.33 | 5.05 | 9979 | 356 | 9.41 | 5.00 |
8080 | 88 | 2.05 | 13.80 | 9980 | 111 | 2.52 | 14.10 |
8235 | 28 | 0.86 | 1.95 | 9981 | 43 | 1.53 | 2.82 |
8380 | 183 | 0.30 | 7.55 | 9982 | 200 | 0.35 | 8.07 |
8390 | 21 | 0.04 | 6.45 | 9983 | 40 | 0.05 | 6.63 |
8400 | 130 | 9.95 | 12.20 | 9984 | 190 | 10.30 | 12.30 |
8410 | 3 | 0.00 | 0.02 | 9985 | 1 | 0.02 | 0.27 |
8420 | 2 | 0.01 | 0.18 | 9986 | 0 | 0.01 | 0.11 |
8430 | 0 | 0.01 | 0.06 | 9987 | 1 | 0.01 | 0.07 |
8440 | 2 | 0.00 | 0.40 | 9988 | 1 | 0.00 | 0.30 |
8450 | 4 | 0.00 | 0.15 | 9989 | 3 | 0.00 | 0.10 |
8467 | 471 | 10.10 | 8.46 | 9990 | 501 | 8.07 | 6.88 |
8660 | 4 | 0.01 | 0.56 | 9991 | 6 | 0.04 | 0.55 |
8670 | 20 | 0.01 | 0.49 | 9992 | 23 | 0.03 | 0.46 |
8680 | 5 | 0.00 | 0.04 | 9993 | 4 | 0.00 | 0.03 |
8690 | 71 | 0.01 | 0.10 | 9994 | 78 | 0.01 | 0.09 |
44 | General Statistics | ||||||
Average | 119 | 2.44 | 4.12 | 130 | 2.59 | 4.52 | |
Maximum | 1137 | 22.00 | 19.00 | 1206 | 25.20 | 17.70 | |
Minimum | 0 | 0.00 | 0.00 | 0 | 0.00 | 0.01 | |
StdDev | 213 | 4.59 | 5.16 | 227 | 5.00 | 5.68 | |
Correlation | 0.99 | 0.99 | 0.97 |
Pincock, Allen & Holt | REVISED | 15.5 |
90534 February 26, 2009 |
TABLE 15-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Duplicate Pulp Samples Assays Check to September 30, 2008
Sample | Assays | |||||
No. | Ag g/Tonne | Pb % | Zn % | |||
DH - Vacas 27 | Lab Parrilla | Inpectorate | Lab Parrilla | Inpectorate | Lab Parrilla | Inpectorate |
VC-29 8374 | 183 | 3 | 0.55 | 0.01 | 0.33 | 0.33 |
VC-29 8375 | 495 | 543 | 0.69 | 1.19 | 3.28 | 3.40 |
VC-29 8376 | 12 | 13 | 0.10 | 0.17 | 0.35 | 0.35 |
VC-29 8377 | 10 | 8 | 0.04 | 0.01 | 0.17 | 0.17 |
VC-29 8378 | 35 | 32 | 0.03 | 0.03 | 1.36 | 1.36 |
VC-29 8379 | 3 | 4 | 5.23 | 0.01 | 11.90 | 11.90 |
VC-29 8380 | 178 | 183 | 0.41 | 0.30 | 1.22 | 7.55 |
VC-29 8381 | 26 | 37 | 0.03 | 0.07 | 4.42 | 6.85 |
VC-29 8382 | 110 | 3 | 0.21 | 0.01 | 1.90 | 1.10 |
VC-29 8383 | 202 | 201 | 0.18 | 5.10 | 0.28 | 14.30 |
VC-29 8384 | 50 | 66 | 0.07 | 0.07 | 9.65 | 13.50 |
VC-29 8385 | 25 | 8 | 0.02 | 0.02 | 9.61 | 12.80 |
VC-29 8386 | 18 | 12 | 0.02 | 0.03 | 14.32 | 23.00 |
VC-29 8387 | 33 | 32 | 0.02 | 0.05 | 9.95 | 17.00 |
VC-29 8388 | 24 | 3 | 0.00 | 0.00 | 0.86 | 0.86 |
VC-29 8389 | 12 | 10 | 0.04 | 0.00 | 3.16 | 4.65 |
VC-29 8390 | 27 | 21 | 0.01 | 0.04 | 4.68 | 6.45 |
VC-29 8391 | 49 | 42 | 0.03 | 0.01 | 2.15 | 4.05 |
VC-29 8392 | 210 | 197 | 0.51 | 0.67 | 0.83 | 29.50 |
VC-29 8393 | 118 | 99 | 1.07 | 1.01 | 20.20 | 27.50 |
VC-29 8394 | 132 | 127 | 0.96 | 0.74 | 1.32 | 25.00 |
VC-29 8395 | 114 | 113 | 2.18 | 1.47 | 1.52 | 19.50 |
VC-29 8396 | 208 | 175 | 2.13 | 2.60 | 2.31 | 27.50 |
VC-29 8397 | 64 | 88 | 0.04 | 0.05 | 4.88 | 8.70 |
VC-29 8398 | 55 | 9 | 0.16 | 0.02 | 4.31 | 3.30 |
VC-29 8399 | 216 | 179 | 5.65 | 3.80 | 1.08 | 26.00 |
VC-29 8400 | 126 | 130 | 7.60 | 9.95 | 12.48 | 12.20 |
VC-29 8401 | 116 | 132 | 7.15 | 9.45 | 1.43 | 13.60 |
VC-29 8402 | 44 | 117 | 0.65 | 0.27 | 11.85 | 25.50 |
VC-29 8403 | 92 | 118 | 0.54 | 0.74 | 5.18 | 15.10 |
VC-29 8404 | 88 | 98 | 2.19 | 2.20 | 4.24 | 9.05 |
31 | General Statistics | |||||
Average | 99 | 90 | 1.24 | 1.29 | 4.88 | 12.00 |
Maximum | 495 | 543 | 7.60 | 9.95 | 20.20 | 29.50 |
Minimum | 3 | 3 | 0.00 | 0.00 | 0.17 | 0.17 |
StdDev | 100 | 107 | 2.15 | 2.55 | 5.08 | 9.47 |
Correlation | 0.91 | 0.81 | 0.40 |
Pincock, Allen & Holt | REVISED | 15.6 |
90534 February 26, 2009 |
PAH recommends that a more strict and systematic program of assay checks of the mine samples, including field samples and pulps, be implemented, to correlate assays between the mine and the plant.
PAH suggests the implementation of a strict program of Quality Control of the mined out and processed ores by introduction of blank and standard samples, as well as the insertion of field duplicate samples to keep a close control of the assay results. PAH recommends that a similar program as that for core samples be established, to compare assay results between La Parrilla Silver Mines lab and Inspectorate for channel and production samples.
15.4 Conclusion
Overall, PAH found that the results from the check assaying are reasonable. PAH recommends the inclusion of standard samples to assess analytical precision. In addition, field duplicate samples and blank samples would allow for an assessment of sample preparation procedures.
It is PAHs opinion that the sample methods and analyses are representative of the deposits at La Parrilla Silver Mine, and that most of FMPlatas data was generated by procedures that were carried out according to accepted industry standards using accepted practices.
PAH finds that the exploration, sampling, and laboratory analysis for the La Parrilla Silver Mine operation is being conducted by FMPlata in a reasonable manner, consistent with standard industry practices. PAH would expect the sampling results to be reasonably representative of the mineralization of the deposits, and believes that they may be used with acceptable confidence in the estimation of the mineable Reserves.
Pincock, Allen & Holt | REVISED | 15.9 |
90534 February 26, 2009 |
16.0 DATA VERIFICATION
PAH has not taken independent samples from the surface or underground exposures of the mineral concentrations at La Parrilla Silver Mine, as other Qualified Persons have previously sampled the mineralization as discussed in this report, and the production records are the most reliable data of mineralization contained in the ore deposits under development at the mine.
FMPlata has established a systematic procedure to verify data and quality control which has proven effective and accurate. Assay data and information generated by the operation is transmitted manually; however, the entire paper trail is accessible and available for inspection.
FMPlata initiated an effective control of the La Parrilla Silver Mine operations since January 2004 when it took control of the mining operation.
La Parrilla Silver Mine maintains an active program of assay checks for the production of concentrates at the mines lab, in addition to a sampling and assaying program by a sales representative in the city of Torreón, Coahuila to check the assays reported by the MET-MEX Peñoles smelter.
Table 16-1 presents a summary of Concentrates and Doré shipments for the month of August, 2008. It includes 9 shipments of concentrates for a total tonnage of 327 tonnes and 4 shipments of La Parrilla Silver Mine Doré with assays reported by FMPlata and by Peñoles laboratories.
Statistical correlation for weight and assays of shipments between the La Parrilla Silver Mine and Peñoles labs is 100 percent for weight and silver assays and 96 percent for lead assays.
Statistical analysis of these results indicates a coefficient of correlation of about 83 percent for the gold in concentrates and 100 percent for the gold in Doré shipments between measurements and assays at La Parrilla FMPlata and Peñoles laboratories.
Table 16-1 shows a list of 9 shipments of concentrates embarked to Met-Mex Peñoles during the month of August, 2008. These concentrates were assayed for gold, silver and lead. Correlation of assay results between the La Parrilla Silver Mine and Peñoles labs is represented at the bottom of the Table 16-1. The coefficient of correlation for silver assays is 100 percent, while for lead is 96 percent. La Parrilla Silver Mine also shipped, during the month of August 2008, 4 loads of Doré to Peñoles resulting in a total weight of 1.218 tonnes containing 3.724 kilograms of silver (39,169 oz) and 1,355 grams of gold (43.5 oz) and assays correlation of about 100 percent.
PAH believes that an adequate amount of checking has been conducted and that the results are representative of the Doré and concentrates produced at La Parrilla Silver Mine and shipped for sales.
PAHs conclusion is that the results from check assaying are reasonable, including appropriate preparation procedures, that the sampling results appear to be reasonably representative of the various deposit
Pincock, Allen & Holt | REVISED | 16.1 |
90534 February 26, 2009 |
TABLE
16-1
First
Majestic
Silver Corp.
First
Majestic
Plata S.A. de
C.V.
La
Parrilla
Silver Mine
Dore and
Concentrate
Checks
for
August,
2008
Shipments
Concentrates | First Majestic Plata | Met Mes Peñoles S.A. de C.V. | |||||||||||||
Shipment | Date | Weight | Assays | Content | Assays | Content | |||||||||
No | (Tonnes) | Silver | Lead | Gold | Silver | Lead | Gold | Tonnes | Silver | Lead | Gold | Silver | Lead | Gold | |
kg/tonne | % | g/tonne | kg | Tonnes | grams | kg/tonne | % | g/tonne | kg | Tonnes | grams | ||||
137-08 | 02/Aug/08 | 0.30255 | 943.8020 | 1.260 | 285.5473 | 381.2 | 0.302582 | 946.887 | 1.020 | 286.4636 | 308.5830 | ||||
138-08 | 09/Aug/08 | 0.24673 | 928.4460 | 1.081 | 229.0755 | 266.7 | 0.246752 | 937.420 | 1.005 | 231.2634 | 247.9360 | ||||
139-08 | 23/Aug/08 | 0.43697 | 932.5770 | 1.050 | 407.5082 | 458.8 | 0.437051 | 934.830 | 1.177 | 408.5216 | 514.3500 | ||||
140-08 | 23/Aug/08 | 0.23187 | 912.9360 | 1.184 | 211.6825 | 274.5 | 0.231915 | 904.925 | 1.224 | 209.8204 | 283.8030 | ||||
C79-08 | 02/Aug/08 | 32.335 | 4.8600 | 42.600 | 157.147 | 13.7747 | 32.105 | 4.793000 | 47.64 | 153.879265 | 15.2948220 | ||||
C80-08 | 12/Aug/08 | 33.232 | 4.8600 | 42.600 | 161.5100 | 14.1570 | 33.051 | 4.484000 | 45.61 | 148.200684 | 15.0745611 | ||||
C81-08 | 15/Aug/08 | 65.177 | 4.1060 | 46.223 | 267.5890 | 30.1270 | 65.678 | 4.192000 | 47.77 | 275.322176 | 31.3743806 | ||||
C82-08 | 23/Aug/08 | 99.465 | 3.5540 | 38.636 | 353.5130 | 38.4290 | 96.965 | 3.600000 | 36.60 | 349.074000 | 35.4891900 | ||||
C83-08 | 27/Aug/08 | 96.679 | 3.2090 | 29.177 | 310.2410 | 28.2080 | 95.061 | 2.965000 | 28.90 | 281.855865 | 27.4726290 | ||||
-0.174 | |||||||||||||||
Dore | |||||||||||||||
Total | 1.21812 | 3717.761 | 4.575 | 1133.8135 | 1381.2 | 1.2183 | 3724.062 | 4.426 | 1136.069 | 1354.672 | |||||
Average | 0.30453 | 929.44025 | 1.14375 | 0.304575 | 931.0155 | 1.1065 | 284.01725 | ||||||||
Max | 0.43697 | 932.577 | 1.26 | 0.437051 | 946.887 | 1.224 | 408.5216 | ||||||||
Min | 0.23187 | 912.936 | 1.05 | 0.231915 | 904.925 | 1.005 | 209.8204 | ||||||||
Correlation | 1.000 | ||||||||||||||
Concentrate | |||||||||||||||
Total | 326.888 | 20.589 | 199.236 | 1250 | 124.6957 | 322.86 | 20.034 | 206.52 | 1208.33199 | 124.7055827 | |||||
Average | 65.3776 | 4.1178 | 39.8472 | 64.572 | 4.0068 | 41.304 | |||||||||
Max | 99.465 | 4.86 | 46.223 | 96.965 | 4.793 | 47.77 | |||||||||
Min | 32.335 | 3.209 | 29.177 | 32.105 | 2.965 | 28.9 | |||||||||
Correlation | 1.000 | 1.000 | 0.959 | -0.174 |
Pincock, Allen & Holt | REVISED | 16.2 |
90534 February 26, 2009 |
mineralization and concentrates, and should be usable with acceptable confidence in the estimation of the mineable Reserves, and that the sales of Doré and concentrates are a clear representation of FMPlata production sales.
During PAH’s site visit, drilling from underground sites was in progress at Quebradillas and at the La Rosa vein. PAH reviewed cores of the La Rosa, La Blanca and San Marcos veins in previous visits. PAH notes that the core is kept in boxes with clear markings of samples and depth. The core has been split in half and occasionally in one quarter for assaying. The mineralization intercepts are sampled and FMPlata provided copies of the assay certificates. PAH reviewed the original certificates, which are kept at FMPlata's office in the city of Durango. PAH believes that an adequate amount of checking has been performed at La Parrilla Silver Mine and that the results are representative of the mineralization in the various deposits.
Pincock, Allen & Holt | REVISED | 16.3 |
90534 February 26, 2009 |
17.0 ADJACENT PROPERTIES
No adjacent properties exist within the surrounding areas of La Parrilla Silver Mine. Several mines, including: Quebradillas, La Blanca, Las Vacas, San Nicolás and other mines, are covered by mining concessions owned by FMPlata. Therefore, as reported in previous PAHs Technical Reports, FMPlata has consolidated ownership of the area surrounding the La Parrilla Silver Mine.
FMPlata owns 38 contiguous mining claims within the La Parrilla Silver Mine and surrounding area. The claims provide coverage of 53,249.21 hectares. These claims have been registered at the Dirección General de Minas under FMS Mexican subsidiary FMPlata. According to Legal Opinion by the Durango-based Legal Firm of Carlos Galván Pastoriza issued on September 30, 2008, all of these mining claims are current in legal standing.
No other mines exist nearby the La Parrilla Silver Mine area. Other mining districts located within the La Parrilla Silver Mine region are the following:
The Chalchihuites mining district, partially owned by FMS, is located approximately S50ºE and 50km from the La Parrilla Silver Mines district. The areas within this district owned by FMS include the Perseverancia silver mine and the San Juan silver mine which are part of a project FMS calls the Del Toro Silver Mine.
La Colorada mine, owned and operated by Pan American Silver is located about 70 km S40ºE from La Parrilla Silver Mine, and
The San Martín/Sabinas/Los Tocayos mining district, with mines operated by Grupo México, Peñoles and others near the city of Sombrerete, Zacatecas, is about 60km to the S75ºE from the La Parrilla Silver Mine area.
La Parrilla Silver Mine district and other regional mining districts as shown in Figure 17-1.
Surface rights for installations, waste dumps, tailings, and some of the mines within the La Parrilla Silver Mine area, have been obtained by FMPlata in an Agreement for the use of surface rights with the Ejido of San José de La Parrilla, for 15 years, covering 69 hectares, and also FMPlata purchased an additional 30.5 hectares of surface rights from Grupo México.
Pincock, Allen & Holt | REVISED | 17.1 |
90534 February 26, 2009 |
18.0 MINERAL PROCESSING AND METALLURGICAL TESTING
The ore processed from the La Parrilla mining district consists of two essential types: oxides and sulfides. Oxides are the in-situ oxidation product of the sulfide ore. For both ore types the principal economic component is silver. The ores also contain minor amounts of gold, lead, and zinc. Oxide ores are processed by cyanide leaching to produce Doré metal; sulfide ores are processed by differential flotation to produce a silver-rich lead concentrate.
Metal recoveries are currently low by general industry standards, about 60 percent of the silver in both the cyanide leaching and flotation circuits, and about 55 percent for lead in the flotation circuit. Expectations of higher recoveries of silver in both the leaching and flotation circuits and of lead in the flotation circuit have not been met. The valuable mineral in the sulfide ore is essentially argentiferous galena. It is suspected that part of the gold is present in slightly-auriferous pyrite. The mineralogy of the oxide ore is essentially the oxidation product of the sulfides. It is probable that most of the silver occurs as argentite, but it is likely that some of the silver is present as naumannite (silver selenide) since selenium is found as an impurity in the Doré bars.
Ore processed in the plant up to now has been mostly from the Rosa/Rosario and La Blanca veins with smaller amounts from the San Marcos and Quebradillas veins.
Results of recent metallurgical test work are summarized in Table 18-1. As shown on the table, flotation of Quebradillas ore shows slightly better results than those of the plant operation, but upgrading of the concentrate will result in lowering of the recoveries. Flotation of Vacas ore, which is of high lead and zinc grade, gave good results, indicating the ore does not exhibit intense mineral intergrowth, a problem that sometimes occurs in such ores.
Pincock, Allen & Holt | REVISED | 18.1 |
90534 February 26, 2009 |
TABLE 18-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Metallurgical Testwork Summary
Vein | Quebradilla | Vacas | |
Ore Type | Sulfide | Sulfide | |
Test Type | Flotation | Flotation | |
Test Date | Units | Sep-08 | Jul-08 |
Feed Grade | |||
Silver | grams/tonne | 200 | 181 |
Lead | percent | 2.13 | 3.44 |
Zinc | percent | 1.28 | 8.51 |
Recovery | |||
Silver | percent | 75.9 | 84.7 |
Lead | percent | 54.0 | 94.3 |
Zinc | percent | 10.1 | 95.6 |
Concentrate Grades | |||
Lead | |||
Silver | grams/tonne | 3,456 | 1,650 |
Lead | percent | 21.3 | 46.1 |
Zinc | percent | 20.3 | 50.5 |
Reagent Consumptions | |||
Cyanide | grams/tonne | ||
Lime | grams/tonne |
Pincock, Allen & Holt | REVISED | 18.2 |
90534 February 26, 2009 |
19.0 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
La Parrilla Silver Mine uses conventional, manual methods, supported by computer applications and software, to calculate the tonnage and average grades of the mineral Resources and Reserves. FMPlata has initiated the compilation of all data to incorporate it into a database and create a geologic model in SURPAC software which has been acquired by FMS. Preliminary modeling in SURPAC was applied to the Quebradillas outcropping area for projected open pit mining. Currently FMPlata maintains geologic interpretations and mine plans in AutoCAD and databases in Excel spreadsheets. PAH has reviewed FMPlata calculated Resources and Reserves for La Parrilla Silver Mine to assess the current status of the property and to use it as a basis for future updated estimates and reconciliation. This estimate is also the basis for design and evaluation of exploration programs for the mine. This Resource/Reserve calculation has been estimated as of September 30, 2008.
19.1 Introduction
FMPlata initiated exploration activities at the La Parrilla Silver Mine area in July 2005. Diamond drilling and underground development works were focused in exploring the Los Rosarios System. Other than exploration by Grupo México at Quebradillas and Vacas mines, no other significant exploration studies had been carried out at La Parrilla until FMS initiated these investigations. Currently FMPlata is exploring by underground development and drilling at La Blanca, La Rosa, Rosarios, San Marcos, Quebradillas, Las Vacas, San Onofre, and Santa Paula areas. As a result of these exploration efforts, other areas have been located that will be included in future FMPlata programs, such as the probable open pitable area to the East of Quebradillas and geophysical anomalies at Cerro Santiago and La Cruz.
FMPlata initiated exploration programs based on drifting and channel sampling. Old workings and accessible areas within the Los Rosarios system of mines are a primary target for confirmation and further exploration by FMPlata, as well as other promising areas of resources.
Exploration studies by FMS at La Parrilla Silver Mine to September, 2008, adds up to 310 drill holes with a total drilled depth of 72,084m; 274.2km of geophysical surveying (IP/RA), including 46 km carried out by FMPlata during 2007; 36sq km of aeromagnetic investigations; and about 4,100 samples for geochemical research, in addition to 17,540m to September of 2008, of underground development .
Quebradillas mine was acquired by FMPlata from Grupo México and initiated aggressive mine development and drilling to validate those Reserves and Resources. During this period, FMPlata has estimated at Quebradillas about 67,000 tonnes in Reserves in addition to about 489,000 tonnes of ore in Resources. These Reserves and Resources were estimated with drill hole sample assays and underground development, with assays at La Parrilla lab and at Inspectorate lab. Geologic projections of the Quebradillas deposit appear to indicate a significant deposit to be further developed. Current estimates indicate silver content of about 4.2 million ounces of silver within the Quebradillas Reserves and Resources.
Pincock, Allen & Holt | REVISED | 19.1 |
90534 February 26, 2009 |
19.2 Methodology
La Parrilla Silver Mines actual Reserve and Resource blocks are primarily located in the Los Rosarios system, in the San Marcos and Quebradillas mines. Mineralization at La Parrilla Silver Mine is controlled by regional and local mineralized structures, intrusive stocks, dikes, sills and the metasomatic zone that surrounds the main granodiorite stock.
Regional and local geologic features appear to indicate that the main mineral concentrations are emplaced in the surrounding area to deep granodiorite stocks. These stocks are well defined by magnetic anomalies. Geologic structures are located and oriented around the boundaries of the deep igneous bodies, which probably have originated them during the tectonic events. Breccia zones and intense fracturing of some areas were also originated by the igneous events. Chemically and structurally favorable enclosing rocks allow deposition and replacement of the economic mineralization in the area.
Under this propitious geologic environment, the Resource and Reserve blocks have been defined at the various mineralized structures, veins, veinlets, intersections and stockwork zones at the drift levels along the Los Rosarios system and others mines within the area, where sampling has found economically mineable mineralization.
The Reserve tonnage and grade are based largely on channel samples, while the Resources are largely determined by diamond drilling. Reserve blocks range in length according to variable extensions of the ore shoots along the veins and breccia or mineralized zones; they may reach lengths of up to 200 meters, and are dependant on the ore shoot extensions. The vertical extension of the Reserve and Resource blocks is projected between contiguous drift levels. Vertical extension if generally projected to 30m, but in some cases it may reach 50m. The Los Rosarios system has been developed and partially drilled, in its central portion, along an extension of approximately 1.50km. Within this distance FMPlata has defined four ore shoots. This system includes, from the SE, the La Blanca, Rosarios and La Rosa mines. This central portion of the system comprises the main mining development within La Parrilla Silver Mine, and it also holds the most significant Reserves and Resources known to date.
The San Marcos vein occurs in a general NS strike at the eastern part of the area, and it tends to intercept the Los Rosarios system. The San Marcos mine was developed near the area where this projection may take place. FMPlata is reopening and developing the old mine in a systematic manner with ramps and regular drifting to prepare mine blocks for production, as well as for exploration. An ore shoot of approximately 200m long has been delineated and some Reserves are already accessible for production. An intense drilling program indicates continuity of the mineralization to depth as well as along strike.
Other significant Resources within the area are now under investigation by FMPlata, in the Quebradillas, where an interesting breccia pipe is under investigation and development, San José, Vacas, Las Víboras, Sacramento, Santa Paula, etc.
Pincock, Allen & Holt | REVISED | 19.2 |
90534 February 26, 2009 |
Geophysical anomalies within the area represent a significant target for exploration since these may indicate geological features that appear appropriate for finding other mineral concentrations. Geochemical sampling may be a useful tool to qualify these anomalies. FMPlata is utilizing all these techniques to investigate the La Parrilla district for satellite mineral deposits within the area.
For Reserve estimation, the cross sectional area of mineralization is drawn on each of the blocks using Auto CAD software and the assayed sample lengths. The volume of mineralization on each section is calculated for the mineralized zone. The Reserve Blocks are projected up and down by a maximum length of 20m in vertical extension, although they may be limited by mine drifts or other workings. Mine dilution is adjusted to a minimum mining width of 2.00m. Proven Reserves are based on channel sampling of contiguous drift levels and accessible raises and other mine works. Probable Reserves are projected at 20m beyond the proven blocks. Measured and Indicated Resources are projected beyond the Probable Reserves, considering geologic features and evidences of mineralization continuity. Resource estimates are projected at 25m from the drill intercepts.
In PAH’s opinion the La Parrilla Silver Mine Reserve/Resource Blocks estimation is in accordance to acceptable engineering practices and appropriate for the geologic characteristics of the mineral deposits within the La Parrilla Silver Mine district.
The density factor (specific gravity) is then input into the calculation and tonnage is calculated based on the formula; Length (in meters) X Width (in meters) X Height (in meters) X s.g. = tonnes of material.
The density factor used (2.70) to convert reserve block volumes into tonnes has been determined as a weighted average from ore samples representative of the various deposit areas. The density tests were performed by Mr. Manuel Yañez Escareño, Manager of the La Parrilla lab and by Inspectorate.
PAH believes that on average the density for mineralization is conservative since the results indicate a general average of 2.79. PAH recommends that samples be periodically taken as checks for bulk density determination to ensure the application of an appropriate density factor.
To estimate the average grade and thickness for each Reserve/Resource Block at La Parrilla Silver Mine, composites of all channels and sample grades that occur on either side within the block’s drifts are taken in consideration. The total length of samples in the composite is then divided by the total number of composites, giving the average width of the mineralization in the drift at that section. Similarly, the average silver grade of the samples, weighted by length, gives the average silver grade for the drift at that section.
The tonnes and grade for each Reserve Block are then determined by combining the tonnes and grade results obtained for each section that crosses the block. The Resource Block tonnes and grade are tabulated by FMPlata on a series of spreadsheet summaries.
PAH notes that the sampling conducted across the mineralized zones for use in the Reserve estimate is done with cutoff grade and width considerations, at a minimum mining width of 2.00m. This minimum
Pincock, Allen & Holt | REVISED | 19.3 |
90534 February 26, 2009 |
width typically includes zones within the structures that are above the cutoff grade, as well as some non economic mineralization below the cutoff grade, in which case FMPlata eliminates these areas when possible.
PAH also notes that in a few local areas, the drift is wholly enclosed by the mineralized structures and, unless there are some additional cross cuts or drilling, the vein width is taken as that measured across the confines of the drift opening. PAH recommends that the true structure widths, measured by cross cuts and/or drill holes, be used as much as possible in the blocks of Reserve and Resource estimation.
The Reserve Blocks estimated by FMPlata are not included within the Resource Blocks.
In PAHs opinion the Reserve and Resource Block estimates carried out by FMPlata at La Parrilla Silver Mine have been reasonably prepared and conform to acceptable engineering standards for reporting of Reserves.
19.3 Cutoff Grade Calculations
For the current reserve, PAH has calculated breakeven cutoff grades for both the extraction and processing of oxide ore as well as extraction and processing of sulfide ore in La Parrilla underground mine operations. PAH calculated reasonable long-term metal prices based on the 3-year rolling averages and recent 2008 price trends. The metal price comparisons are shown in Table 19-1.
TABLE 19-1
First Majestic Silver
Corp.
FM Plata, S.A. de C.V.
La Parrilla Silver
Mine
Comparison of Metal Prices for 43-101 (USD)
Commodity |
First Majestic
Average Prices |
3-Year Rolling
Avergage Prices |
Average
September 2008 |
PAH Prices |
Gold ($/oz.) | $708 | $699 | $829 | $708 |
Silver ($/oz.) | $12.00 | $13.15 | $12.37 | $12.00 |
Lead ($/lb.) | $0.75 | $1.04 | $0.93 | $0.75 |
Zinc ($/lb.) | $0.50 | $1.29 | $1.01 | $0.75 |
The basic parameters applicable to the cutoff grade calculations for the underground mine are shown in Table 19-2.
19.4 Oxide Ore
Equating the parameters from Table 19-2 (oxide ore only), the breakeven cutoff grade for silver (C Ag ),
based solely on silver for total operating costs and process recoveries is as follows:
CM Ag = Total operating costs/ (Silver price X mill recovery X refinery payable metal)
CM Ag = $49.87 per tonne/($12.00 X 0.684 X 0.995) =6.10 oz Ag per tonne or 190 g Ag/t.
Pincock, Allen & Holt | REVISED | 19.4 |
90534 February 26, 2009 |
TABLE 19-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla
Silver Mine
Cutoff Grade Parameters for Oxide Ore
CONCEPTS | COSTS & OTHER |
Average Total Operating Cost Per Tonne | $49.87 |
COG Silver Only (g/t Ag) | 190 |
COG -Gold Credits (g/t Ag) | 184 |
Silver Recovery in Mill (%) | 62.4% |
Payable Silver from Refinery | 99.5% |
Payable Gold from Refinery | 99.5% |
Silver Price ($/oz.) | $12.00 |
Gold Price (S/oz) | $708 |
Lead Price ($/lb.) | $0.75 |
Zinc Price ($/lb.) | $0.75 |
Monetary Exchange Rate | $11.00 pesos:$1.00 |
82,369 tonnes of oxides processed in first 9 months of 2008.
However, there is a small gold contribution for La Parrilla oxide ores. Production of gold in the Doré from the mine only for the first 9 months of 2008 was 19.15 kilograms. The calculation for gold contribution is as follows:
Revenues from gold (R m ) = Ounces of gold in Doré X payable from refinery X gold price.
R m = 286 oz Au X 0.995 X $708
R m = $201,475
R m / tonne mined = $201,475 / 82,369 = $2.45
The silver equivalent of gold contribution = $2.45 / $12.00 = 0.20 oz Ag/t or 6 g Ag/t.
The adjusted mine cutoff grade (CMAg) is then: 190 g Ag/t Ag - 6 g Ag/t = Ag = 184 g Ag/t .
The basic parameters used for the cutoff grade calculations for the mining and processing of sulfide ore from La Parrilla are shown in Table 19-3.
19.5 Sulfide Ore
Equating the parameters from Table 19-3, the breakeven cutoff grade for mining and processing of the sulfide ore, based solely on silver, for the total operating costs and process recoveries anticipated, is as follows:
CD Ag = Total Operating Costs / (silver price X mill recovery X smelter payable metal).
Pincock, Allen & Holt | REVISED | 19.5 |
90534 February 26, 2009 |
CD Ag = $66.94/ $12.00 X 0.624 X 0.95) = 9.41 oz Ag/t or 293 g Ag/t.
TABLE 19-3
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla
Silver Mine
Cutoff Grade Parameters for Sulfide Ore
CONCEPTS | COSTS AND OTHER |
Average Operating Cost per Tonne | $66.94 |
COG Silver Only (g/t Ag) | 293 |
COG - Lead Credits (g/t Ag) | 246 |
Silver Recovery in Mill (%) | 62.4% |
Payable Silver from Refinery | 95.0% |
Lead Recovery in Mill (%) | 55.0% |
Payable Lead from Refinery (%) | 88.0% |
Silver Price ($/oz.) | $12.00 |
Lead Price ($/lb.) | $0.75 |
Zinc Price ($/lb.) | $0.75 |
Monetary Exchange Rate | $11.00 pesos: $1.00 |
61,419 tonnes of sulfides processed in first 9 months of 2008.
A lead contribution is obtained from mining and processing sulfide ore at La Parrilla. About 1,767 tonnes of lead in concentrates were produced the first nine months of 2008. The calculation for the lead contribution is as follows:
Revenues for lead (RPb)= Lbs in concentrates X payable from smelter X lead price.
R Pb = 740.5 tonnes X 2204.6 lbs / t X 0.90 X $0.75
R Pb = $1,101,942
R Pb per tonne of sulfide ore processed = $1,101,942 / 61,419 = $17.94 / t
Ag Equivalent per tonne = R Pb / Ag price = $17.94 / $12.00 = 1.50 oz Ag/t or 47 g Ag/t.
Adjusted Cut-off Grade (CDAg) for sulfides = 293 g Ag/t 47 g Ag/t = 246 g Ag/t.
19.6 Reserve Estimates
PAH has reviewed the La Parrilla Silver Mine Reserve update of September 30, 2008, along with factors for mining dilution to a minimum mining width of 2.00m and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several Reserve Blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
Pincock, Allen & Holt | REVISED | 19.6 |
90534 February 26, 2009 |
FMPlata has estimated mineable Reserves for La Parrilla Silver Mines following deposits:
The total in-situ diluted Proven and Probable Reserves at a minimum mining width of 2.00m, as reviewed by PAH, is 0.50 million tonnes averaging 295 grams per tonne silver, 1.40 percent lead and 1.00 percent zinc, for a total of 4.8 million contained ounces of silver only or 5.2 million ounces of silver equivalent contained with gold and lead credits. As discussed previously in the calculation methodology section, the Proven ore category has been projected up to 20 meters from the drift sample data, while the Probable ore category is projected another 20 meters beyond the proven ore. Table 19-4 presents a summary of La Parrilla Silver Mine Proven and Probable Reserves.
Figures 19-1, 19-2, 19-3, and 19-4 show cross sections of the San Marcos, Las Vacas, Section 4-4 of Las Vacas and Stopes of the San Marcos vein showing Reserve and Resource Blocks.
PAH notes that the Reserve and Resource blocks are exclusive of each other.
La Parrilla Silver Mine deposits occur in vein deposits and breccia zones and faults or fracturing intersections that make wide and irregular deposits. Generally ore shoots occur at La Parrilla Silver Mine in alternating zones of wide and narrow areas along the mineralized structures. These generally present widths greater than 2.00m which is estimated to be the minimum mining width due to the mining equipment in use at the mine. Therefore, mining dilution is only significant when the mining is developed along narrow structures. Provisions have been taken to include the mining dilution for those areas.
19.7 Resource Estimation
Resource calculations by FMPlata at La Parrilla Silver Mine are based on projections of the mineralized zones in the underground mine workings, 20m beyond the areas of Reserves for the Measured Resources, and another 20m beyond the boundaries of the Measured Resources for the blocks of Indicated Resources. Inferred Resources are estimated by projecting up to 50m beyond the Indicated Resource Block boundaries along mineralized structures, and another 20m beyond the blocks width. The estimated Resource blocks may be limited by underground levels and previous mining extraction.
Longitudinal projections depend on the drift development along the mineralized zones and on the ore shoots projections and they may reach 200m in length as in the Rosarios system.
La Parrilla Silver Mine mineral Resource estimates were applied mostly to diamond drilling intercepts, as well as to some adjacent blocks from the estimated reserves.
Pincock, Allen & Holt | REVISED | 19.7 |
90534 February 26, 2009 |
TABLE
19-4
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A. de
C.V.
La
Parrilla
Silver Mine
Mineral
Reserves
Prepared
by
FMPlata,
Reviewed
by PAH as of
September
30, 2008
CATEGORY | Mineralization | Metric | Width | Au | Ag | Pb | Zn | Contained Metal | |
Type | Tonnes | Meters | g/tonne | g/tonne | % | % | Ag (only) oz | Ag eq oz | |
MINERAL RESERVES | |||||||||
PROVEN | Oxides | ||||||||
La Rosa - Rosarios | Oxides | 96,723 | 2.64 | 320 | 994,307 | 1,012,966 | |||
San Marcos | Oxides | 13,262 | 2.31 | 272 | 115,810 | 118,369 | |||
Quebradillas | Oxides | 17,793 | 6.12 | 220 | 125,577 | 129,010 | |||
Total | Oxides | 127,778 | 3.09 | 301 | 1,235,695 | 1,260,344 | |||
PROVEN | Sulfides | ||||||||
La Rosa - Rosarios | Sulfides | 144,540 | 2.75 | 319 | 1.24 | 0.67 | 1,481,747 | 1,700,159 | |
Quebradillas | Sulfides | 16,150 | 2.42 | 154 | 2.41 | 3.20 | 80,045 | 104,449 | |
Total | Sulfides | 160,690 | 2.72 | 302 | 1.36 | 0.93 | 1,561,792 | 1,804,608 | |
Total Proven | Oxides plus Sulfides | 288,468 | 2.88 | 302 | 1.36 | 0.93 | 2,797,487 | 3,064,952 | |
PROBABLE | Oxides | ||||||||
La Rosa - Rosarios | Oxides | 83,842 | 2.62 | 300 | 808,085 | 824,259 | |||
San Marcos | Oxides | 11,060 | 2.28 | 257 | 91,386 | 93,519 | |||
Quebradillas | Oxides | 17,489 | 6.01 | - | 220 | 123,699 | 127,072 | ||
Total | Oxides | 112,391 | 3.11 | 283 | 1,023,170 | 1,044,851 | |||
PROBABLE | Sulfides | ||||||||
La Rosa - Rosarios | Sulfides | 88,519 | 2.84 | 316 | 1.31 | 0.79 | 898,943 | 1,032,702 | |
Quebradillas | Sulfides | 16,150 | 2.42 | 154 | 2.23 | 2.95 | 80,045 | 104,449 | |
Total | Sulfides | 104,669 | 2.78 | 291 | 1.45 | 1.12 | 978,988 | 1,137,152 | |
Total Probable | Oxides plus Sulfides | 217,060 | 2.95 | 287 | 1.45 | 1.12 | 2,002,158 | 2,182,002 | |
TOTAL RESERVES | Oxides plus Sulfides | 505,528 | 2.91 | 295 | 1.40 | 1.01 | 4,799,645 | 5,246,954 |
(1) Estimates by First Majestic Plata, reviewed
by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery
included.
(2) Silver equivalente based on sales. Prices used for evaluation:
Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb.
(3) Oxides Ag equivalent includes gold credit based on FMPlata
sales. Au Credit = 6 g/tonne Ag.
(4) Sulfides Ag equivalent includes Pb credit = 47 g/tonne Ag.
Zinc is not considered in reserves due to low prices and high smelter charges.
(5) Cut Off Grade estimated as 184 g/tonne Ag net of Au credit
in oxide ores; and 246 g/tonne Ag net of Pb credit in sulfide ores. Zinc not
onsidered.
(6) Reserves and resources in this report are exclusive of each
other.
Pincock, Allen & Holt | REVISED | 19.8 |
90534 February 26, 2009 |
The grade for these blocks is determined from the grade estimated for the drill hole intercepted grade and from the adjacent Reserve Blocks, and sampling in mine workings and drill holes located within the block area.
FMPlata continues to identify Reserve and Resource blocks, and exploring additional areas. The estimated mineral Resources are considered conservative, since only adjacent blocks are projected from the Reserve Blocks. Mineralization within the metasomatic zone in the contact between the intrusive stock and the carbonaceous Cuesta del Cura Formation has shown high probability of occurrence as Skarn deposits.
Additional geologic potential exists within the La Parrilla area to investigate targets that may result in significant resource development for the operation such as the outcropping Quebradillas and the Las Vacas areas. Direct exploration of the geophysical anomaly areas may be confirmed as significant target zones for further exploration. Geophysical investigations by FMPlata during 2007 have indicated anomalous areas of interest for further exploration, which confirm previous investigations by Grupo México with magnetic and IP methods and may represent concentrations of sulfides or other conductive minerals.
Other areas representing interesting geologic potential within the FMPlata holdings are the following:
Additional Inferred Resources have been projected in the La Rosa/Rosarios/La Blanca system, San Marcos, Quebradillas and Las Vacas zones.
PAH has included the zinc mineralization in the La Parrilla Resources due to the current low prices and high smelter charges for concentrates made by Met-Mex Peñoles; as a result FMS has suspended the activation of the zinc flotation circuit until the market prices improve.
FMPlata estimate of Measured and Indicated Resource Blocks as reviewed by PAH is shown in Table 19-5. Most of the Resources are defined by diamond drilling. The Measured and Indicated silver Resources, including oxides and sulfides mineralization, consist of 3.1 million tonnes averaging 255 grams per tonne silver, for a total content of 25.4 million ounces of silver only contained or 30.7 million ounces of silver
Pincock, Allen & Holt | REVISED | 19.13 |
90534 February 26, 2009 |
equivalent net of gold credit for oxides and lead for sulfides. The Resources grade has been estimated in situ above cutoff grade, and the silver equivalent content is net of gold credit in oxides, at 6 g/tonne Ag, and net of lead credit for sulfides, at 47 g/tonne Ag respectively. This estimate is based on the following prices: Ag - $12.00/oz, Au - $708/oz, Pb - $0.75/lb and Zn-$0.75/lb.
Table 19-5 shows the Measured and Indicated Resources and the Inferred Resource estimate for La Parrilla Silver Mine. PAH notes that these Resources are in addition to the previously reported Reserves.
FMPlata has estimated additional silver Resources at a distance beyond the Proven and Probable Reserves. These Inferred Resources are estimated at 8.0 million tonnes at an average grade of 169 g/tonne Ag, representing a content of 43.9 million ounces of silver only, or 52.8 million ounces of silver equivalent including Au, Pb and zinc, within the Resource. These Inferred Resources include a preliminary estimate of Resources at the Quebradillas area for projected open pit mining. These additional Resources lack sufficient drifting, raising, sampling, drill holes or old workings with production data and are estimated at a lower degree of confidence than the other Reserve or Resource categories. PAH considers these additional Resources to be of an Inferred category and they are based on projections of presumed vein continuity ahead, above, and below current mining; and are based on widely-spaced drill holes, surface sampling or old surface workings. These Resources are presented by FMPlata as Inferred Resources.
The Inferred Resources need considerable grade and tonnage information before they can be proved up to mineable Reserves. To date, Los Rosarios system at La Parrilla has demonstrated a continuity along about 2.0 kilometers of strike length and down dip to about 400 meters; so it is reasonable to assume that in the future, Resources will continue to be converted to Reserves (ore) as additional drifting, crosscutting and raising define vein configurations, sampling and assaying determine the grade, and diamond drilling confirms vein extensions and fills in data gaps. Inferred Resources for La Parrilla are presented in the lower portion of Table 19-5.
19.8 Conclusion
PAH believes that these Reserve and Resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of Resources. PAH believes that the classification of the Reserves and Resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The Reserves and Resources herein reported by FMPlata were reviewed by PAH and constitute part of an operation by FMPlata, a Mexican subsidiary of FMS. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these Reserves and Resources, which are exclusive of each other category, may not be materially affected by issues that could prevent their extraction and processing.
Pincock, Allen & Holt | REVISED | 19.14 |
90534 February 26, 2009 |
TABLE
19-5
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A. de
C.V.
La
Parrilla
Silver Mine
Mineral
Resources
Prepared
by
FMPlata,
Reviewed
by PAH as of
September
30, 2008
CATEGORY | Mineralization | Metric | Width | Au | Ag | Pb | Zn | Contained Metal | |
Type | Tonnes | Meters | g/tonne | g/tonne | % | % | Ag (only) oz | Ag eq oz | |
MINERAL RESOURCES | |||||||||
MEASURED | Oxides | ||||||||
La Rosa - Rosarios | Oxides | 105,321 | 4.51 | 0.10 | 454 | 1,538,046 | 1,558,363 | ||
San Marcos | Oxides | 251,538 | 3.28 | 0.21 | 357 | 2,884,020 | 2,932,543 | ||
Quebradillas | Oxides | 197,771 | 5.82 | 0.12 | 201 | 1,280,773 | 1,318,924 | ||
Total | Oxides | 554,630 | 4.42 | 0.15 | 320 | 5,702,839 | 5,809,830 | ||
MEASURED | Sulfides | ||||||||
La Rosa - Rosarios | Sulfides | 687,871 | 7.89 | 0.17 | 319 | 1.73 | 0.95 | 7,046,016 | 8,748,914 |
San Marcos | Sulfides | 48,830 | 4.09 | 0.19 | 321 | 2.20 | 1.43 | 503,915 | 624,799 |
Quebradillas | Sulfides | 272,832 | 4.80 | 0.00 | 270 | 3.79 | 5.11 | 2,365,955 | 3,041,380 |
Vacas | Sulfides | 631,285 | 6.12 | - | 149 | 3.04 | 8.44 | 3,018,892 | 4,581,706 |
Total | Sulfides | 1,640,818 | 6.58 | 0.08 | 245 | 2.59 | 4.54 | 12,934,778 | 16,996,798 |
Total Measured | Oxides plus Sulfides | 2,195,448 | 6.04 | 0.10 | 264 | 2.59 | 4.54 | 18,637,618 | 22,806,628 |
INDICATED | Oxides | ||||||||
La Rosa - Rosarios | Oxides | 21,818 | 3.23 | 0.14 | 203 | 142,397 | 146,606 | ||
San Marcos | Oxides | 406,627 | 3.05 | 0.22 | 303 | 3,964,892 | 4,043,332 | ||
Total | Oxides | 428,445 | 3.06 | 0.22 | 298 | 4,107,289 | 4,189,938 | ||
INDICATED | Sulfides | ||||||||
La Rosa - Rosarios | Sulfides | 77,301 | 3.27 | 0.19 | 164 | 3.00 | 1.83 | 407,789 | 599,156 |
San Marcos | Sulfides | 25,218 | 4.09 | 0.19 | 321 | 2.20 | 1.43 | 260,260 | 322,689 |
Quebradillas | Sulfides | 18,057 | 3.80 | 0.01 | 253 | 2.24 | 5.94 | 146,903 | 191,605 |
Vacas | Sulfides | 312,467 | 5.01 | - | 185 | 3.75 | 7.50 | 1,863,445 | 2,636,991 |
Total | Sulfides | 433,043 | 4.59 | 0.05 | 192 | 3.46 | 6.07 | 2,678,396 | 3,750,441 |
Total Indicated | Oxides plus Sulfides | 861,488 | 3.83 | 0.13 | 245 | 3.46 | 6.07 | 6,785,685 | 7,940,379 |
TOTAL RESOURCES (8) | Oxides plus Sulfides | 3,100,000 | 5.34 | 0.11 | 255 | 2.80 | 4.90 | 25,400,000 | 30,700,000 |
INFERRED MINERAL RESOURCES | |||||||||
La Rosa - Rosarios | Oxides | 802,644 | 3.05 | 0.08 | 318 | 8,201,831 | 8,356,664 | ||
San Marcos | Oxides | 484,049 | 3.05 | 0.16 | 326 | 5,078,617 | 5,171,992 | ||
Quebradillas | Oxides | 5,670 | 3.50 | - | 285 | 4.53 | 1.64 | 51,954 | 53,048 |
Quebradillas Open Pit (6) | Oxides | 3,300,000 | 3.50 | - | 100 | 10,610,000 | 11,200,000 | ||
Total Inferred (8) | Oxides | 4,600,000 | 3.37 | 0.03 | 162 | 0.01 | 0.00 | 23,900,000 | 24,800,000 |
La Rosa - Rosarios | Sulfides | 2,616,850 | 3.87 | 0.15 | 191 | 1.98 | 1.66 | 16,040,595 | 22,518,888 |
Quebradillas | Sulfides | 7,088 | 4.20 | 0.01 | 215 | 2.18 | 5.58 | 48,995 | 66,542 |
Vacas | Sulfides | 801,803 | 7.95 | 0.03 | 136 | 2.19 | 9.44 | 3,515,546 | 5,500,495 |
Total Inferred (8) | Sulfides | 3,400,000 | 4.86 | 0.12 | 179 | 2.05 | 3.51 | 20,000,000 | 28,000,000 |
Total Inferred (8) | Oxides plus Sulfides | 8,000,000 | 4.00 | 0.07 | 169 | 0.87 | 1.49 | 43,900,000 | 52,800,000 |
(1) Estimates by First Majestic Plata, reviewed
by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery
included.
(2) Silver equivalente based on sales. Prices used for evaluation:
Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb.
(3) Oxides Ag equivalent includes gold credit based on FMPlata
sales. Au Credit = 6 g/tonne Ag.
(4) Sulfides Ag equivalent includes Pb credit = 47 g/tonne Ag.
Zinc is considered at 70% met. recovery = 30 g/tonne Ag.
(5) Cut Off Grade estimated as 184 g/tonne Ag net of Au credit
in oxide ores; and 246 g/tonne Ag net of Pb credit in sulfide ores. Zinc not
considered in COG estimates.
(6) Preliminary Block Model estimate at COG>50 g/tonne Ag.
(7) Reserves and resources in this report are exclusive of each
other.
(8) Rounded figures.
Pincock, Allen & Holt | REVISED | 19.15 |
90534 February 26, 2009 |
20.0 OTHER RELEVANT DATA AND INFORMATION
La Parrilla consists of several mines within FMPlatas large land holding which make up the operations of the La Parrilla Silver Mine. Many of these mines have been in operation intermittently since the sixteenth century, when many of the mining districts in the region were discovered, such as Zacatecas, Fresnillo, San Martín/Sabinas/Tocayos near Sombrerete, Cerro del Mercado, etc. Silver production from the La Parrilla district until 2007, based in unpublished reports by ASARCO, the Comisión de Fomento Minero, production records from Mina Los Rosarios, S.A. de C.V. and production records from FMS from June 2004 to September 30, 2008, is estimated at a total production of about 1.374 million tonnes of ore at an average grade of 310 g/tonne Ag, 1.93 percent Pb, about 1.47 percent Zn and some Au. This represents about 13.7 million ounces of silver, 58.4 million pounds of lead and about 44 million pounds of zinc.
Mineralization at the Los Rosarios system, which includes the mines of Rosarios, La Rosa, La Blanca and San José, consists of a vein system that has been partially developed to depths of less than 250m at Ore Shoot 1 of the Rosarios area, while at other mines of similar geologic environments within the region, such as the San Martín/Sabinas and La Colorada mines, the ore deposits have been developed to depths greater than 600m to 800m.
FMPlata underground development has identified numerous exploration targets. One immediate target for exploration is the intersection zone between the Los Rosarios system and the San Marcos vein and follow up exploration investigations at Las Vacas and Quebradillas areas.
FMPlatas acquisition of mining concessions owned by Grupo México surrounding the La Parrilla includes highly promising prospecting areas that may increase FMPlatas Resource/Reserve base. FMPlata is developing exploration programs through drilling and underground workings to validate Grupo Méxicos reported historical Resources and Reserves for Quebradillas and other areas within the concessions. No historical Reserves or Resources are included in FMPlatas estimate. FMPlatas drilling and underground development in the Quebradillas area have resulted in about 34,000 tonnes in Proven and Probable Reserves plus about 489,000 tonnes in Measured and Indicated Resources. These Quebradillas Reserves contain about 233,000 equivalent silver ounces and the Resources contain an estimated 4.5 million equivalent ounces of silver in addition to Pb and Zn metals. The Quebradillas outcropping zone may be mined by open pit methods. Preliminary block model estimates resulted in estimated Inferred Resources of 3.3 million tones at an average grade of 100 g/tonne Ag in oxides mineralization.
In PAHs opinion numerous outcropping mineralized structures and alteration zones within the La Parrilla district still remain to be explored. No other mines are operating within adjacent areas to the FMPlatas holdings.
Pincock, Allen & Holt | REVISED | 20.1 |
90534 February 26, 2009 |
21.0 INTERPRETATION AND CONCLUSIONS
La Parrilla Silver Mine represents a typical Mexican mining district developed by prospectors (gambusinos) into a small to medium scale mining operation. Typically, no exploration investigations were carried out in these mining districts, other than following the mineralized structures. Development of these mines was based in accordance with metals prices or other geopolitical issues.
Modern exploration investigations within these old mining districts often result in discovery of significant mineral deposits, as was the case in Guanajuato, Fresnillo, Cananea, Parral, etc.
FMPlatas exploration programs are based on investigating old mining districts; therefore, its rate of success for discovering new mineral deposits has resulted in a higher-than-average rate of success.
La Parrilla district consists of a mineralized region where a plutonic intrusive in contact with carbonaceous sedimentary rocks, in addition to subsequent hydrothermal mineralizing events, have originated adequate geologic conditions and mineral deposition creating numerous mineral deposits within the district. These mineral deposits occur, associated or enclosed by, the regional intrusive stock, stockwork zones, breccia zones and vein structures. Similar geologic conditions exist at San Martín/Sabinas, near Sombrerete; at Fresnillo; at Zacatecas; at Chalchihuites; at Concepción del Oro, and at Peñasquito mining districts, all within the State of Zacatecas, México.
Partial records of historic production at La Parrilla indicate a total of approximately 1.37 million tonnes containing about 13.7 million ounces of silver, about 58.4 million pounds of lead, and about 44.4 million pounds of zinc. These estimated metals include FMS production to September 30, 2008. This recorded production was primarily extracted from the Los Rosarios system, including the Rosarios, La Rosa, La Blanca and San José mines, and from the San Marcos vein.
Current exploration studies by FMPlata and previous operators in the area have indicated significant geologic potential within the La Parrilla district, along and to depth of the Los Rosarios system (La Blanca, La Rosa, Rosarios, San José); along and to depth of the San Marcos vein system; at the QuebradillasLas Víboras zone; at Vacas mine; as well as at numerous geophysical magnetic and IP anomalies. FMPlata is planning to carry out an aggressive exploration program for the following several years to investigate the districts numerous exploration targets.
FMPlata is integrating the old mining workings into new underground mines that include ramps of access to the production zones, crosscuts and drifts that incorporate development into accessible and more productive blocks of mineralization for mining by the cut-and-fill method. Mine preparation requires a lengthy program of workings based on sound planning. This mine preparation eventually leads to a more efficient operation, at lower operating costs, and a predictable production schedule.
During 2008 FMPlata has completed programs to upgrade processing facilities and increase recoveries by replacing a significant numbers of parts or pieces of equipment from the cyanidation plant, such as one
Pincock, Allen & Holt | REVISED | 21.1 |
90534 February 26, 2009 |
of the filters, two new leaching tanks, one thickener tank and parts of mthe crushing system. These upgrades should result in operating at scheduled capacity with a more effective operation that should result in consistent processing and recoveries. Adjacent to the cyanidation plant a new flotation circuit was built to process primary sulfides mineralization, since some of the mines are reaching the transition zone where oxidized and sulfides minerals are extracted. La Parrilla’s two processing circuits are capable of processing the ores produced from the different mines within the FMPlata land holdings.
FMPlata's exploration and development efforts and investments at La Parrilla have resulted in estimated Reserves and Resources for the operation as of September 30, 2008 containing 5.2 million ounces of silver equivalent in Proven and Probable Reserves, which represent a decrement of 14 percent over previously reported estimates; 30.7 million ounces in Measured and Indicated Resources, an increment of 5 percent; and 52.8 million ounces in Inferred Resources, or 37 percent above those from the previous estimate. This resource increment is due to the continued exploration efforts by FMPlata's programs. These estimates include about 10.6 million ounces of silver contained in the Quebradillas Resources projected for open pit mining.
FMPlata has initiated training and support for educational programs to attract experienced personnel and in preparing for the future. These programs include coordination and support to nearby communities as part of social responsibilities.
La Parrilla estimated Resource/Reserve base for this period represents an important step towards consolidating the mining operation under a solid scenario of mineable Reserves for the following fiscal operating periods. This step also represents a base for further Reserves increment through exploration and development.
In PAH's opinion FMPlata's operation at La Parrilla is being conducted with sound engineering practices and acceptable methods of general application within the World mining industry; therefore, PAH believes that the exploration, mining and processing methods applied by FMPlata at La Parrilla are acceptable and justified, in accordance with good engineering practices.
Pincock, Allen & Holt | REVISED | 21.2 |
90534 February 26, 2009 |
22.0 RECOMMENDATIONS
La Parrilla Silver Mine represents a typical Mexican mining district which was discovered in Colonial times (XVI XVII centuries) and only developed from outcroppings by following mineralization along the structures, until high grade ore shoots were discovered and depleted at times of high metals prices. No significant exploration programs were generally carried out in these districts. Historical records and estimates by surveying of old stopes show production from the numerous mines within the La Parrilla district of 13.7 million ounces silver, 58.4 million pounds lead and 44.4 million pounds zinc, including FMPlata operations to September 2008.
FMPlata has considered significant budgets for investment in exploration at La Parrilla. These programs of exploration appear to have already shown positive results by indicating an important Resource/Reserve base for the mine. PAH highly recommends to continue with these programs in the Los Rosarios system, San Marcos, Vacas and Quebradillas areas. FMPlata has estimated an expenditure of $3.79 Million for the period of 2009 presented in Tables 12-1 and 22-1. In PAHs opinion, this investment represents a reasonable budget for exploration of targets that show geologic potential and highly promising evidences of mineral concentrations within accessible areas of the mining district.
The FMPlata exploration program includes geophysical investigations by magnetic and IP surveying (30km) at an estimated budget of $90,000. It also includes geochemical investigations (1,900 samples) at an estimated cost of $80,000. Diamond drilling from surface and underground sites (total 97 drill holes) is estimated at $1.82M. The program also includes underground drifting and crosscuts and preparation and access for drill sites, for a total development of about 2,800m at an estimated cost of $1.8 million. PAH agrees with implementation of this exploration program and the cited estimated expenditures, since positive results may develop additional Resources and extend the life of the mine.
PAH recommends completing Pre Feasibility investigations for the projected Quebradillas open pit mining prior to initiate development. These should include particularly detailed metallurgical testwork for recoveries and operating costs.
PAH recommends continuation of the geochemical investigations from drilling samples. This includes core sampling of the different rock formations, other than mineralized zones. The intention is to apply geochemical investigations by rock formations, and to establish a signature and database that may aid in interpretations in other target zones within the mining district. This requires taking selected core intervals within each geologic unit. An estimated budget for these investigations includes about 1,900 samples at an estimated cost of $80,000, which has been included in the 2009 budget.
In PAHs opinion the La Parrilla programmed capital expenditures for the period of 2009, for a total of $3.79 Million are scheduled to improve the operation and through a successful exploration program, increase the mines Reserves and Resources and therefore extend the mine life. PAH notes that as of the writing of this report, FMS has temporarily suspended this budget due to current market conditions.
Pincock, Allen & Holt | REVISED | 22.1 |
90534 February 26, 2009 |
Other recommendations by PAH related to operating practices, for which no budget can be estimated, are the following:
La Parrillas operators must address discrepancies between the milled grades of both oxide and sulfide ore versus the average Reserve and Resource grades. The head grade problems are mainly due to the contract miners extracting more dilution than necessary. PAH recommends that mine geologists and mining engineers develop and execute stricter grade control procedures in all the operations. These measures should result in tonnage and grade reconciliation between production, Reserves and sales.
Metallurgical accounting must be more accurate. The operators must closely control the ore flow and stockpiles for both La Parrilla and the ore from outside operations, such as Del Toro.
Ground control in the mines still requires attention, especially in the loose oxide zones of the orebodies. PAH recommends that rock bolting with mesh and straps, and possibly shotcrete be employed consistently in areas of poor ground.
A system of long-range planning should be adopted by the mine engineering group at La Parrilla. Current long-range plans are general and lack detail.
Table 22-1 shows recommended exploration budget for 2009 at La Parrilla Silver Mine.
TABLE 22-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla
Mine
Recommended Exploration Budget for 2009
Exploration | Quantity | Total estimated |
Activities | cost US$ | |
Geophysical Survey IP | 30km | 90,000 |
Geochemical Survey | 1,900 samples | 80,000 |
Surface Diamond Drilling (at a cost of $100 per meter) | 10,000m (43 dh) | 1,100,000 |
Underground Diamond Drilling (at a cost of $100 per meter) | 7200m (54 dh) | 720,000 |
Underground development | 2800 m | 1,800,000 |
Total Recommended Budget | 3,790,000 |
Pincock, Allen & Holt | REVISED | 22.2 |
90534 February 26, 2009 |
23.0 REFERENCES
1. |
Resource and Reserve Estimates by First Majestic Plata for La Parrilla Silver Mine. Prepared by FMS and its Mexican subsidiary companies, FMPlata and FMRM staff and reviewed by PAH. September 2008. |
2. |
Informe Técnico Exploración Geofísica en La Parrilla, Durango. Solicitante First Majestic. Elaborado por GEOLINSA, S.A. de C.V. Linares, Nuevo León, México. Agosto 30, 2007. |
3. |
La Parrilla Silver Mine Technical Report Amended for the La Parrilla Silver Mine, Durango state, México; which was prepared for First Majestic Silver Corp. by Pincock, Allen & Holt, Inc. Dated July 24, 2007 and published in SEDAR in July 25, 2007. |
4. |
News release by First Majestic Silver Corp. highlights from 3rd quarter financial statements. Dated November 29, 2007. |
5. |
La Parrilla Geologic Report, Durango, México. Prepared by the consulting firm of: Exploraciones Geológico-Mineras de Occidente, S.A. de C.V., Ing. Florentino Muñoz Cabral, April 2004. |
6. |
Property Risk Control Survey Report, First Majestic Resource Corp. La Parrilla Silver Mine, San José de La Parrilla, Durango, México. Prepared by Marsh a MMC (Marsh & McLennan Companies, Guy Visón, P. Eng. December 19, 2006. |
7. |
Legal Opinion First Majestic Plata, S.A. de C.V., a wholly owned subsidiary of First Majestic Silver Corp. Legal Opinion by Durango-based office of legal advisers, by Mr. Carlos Galván Pastoriza, Abogado, prepared on September 30, 2008. |
8. |
Geological Evaluation of the La Parrilla Property, State of Durango, México. Prepared by: J.N. Helsen, Ph.D., P.Geo. March 27, 2006. |
9. |
Information provided by FMRM as owner and operator of La Parrilla mine, including data from 2006 to May 2007. |
10. |
Information provided by FMS Corporate Manager of Environment5al and Permitting, Mr. José Luis Hernández Santibañez, dated October 27, 2008, regarding FMPlata permits and environmental regulations compliance on behalf of the La Parrilla Silver Mine operation, including the following: |
• |
Delegación Federal de la SEMARNAT, Estado de
Durango, Unidad de Gestión Ambiental. April 17, 2006. Authorization
to change the Licencia Ambiental Unica No. LAU-10/016-2005
dated March 16, 2005 to updated terms due to increment of operating capacity
at La Parrilla, in registration No. FMR141001611 dated April
17, 2006.
|
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90534 February 26, 2009 |
• |
Delegación Federal de la SEMARNAT, Estado de Durango, Unidad de Gestión Ambiental on resolution to authorize construction and use of Tailings dam Parrilla II. Document No. SG/130.2.1.1/000897. Dated April 16, 2007. It includes other documents in which FMRM is authorized to change the use of the land, etc. |
|
• |
State Manager of CNA (Comisión Nacional del Agua), Estado de Durango. Official notification of Concesión Title No. 03DGO102200/11IMGE06 for the use of water at La Parrilla, dated December 18, 2006. |
|
• |
Delegación Federal de la SEMARNAT, Estado de Durango. Permit as industry that uses and handles dangerous substances. Dated March 1, 2005 and update of June 15, 2006. |
|
• |
Delegación Federal Durango, Subdelegación de Gestión para la Protección Ambiental y Recursos Naturales. Document No. SG/130.2.1.1/000897 dated on April 16, 2007. Resolución en Materia de Impacto y Riesgo Ambiental para el Proyecto de Construcción y Operación de la Presa de Jales Parrilla II. |
|
• |
Delegación Federal Durango, Subdelegación de Gestión para la Protección Ambiental y Recursos Naturales. Document No. SG/130.2.2./000979 dated on April 27, 2007. Authorization to change use of land for construction of Tailings Dam Parrilla II. |
|
• |
COMISION NACIONAL DEL AGUA. Título de Concesión para explotar, usar o aprovechar aguas nacionales. Document No. 2914392 dated October 26, 2006. |
|
11. |
PAH observations on site visits during the periods of June 20-25, 2006; April 1315, May 1518 and November 1318, 2007; July 1518 and October 30November 1, 2008. |
Pincock, Allen & Holt | REVISED | 23.2 |
90534 February 26, 2009 |
24.0 DATE AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite
950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
llopez@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Parrilla Silver Mine, Durango State, México dated February 26, 2009, (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, an SME Founding Registered Member (#1943910), a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, other short courses and seminars on mineral economics and other technical and economic subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and economic evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the La Parrilla Silver Mine, as part of a PAH team to audit the operation in 2006. As part of this study, I visited the project site from May 15 18 and November 13 18, 2007, July 15 - 18 and October 30 November 1, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the |
Pincock, Allen & Holt | REVISED | 24.1 |
90534 February 26, 2009 |
underground mine, reviewing sampling procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
|
7. |
I am the primary author of the Technical Report. I am responsible for and supervised the preparation of all the report sections. I have visited the project in May 2007, and November, 2007 and in July and October-November, 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 26 th day of February 2009.
Leonel López
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | REVISED | 24.2 |
90534 February 26, 2009 |
Richard Addison
165 So. Union Blvd., Suite
950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing., for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Parrilla Silver Mine, Durango State, México dated February 26, 2009, (the Technical Report) that:
1. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
2. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EU. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
3. |
I have worked as a metallurgical engineer for a total of 42 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
4. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
5. |
I am responsible for the preparation of the ore processing and infrastructure paragraphs in Section 3.0, Executive Summary; Section 18, Mineral Processing and Metallurgical Testing; the paragraphs concerning ore processing in Section 21, Interpretation and Conclusions; Section 25.5, Metallurgy and Processing; Section 25.6, Infrastructure; and Section 25.9, Product Marketing. |
6. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
7. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
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90534 February 26, 2009 |
8. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
9. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 26 th day of February 2009.
Richard Addison
______________________________________
Richard Addison, P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | REVISED | 24.4 |
90534 February 26, 2009 |
25.0 |
ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT PROPERTIES AND PRODUCTION PROPERTIES |
25.1 Introduction
La Parrilla Silver Mine is operated by First Majestic Plata, S.A. de C.V. (FMPlata), a wholly-owned subsidiary of Vancouver, Canada based First Majestic Silver Corp. (FMS). La Parrilla operation, located in the State of Durango about 75 km southeast of the city of Durango, has been in production off and on since the Spanish conquest. FMS acquired the property in early 2004 and commenced operations in July of that year. A research of old records from past producers indicates that, since the early 1920s, the total production from La Parrilla area (through September 30, 2008) is about 1.3 million tonnes of ore at an average grade of about 313 g/tonne Ag with minor values of gold, lead and zinc; however little is known about early Spanish production, which was mainly derived from near surface oxide ores. Most of the ore extracted prior to 2006 was oxides and only silver and gold were recovered through leaching. FMPlata commenced operations utilizing a 180-tpd cyanide leach plant, constructed by previous operators.
In 2006, FMS recognized that the tenor of the ore in the different veins of their La Parrilla operations was changing from oxides to primary sulphides as the mines were deepened. Consequently, the operators installed a 420 tpd flotation circuit in their mill and process plant for the recovery of silver, gold, lead and zinc values contained in primary sulphide ores. At the same time, the company expanded the capacity of the cyanide circuit to 420 tpd. The new 840 tpd dual cyanidation/flotation circuits were started up in the first quarter of 2007.
Currently, production from the plant consists of a silver-gold-lead concentrate and silver-gold Doré bars, which are primarily shipped to the Peñoles smelter in Torreón, Coahuila for smelting and refining. The 2007 production of silver equivalents was about 1.00 million ounces, and the silver equivalent production for the first 9 months of 2008 is about 0.73 million ounces. The operators plan to ramp up production to 1.91 million ounces per year for the next five years beginning in 2009.
25.2 Mine Design and Production
Mine design, recent production, mine equipment, anticipated mine capital expenditures and current and expected mine operating costs are described in this section of the report.
La Parrilla mine operations currently consist of three different mines, La Rosa/Santa Rosa and La Blanca, San Marcos and Quebradillas. The Quebradillas project along with an extensive land package was acquired from Grupo Mexico, S.A. de C.V. during 2006, and FMPlata immediately commenced development and exploitation of the property in the third quarter of 2006. During the last few months of 2008, FMPlata has been exploring and evaluating an open pit potential above the Quebradillas mine operation. Another new project during 2007 and 2008 has been the direct exploration of the old Las Vacas mine, where significant zinc mineralization has been indicated with good grades of silver.
Pincock, Allen & Holt | REVISED | 25.1 |
90534 February 26, 2009 |
The mine engineering department does mine planning and engineering, which is under the control of the Mine Superintendent. The planning mainly consists principally of day-to-day planning, and the mine engineering department has also begun work on long-range planning. The engineers also do rock mechanics and ventilation planning, and develop programs for remediation of problems in these areas.
The 2007 mine and mill production from La Parrilla mines was 1,000,823 equivalent ounces of silver from 80,058 tonnes of oxide ores and 43,180 tonnes of sulphide ores. During 2008, the silver production through the first nine months of the year totals 731,259 equivalent ounces from milling 143,838 tonnes of oxides and sulphides. Mine production was about 190,051 tonnes for the first nine months of 2008 with about 23,056 tonnes obtained from development and exploration work, with the rest was from stopes. The difference of approximately 46,200 tonnes between mine and mill production was stored on the mill patios, near the coarse ore bins. The mine production for 2008 is shown in Table 25-1.
The actual milled production with the respective ore grade from each category, oxide or sulphide, versus the 2008 budget is shown in Table 25-2.
The 2008 budgeted production rates (based on 330 days per year) from the three mines are variable, but the goal is to produce about 253 tpd of oxide ore and 297 tpd of sulphide ore from Rosa/Rosario and La Blanca, 63 tpd of oxides from San Marcos and 45 tpd of oxides and 32 tpd of sulphides from Quebradillas. Sulphide production will be ramped up significantly over the next few years as both the Rosa-Rosario and La Blanca mines, and the Quebradillas mine are deepened below the water tables and into the primary sulphide zones of each. Rosa/Rosarios and La Blanca mine and San Marcos mine will continue to produce significant amounts of oxides in the next few years.
La Parrilla mining operations are contracted to three different firms, who supply part of the equipment and manpower for mining and development. Ore and waste haulage from the mines to the ore bins or mill patios and waste dumps, respectively, is also contracted to private parties. The principal mining contractor for the Rosa/Rosarios and La Blanca operations is MGA Contratista, S.A. de C.V. of Guadalupe Victoria, Durango. The mining contractor assigned to the San Marcos and Quebradillas development and stoping is Minas de San Rafael y Fanny, S.A. de C.V. of Durango, Durango. The third mine contractor , MECOMIN of Durango, Dgo. has been conducting the underground mine development and exploration program for the San Jose decline in the Rosarios mine and also for the Las Vacas area. The haulage contractors, Edgar Moreno, Gerardo Salas and Angel Calzada, are based in La Parrilla village.
The three mine operations have all been developed as trackless operations, utilizing rubber-tired, and diesel load-haul-dump (LHD) units for loading and hauling, and on-highway-type diesel dump trucks for hauling from the mines to the surface ore storage bins or to waste dumps. Most stope and development drilling is done with hand-held pneumatic jackleg drills, although in the last two years, the company has purchased a 2-boom and a 1-boom electro-hydraulic drill rig for development, and a single-boom pneumatic rig for long-hole stoping.
The haulage contractors use on-highway type rear-dump trucks to haul material (ore or waste) from the Rosa/Rosarios and La Blanca mines to the mill ore bins or patios or to the berm construction of the new
Pincock, Allen & Holt | REVISED | 25.2 |
90534 February 26, 2009 |
Pincock, Allen & Holt | REVISED | 25.3 |
90534 February 26, 2009 |
tailings impoundment or to waste dumps, respectively. The San Rafael and Fanny contractor hauls all ore from the Quebradillas mine to surface patios, where it is loaded onto third party contractor dump trucks for subsequent haulage to the mill bins or patios. At this time most mine waste in all the operations is used for stope backfill or for construction projects, and very little waste is currently placed on surface waste dumps.
The near-vertical veins in the mines are exploited with the overhand cut and fill method, utilizing LHD equipment for loading and hauling. Stoping is largely accomplished with breast mining techniques, removing an entire cut from the back of a stope and later backfilling the mined out void. Recently, the operators have been experimenting with longhole open stoping and have prepared and commenced mining a stope by this method. Drilling of the longhole stope block is done with a Boart Stopemate ® rig equipped with a pneumatic drill. Mucking of the longhole stope with LHD equipment is done in drawpoint crosscuts located at the bottom sill of the stope. Once the longhole block is completed it will also be backfilled. Backfill mainly consists of waste from development and exploration headings. The minimum mining width is currently about 2.0 meters. A diagram of a vertical-longitudinal section of a typical overhand cut and fill stope in La Parrilla mines is shown in Figure 25-1, and a diagram of the longhole stope is shown in Figure 25-2.
Development and exploration headings, as well as stope cuts, are drilled mainly with jackleg drills, but as stated above the company has a 1 and a 2 boom jumbo on hand for major development projects. Drift and ramp sizes are 4.0 X 4.0 meters for main haulageways, and secondary development and exploration headings are driven at 3.0 X 3.0 meters. Ramp gradients are usually about 12 percent and steeper ramp sections are seldom above 15 percent. Raising is largely done as bald-headed raises, driven conventionally from platforms installed on stulls; raises typically have a 1.5 -X1.5 meter section. Some long ventilation raises, typically about 1.8 meters in diameter, are bored by contractors.
Mine development advances are averaging about 586 meters per month in 2008. The monthly advances in exploration and development headings during 2008 are found in the Table 25-3.
Drifts and ramps require very little ground support, although the mines utilize some split-set bolts and at times also install wire mesh, with or without shotcrete. Stopes and raises are largely unsupported, and bolting is done very infrequently.
The five-year plan for La Parrilla (Table 25-4) is for the production of 1.94 million equivalent ounces of silver in the period 2009 through 2013. This plan is based on proven and probable reserves (506,000 tonnes) and it includes measured and indicated resources for a total of 1.04 million tonnes. PAH notes that the mineral resources do not have demonstrated economic viability; therefore, they may not be elevated to reserves. FMPlata has been operating the La Parrilla Silver Mine since January 2007 when the proven and probable reserves were reported as 403,000 tonnes. Since January 2007 the production to September 30, 2008 totals 366,000 tonnes and it maintains a reserve base of 506,000 tonnes. The reserve base was increased to 125 percent. From 2007, FMPlata has increased measured and indicated resources by 183 percent (1,095,700 tonnes to 3,100,000 tonnes) at La Parrilla. PAH cautions that although this historical development appears to give confidence in FMPlata projections for production,
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90534 February 26, 2009 |
consideration of the projected cash flow estimates may not result in the projected reserves development for the following 3.5 years at stated production capacity. The principal by-product from the cyanide plant is gold and production is slightly less than 500 oz per year throughout the 5-year plan. The main payable by-product from the sulphide flotation operation is lead and it is planned at about 1,400 tonnes of lead metal per year for the 5 years. The zinc circuit in the new flotation section of the mill has not yet produced a saleable zinc concentrate, and PAH has not considered zinc production in the Reserve characterization, however, it was considered for Resource estimates since the parameters for mill recoveries, smelter charges and penalties and market prices are expected to be better in the future and revenues from zinc sales are realized.
TABLE 25-3
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
2008 Exploration and Mine Preparation Advances (Jan-Sept, Lineal Meters)
|
Development
Advance |
Preparation
Advance |
Exploration
Advance |
Total Actual
Advance |
January | 173.43 | 103.04 | 336.21 | 612.68 |
February | 116.38 | 176.59 | 99.3 | 392.27 |
March | 133.59 | 217.28 | 199.17 | 550.04 |
April | 126.53 | 252.73 | 174.3 | 553.56 |
May | 149.01 | 267.17 | 112.08 | 528.26 |
Jun | 178.44 | 133.16 | 181.54 | 493.14 |
July | 448.43 | 237.29 | 151.59 | 837.31 |
August | 263.72 | 231.84 | 213.47 | 709.03 |
September | 261.38 | 149.69 | 183.22 | 594.29 |
TOTAL | 1,850.91 | 1,768.79 | 1,650.88 | 5,270.58 |
The planned production for La Parrilla operation for the five-year period, 2008 through 2012 is shown in Table 25-4.
25.3 Mine Equipment
Fifty percent of the mine equipment used in La Parrilla mines is contractor supplied. The mines appear to be adequately equipped for the planned production rates, however much of the contractor equipment is very old and marginally maintained. The company has its own equipment, some purchased new in 2007 and 2008, all of which is loaned to the mining contractors, mainly MGA. The haulage contractors for surface haulage from both San Marcos and Quebradillas have their own, relatively new trucks as does the contractor who hauls ore and waste from the Rosa/Rosarios and La Blanca mine as well as on the surface. A summary of the major mine equipment, including contractor equipment is shown in Table 25-5.
Pincock, Allen & Holt | REVISED | 25.7 |
90534 February 26, 2009 |
TABLE 25-4
First Majestic Silver
Corp.
First Majestic Plata, S.A de C.V.
La Parrilla
Silver Mine
Five-Year Production Plan, 2009-2013
ITEM | 2009 | 2010 | 2011 | 2012 | 2013 | Totals |
OXIDES | ||||||
Tonnes Milled | 145,635 | 145,635 | 145,635 | 145,635 | 145,635 | 728,175 |
Au grade | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 |
Ag grade | 250 | 250 | 250 | 250 | 250 | 250 |
Process Recovery & Payables | ||||||
Ag-% | 69.9 | 69.9 | 69.9 | 69.9 | 69.9 | 69.9 |
Au-% | 69.6 | 69.6 | 69.6 | 69.6 | 69.6 | 69.6 |
Silver Ounces | 819,490 | 819,490 | 819,490 | 819,490 | 819,490 | 4,097,448 |
Eq Ounces of silver from Gold | 28,862 | 28,862 | 28,862 | 28,862 | 28,862 | 144,311 |
NSR VALUE Bullion Production ($) | ||||||
DORE | 9,905,583 | 9,905,580 | 10,720,972 | 10,720,972 | 11,536,364 | 52,789,472 |
Subtotal NSR | 9,905,583 | 9,905,580 | 10,720,972 | 10,720,972 | 11,536,364 | 52,789,472 |
Freight & Insurance | 174,174 | 174,174 | 174,174 | 174,174 | 174,174 | 870,872 |
Sub-Total | 9,731,409 | 9,731,406 | 10,546,798 | 10,546,798 | 11,362,190 | 51,918,600 |
SULFIDES | ||||||
Tonnes Milled | 148,428 | 148,428 | 148,428 | 148,428 | 148,428 | 742,140 |
Au grade | 0.10 | 0.10 | 0.10 | 0.10 | 0.10 | 0.10 |
Ag grade | 250 | 250 | 250 | 250 | 250 | 250 |
Pb% | 1.6 | 1.6 | 1.6 | 1.6 | 1.6 | 1.6 |
Zn% | 0.11 | 0.11 | 0.11 | 0.11 | 0.11 | 0.11 |
Process Recovery & Payables | ||||||
Ag-% | 69.9 | 69.9 | 69.9 | 69.9 | 69.9 | 69.9 |
Au% | 58.9 | 58.9 | 58.9 | 58.9 | 58.9 | 58.9 |
Pb-% | 58.9 | 58.9 | 58.9 | 58.9 | 58.9 | 58.9 |
Zn-% | NA | NA | NA | NA | NA | NA |
Ounces Ag Production | 894,863 | 894,863 | 894,863 | 894,863 | 894,863 | 4,474,316 |
Eq Silver Ounces from Lead | 196,336 | 196,336 | 196,336 | 196,336 | 196,336 | 981,682 |
Net Smelter Return | ||||||
Subtotal NSR | 9,866,193 | 9,866,279 | 10,716,399 | 10,716,399 | 11,566,519 | 52,731,787 |
Freight & Insurance | 131,112 | 131,112 | 131,112 | 131,112 | 131,112 | 655,561 |
NSR less Freight & Ins | 9,735,081 | 9,735,166 | 10,585,286 | 10,585,286 | 11,435,406 | 52,076,226 |
OXIDES+SULFIDES | ||||||
Silver Ounces | 1,714,353 | 1,714,353 | 1,714,353 | 1,714,353 | 1,714,353 | 8,571,764 |
Eq Ounces of silver from Gold | 28,862 | 28,862 | 28,862 | 28,862 | 28,862 | 144,311 |
Eq Silver Ounces from Lead | 196,329 | 196,336 | 196,336 | 196,336 | 196,336 | 981,675 |
Total Eq Ounce of Silver | 1,939,544 | 1,939,551 | 1,939,551 | 1,939,551 | 1,939,551 | 9,697,749 |
TOTAL NSR VALUE ALL PRODUCTION | 19,466,489 | 19,466,572 | 21,132,084 | 21,132,084 | 22,797,596 | 103,994,827 |
Metals Prices | ||||||
Silver ($US/oz) | $12.00 | $12.00 | $13.00 | $13.00 | $14.00 | $12.80 |
Gold ($US/oz) | $708.00 | $708.00 | $708.00 | $708.00 | $708.00 | $708.00 |
Lead ($US/lb) | $0.75 | $0.75 | $0.75 | $0.75 | $0.75 | $0.75 |
Zinc ($US/lb) | $0.75 | $0.75 | $0.75 | $0.75 | $0.75 | $0.75 |
*FMPlata's 5-year projections include 1.04 million
tonnes of Measured and Indicated Resources to achieve the 5-year production
goals.
The Resources as such have not been demonstrated to be economically
viable. However, PAH, believes that the Plan is reasonable
since the company consistently mines
incremental ore that has not formerly been included as Reserves or Resources,
and also the
company has consistently converted Resources to Reserves upon development
of Measured and Indicated Resource areas.
25.4 La Parrilla Manpower
About 509 people currently (as of September 30, 2008) are working at the La Parrilla industrial complex. Some of these are temporary contractors engaged in completion of the mill expansion, but mine and haulage contractors are on a semi-permanent basis. Including staff and other salaried personnel, there are about 51 company employees working at La Parrilla, and there are about 458 contract personnel assigned to the mine, mine equipment maintenance, surface haulage and surface construction activities.
Pincock, Allen & Holt | REVISED | 25.8 |
90534 February 26, 2009 |
The operations shift schedule has been changed to two 12-hour shifts per day, with contract personnel working a 3 weeks on and one week off schedule. La Parilla staff work the 12-hr per day shifts, but on a schedule of 4 days on and three days off per week. Overall productivities in 2008 have been about 1.1 tonnes per man-shift (based on 8-hr shifts); while mine productivity is about 2.3 tonnes per man-shift. A summary of the manpower working at La Parrilla on September 30, 2008 is shown in Table 25-6.
First Majestic Silver Corp.
TABLE 25-5
La
Parrilla Silver Mine
Major Mine Equipment, Including Contractors
Contactor and Description of Unit | Make & Model | Size or Other | No. of Units | |
Minas de San Rafael y Fanny Equipment | Company | Contractors | ||
Scooptram | Wagner ST-2, B-D | 2yd 3 | 6 | |
Scooptram | Toro & Wagner ST 3.5 | 3.5yd3 | 3 | |
Scooptram | Wagner St-6 | 6yd 3 | 1 | |
Mine Truck | Elmac | 9-tonnes | 1 | |
Mine Truck | EJC | 10-tonnes | 1 | |
Surface Dump Truck | International | 7m 3 | 2 | |
Other Pickups, Light Trucks,SUV | Various | N.A. | 7 | |
Jackleg Drills | RNP | N.A. | 16 | |
Shotcrete Rigs | Red Loba, LA 8-4, LA 16-4 | N.A. | 2 | |
Mine Lamps w/ Racks | N.A. | N.A. | 90 lamps + racks | |
Mine Fan | 24-in., 30 hp | N.A. | 1 | |
Mine Compressors | Atlas Copco | 250, 600 & 850 cfm | 3 | |
Mine Compressor | Ingersoll-Rand | 375 cfm | 1 | |
Motor Generator | Caterpillar | 3416 Engine | 1 | |
Surface Maintenace Shop | Misc. | N.A. | 1 | |
MGA Mine Equipment | ||||
Scooptram | Jarvis Clark | 2yd 3 | 1 | |
Scooptram | Wagner | 2yd 3 | 1 | |
Scooptram | Wagner | 2yd 3 | 1 | |
Jackleg Drills | RN-FlL-7 | N.A | 7 | |
Drift Pumps | Wilden | Air | 4 | |
Concrete Mixer | N.A. | N.A | 1 | |
MIne Lamps w/ Charging Racks | N.A. | N.A | 65 | |
Company Mine Equipment | ||||
Scooptrams | Sandvik, LH 307 (Toro 6) | 4.5 yd 3 | 4 | |
Scooptrams | Sandvik LH-203 | 2.0 yd 3 | 3 | |
Mine Trucks | Sandvik EJC-417 | 15-tonnes | 3 | |
Drill Jumbo | Tamrock Axera | 2-boom, electro-hydraulic | 1 | |
Drill Jumbo | Sandvik, DD-210 | 1-boom, electro-hydraulic | 1 | |
Stope Drill Jumbo | Boart, "Stopemate" | LH rig,1-boom pneumatic | 1 | |
Mine Compressor | Ingersoll-Rand (NA) | 1,600 cfm | 1 | |
Mine Compressor | Ingersoll-Rand (NA) | 892 cfm | 1 | |
Mine Compressor | Ingersoll-Rand (NA) | 1,395 cfm | 1 | |
Mine Compressor | Gardner-Denver (NA) | 375 cfm | 1 | |
Mine Compressor | INC (NA) | 750 cfm | 1 | |
Mine Hoist | N.A. | One-Drum, 90 hp | 1 | |
Lokotrack | Model LT-105 | Electric (?) | 1 | |
Lokotrack | Model LT-200 | Electric (?) | 1 | |
Bulldozer | Caterpillar (?) | Diesel, N.A. | 1 | |
Mine Tractor | John Deere (?) | Diesel,N.A. | ||
Drift Pumps | Wilden M-15 | Air | 2 | |
Submersible Pumps | Tsurumi | Electric, 15 hp | 2 | |
Vertical Well Pump | N.A. | Electric, 40 hp | 1 | |
Pickup | Dodge Ram 150 | N.A. | 1 |
Pincock, Allen & Holt | REVISED | 25.9 |
90534 February 26, 2009 |
TABLE 25-6
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Manpower, Including Contractors (September 30, 2008)
Company | Mine & Other | ||
Department & Category | Staff | Contractors | TOTALS |
SITE ADMINISTRATION | |||
General Manager | 1 | 1 | |
Safety & Environmental | 2 | 5 | 7 |
Accounting | 2 | 1 | 3 |
Human Resources & Social Work | 2 | 2 | |
Warehouse | 1 | 3 | 4 |
Purchasing | |||
Sub-Total | 8 | 9 | 17 |
Preparation & Development | 48 | 48 | |
Stoping | 48 | 48 | |
Mucking & Hauling | 28 | 28 | |
Hoistmen | 14 | 14 | |
Mechanical Maintenance | 18 | 18 | |
Contracted Maintenance (Sandvik) | 8 | 8 | |
Other Services | 12 | 12 | |
FM Mine Supervision | 6 | 6 | |
Supervision | 23 | 23 | |
Mine Construction, Other | |||
Mina Mecomin | 30 | 30 | |
Jose Garcia Ontiveros | 6 | 6 | |
Sub-Total | 6 | 235 | 241 |
MILL & PROCESS | |||
Crushing | 11 | 11 | |
Grinding | 4 | 4 | |
Flotation | 4 | 4 | |
Precipitation | 3 | 3 | |
Chemical Treatment | 4 | 4 | |
Concentrate Handling | 2 | 2 | |
Thickener Operators | 4 | 4 | |
Bullion Smelter | 3 | 3 | |
Tailings | 7 | 7 | |
Plant Supervision | 10 | 10 | |
Mechanical Maintenance | 8 | 8 | |
Electrical Maintenance | 5 | 5 | |
Other Services | 5 | 5 | |
Maintenance Supervision | 10 | 10 | |
Tailings Impoundment | |||
Fabian Salas | 6 | 6 | |
Sub-Totals | 20 | 66 | 86 |
ASSAY & METALLURGICAL LAB | |||
Sample Preparation | 4 | 4 | |
Assayers | 2 | 3 | 5 |
Metallurgical Testing | 1 | 1 | 2 |
Sub-Totals | 3 | 8 | 11 |
GEOLOGY | |||
Exploration | |||
Sampling | 14 | 14 | |
Supervision & Technical | 8 | 8 | |
Surface Diamond Drilling | |||
CAUSA | 35 | 35 | |
Sub-Totals | 8 | 49 | 57 |
MINE ENGINEERING | |||
Engineering & Planning | 2 | 2 | |
Surveyors | 3 | 3 | 6 |
Sub-Total | 5 | 3 | 8 |
GENERAL SERVICES & OTHER | |||
Surface Maintenance | 0 | ||
Dining Hall | 3 | 3 | |
Watchman & Security | 1 | 14 | 15 |
Supervision | 3 | 3 | |
Sub-Total | 1 | 20 | 21 |
OTHER SURFACE CONTRACTORS | |||
Civil Construction | |||
Refugio Contreras Rivota | 44 | 44 | |
Hugo Lopez Garcia | 5 | 5 | |
Construcción Metálica de Fresnillo | 4 | 4 | |
Surface Ore & Waste Haulage | |||
Edgar Moreno | 5 | 5 | |
Angel Calzada | 5 | 5 | |
Gerardo Salas Flores | 5 | 5 | |
Sub-Total | 0 | 68 | 68 |
TOTALS | 51 | 458 | 509 |
Total Company | 51 | ||
Total Contractors | 458 |
Pincock, Allen & Holt | REVISED | 25.10 |
90534 February 26, 2009 |
25.5 Metallurgy and Ore Processing Plant
25.5.1 Metallurgy
The ore processed from the district consists of two essential types: oxides and sulphides. Oxides are the in-situ oxidation product of the sulphide ore. For both ore types the principal economic component is silver. The ores also contain lead and zinc and minor amounts of gold. Oxide ores are processed by cyanide leaching to produce Doré metal; sulphide ores are processed by differential flotation to produce a silver-rich lead concentrate.
Metal recoveries are currently low by general industry standards, about 70 percent of the silver in cyanide leaching, and about 60 percent for silver and 55 percent for lead in the flotation circuit.
The valuable mineral in the sulphide ore is essentially argentiferous galena. It is suspected that part of the gold is present in slightly auriferous pyrite. The mineralogy of the oxide ore is essentially the oxidation product of the sulphides. It is probable that most of the silver occurs as argentite, but it is likely that some of the silver is present as naumannite (silver selenide) since selenium is found as an impurity in the Doré bars.
Consideration has being given to further process the sulphide flotation tails in the oxide cyanide leach circuit but the capacity of the oxide cyanide leach circuit is limited and would require expansion to allow this.
TABLE 25-7
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Ore Processing, Principal Parameters
Parameter | Units | Oxide | Sulfide |
Plant Capacity | |||
Annual | thousand tonnes/year | 140 | 140 |
Daily | tonnes/day | 400 | 400 |
Actual Throughput Rate | |||
Annual | thousand tonnes/year | 120 | 100 |
Daily | tonnes/day | 325 | 275 |
Ore Grade | |||
Silver | grams/tonne | 210 | 220 |
Gold | grams/tonne | 0.24 | 0.15 |
Lead | percent | 1.6 | |
Recovery | |||
Silver | percent | 68.50% | 62.40% |
Gold | percent | 90.00% | |
Lead | percent | 55.30% | |
Doré Grade | |||
Silver | grams/tonne | 920 | |
Gold | grams/tonne | 1.5 | |
Concentrate Grade | |||
Silver | kilograms/tonne | 4.5 | |
Lead | percent | 40.00% | |
Doré Quantity | kilograms/year | 17,500 | |
Concentrate Quantity | dry tonnes/year | 3,250 | |
Plant Operating Cost | $/tonne ore | $23.50 | $20.81 |
Pincock, Allen & Holt | REVISED | 25.11 |
90534 February 26, 2009 |
25.5.2 Ore Processing Plant
Principal parameters for the plant are presented in Table 25-7. A flow diagram of the plant is provided in Figure 25-3 and a listing of the principal equipment is shown in Table 25-8. A general site map, which shows the existing and expanded tailings containments, is provided in Figure 6-1 and the layout of the ore processing plant is shown in Figure 3-2.
The original ore processing plant was a very small (180 tonne per day capacity) conventional cyanide leach mill that was built as a custom mill to serve small miners in the district by the since-discontinued Federal government agency, Fomento Minero . The plant was expanded in 2006 to process 420 tonnes per day each of both oxide and sulphide ore for an overall capacity of 840 tpd. The crushing circuit consists of two sequential multi-stage crushing circuits; one mobile and the other stationary. The mobile system was brought into service in 2007 because of difficulties in getting adequate throughput with the original stationary equipment.
Both crushing systems consist of jaw and cone crushers. The mobile system consists of two stages in open circuit producing minus-1/2-inch rock. The stationary system has three stages in closed circuit with a double-deck vibrating screen using two cone crushers that operate in parallel, one processing plus one-inch rock and the other plus-3/8-inch/minus-1-inch rock produced by the double-deck screen. Crushed product, minus 1/2-inch from the mobile circuit and minus 3/8-inch from the stationary circuit, is stored in bins and processed in two parallel grinding and ore processing circuits, one for oxide ore and the other for sulphide ore. Each circuit has a single mill closed with cyclones; both mills are of identical size.
In processing oxide ore, cyclone overflow goes to a grind thickener, the overflow of which is pregnant solution. Grind thickener underflow is pumped to a series of agitated leach tanks and then washed in a five-train CCD (counter-current decantation) thickener circuit. The first-stage CCD thickener overflow is used as mill solution; the last-stage thickener underflow goes to the tailing containment.
Pregnant solution is processed in a Merrill-Crowe plant consisting of Butters clarifying filters, a de-aeration tower and two plate-and-frame presses. In addition to the plate-and-frame presses in current use there are three older presses that are kept on standby. Precipitate is periodically removed from the presses, dried in an electric oven and smelted in a propane-fired crucible furnace. The Doré bars produced contain about 0.1 percent gold, one percent lead, 0.5 percent copper, and 0.5 to 1.0 percent selenium.
The oxide plant has been in operation for about three years, primarily processing ore from the La Parrilla mine, with small amounts from the Santa Rosa and San Marcos mines and old sulphide-ore tailings from the mill-site. The oxide ore milling rate is currently about 325 tonnes per day. Ore grade is about 210 grams of silver per tonne and the recovery is currently about 70 percent.
Pincock, Allen & Holt | REVISED | 25.12 |
90534 February 26, 2009 |
TABLE 25-8
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Ore Processing, Principal Equipment List
|
Lead
Flotation |
Zinc
Flotation |
|||||
Item | Size | Qty. | h.p. | Qty. | h.p. | Qty. | h.p. |
COMMINUTION CIRCUIT | |||||||
Ore Receiving Hoppers | |||||||
Oxide ore | 200 tonnes each | 4 | |||||
Sulfide ore | 80 tonnes each | 3 | |||||
Mobile Crushing System | |||||||
Jaw crusher | 28- x 42-inch | 1 | 150 | ||||
Cone crusher | HP-200 | 1 | 175 | ||||
Stationary Crushing System | |||||||
Jaw crusher | 22- x 32-inch | 1 | 50 | ||||
Cone crushers | |||||||
3-ft | 1 | 50 | |||||
4-1/4-ft | 1 | 150 | |||||
Vibrating Screen | 5- x 10-ft | 1 | 15 | ||||
Crushed Ore Bins | |||||||
Oxide ore | 800 tonnes | 1 | |||||
Sulfide ore | 100 tonnes each | 4 | |||||
Grinding Mills | 8-1/4- x 12 | 1 | 350 | 1 | 350 | ||
Cyclone feed pumps | 6- x 6-inch | 2 | 20 | 2 | 20 | ||
Cyclones | 1 | 1 | |||||
CYANIDATION CIRCUIT | |||||||
Grind Thickener | 40-ft daim. | 1 | 3 | ||||
Leach Tanks | |||||||
No's 1 -3 | 19-1/2- x 17-ft | 3 | 30 | ||||
No's 4 & 5 | 16-1/2- x 16-1/2-ft | 2 | 30 | ||||
No's 6 - 11 | 13- x 13-ft | 6 | 15 | ||||
Air Compressors | |||||||
rotary screw | 1 | 200 | |||||
1 | 60 | ||||||
CCD Thickeners | 24-1/2-ft dia | 4 | 5 | ||||
CCD Thickeners | 40-ft dia | 1 | 7.5 | ||||
Butter's Filters | 4 | ||||||
Pregnant Solution Tanks | 3 | ||||||
Vacuum Pumps | 2 | 50 | |||||
Precipitate Presses | 3 | ||||||
Barren Solution Tanks | 2 | ||||||
Crucible Furnace | 1 | ||||||
Cyanide Tailings Thickener | 1 | ||||||
FLOTATION CIRCUIT | |||||||
Conditioning Tank | 1 | 15 | 1 | 15 | |||
Rougher flotation | 300-ft 3 | 2 | 30 | 2 | 30 | ||
Rougher scavenger flotation | tank-type | 1 | 1 | ||||
Cleaners (3-stages, 1-cell ea.) | tank-type | 3 | 3 | ||||
Concentrate Thickeners | 1 | 1 | |||||
Concentrator Filter | drum, 4- x 6-ft | 1 | 25 | 1 | 25 | ||
Vacuum Pump | 1 | 50 | |||||
Flotation Tailings Thickener | 1 |
Pincock, Allen & Holt | REVISED | 25.14 |
90534 February 26, 2009 |
The sulphide plant is designed to process lead/zinc ore to sequentially recover lead and zinc and the silver associated with both base metals. Both lead and zinc ore processing circuits are identical, each consisting of two rougher cells in series followed by a single rougher-scavenger cell and three stages of cleaning using one cell for each stage. Concentrate handling is also identical for each circuit, consisting of a thickener and drum filter. Currently only the lead circuit is in use since the ore currently processed contains little zinc. The sulphide circuit has been in operation for about a year. The sulphide ore milling rate is currently about 230 tonnes per day. Ore grade is about 220 grams of silver per tonne and two percent lead; silver recovery is currently about 60 percent and lead recovery is currently about 55 percent.
Tailings from both the cyanide leach circuit and the flotation plant are combined and pumped to the expanded tailing containment. Reclaim solution from the tailing containment is pumped to the oxide ore CCD circuit where it is used as part of the wash solution.
There are about one million tonnes of tailings from past operations in the old tailings containment area. The tailings form a wedge-shaped mass against the hillside adjoining the mill with the upper end at the upper elevation of the mill at the same elevation as the ground and the downhill end being about 15 meters above grade. Use of this tailings containment has been discontinued and reclamation is in progress.
In 2007 the tailings containment area was expanded by leasing land adjoining the old tailing dam and building a starter dike using borrow material from within the dam area and also mine waste rock. The perimeter walls of the dam are raised by manually digging material from within the containment and building walls on the upstream side. The new containment area is now about 12 meters high on the downstream side. Expected life of the new tailings containment dam is 10 years.
25.6 Infrastructure
The infrastructure at La Parrilla is well established. The facility adjoins the local village making for convenient accommodation for the employees and contractors. Operations support facilities, located near the plant, consist of administrative offices, warehouse, maintenance shop, assay laboratory, metallurgical laboratory, mess, change houses, and two houses for senior personnel. There is also an explosive magazine on the site, set apart from other facilities.
Plant power supply was augmented in 2006 by the construction of a new line and substation to connect to one of the major CFE ( Comisión Federal de Elctricidad) lines that run parallel to the Durango-Zacatecas road, which is about two kilometers from the mine. Total mill connected load is about two megawatts.
A line-powered electric well pump located seven kilometers from the mine in the adjoining valley supplies water. Water is also provided from a line-powered electric pump in the shaft of the Quebradillas mine located about two kilometers from the plant.
Diesel fuel is stored in a horizontal 20,000-liter tank in a concrete-walled basin at the site.
Pincock, Allen & Holt | REVISED | 25.15 |
90534 February 26, 2009 |
Fire protection is based on portable fire extinguishers located throughout the buildings. There is an ambulance on site for emergency use which is also available to the town if required.
Offices are connected to the local phone system and to an internet satellite system. Radios are used for local communication.
25.7 Environmental
FMPlata applied for change of the terms permitted for operations at La Parrilla due to the expansion of processing and mining capacity. The authorization was granted on March 23, 2006 under the operating permit (Permiso Unico Ambiental).
FMPlata obtained Operating Permit (Cédula de Operación Annual) under requirements by SEMARNAPs regulations on February 7, 2008 (Ley General del Equilibrio Ecológico y Protección al Ambiente en Materia de Registro de Emisiones y Transferencia de Contaminantes).
FMPlata presented to PROFEPA the final report on environmental audit, September 8, 2008 (Final Informe del Plan de Acción Resultante de la Auditoría Ambiental). FMPlata expects to receive a Certificato de Industria Limpia before the end of 2008; this certificate will be renewed every two years.
Testing of groundwater from test wells to determine if there is any cyanide contamination is done each month. No evidence of contamination has been found.
In PAHs opinion, La Parrilla, operated by FMPlata is fully permitted for operating under the environmental laws and regulations of México. References for the legal opinion are by Durango-City-based office of legal advisors, by Mr. Carlos Galván Pastoriza, Abogado.
25.8 Economic Analysis
25.8.1 Production
Past and projected production and cost values for La Parrilla are presented in Table 25-9. Projected values shown are those generated by FMS.
25.8.2 Operating Costs
La Parrilla site operating costs are based on mill production of 143,838 tonnes for the first 9 months of 2008. The monetary exchange rate used by PAH MP$11.00: $1.00.
The 2008, January through September, site operating cost for La Parrilla was $ 46.75 per tonne mined and milled. The mining costs for 2008 were an average of $18.08 per tonne; $18.50 per tonne for oxides and $17.52 per tonne for sulphides. Milling costs for 2008 were about $22.35 per tonne; $23.50 per
Pincock, Allen & Holt | REVISED | 25.16 |
90534 February 26, 2009 |
tonne for oxides and $20.81 per tonne for sulphides. Site G&A costs averaged about $6.32 per tonne for both oxides and sulphides in 2008.
In addition to the site costs, concentrate and bullion freight, insurance, and smelting and refining charges are considered. The revenues from the operation are based on net smelter returns for both bullion and concentrates. PAH used the actual costs 2008 as stated above as a basis for the cut-off grades and evaluation of short and long-term mine plans. Add-on costs for downstream processing are $1.55 per tonne for oxides and $22.29 for sulphides. Smelting charges have been very high during 2008 at over $500 per tonne of concentrate.
TABLE 25-9
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Production and Costs, Past and Projected
|
<- PAST | PROJECTED -> | ||||||
Units |
2007 |
2008 |
Jan-Sept.
All 2008 |
2009 |
2010 |
2011 |
2012 |
|
PRODUCTION | ||||||||
Oxide Ore Processed | ||||||||
Quantity | tonnes | 80,058 | 82,419 | 116,733 | 145,635 | 145,635 | 145,635 | 145,635 |
Grade | ||||||||
Silver | grams/tonne | 213 | 211 | 223 | 250 | 250 | 250 | 250 |
Gold | grams/tonne | 0.13 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 |
Recovery | ||||||||
Silver | percent | 64.00 | 62.50 | 62.50 | 69.90 | 69.90 | 69.90 | 69.90 |
Gold | percent | 84.10 | 90.50 | 90.50 | 69.60 | 69.60 | 69.60 | 69.60 |
Metal Produced | ||||||||
Silver | ounces | 350,588 | 348,837 | 555,714 | 819,490 | 819,490 | 819,490 | 819,490 |
Eq. Silver Ounces from Gold | ounces | 281 | 21,465 | 66,853 | 28,862 | 28,862 | 28,862 | 28,862 |
Sulfide Ore Processed | ||||||||
Quantity | tonnes | 43,180 | 61,419 | 132,441 | 148,428 | 148,428 | 148,428 | 148,428 |
Grade | ||||||||
Silver | grams/tonne | 168 | 218 | 229 | 250 | 250 | 250 | 250 |
Lead | percent | 0.80 | 2.20 | 2.00 | 2.10 | 2.10 | 2.10 | 2.10 |
Recovery | ||||||||
Silver | percent | 59.50 | 62.66 | 62.40 | 70.00 | 70.00 | 70.00 | 70.00 |
Lead | percent | 86.40 | 55.30 | 55.30 | 60.00 | 60.00 | 60.00 | 60.00 |
Concentrate Grade | ||||||||
Silver | grams/tonne | 4,038 | 3,950 | 5,133 | 4,500 | 4,500 | 4,500 | 4,500 |
Lead | percent | 28.60 | 40.10 | 40.10 | 40.10 | 40.10 | 40.10 | 40.10 |
Metal Produced | ||||||||
Silver | ounces | 13,874 | 270,353 | 476,909 | 894,863 | 894,863 | 894,863 | 894,863 |
Eq. Silver Ounces from Lead | tonnes | 306 | 90,605 | 8,328 | 196,336 | 196,336 | 196,336 | 196,336 |
OPERATING COSTS | ||||||||
Annual | ||||||||
Mine | $000/year | 3,041 | 2,599 | 3,083 | 3,876 | 3,876 | 3,876 | 3,876 |
Mill | $000/year | 3,723 | 3,214 | 3,778 | 4,522 | 4,522 | 4,522 | 4,522 |
G&A (Indirects) | $000/year | 1,225 | 909 | 1,119 | 1,680 | 1,680 | 1,680 | 1,680 |
Total | $000/year | $7,989 | $6,722 | $7,980 | $10,078 | $10,078 | $10,078 | $10,078 |
Unit | ||||||||
Mine | $/tonne milled | 24.68 | 18.08 | 12.37 | 13.18 | 13.18 | 13.18 | 13.18 |
Mill | $/tonne milled | 30.21 | 22.35 | 15.16 | 15.38 | 15.38 | 15.38 | 15.38 |
G&A (Indirects) | $/tonne milled | 9.94 | 6.32 | 4.49 | 5.71 | 5.71 | 5.71 | 5.71 |
Total | $/tonne milled | $64.83 | $46.75 | $32.02 | $34.27 | $34.27 | $34.27 | $34.27 |
SILVER & EQUIVALENT | ||||||||
SILVER PRODUCTION | Total ozs Ag | 364,462 | 731,259 | 1,107,804 | 1,939,551 | 1,939,551 | 1,939,551 | 1,939,551 |
*This plan is based on proven and probable reserves
(506,000 tonnes) and it includes measured and indicated resources for a total
of 1.04 million tones. PAH notes that the mineral
resources do not have demonstrated economic viability; therefore, they
may not be elevated to reserves.
**FMPlata has been operating the La Parrilla Silver Mine since
January 2007 when the proven and probable reserves were reported as 403,000
tonnes. Since January 2007 the production to
September 30,
2008 totals 366,000 tonnes and it maintains a reserve base of 506,000 tonnes.
The reserve base was increased to 125 percent. From 2007, FMPlata has increased
measured
and indicated resources by 183 percent (1,095,700
tonnes to 3,100,000 tonnes) at La Parrilla. PAH cautions that although this
historical development appears to give confidence in the
historical
conversion of resources to reserves on the property and in FMPlata's projections
for production, consideration of the projected cash flow estimates may not result
in the projected
reserves development for the following
3.5 years at stated production capacity.
***From these historical records, it appears that the La Parrilla
conversion rate of Resources into Reserves may be in the order of about 65 percent.
Pincock, Allen & Holt | REVISED | 25.17 |
90534 February 26, 2009 |
A summary of the 2008 Parrilla site operating costs are shown in Table 25-10, while the costs used for cutoff grade calculations and long-term projections are shown in Table 25-11.
The total costs used by PAH were $49.87 per tonne and $66.94 per tonne for oxides and sulphides, respectively, and these are the unit costs used as the basis for calculating the mine cut-off grades (See Sec. 19-3 of this report).
TABLE 25-10
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver Mine
Summary of Jan-Sept Site Operating Costs
COSTS | |||
AREA | Total Cost | *Cost Per Tonne | **Cost Per Equiv.Oz. Ag |
Mine | $2,599,282 | $18.07 | $2.70 |
Mill | 3,214,061 | 22.35 | 3.34 |
Site G&A | 908,447 | 6.32 | 0.94 |
TOTALS | $6,721,790 | $46.73 | $6.99 |
*Based on 143, 838 tonnes milled
**Based on about 961,635 equiv. ozs. produced
TABLE 25-11
First Majestic Silver Corp.
First Majestic Plata, S.A. de C.V.
2008 Operating Costs for Mine Cutoff Grades
Cost Area | Oxide Ore | Sulfide Ore |
Mine | $18.50 | $17.52 |
Mill | 23.50 | 20.81 |
Site & Other G&A | 6.32 | 6.32 |
Sub-Total | $48.32 | $44.65 |
Downstream Freight & Process | ||
Bullion Freight | 0.34 | |
Concentrate Freight | 0.61 | |
*Concentrate Smelting | *20.59 | |
Assaying & Representation | 0.12 | |
Refining | 1.09 | 1.09 |
Sub-Total | $1.55 | $22.29 |
Totals for Cutoff | $49.87 | $66.94 |
*Based on smelting charge @ $520 per tonne of concentrate
25.8.3 Capital Costs
The anticipated 2008 expenditures are consistent with managements goal to continue increasing ore reserves and improve the overall efficiency and production of the present operation. Most of the capital expenditures estimated for 2008 are for the completion of the process plant expansion, mine development and exploration and for mobile mine equipment. PAH finds the capital investment estimates are reasonable and accurate for the spending requirements for the operations during the five-year period 2009 through 2013.
Pincock, Allen & Holt | REVISED | 25.18 |
90534 February 26, 2009 |
A summary of the projected 2008 Capital Expenditures, and also for 2009 through 2013 is shown in Table 25-12.
All capital cost estimates are presented in third quarter 2008 U.S. dollars with no allowance for inflation or peso devaluation. PAH considers the planned capital investments estimate to be conservative and reasonable.
25.9 Product Marketing
Two products are marketed by La Parrilla: Doré metal and flotation concentrate. Primarily, both are shipped to the Met-Mex Peñoles smelter at Torreon which is 375 kilometres by road from the mine. Freight, smelting and refining (FSR) terms for both Doré and concentrate are summarized in Table 25-13. The terms are standard for the industry. The Doré is almost pure silver with very minor gold content; the flotation concentrate contains about 4.5 kilograms (145 ounces) per tonne of silver and about 40 percent lead.
TABLE 25-12
First Majestic Silver
Corp.
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Project Capital Expenditures for 2008,2009 through 2013 ($U.S)
CATEGORY | 2008 (Actual) | 2009 | 2010 | 2011 | 2012 | 2013 | TOTALS |
Mine & Exploration Projects | |||||||
Geophysics and Geochemestry | |||||||
Underground Development | 3,725,198 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 12,725,198 |
Surface/Underground Diamond Drilling | 5,103,135 | 600,000 | 600,000 | 600,000 | 600,000 | 600,000 | 8,103,135 |
Sub-Total Mine and Expl.Projects | 8,828,333 | 2,400,000 | 2,400,000 | 2,400,000 | 2,400,000 | 2,400,000 | 20,828,333 |
Mine Equipment | |||||||
Scoop Trams | 2,148,881 | 275,000 | 500000 | 500000 | 3,423,881 | ||
Trucks | 275,000 | 500000 | 775,000 | ||||
Tractor | 30000 | 30000 | 30000 | 90,000 | |||
Pick up | 17,346 | 17,346 | |||||
Hoist | |||||||
Other | 205,853 | 250,000 | 250000 | 705,853 | |||
Sub-Total Mine | 2,372,080 | 525,000 | 525,000 | 530,000 | 530,000 | 530,000 | 5,012,080 |
General Infraestructure | |||||||
Housing | 310,439 | 310,439 | |||||
Remediation Old Tailings | 50,000 | 50000 | 100,000 | ||||
Office | 29,891 | 7216 | 7216 | 7216 | 51,539 | ||
Lab.Equipment (furnace) | |||||||
Hardware and Software | 111,677 | 12,216 | 12216 | 136,109 | |||
Grupo Mexico inc VAT | 912,233 | 912,233 | |||||
Sub-Total General Infraestructure | 452,007 | 974,449 | 62,216 | 7,216 | 7,216 | 7,216 | 1,510,320 |
Sub-Total Mill | 980,202 | 980,202 | |||||
Sub-Total Other | 281,814 | 281,814 | |||||
TOTAL | 12,914,436 | 3,899,449 | 2,987,216 | 2,937,216 | 2,937,216 | 2,937,216 | 28,612,749 |
25.9.1 Economic Evaluation
FMPlata management provided a cash flow based on the 5-year Plan for the operation. The parameters used to build the cash flow are somewhat different than those used by PAH to evaluate La Parrilla Reserves and Resources. Operating costs are lower than 2008 actual costs, smelting terms are lower than the current Peñoles smelting prices, and throughputs are planned much higher than those achieved in 2008. The parameters are shown in Table 25-14 and the Cash Flow is shown in Table 25-15.
Pincock, Allen & Holt | REVISED | 25.19 |
90534 February 26, 2009 |
TABLE 25-13
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Product Marketing, Freight, Smelting, and Refining (FSR)
Terms
Parameter | Units | Value |
Doré Refining | ||
Freight and insurance cost | $/kilogram doré | $ 4.70 |
Refining cost | ||
Metal based | $/kilogram doré | $ 10.29 |
Lot based | per Lot (~300kg) | $ 300.00 |
Combined | $/kilogram doré | $ 11.29 |
Assaying and representation | $/kilogram doré | $ 2.00 |
Payables | ||
Silver | percent | 100% |
Gold | percent | 100% |
Concentrate FSR | ||
Freight and insurance cost | $/dry tonne | $ 16.00 |
Smelting cost | ||
Base charge | $/dry tonne | $ 505.00 |
Arsenic and zinc penalties | $/dry tonne | $ 15.00 |
Combined | $/dry tonne | $ 520.00 |
Assaying and representation | $/dry tonne | $ 2.00 |
Payables | ||
Silver & Gold | percent | 99.50% |
Lead (minus 3 units) | percent | ~90% |
TABLE 25-14
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Principal Parameters for FM Plata 5-year Plan Cash Flow
PARAMETER | COST, PRICE OR OTHER |
Site Operating Costs | |
Mine ($/t) | $15.00 |
Mill ($/t) | 17.50 |
G&A ($/t) | 6.50 |
Sub Total | $39.00 |
Smelting Cost (per t of concentrates) | $430 |
Dore Treatment Charges ($/kg) | $8.04 |
Monetary Exchange Rate (peso/dollar) | $10.90:$1.00 |
Metal Prices | |
Ag ($/oz) | $12.00 |
Au ($/oz) | $708.00 |
Pb ($/lb) | $0.75 |
Zn ($/lb) | $0.75 |
An economic analysis of the project based on the FMPlata cash flow resulted in a net present value of $13.65M and an Internal Rate of Return of 176 percent. These values show La Parrillas current conditions, which are based on mining lower tonnage at lower grades due to mine preparation developments, and lower metallurgical recoveries due to processing ores from the oxides/sulphides transition zone. These conditions are also affected by high capital and operating costs generated by equipment acquisitions, an aggressive exploration program and mine preparation investments. In PAHs opinion La Parrilla operation should reach planned production rates, probably before the end of 2009. A summary of the NPVs for the project at several discounts is shown in Table 25-16.
Pincock, Allen & Holt | REVISED | 25.20 |
90534 February 26, 2009 |
TABLE
25-16
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A de
C.V.
La
Parrilla
Silver Mine
Economic
Analysis
Results
for 5-year Plan
Discount Rate | NPV | |
ECONOMIC EVALUATION | (%) | ($US) |
10% | 13,655,502 | |
NPVs | 15% | 11,628,858 |
20% | 9,982,165 | |
25% | 8,629,095 | |
IRR | 176% |
Pincock, Allen & Holt | REVISED | 25.21 |
90534 February 26, 2009 |
26.0 ILLUSTRATIONS
The illustrations supporting the various sections of this report are located within the relevant sections immediately following the references to the illustrations, for ease of reference. An index of tables and illustrations is provided at the beginning of this report.
Pincock, Allen & Holt | REVISED | 26.1 |
90534 February 26, 2009 |
Richard Addison
165 So. Union Blvd., Suite 950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing., for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Parrilla Silver Mine, Durango State, México dated February 26, 2009, (the Technical Report) that:
1. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
2. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EU. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
3. |
I have worked as a metallurgical engineer for a total of 42 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
4. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
5. |
I am responsible for the preparation of the ore processing and infrastructure paragraphs in Section 3.0, Executive Summary; Section 18, Mineral Processing and Metallurgical Testing; the paragraphs concerning ore processing in Section 21, Interpretation and Conclusions; Section 25.5, Metallurgy and Processing; Section 25.6, Infrastructure; and Section 25.9, Product Marketing. |
6. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
7. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
Pincock, Allen & Holt | REVISED | 24.3 |
90534 February 26, 2009 |
8. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
9. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 26 th day of February 2009.
Richard Addison
______________________________________
Richard Addison,
P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | REVISED | 24.4 |
90534 February 26, 2009 |
24.0 DATE AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite 950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
llopez@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Parrilla Silver Mine, Durango State, México dated February 26, 2009, (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, an SME Founding Registered Member (#1943910), a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, other short courses and seminars on mineral economics and other technical and economic subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and economic evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the La Parrilla Silver Mine, as part of a PAH team to audit the operation in 2006. As part of this study, I visited the project site from May 15 18 and November 13 18, 2007, July 15 - 18 and October 30 November 1, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the |
Pincock, Allen & Holt | REVISED | 24.1 |
90534 February 26, 2009 |
underground mine, reviewing sampling procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
|
7. |
I am the primary author of the Technical Report. I am responsible for and supervised the preparation of all the report sections. I have visited the project in May 2007, and November, 2007 and in July and October-November, 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 26 th day of February 2009.
Leonel López
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | REVISED | 24.2 |
90534 February 26, 2009 |
Technical Report for the
La Encantada Silver
Mine
Coahuila State, México
Prepared for
First Majestic Silver Corp.
January 12,
2009
90533
AMENDED AND RESTATED
February 26, 2009
Prepared by
Pincock, Allen &
Holt
Richard Addison, P.E.
Leonel
López, C.P.G.
1.0 TITLE PAGE
This technical report has been prepared in accordance with the National Instrument 43-101 standards of disclosure for mineral projects (NI 43-101) and the contents herein are organized and in compliance with form 43-101F1 contents of the technical report (43-101F1). This technical report is an update of Technical Report Amended for the La Encantada Silver Mine, Coahuila State, México; which was prepared for First Majestic Silver Corp. dated March 19, 2008 and published in SEDAR in March 28, 2008. The first two items are the title page and table of contents that are presented previously in this report and are simply mentioned herein to maintain the specific report outline numbering contained in form 43-101F1 contents of the technical report.
Pincock, Allen & Holt | REVISED | 1.1 |
90533 February 26, 2009 |
2.0 TABLE OF CONTENTS
See discussion in Section 1.
Pincock, Allen & Holt | REVISED | 2.1 |
90533 February 26, 2009 |
Pincock, Allen & Holt | REVISED | i |
90533 February 26, 2009 |
Pincock, Allen & Holt | REVISED | ii |
90533 February 26, 2009 |
TABLES
Pincock, Allen & Holt | REVISED | iii |
90533 February 26, 2009 |
FIGURES
Pincock, Allen & Holt | REVISED | iv |
90533 February 26, 2009 |
Pincock, Allen & Holt | REVISED | v |
90533 February 26, 2009 |
3.0 EXECUTIVE SUMMARY
First Majestic Silver Corp. (FMS) retained Pincock, Allen and Holt (PAH), a division of Australia-based Runge, Inc. to prepare a Technical Report for the silver/lead/zinc deposit of La Encantada Silver Mine located in the Municipality of Ocampo, Coahuila State, and México. This report is an update of Technical Report Amended of March 19, 2008, which was prepared by PAH and published in SEDAR in March 28, 2008. This report is presented to document material change in La Encantada Silver Mine due to an increment of reserves (+183 percent) and resources (measured and indicated -17 percent and inferred +51 percent). This report meets the requirements and is compliant with NI 43-101 and conforms to Form 43-101F1 for technical reports.
La Encantada Silver Mine is owned and operated by Minera La Encantada, S.A. de C.V., wholly-owned Mexican subsidiary of FMS. La Encantada Silver Mine consists of an industrial complex that includes underground silver/lead/zinc mining, a flotation ore processing plant, water wells and pipeline, airport, housing, camp facilities and a new cyanidation plant under construction to process silver tailings. The La Encantada mine was operated by Peñoles for a period of about 25 years, until June 2002. Desmín leased the property from Peñoles and operated the mine and processing plant from July 1, 2004 until November 1, 2006 when Desmín was acquired by FMS. During January to September, 2008 FMS has mined out 178,480 tonnes at an average grade of 297 g/tonne Ag and 2.29 percent Pb.
FMS owns mining rights that cover 2,237 hectares (5,227 acres) within 18 titled concessions and 3 approved claim applications, in addition to 2 other applications under review by the Mines Department. Minera La Encantada has acquired, from the Ejido Tenochtitlán, Municipality of Ocampo, under expropriation regulations, surface land ownership of 1,343 hectares (3,319 acres) where mine, plant, housing, camp and associated facilities are installed. It also owns the surface rights, installations and water rights for two water wells at El Granizo, which supply La Encantada water needs.
Estimated proven and probable reserves and measured and indicated resources for La Encantada, as of September 30, 2008, are presented in Table 3-1. These include proven and probable reserves of 5.2 million tonnes at 208 g/tonne (6.7 oz) Ag, and 2.42 percent (53 lb/tonne) Pb, for a total contained silver equivalent, inclusive of Pb credit, of 35.5 million ounces. These reserves include 4 million tonnes of tailings at an average grade of 168 g/tonne silver, estimated at a Cut-off Grade of 111 g/tonne silver.
La Encantada reserves have been estimated at a Cutoff Grade of 250 g/tonne Ag only and 228 g/tonne Ag equivalent net of Pb credit. The La Encantada proven and probable reserves in hard rock include 1.2 million tones at an average grade of 343 g/tonne silver and 2.39 percent lead.
During the period of January through September, 2008 FMS mined 178,480 tonnes of ore, which included 70,000 tonnes from reserves, in addition of other minerals extracted from different areas of the mine for a total of 108,480 tonnes. To September 30, 2008, the La Encantada exploration programs and underground development increased reserves by approximately 183 percent over the 2007 estimates.
Pincock, Allen & Holt | REVISED | 3.1 |
90533 February 26, 2009 |
TABLE
3-1
First
Majestic
Silver Corp.
Minera
La
Encantada,
S.A. de
C.V.
La
Encantada
Mine
Mineral
Reserves
Prepared
by FMS,
Reviewed
by PAH as of
September
30, 2008 (1)
Total Reserves Proven plus Probable (3) | ||||||||
DEPOSIT | CATEGORY | METRIC TONNES | WIDTH | GRADE | METAL CONTAINED (2) | |||
La Encantada | Reserves | Tonnes | meters | Silver, g/tonne | Lead, % | Zinc, % (4) | Silver (Only) oz. | Silver (Eq) oz. |
Total | Proven | 683,992 | Over 2.00 | 354 | 2.23 | 0.92 | 7,777,602 | 8,261,401 |
Total | Probable | 4,511,686 | Over 2.00 | 186 | 2.45 | 2.54 | 26,936,651 | 27,287,462 |
Total Reserves Proven + Probable | 5,195,677 | Over 2.00 | 208 | 2.42 | 2.33 | 34,714,253 | 35,548,863 | |
Total Resources Measured plus Indicated (3) | ||||||||
TOTAL | Measured | 445,650 | Over 2.00 | 399 | 4.15 | 0.65 | 5,710,055 | 6,025,271 |
TOTAL (5) (6) (7) | Indicated | 4,931,103 | Over 2.00 | 156 | 1.15 | 0.87 | 24,774,263 | 27,082,017 |
Total Resources Measured + Indicated | 5,376,753 | Over 2.00 | 176 | 1.40 | 0.85 | 30,484,318 | 33,107,288 | |
TOTAL PROVEN AND PROBABLE RESERVES PLUS MEASURED AND INDICATED RESOURCES | ||||||||
TOTAL PROVEN PLUS PROBABLE RESERVES AND MEASURED AND INDICATED RESOURCES (8) | 10,572,000 | Over 2.00 | 192 | 1.90 | 1.58 | 65,199,000 | 68,700,000 |
(1) Cut Off Grade estimated as250 g/tonne Ag only;
and 228 g/tonne Ag eq net of Pb credit. Estimated Reserves are exclusive of
Resources.
(2) Silver equivalent includes Pb credit, at
prices US$12.00/oz -Ag, $0.75/lb -Pb. Pb credit=22 g/tonne -Ag.
(3) Mining dilution is included at over 2.00m width. Estimates do not
include mining recovery.
(4) Zinc is not
recovered.
(5) Dump stockpile is considered as measured
resource because the average grade is below COG - 203 g/tonne Ag only and 186
g/tonne Ageq, however with pre-screening may be processed. It requires of
additional testing.
(6) La Morena sulfide deposit
requires additional metallurgical testwork to prove its economic recovery. La
Encantada mill does not have an operating zinc circuit at this
time.
(7) Tailings are included within Indicated
Resources due to required additional testwork and grade below Cutt Off Grade -
111 g/tonne Ag.
(8) Rounded figures.
(1) Cut Off Grade estimated as250 g/tonne Ag only;
and 228 g/tonne Ag eq net of Pb credit. Estimated Reserves are exclusive of
Resources.
(2) Silver equivalent includes Pb credit, at prices US$12.00/oz
-Ag, $0.75/lb -Pb. Pb credit=22 g/tonne -Ag.
(3) Mining dilution is included at over 2.00m width. Estimates do not include
mining recovery.
(4) Zinc is not recovered.
(5) Rounded figures.
Pincock, Allen & Holt | REVISED | 3.2 |
90533 February 26, 2009 |
These were estimated from the following areas: Breccia Milagros, Azul y Oro, Breccia Keylor, Cuerpo 660 E, Cola de Gallo, Bonanza, La Piedra, Breccia San Javier, Dique San Francisco, San Francisco, Jorobada, Rebaje 141, Rebaje and Ojuela Ampliación zones in addition to the Tailings Dam No. 1. Most of these deposit areas remain opened for exploration and development; for instance, Breccia Milagros appears to represent a significant deposit, the full extent of which is still unknown to FMS.
Measured and indicated resources to September 30, 2008 at La Encantada amount to 5.4 million tonnes at 176 g/tonne (5.7 oz) Ag and 1.40 percent (31 lb/tonne) Pb, for a total contained silver equivalent, inclusive of Pb credit, of about 33.1 million ounces. These resources include 1.6 million tonnes of tailings at an average grade of 76 g/tonne (2.4 oz/tonne). Preliminary testwork appears to indicate amenability and probable economic recovery of silver values from the tailings by cyanide leaching processing. Additional bulk testing is recommended to validate and confirm the resource. These resources represent a decrease of about 17 percent over the resources estimated for 2007 in silver equivalent ounces to 33.1 million, due to upgrade of tailings dam No. 2 to probable reserves.
Additional inferred resources have been estimated by FMS at La Encantada. The inferred resources require additional grade and tonnage information before they may be upgraded to indicated or measured resources. They represent geologic potential to be further investigated. La Encantada has estimated inferred resources that amount to about 2.6 million tonnes at an average grade of 220 g/tonne (7.0 oz/tonne) Ag and 1.0 percent (22 lb/tonne) Pb, for a total estimated content of silver equivalent, inclusive of Pb credit, of about 20.0 million ounces. This estimate represents an increment of 51 percent over the reported resources for 2007.
During the La Encantada 2008 exploration drilling program a new mineralized zone was discovered at the 1790 mine level. This zone has been denominated the Buenos Aires zone and delineated with 15 drill holes resulting in about 536,000 tonnes of Indicated Resources at an average grade of 395 g/tonne Ag (7.2 million ounces of silver equivalent) and 560,000 tonnes of Inferred Resources at an average grade of 339 g/tonne Ag (6.5 million ounces of silver equivalent). Silver equivalent includes Pb credits.
Processing flotation plant facilities have an installed capacity of 800 tonnes per day. It includes all supporting facilities, including laboratory, maintenance, etc. The metallurgical current plant average operating rate is about 800 tonnes per day. About three quarters of the ore comes from the mine and the other quarter from upgraded waste dump rock that has been screened to reject the coarser lower-grade fraction.
FMS is presently building, on a site about 1-1/2 kilometers from the existing flotation plant, a cyandiation plant with a capacity of 3,500 tonnes per day. The plant will process the ore and waste dump rock that is currently processed through the flotation plant in conjunction with reclaimed tailings. The plant is scheduled to commence operation in April 2009. PAH considers the FMS production and cost projections for this operation optimistic, but these parameters will only be clearly established when it has been in operation for six month or more.
Pincock, Allen & Holt | REVISED | 3.3 |
90533 February 26, 2009 |
The surface rights to La Encantada Silver Mine are mostly owned by Minera La Encantada (a wholly owned subsidiary of FMS). According to La Encantada, there is a good working relationship with people of the Ejido Tenochtitlán from which the surface rights were purchased by La Encantada, and with the town of Múzquiz, since many of the inhabitants are employed in the exploration or mining operations. No labor or access problems have been reported by La Encantada within the area.
La Encantada was declared in suspension of activities by Peñoles in 2003. In April 24, 2007 La Encantada presented a notification of reactivation of operations at the mine to the National Water Commission (C.N.A.), to SEMARNAT, to Secretaría del Trabajo y Previsión Social, and to PROFEPA. In accordance with legal opinion of October 31, 2008 by Mr. Carlos Galván Pastoriza, La Encantada mining operations are currently and have always been conducted in compliance with all applicable laws and regulations.
PAH is not aware of any environmental liabilities in La Encantada mining district; most of the area covered by La Encantada concessions is mining and prospective land for mineral exploration and mine development. Mr. José Luis Hernández Santibañez, Corporate Manager of Environmental and Permitting for FMS provided PAH with a document dated October 31, 2008 showing the list of Environmental and Operating Permits for La Encantada in current good standing.
PAH believes that La Encantada reserve and resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves and resources. PAH believes that the classification of the reserves and resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The reserves and resources herein reported by La Encantada were reviewed by PAH and constitute part of an operation by Minera La Encantada, a Mexican subsidiary of FMS. There is no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion, these reserves and resources are exclusive of each category and may not be materially affected by issues that could prevent their extraction and processing.
An economic analysis of La Encantada operation shows positive economics as measured by a cash flow model, and thus the postulated reserve position is accepted. La Encantada Silver Mine shows a net present value of $67 million at a 10 percent discounted rate of return. Table 3-2 presents a summary of
TABLE 3-2
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Economic Analysis Results as of September 30, 2008
DCFRR, Discount, % | Net Present Value, US $ | |
10 | $ | 44,143,983.00 |
15 | $ | 36,334,243.00 |
20 | $ | 30,019,406.00 |
25 | $ | 24,851,240.00 |
30 | $ | 20,574,641.00 |
TIR: | 85% |
Pincock, Allen & Holt | REVISED | 3.4 |
90533 February 26, 2009 |
La Encantada cash flow based on current reserves/resources estimates. Figure 3-1 shows the installations general layout, Figure 3-2 shows the underground mine, and Figure 3-3 shows the mines airstrip.
Pincock, Allen & Holt | REVISED | 3.5 |
90533 February 26, 2009 |
4.0 INTRODUCTION
First Majestic Silver Corp. (FMS) retained Pincock, Allen and Holt (PAH) to prepare a Technical Report of exploration activities and results obtained to this date, which represent a material change in the resources and reserves for the silver/lead/zinc deposit of La Encantada Silver Mine located in the Municipality of Ocampo, Coahuila State, México. This report is an update of Technical Report for the La Encantada Silver Mine, Coahuila State, México, prepared for First Majestic Silver Corp. dated March 19, 2008, Amended by Pincock, Allen & Holt, Inc., and was published in SEDAR on March 28, 2008, and it is referred to as Technical Report Amended herein.
The objective of this Technical Report is to provide FMS with a report that will follow existing regulations in Canada. This report presents a material change of the property due a significant increment of reserves including some tailings (+183 percent) and resources (M+I=-17 percent and Inferred=+51 percent) over the estimates reported for 2007. This report meets the requirements and is compliant with NI 43-101 and conforms to Form 43-101F1 for technical reports.
4.1 Qualified Person and Participating Personnel
The principal author of this report is Leonel López, a Certified Professional Geologist (AIPG-CPG-08359), Registered Professional Geologist in the State of Wyoming (PG-2407), a Registered Professional Member of The Society of Mining Engineers (No.1943910) and a PAH Principal Geologist. Mr. López has visited the site during the periods of May 1823, November 1318, 2007 and October 28-31, 2008, to review current status of the property. Mr. López also carried out exploration activities for the La Encantada mine as Peñoles Exploration North Division Manager in the 1980s. Mr. López reviewed available information on the La Encantada mine to update the reported areas where material changes have occurred during the period from July 2007 to September 30, 2008 regarding the mining rights, land tenure, history, environmental concerns, and all aspects of the geology, and reviewed drilling core and results, sampling, data verification and projected resources. Mr. López also reviewed drilling, sampling, volume estimates and location of the two tailings deposits that FMS is preparing for re-processing by cyanidation. Dick Addison reviewed methods and processing plant for La Encantada silver/lead/zinc deposit including research results for cyanidation of the silver tailings and plans for on going construction of a cyanidation plant. Other PAH members collaborated in the review of FMSs tailings deposits modeling to confirm volumes and grade estimates, as well as the reserve estimates, mine planning and safety aspects of the operation.
4.2
Term and Definitions
La Encantada Silver Mine consists of silver/lead/zinc oxidized mineral deposits located in the State of Coahuila, México. La Encantada mine comprises numerous mineral concentrations within the underground development area, including some exhausted deposits and additional geologic potential in other areas. Some of the known deposits within the La Encantada area are the following:
Pincock, Allen & Holt | REVISED | 4.1 |
90533 February 26, 2009 |
In this report:
FMS refers to First Majestic Silver Corp.
Desmín refers to Desmín, S.A. de C.V., a wholly-owned subsidiary of FMS.
PAH refers to Pincock, Allen & Holt, Inc., a Division of Runge, Inc., and its representatives.
Peñoles refers to Industrias Peñoles, S.A. de C.V., MET-MEX Peñoles and Grupo Peñoles.
La Encantada Silver Mine refers to the operating underground mine, processing plant and infrastructure facilities that constitute this industrial complex (also referred to as La Encantada mine or La Encantada).
Technical Report for the La Encantada Silver Mine, Coahuila State, México, prepared for First Majestic Silver Corp. dated March 19, 2008, Amended by Pincock, Allen & Holt, Inc., and was published in SEDAR on March 28, 2008, is referred to as Technical Report Amended herein.
Minera La Encantada refers to the operating company and wholly owned subsidiary of First Majestic Silver Corp.
Resource and Reserve definitions are as set forth in the CIM Definitions Standards dated December 15, 2005.
Pincock, Allen & Holt | REVISED | 4.2 |
90533 February 26, 2009 |
4.3
Units
All units are carried in metric units, unless otherwise noted. Grades are described in terms of percent (%) or grams per metric tonne (gptonne, g/tonne), with tonnages stated in metric tonnes. Salable metals are described in terms of tonnes, or troy ounces (precious metals) and percent weight.
Unless otherwise stated, Dollars are US Dollars. The following abbreviations are used in this report:
Pincock, Allen & Holt | REVISED | 4.3 |
90533 February 26, 2009 |
% | Percent by weight |
Patio | Yard, court or stocking ground |
Se | Selenium |
SiO | Silica |
Sn | Tin |
T or t | Metric Tonne (2,204 lbs), tonne |
Te | Tellurium |
Ti | Titanium |
tpa | Tonnes per annum |
tpy | Tonnes per year |
tpd | Tonnes per day |
ug | Underground |
Wo | Tungsten Oxide |
Zn | Zinc |
$ | United States Dollars |
C$ | Canadian Dollars |
4.4 Source Documents
The source documents for this report are summarized in Section 23.
Pincock, Allen & Holt | REVISED | 4.4 |
90533 February 26, 2009 |
5.0 RELIANCE ON OTHER EXPERTS
This report was prepared for First Majestic Silver Corp. (FMS) by the independent consulting firm Pincock, Allen & Holt, Inc. (PAH) and is based in part on information prepared by other parties. PAH has relied primarily on information provided as part of the following reports, investigations and operating results:
|
Technical Report for the La Encantada Silver Mine Amended, Coahuila State, México (Technical Report Amended). Prepared for First Majestic Silver Corp. Prepared by Pincock, Allen & Holt, Inc., March 18, 2008, and published in SEDAR on March 28, 2008. |
|
|
Technical Report for the La Encantada Silver Mine Amended, Coahuila State, México (Technical Report Amended). Prepared for First Majestic Silver Corp. Prepared by Pincock, Allen & Holt, Inc., July 24, 2007, and published in SEDAR on July 25, 2007. |
|
|
Resource and Reserve Estimates by FMS for La Encantada Silver Mine. Prepared by FMS staff and reviewed by PAH, October 31, 2007 and September 30, 2008. |
|
|
Resource/Reserve Estimates of the La Encantada Tailings dams No. 1 and 2 based on manual estimations and checked by GEMCOM Geologic modeling. It includes surveying, drilling, cross sections, volumes, tonnage and grade estimates. Prepared by FMS and PAH staff. October and November, 2007 respectively. |
|
|
Peñoles (Largest Silver producer in the World) information as owner and operator of La Encantada mine for a period of 25 years, including public records, operating reports, geological studies, surveying, sampling data, drilling, geologic modeling and resource estimates, production records and historical reserve estimates as of January 2003. It includes the following reports: |
|
|
Plan y Programa de Exploración 20012002. Prepared by Ing. Pantaleón Trejo, Manager of Explorations for Mining Operations, Peñoles. June 2002. |
|
|
Desglose de Mineral Probado y Probable por Cuerpos para 2003. Prepared by: Minera La Encantada, S.A. de C.V., Ing. Pantaleón Trejo, Manager of Explorations for Mining Operations, Peñoles. |
|
|
Relación de Fundos Mineros Minera La Encantada, S.A. de C.V., Unidad David Contreras. Prepared by Minera La Encantada, Peñoles. Febrero 2007. This report was updated by FMS including additional claims in May 2007. |
|
|
Database and modeling files for the La Encantada deposits by Peñoles. Provided to FMS in April 2007. |
Pincock, Allen & Holt | REVISED | 5.1 |
90533 February 26, 2009 |
|
Legal OpinionMinera La Encantada, S.A. de C.V., a wholly owned subsidiary of First Majestic Silver Corp. Legal Opinion by Durango-based office of legal advisers, by Mr. Carlos Galván Pastoriza, Abogado, prepared on October 31, 2008. |
|
|
Geochemical and Isotopic Study of Calcite Stockworks at La Encantada Mining District; Relationships with Orebodies and Implications for Exploration. A Thesis submitted to the Faculty of the Department of Mining and Geological Engineering , at the University of Arizona at Tucson, in partial fulfillment of the requirements for the degree of Master of Science with a Major in Geological Engineering. By: Raúl Díaz-Unzueta, 1987. |
|
|
Evaluación Geológica Unidad Minera La Encantada, Municipio de Ocampo, Coahuila, México. Prepared by: Exploraciones Geológico-Mineras de Occidente, S.A. de C.V. Septiembre 2006. |
|
|
Geologic Evaluation of the La Encantada Property, State of Coahuila de Zaragoza, México. Prepared by: J.N. Helsen, Ph.D., P. Geo. December 2006. |
|
|
Data provided by Desmín, S.A. de C.V. as operator of La Encantada under lease from Peñoles, July 1, 2004 to November 1, 2006. |
|
|
Information provided by FMS as owner and operator of La Encantada Silver Mine, including the period from November 2006 to May 2007. |
|
|
Information provided by FMSs Corporate Manager of Environmental and Permitting, Ing. José Luis Hernández Santibañez, on notifications of mining activities resumption at La Encantada mine and current status of operating permits to: |
|
|
Delegado Federal de la SEMARNAT, Estado de Coahuila. April 24, 2007. |
|
|
Delegado Federal de la STPS (Secretaría de Trabajo y Previsión Social) in the State of Coahuila. April 24, 2007. |
|
|
Director Local de CNA (Comisión Nacional del Agua), Estado de Coahuila. April 24, 2007. |
|
|
Delegado Federal de la PROFEPA (Procuraduría Federal de Protección al Ambiente), Estado de Coahuila. April 24, 2007. |
|
|
PAH observations on site visit during the periods of May 18-23, November 11 18, 2007 and October 28-31, 2008. |
PAH believes that this information is reliable for use in this report. PAH has reviewed ownership documents for the purchase of Minera La Encantada shares from Peñoles; acquisition of Desmín shares; purchase land rights under expropriation procedure where La Encantada mine, plant, camp and ancillary installations are located; and documents for sampling and applications for renewal of the Permiso Ambiental Unico (environmental permit for operating); as well as copies of the titled concessions for La Encantada mining rights.
Pincock, Allen & Holt | REVISED | 5.2 |
90533 February 26, 2009 |
This information was also reviewed by FMS legal advisers and a legal opinion was provided to PAH by the Durango City-based legal firm of Mr. Carlos Galván Pastoriza in a document issued on October 31, 2008. Therefore, PAH believes all above described documents and information regarding the property current status, legal title and environmental compliance for La Encantada miningmetallurgical operation to be accurate and current in legal standing.
Pincock, Allen & Holt | REVISED | 5.3 |
90533 February 26, 2009 |
6.0 PROPERTY DESCRIPTION AND LOCATION
Additional details are presented in Technical Report Amended for La Encantada Silver Mine of March 18, and published in SEDAR on March 28, 2008. Figure 6-1 is a General Location Map and Figure 6-2 is a Mining Concessions Map.
6.1 Property Description
This Technical Report presents an update of La Encantadas current operating conditions and projections as planned by FMS.
La Encantada Silver Mine property modifications for the period of October, 2007 to September, 30 2008 include the following:
Successful exploration programs have delineated a significant increment of reserves, including some tailings (+183 percent) and resources (M+I -17 percent and Inf. +51 percent) for 2008 over 2007, at the La Encantada Silver Mine.
The La Encantada mining rights cover 2,237 hectares (5,227 acres) within 21 Mining Concessions including 3 approved Applications which have been accepted by the Dirección General de Minas and are now under the process of registration at the Mines Department (1,250 hectares or 3,089 acres). Two other Concession Applications have presented at the Mines Department and are under review for approval. These Concession Applications cover additional lands within the surrounding area of La Encantada for further protection and exploration potential. No other changes have occurred in total land coverage at La Encantada Silver Mine.
All the Mining Concessions legal status was provided by legal opinion, dated October 31, 2008 from the Durango City-based firm of Mr. Carlos Galván Pastoriza, legal advisers for FMS in México. PAH also requested and received an updated review by legal advisers of the mining concessions current status showing that all mining claims owned by Minera La Encantada, S.A. de C.V. are current in meeting the legal obligations and requirements by Mexican Mining and Environmental Laws and Regulations including assessment works, property taxes and operating permits for the period that covers to December 31, 2008. Table 6-1 shows the List of Mining Concessions at La Encantada.
Pincock, Allen & Holt | REVISED | 6.1 |
90533 February 26, 2009 |
TABLE 6-1
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
List of Mining Concessions
No. | Name | Title No. | Surface Ha. |
1 | Encantada | 143,943 | 75.0000 |
2 | El Pajarito | 167,061 | 9.0000 |
3 | Montecarlo | 167,062 | 9.0000 |
4 | El Tigre | 167,065 | 41.0000 |
5 | El Camello | 167,066 | 75.0000 |
6 | Los Angeles | 167,067 | 20.0000 |
7 | Ampliación de Los Angeles | 167,068 | 27.2300 |
8 | El Granizo | 167,069 | 25.0000 |
9 | La Presita | 167,070 | 25.0000 |
10 | Regalado | 167,071 | 100.0000 |
11 | El Golpe 10 | 178,385 | 40.0000 |
12 | Rosita No. 19 | 189,752 | 79.9525 |
13 | Los Angelitos | 189,758 | 27.2300 |
14 | Los Angelitos 2 | 189,759 | 27.2300 |
15 | Los Angelitos 3 | 190,341 | 16.0000 |
16 | La Presita 10 | 194,878 | 100.0000 |
17 | San Javier | 217,855 | 3.0227 |
18 | Las Rositas | 227,288 | 287.0000 |
19 | Rosita 1* | 232,026 | 50.0000 |
20 | Rosita 2* | 232,028 | 350.0000 |
21 | Rosita 3* | 232,027 | 850.0000 |
22 | Platón (1) | 07 / 16718 | 3,000.0000 |
23 | Fracción Platón (2) | 07 / 16718 | 0.0000 |
TOTAL COVERAGE | 2,236.6652 |
(*) Application approved in process of registration.
(1) Mining Application in process. Final coverage will be defined
when the Title is issued. Area NOT INCLUDED.
(2) Fraction of Platón is included in the Paltón claim.
It will be Titled with different No.
Pincock, Allen & Holt | REVISED | 6.2 |
90533 February 26, 2009 |
7.0 |
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY |
La Encantada Silver Mine is located within an isolated mining district in northern México. It is located in the northern part of the physiographic province of the Sierra Madre Oriental in the NW portion of the State of Coahuila. It is located in the municipality of Ocampo, at about 120km to the N60ºW from the city of Múzquiz, and 120km to the N7ºW from the city of Ocampo, Coahuila.
UTM coordinates for La Encantada area are as follows: N3,139,550; E739,660.
La Encantada mining district consists of two main silver/lead underground mines, the La Encantada and the El Plomo mines. Both of these mine areas have been consolidated into one operation, which is now owned and operated by FMS. Figure 7-1 shows the El Plomo inactive camp.
Additional details on Accessibility, Infrastructure, Climate, Vegetation, Physiography, Hydrology and Local Resources are presented in Technical Report Amended.
Pincock, Allen & Holt | REVISED | 7.1 |
90533 February 26, 2009 |
8.0 HISTORY
In 2003 Peñoles reported proven and probable reserves at the closing of La Encantada mine including 485,000 tonnes at an average grade of 570 g/t Ag and 3.98 percent Pb. FMSs exploration efforts are directed to explore other areas of interest within the extensive underground workings, validate these historical figures and advance development of additional exploration targets. By June 2007, FMS reported NI 43-101 proven and probable reserves of 633,000 tonnes at an average grade of 315 g/tonne Ag, in addition to measured and indicated resources of 1.4 million tonnes at an average grade of 276 g/tonne Ag, and about 1.5 Million tonnes of inferred resources at an average grade of 200 g/tonne Ag, in Technical Report Amended of July 24, 2007 published in SEDAR.
The La Encantada aggressive exploration and development investments during 2007 resulted in additional proven and probable reserves estimated at 1.2 million tonnes for 2008 at an average grade of 343 g/tonne (11.03 oz/t) and measured and indicated resources estimated at 9.4 million tonnes at an average grade of 173 g/tonne (5.6 oz/t), in addition to inferred resources estimated at 2.6 million tonnes at a grade of about 220 g/tonne (7.0 oz/t). The 2008 reserves and resources represent a significant increment over the 2007 reported reserves (+183 percent) and resources of (M+I -17 and inferred +51 percent). Proven and probable reserves plus measured and indicated resources contain approximately 68.7 million ounces of silver equivalent, while inferred resources may contain about 20.0 million ounces of silver equivalent.
From the period of October, 2007 to September, 2008, FMS has mined and processed 178,480 tonnes of ore from La Encantada Silver mine at an average recovered grade of 297 g/tonne (9.5 oz/tonne) Ag, for a total of 1,704,300 contained ounces. FMSs 2008 production consisted of about 70,000 tonnes of ore from the proven and probable reserves, in addition to ore extracted from different newly discovered areas during mine preparation and development activities, for a total of 108,480 tonnes. Currently the plant is operating at an average rate of about 800 tonnes per day, while the mine continues to access, prepare new working phases and develop additional reserves and resources.
Pincock, Allen & Holt | REVISED | 8.1 |
90533 February 26, 2009 |
9.0 GEOLOGICAL SETTING
Please refer to Technical Reports Amended dated July 24, 2007 and March 19, 2008 which were published respectively on July 25, 2007 and in March 28, 2008 in SEDAR.
To this date, there are no changes to report regarding the La Encantada Silver Mine geology.
National Instrument 43-101 Standards of Disclosure for Mineral Projects. Form 43-101F1 Technical ReportInstructions (5), December 23, 2005.
Figure 9-1 shows the La Encantada Regional Geologic Map.
Figure 9-2 shows La Encantada Silver Mine Geologic Cross Section.
Pincock, Allen & Holt | REVISED | 9.1 |
90533 February 26, 2009 |
10.0 DEPOSIT TYPES
There are no changes to report regarding geologic and mineral deposit concepts for the La Encantada Silver Mine.
Please refer to Technical Report Amended dated July 24, and published in SEDAR on July 25, 2007.
Figure 10-1 shows Types of Mineral Deposits at La Encantada.
Pincock, Allen & Holt | REVISED | 10.1 |
90533 February 26, 2009 |
11.0 MINERALIZATION
For details on mineralization at La Encantada Silver Mine please refer to Technical Report Amended of July 24 and published in SEDAR on July 25, 2007.
No changes regarding mineralization characteristics of the La Encantada Silver Mine have occurred since last publication in Technical Report Amended. However, the mineralized zones of the La Encantada mine have been further increased by discovery of a new mineralized zone denominated Buenos Aires.
FMS exploration drilling program to investigate the Azul y Oro deposit resulted in interception of an unknown mineralized zone which comprises a series of NW-SE oriented veins and mineralized breccia zones containing high grade silver mineralization with lead and zinc. These structures show variable widths of up to eight meters. The Buenos Aires zone is located between the Azul y Oro and La Escalera breccia zones within the northeastern portion of the mine.
Currently known projections of the Buenos Aires zone have been drilled from the mine levels 1870, 1790 and 1635. Preliminary drilling has determined some blocks of indicated and inferred resources which enclose approximately 850,000 tonnes containing some estimated 13 million ounces of silver equivalent in oxides.
FMS is preparing underground access to the zone and additional drilling to upgrade the Buenos Aires resource base.
Figure 11-1 shows Duplicate Channel Sample at Breccia San Javier.
Figure 11-2 shows stope 274 High Grade Silver at Breccia San Javier.
Figure 11-3 shows the Stope 141 El Chamaco High Grade zone at the Bonanza Dike.
Figure 11-4 shows Breccia Milagros mineralization.
Pincock, Allen & Holt | REVISED | 11.1 |
90533 February 26, 2009 |
12.0 EXPLORATION
12.1 Introduction
La Encantada Silver Mine has been subjected to exploration programs from its discovery in the 1950s, by prospectors in the early stages and by Peñoles since the late 1960s to 2003. FMS has developed an aggressive program of explorations including mine development and preparations for drilling from underground sites. Additional diamond drilling is planned from surface locations, as well as geophysical surveying to investigate areas of interest and confirm other previously identified exploration areas.
Exploration efforts carried out during the second half of 2007 through 2008 were primarily focused in proving and developing additional reserves and resources for La Encantada mine. These resulted in a significant increment of both resources and reserves. Major efforts were developed in the areas of Breccia Milagros, Bonanza, San Francisco, Intrusivo Milagros, Azul y Oro, and Cuerpo de Zinc at mine level N-1535 and in the sampling of the old dumps. A long term exploration program was initiated to investigate the promising target at the La Escalera breccia zone. A new exploration target was identified during the course of explorations to define the Azul y Oro mineralized zone. The newly discovered zone, denominated Buenos Aires, is located between the Azul y Oro and the La Escalera breccia zones. FMS exploration efforts have resulted in a material change of the La Encantada reserve/resource base. These results, in addition to some tailings, show an increment of about 183 percent in proven and probable Reserves and a decrement of about 17 percent in measured and indicated resources over previously reported reserves and resources of October 31, 2007. Additional inferred resources have resulted in an increment of about 51 percent. These results have increased the ounces of silver equivalent contained for the La Encantada mine to about 69 million in proven and probable reserves plus measured and indicated resources. Additional exploration may upgrade the inferred resources, currently estimated at about 20 million ounces of silver equivalent.
Sampling of old dumps was also advanced and about 150,000 tonnes of screened material was measured, sampled and indicated during the period, in addition to screening and processing about 42,000 tonnes. Screening recovery of the dumps is about 40 percent in tonnage and grade enrichment from about 120 g/tonne Ag to about 160 g/tonne Ag. Figure 12-1 shows the La Encantada Exploration Program.
12.2 Exploration Programs
FMSs program of underground exploration was designed to investigate the Milagros and San Javier breccia zones, as well as the San Francisco bedded deposits and the Bonanza area where numerous veins occur associated with the Bonanza dike. The La Escalera breccia zone appears to be a significant target for exploration.
Pincock, Allen & Holt | REVISED | 12.1 |
90533 February 26, 2009 |
During the period of September 2007, to September 30, 2008, a total of about 6,660 meters of core drilling was completed. During the period of January to June, 2008 underground workings for exploration purposes were developed at the La Encantada mine, including about 1,490 meters of access ramps, drifts, and crosscuts, and about 850 meters of exploration tunneling for drill sites access. This development resulted in a significant increment of resources and reserves at the various mine levels of the La Encantada Silver Mine, within the Stope 141, Stope 325, Breccia Milagros, Bonanza, Dique San Francisco, San Francisco, Jorobada, San Javier Extensión and Alto del Dique La Escondida areas.
12.2.1 Geophysical
Exploration
FMS has designed an extensive 2008 program of exploration based on geophysical surveying to investigate the various identified anomaly areas, and to confirm other indicated potential zones. This program was completed during the period of January to October, 2008, and includes about 50 km of lines to be measured by Natural Source Audio-frequency Magnetotelluric methods (NSAMT). Readings were carried out along lines at 100m and 50m spacing according to geologic conditions, at 25m and 50m stations along the lines. This geophysical method takes reading of resistivity and conductivity parameters. The survey was conducted by Zonge Engineering and Research Organization from Tucson, Arizona. The Report is in progress. Some exploration targets have been identified and confirmed from previous research, including the most outstanding targets for investigation, such as the El Plomo, La Escalera Breccia zone and the Anomalous areas A, B, C and D. Figure 12-2 shows Geophysical Anomaly A Line 3. Figure 12-3 shows Geophysical Anomaly El Plomo Line 4.
12.2.2 Geochemical Exploration
No geochemical sampling has taken place at La Encantada during 2008; however, FMS has designed a 2009 exploration program that includes sampling for geochemical investigations in the areas of the geophysical anomalies. This program is estimated to include about 500 samples.
12.3 Drilling
Drilling programs at La Encantada have been limited since the best exploration results may have been obtained through underground development. Additionally, topographic conditions at the mine and irregular morphology of mineral concentrations make it difficult to plan for drilling. Therefore, drilling from underground sites and mine workings has proven to be the most effective combination for exploration at La Encantada.
During the period from September, 2007 to September 30, 2008, the La Encantada exploration team completed drilling from underground sites totaling 6,660 meters to investigate continuity and depth of the Azul y Oro, Breccia San Javier, and La Escalera mineralized structures. These drill holes resulted in discovery of the Buenos Aires mineralized zone, extension and confirmation of some of San Francisco and Azul y Oro mineralized zones.
Pincock, Allen & Holt | REVISED | 12.3 |
90533 February 26, 2009 |
Additional drilling was developed at the old Peñoles tailings dams to determine volume and grade of the two tailings dams. Metallurgical testwork was carried out in some of the drilled tailings. Grade, tonnage and metallurgical recovery estimates have resulted in additional resources for the La Encantada Silver Mine, since some of the silver contained by the tailings appears to be amenable for economic recovery by Cyanide Leaching processing methods. The tailings drilling program included 15 drill holes totaling 168 meters at the Tailings Dam No. 1, and 34 drill holes for a total drilled depth of 576 meters in Tailings Dam No. 2. Trenches and surveying delimited additional tailings volume at the Presa No. 3. Figure 12-4 shows tailing samples.
12.3.1 Exploration Drilling
FMS exploration activities for La Encantada mine include three drill rigs for drilling from underground sites. The program completed during 2008, consisted of a total underground development of 2,340m including drifts, crosscuts, raises, ramps and stopes development in addition to 5,000m of development carried out during the second semester of 2007. Numerous drill sites have been prepared during 2008.
Details of the exploration program developed and completed during 2008 are included in Table 12-1. This program resulted in a material change with significant additional Resources for the La Encantada mine. Table 12-1 shows the exploration program completed during 2008.
TABLE 12-1
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Completed Exploration Program for the Period November, 2007 to September,
2008
Exploration Activities | Objective | Area | Total Development |
Underground Development | Access ramps, drifts, crosscuts, raises, drill sites, etc | Access to La Escalera, Brccia Milagros, Azul y Oro, Bonanza, Jsan Javier, etc | 6,144 meters |
Underground Drilling | Exploration, Resource Blocks upgrade, investigate extension zones, etc | Azaul y Oro, La Escalera, Bonanza, San Javier, etc | 6,660 meters |
Geophysics |
Confirm previously
defined anomalies |
La Encantada coverage | Approximately 50km of geophysical lines |
The FMS exploration program for La Encantada includes an aggressive underground and drilling plan that has a high probability of success given the geological conditions of the mineralization at the mine. In PAHs opinion the combination of direct exploration methods, drilling and underground development represents a good balance for exploration at La Encantada. The program is directed to access projected known areas of mineralization as well as to investigate other adjacent and new promising areas that may result in an increment of the resource base and a higher level of reserves for the mine. This has been proven positive during the period of 2008 since the new Buenos Aires zone was discovered and resulted in additional resources containing approximately 13 million ounces of silver equivalent.
Pincock, Allen & Holt | REVISED | 12.6 |
90533 February 26, 2009 |
The exploration program suggested by FMS for the La Encantada Silver Mine for implementation during the period of calendar year 2009 is presented in Table 22-1 including estimated costs. This program consists of 7,195 meters of drilling, including 23 drill holes from underground sites, and 10,807 meters of underground drifting. Table 12-2 shows the La Encantada exploration program for 2009.
TABLE 12-2
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Exploration Program for the Period October-December, 2008, January-September,
2009
Exploration Activities | Objective | Area | Total Development |
Underground Drilling | Explore extensions, confirm and delineate Resource blocks | Azul y Oro, Buenos Aires, La Escalera, Cedrito, Bonanza, Falla María Isabel | 23 DH - 7,195 meters |
Underground Development | Crosscuts, drifts, ramps and drill sites | 1790 Mine Level, Buenos Aires zone, San Francisco, Bonanza and Azul y Oro | 11,807 meters |
In PAHs opinion, FMSs exploration program at La Encantada represents an aggressive exploration program with a high probability of success to upgrade the mines reserve and resource base, and with high probability for discovery of additional mineralized zones, which would lengthen the mines life. PAH recommends implementation of the suggested program at an estimated cost of about $2.5 million.
Pincock, Allen & Holt | REVISED | 12.8 |
90533 February 26, 2009 |
13.0 DRILLING
FMS continued with an aggressive drilling program at La Encantada during the period from September, 2007 to September, 2008. FMS has three drilling rigs to carry out the exploration drilling from underground sites. FMSs program for 2009 includes 7,195 meters of core drilling from underground sites to investigate the La Escalera breccia, Buenos Aires and Azul y Oro targets from the 1870, 1970 and 1535 mine levels. Exploration drilling requires access and drill site preparation, which for the underground exploration is estimated to be approximately 10,800 meters of ramps, drifts, crosscuts and drill site construction.
During the period of January through September 2008, drilling at La Encantada completed 29 drill holes for a total depth of 6,660 meters from underground locations. This program resulted in additional total estimated tonnage of 850,000 tonnes of indicated and inferred resources at an average grade of about 340 g/tonne (about 11 oz/tonne) Ag in oxides mineralization with lead and zinc.
Fifteen drill holes were completed from underground access to investigate the Azul y Oro mineralized structure. These drill holes also intercepted a new mineralized zone denominated Buenos Aires. Some of these drill holes intersected some of the mineralized structures of the Azul y Oro zone confirming geologic continuity of the mineralization. Additional resource and some reserve blocks were confirmed by the program. Figure 13-1 shows the Buenos Aires Drilling and Figure 13-2 shows Underground Drilling for Azul y Oro and Buenos Aires zones.
Details of FMSs 2008 and 2009 drilling program are presented in Tables 12-1 and Table 12-2. Estimated costs for the 2009 program are presented in Table 22-1.
FMS has defined future targets of exploration for drilling from surface. These include confirmation of geophysical and structural anomalies, such as:
Exploration drilling from underground drill sites includes:
Pincock, Allen & Holt | REVISED | 13.1 |
90533 February 26, 2009 |
PAH believes that this drilling program from surface and underground workings, in combination with underground development, is appropriate and well designed to explore promising targets. Geologic potential exists to discover additional mineralized zones along the development workings. Estimated budget for this program is included in Section 22 of this Report - Recommendations. PAH recommends implementation of this program. Figure 13-3 shows Buenos Aires Drill Core Intercept. Figure 13-4 shows Buenos Aires High Grade Core.
Pincock, Allen & Holt | REVISED | 13.4 |
90533 February 26, 2009 |
14.0 SAMPLING METHOD AND APPROACH
PAH reviewed La Encantadas sampling program for the preparation of the Technical Report Amended dated July 24, 2007. Full description of sampling method and approach by La Encantadas geologic crews is presented in the Technical Report Amended July 24, 2007. Additionally, PAH also reviewed the La Encantada sampling procedures for this Technical Report and did not notice changes in protocols that may affect the results, other than improving in some areas, such as QA/QC with increasing number of filed duplicates for drilling and reserve blocks samples.
The samples are brought into the La Encantada laboratory for preparation and assaying. Duplicate samples are sent to Inspectorate Lab for assay checks. Additional representative samples are sent to the La Encantada laboratory for density determinations. For the period of 2008 FMS has assayed 38 duplicate samples and 26 pulp samples at Inspectorate Lab in Reno, Nevada for comparison with assay results from the La Encantada lab. A total of 28 representative samples for density were sent to the La Encantada Lab from the El Plomo, Bonanza, Breccia Milagros, San Javier and San Francisco zones.
In PAHs opinion, the channel and core sampling and methods applied by La Encantada exploration and mining crews is done carefully and responsibility by well trained samplers. The sampling appears to reconcile with silver/lead head assays for the processing plant, as well as with production and sales by Minera La Encantada. The channel and core samples appear to properly represent the mineralization of La Encantada various deposits; therefore, they are acceptable for resource and reserve estimates. Figure 14-1 shows channel sampling. Figure 14-2 shows a channel sample of Azul y Oro Veinlet. Figure 14-3 shows a channel Sample of Azul y Oro at Level 1790.
Pincock, Allen & Holt | REVISED | 14.1 |
90533 February 26, 2009 |
15.0 SAMPLE PREPARATION, ANALYSIS AND SECURITY
15.1 Sample Preparation
PAH reviewed the La Encantada sample preparation for the Technical Report Amended dated March 18, 2008. FMS has not modified the sample preparation methods and procedures. Details are presented in the Technical Report Amended.
15.2 Laboratory Facilities
PAH notes that the La Encantada laboratories generally appear to be adequate, with reasonable cleaning and organization. The laboratory currently conducts about 800 samples by fire assay and AA per month, including exploration samples, development samples, and mill samples.
More details on laboratory facilities are presented in Technical Report Amended of July 24, 2007.
FMSs procedure for quality controls is by sending drill core, mine samples and/or pulps to an outside laboratory, usually Inspectorate Labs in Reno, Nevada. Samples of concentrates are regularly sent to Peñoles for check assays. The laboratory duplicates pulp assays at about 1 sample for every 20 and it includes field duplicates, standard samples and introduction of blank samples.
15.3 Check Assaying
To evaluate sample quality control, the La Encantada personnel perform periodic check analyses on samples. For the period from November, 2007 to September, 2008, La Encantada has sent 64 samples to Inspectorate Laboratories, an independent commercial laboratory in Reno, Nevada for duplicate analysis. These include 38 channel samples from reserve blocks in addition to 26 core duplicates of pulps from the reserve blocks. Results of the assays and graphs are presented in the following tables and graphs. La Encantada Silver Mine is mining and processing mineralization contained in oxides, which presents highly variable metal concentrations due to its inherent genetic characteristics. In this type of mineral occurrence, the comparison of assays may present high variations, depending on the mineral content of each sample. High grade silver assays may present differences of up to 80 percent due probably to some nugget effect, while the middle range grade samples usually result in close assays. In overall comparison, however, within a range of assays that represent very low to very high grades, the correlation is acceptable at an average of 74 percent for silver, and 100 percent for lead. While the duplicates of pulp samples show a better correlation of 99 percent for silver and 98 percent for lead.
Tables 15-1, 15-2 and Figures 15-1 and 15-2 show the assay results and graphs for samples of the La Encantada reserve blocks as duplicate samples and as duplicate pulp samples. The comparison is between assays by the La Encantada mines lab and Inspectorate Laboratories. Figure 15-3 shows the Buenos Aires drill core.
Pincock, Allen & Holt | REVISED | 15.1 |
90533 February 26, 2009 |
TABLE 15-1
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Sample Assay Checks
Reserve Duplicate Samples
(1)
INSPECTORATE LAB | LA ENCANTADA LAB | Sample Type | ||||||||
DUPLICATE SAMPLES | DUPLICATE SAMPLES | |||||||||
Sample No. | Ag gr/tonne | Pb % | Fe % | Zn % | Sample No. | Ag gr/tonne | Pb % | Fe % | Zn % | |
143348 | 0 | 0.01 | 0.01 | 0.80 | 146541 | 0 | 0.15 | 2.13 | 0.01 | BNO. 790-ESC-2 |
143349 | 0 | 0.00 | 0.00 | 0.41 | 146552 | 0 | 0.11 | 9.00 | 0.02 | BNO. 790-ESC-2 |
146012 | 26 | 0.01 | 0.91 | 12.70 | 146373 | 30 | 0.08 | 13.68 | 0.82 | SN FCO. 641 |
146013 | 363 | 1.45 | 0.43 | 8.90 | 146384 | 350 | 1.18 | 11.83 | 0.53 | SN FCO. 641 |
146014 | 334 | 20.50 | 0.09 | 26.80 | 146395 | 310 | 23.94 | 32.91 | 0.11 | SN FCO. 660 |
146015 | 36 | 1.27 | 0.09 | 41.30 | 146949 | 60 | 0.91 | 41.67 | 0.08 | SN FCO. 660 |
146016 | 71 | 2.55 | 0.16 | 42.20 | 146960 | 40 | 3.20 | 47.88 | 0.11 | SN FCO. 660 |
146044 | 32 | 0.07 | 0.14 | 0.78 | 146595 | 30 | 0.23 | 1.15 | 0.04 | BNO. 790-8 |
146045 | 5 | 0.09 | 0.03 | 3.48 | 143379 | 0 | 0.18 | 0.79 | 0.09 | BNO. 790-8 |
146046 | 6 | 0.04 | 0.13 | 0.47 | 140038 | 120 | 0.32 | 4.71 | 0.29 | BNO. 790-8 |
146047 | 18 | 0.01 | 0.05 | 0.41 | 143396 | 0 | 0.10 | 0.65 | 0.02 | BNO. 790-8 |
147901 | 9 | 0.02 | 0.08 | 0.54 | 147811 | 0 | 0.28 | 1.45 | 0.09 | BNO. 790-9 |
147902 | 3 | 0.01 | 0.05 | 0.38 | 147822 | 0 | 0.09 | 0.99 | 0.02 | BNO. 790-9 |
147903 | 102 | 0.06 | 0.18 | 0.32 | 147833 | 120 | 0.08 | 0.63 | 0.12 | BNO. 790-9 |
147904 | 727 | 0.56 | 0.65 | 4.40 | 147844 | 880 | 0.34 | 6.88 | 0.69 | BNO. 790-9 |
147905 | 3 | 0.02 | 0.01 | 0.19 | 147855 | 290 | 0.70 | 2.49 | 0.46 | BNO. 790-9 |
147906 | 703 | 0.11 | 0.28 | 0.85 | 147866 | 710 | 0.17 | 1.58 | 0.20 | BNO. 790-9 |
147907 | 4 | 0.01 | 0.03 | 0.22 | 147877 | 50 | 0.24 | 6.24 | 0.19 | BNO. 790-9 |
147908 | 226 | 0.22 | 0.45 | 1.21 | 147899 | 150 | 1.00 | 0.00 | 0.17 | BNO. 790-10 |
147919 | 6 | 0.02 | 0.04 | 0.40 | 148920 | 0 | 0.10 | 0.85 | 0.02 | BNO. 790-9 |
147920 | 36 | 0.02 | 0.02 | 0.19 | 148930 | 0 | 0.06 | 0.39 | 0.00 | BNO. 790-9 |
147921 | 1 | 0.01 | 0.01 | 0.20 | 148940 | 0 | 0.08 | 0.69 | 0.01 | BNO. 790-9 |
147922 | 21 | 0.03 | 0.22 | 0.85 | 148954 | 0 | 0.05 | 1.10 | 0.07 | BNO. 790-12 |
147923 | 1 | 0.01 | 0.02 | 0.21 | 148965 | 0 | 0.04 | 0.56 | 0.01 | BNO. 790-12 |
147924 | 2 | 0.01 | 0.00 | 0.10 | 148976 | 0 | 0.06 | 0.51 | 0.01 | BNO. 790-12 |
147925 | 3 | 0.02 | 0.09 | 0.94 | 148987 | 0 | 0.07 | 1.52 | 0.00 | BNO. 790-12 |
147926 | 2 | 0.01 | 0.02 | 0.32 | 148998 | 0 | 0.38 | 3.05 | 0.00 | BNO. 790-12 |
147927 | 7 | 0.02 | 0.13 | 0.78 | 148710 | 0 | 0.10 | 1.00 | 0.00 | BNO. 790-12 |
147928 | 10 | 0.01 | 0.05 | 0.40 | 148721 | 10 | 0.11 | 1.06 | 0.01 | BNO. 790-12 |
147929 | 3 | 0.01 | 0.01 | 0.19 | 148732 | 0 | 0.07 | 0.52 | 0.00 | BNO. 790-12 |
147930 | 1 | 0.01 | 0.02 | 0.16 | 148753 | 130 | 0.07 | 1.88 | 0.01 | BNO. 790-13 |
147931 | 128 | 0.18 | 0.55 | 1.73 | 148764 | 120 | 0.28 | 3.67 | 0.37 | BNO. 790-13 |
147932 | 1,155 | 0.06 | 0.85 | 3.72 | 148775 | 930 | 0.09 | 4.82 | 0.58 | BNO. 790-13 |
147934 | 1,409 | 0.48 | 2.05 | 6.78 | 148786 | 350 | 0.11 | 9.18 | 0.13 | BNO. 790-13 |
147935 | 137 | 0.10 | 0.59 | 1.97 | 148797 | 790 | 0.73 | 15.98 | 1.85 | BNO. 790-13 |
147936 | 15 | 0.01 | 0.03 | 0.16 | 149208 | 110 | 0.14 | 13.10 | 0.70 | BNO. 790-13 |
147937 | 11 | 0.01 | 0.04 | 0.36 | 149219 | 0 | 0.09 | 0.29 | 0.01 | BNO. 790-13 |
147938 | 2 | 0.01 | 0.02 | 0.15 | 149230 | 0 | 0.10 | 0.95 | 0.01 | BNO. 790-13 |
Min. | 0.20 | 0.00 | 0.00 | 0.10 | 0.00 | 0.04 | 0.00 | 0.00 | ||
Max | 1,409 | 21 | 2 | 42 | 930 | 24 | 48 | 2 | ||
Average | 148 | 1 | 0 | 4 | 147 | 1 | 7 | 0 | ||
Stdev. | 323 | 3 | 0 | 10 | 259 | 4 | 11 | 0 | ||
Correlation. | 0.74 | 1.00 | 0.11 | 0.03 |
(1) Data by FMS, formatted by PAH
Pincock, Allen & Holt | REVISED | 15.2 |
90533 February 26, 2009 |
TABLE 15-2
First Majestic Silver Corp.
Minera
La Encantada, S.A. de C.V.
La Encantada Silver Mine
Sample
Assay Checks
Reserve Duplicate of Pulp Samples (1)
INSPECTORATE LAB | LA ENCANTADA LAB | Sample Type | ||||||
PULP SAMPLES | PULP SAMPLES | |||||||
Sample No. | Ag gr/tonne | Pb % | Zn % | Sample No. | Ag gr/tonne | Pb % | Zn % | |
143379 | 8 | 0.06 | 0.21 | 143379 | 0 | 0.18 | 0.09 | BNO. 790-8 |
143396 | 23 | 0.02 | 0.05 | 143396 | 0 | 0.10 | 0.02 | BNO. 790-8 |
146341 | 1 | 0.01 | 0.01 | 146341 | 20 | 0.09 | 0.02 | AyO N-850 |
146373 | 31 | 0.07 | 0.91 | 146373 | 30 | 0.08 | 0.82 | SN FCO. 641 |
146384 | 408 | 1.65 | 0.71 | 146384 | 350 | 1.18 | 0.53 | SN FCO. 641 |
146552 | 1 | 0.01 | 0.00 | 146552 | 0 | 0.11 | 0.02 | BNO. 790-ESC-2 |
146595 | 18 | 0.15 | 0.08 | 146595 | 30 | 0.23 | 0.04 | BNO. 790-8 |
146949 | 30 | 0.95 | 0.12 | 146949 | 60 | 0.91 | 0.08 | SN FCO. 660 |
146960 | 55 | 3.15 | 0.16 | 146960 | 40 | 3.20 | 0.11 | SN FCO. 660 |
147811 | 26 | 0.03 | 0.22 | 147811 | 0 | 0.28 | 0.09 | BNO. 790-9 |
147822 | 4 | 0.03 | 0.04 | 147822 | 0 | 0.09 | 0.02 | BNO. 790-9 |
147833 | 170 | 0.10 | 0.22 | 147833 | 120 | 0.08 | 0.12 | BNO. 790-9 |
147844 | 781 | 0.37 | 0.80 | 147844 | 880 | 0.34 | 0.69 | BNO. 790-9 |
143379 | 8 | 0.06 | 0.21 | 143379 | 0 | 0.18 | 0.09 | Channel |
143396 | 23 | 0.02 | 0.05 | 143396 | 0 | 0.10 | 0.02 | Channel |
146341 | 1 | 0.01 | 0.01 | 146341 | 20 | 0.09 | 0.02 | Channel |
146373 | 31 | 0.07 | 0.91 | 146373 | 30 | 0.08 | 0.82 | Channel |
146384 | 408 | 1.65 | 0.71 | 146384 | 350 | 1.18 | 0.53 | Channel |
146552 | 1 | 0.01 | 0.00 | 146552 | 0 | 0.11 | 0.02 | Channel |
146595 | 18 | 0.15 | 0.08 | 146595 | 30 | 0.23 | 0.04 | Channel |
146949 | 30 | 0.95 | 0.12 | 146949 | 60 | 0.91 | 0.08 | Channel |
146960 | 55 | 3.15 | 0.16 | 146960 | 40 | 3.20 | 0.11 | Channel |
147811 | 26 | 0.03 | 0.22 | 147811 | 0 | 0.28 | 0.09 | Channel |
147822 | 4 | 0.03 | 0.04 | 147822 | 0 | 0.09 | 0.02 | Channel |
147833 | 170 | 0.10 | 0.22 | 147833 | 120 | 0.08 | 0.12 | Channel |
147844 | 781 | 0.37 | 0.80 | 147844 | 880 | 0.34 | 0.69 | Channel |
Min. | 0.70 | 0.01 | 0.00 | 0.00 | 0.08 | 0.02 | ||
Max. | 781 | 3 | 0.91 | 880 | 3.20 | 0.82 | ||
Average | 120 | 1 | 0.27 | 118 | 0.53 | 0.20 | ||
Stdev. | 224 | 1 | 0.31 | 243 | 0.86 | 0.27 | ||
Correlation | 0.99 | 0.98 | 0.99 |
(1) Data by FMS, formatted by PAH.
Pincock, Allen & Holt | REVISED | 15.3 |
90533 February 26, 2009 |
The reserve duplicate samples mineral content range includes assays that vary from 0.2 to 1,409 g/tonne Ag. The average correlation coefficient of the silver grades is acceptable for the set of samples, at 74 percent, with slightly lower assays by the La Encantada lab. The reserve pulp duplicate samples, for the set of duplicate samples, range in silver values from 0.7 to 781 g/tonne Ag with an average correlation of 99 percent and slightly lower silver assays for the La Encantada Lab and average correlation of 98 and 99 percent respectively for lead and zinc. Therefore, pulp duplicate samples assays show good sample preparation procedures at La Encantada. PAH believes that the reproducibility of silver grades is acceptable, and it represents acceptable procedures and practices in the sampling preparation processes.
La Encantada Silver Mine has implemented a strict program of Quality Control by introduction of blank and standard samples, as well as the insertion of field duplicate samples and pulp duplicates to keep a close control of the assay results. PAH recommends continuing with current sample preparation and shipping processes, which show acceptable differences in assay checks.
15.4 Conclusion
Overall, PAH found that the results from the check assaying are excellent and acceptable for pulp duplicates, the mineralization in oxides may cause larger differences in assays due to its nature. It is PAHs opinion that the sample methods and analyses are representative of the deposits at La Encantada mine, and that most of La Encantadas data was generated by procedures that were carried out according to accepted industry standards using accepted practices.
PAH finds that the exploration, sampling, and laboratory analysis for La Encantada operation is being conducted by FMS in a reasonable manner consistent with standard industry practices. In PAHs opinion the sampling results appear to be reasonably representative of the deposits mineralization and believes that they may be used with acceptable confidence in the estimation of the mineable reserves.
Pincock, Allen & Holt | REVISED | 15.7 |
90533 February 26, 2009 |
16.0 DATA VERIFICATION
PAH has not taken independent samples from the surface or underground exposures of the mineral concentrations at La Encantada mine, as other Qualified Persons have previously sampled the mineralization as discussed in this report, and the production records are the most reliable data of mineralization contained in the ore deposits under development at the mine. Peñoles developed and operated La Encantada mine for over 25 years producing over 80 million ounces of silver. Peñoles is one of the leading Mexican mining companies and the worlds largest silver producer.
FMS has established in a short operating period a systematic procedure to verify data and quality control which is proving effective and accurate. Assay data and information generated by the operation is transmitted manually; however, the entire paper trail is accessible and available for inspection.
FMS initiated effective control of La Encantada operations since November 2006 when it took control of the mining operation. La Encantada has established an active program of assay checks for samples and pulps of exploration, production and concentrates at the mines lab in comparison to assays performed by Inspectorate Laboratories of Durango city and Reno, Nevada, and concentrate sampling and assaying program by a sales representative in the city of Torreón, Coahuila to check the assays reported by the MET-MEX Peñoles smelter.
Table 16-1 presents a summary of concentrate assays for July, 2008 of shipments to MET-MEX Peñoles. This summary presents a comparison of assays by La Encantada lab and MetMex Peñoles.
TABLE 16-1
First Majestic Silver
Corp.
Minera la Encantada, S.A. de C.V.
La Encantada Silver
Mine
Concentrate Checks for July, 2008 Shipments
Concentrates | First Majestic Silver Corp. | Met Mex Peñoles SA de CV | |||||||||
Shipment | Date | Weight | Assays | Content | Weight | Assays | Content | ||||
No. | (Tonnes) | Silver | lead | Silver | Lead | Tonnes | Silver | Lead | Silver | Lead | |
Kg/tonne | % | Kg | Tonnes | Kg/tonne | % | Kg | Tonnes | ||||
DES- 2008 - 101 | 7/1/2008 | 31.80 | 10.57 | 39.37 | 336.12 | 12.52 | 32.71 | 11.438 | 37.42 | 374.15 | 12.24 |
DES- 2008 - 102 | 7/4/2008 | 30.57 | 9.87 | 39.94 | 301.71 | 12.21 | 30.98 | 10.318 | 34.08 | 319.66 | 10.56 |
DES- 2008 - 103 | 7/7/2008 | 32.82 | 9.50 | 31.16 | 311.80 | 10.23 | 33.53 | 9.582 | 29.65 | 321.25 | 9.94 |
DES- 2008 - 104 | 7/9/2008 | 22.81 | 7.90 | 28.63 | 180.20 | 6.53 | 23.42 | 8.453 | 24.69 | 197.97 | 5.78 |
DES- 2008 - 105 | 7/10/2008 | 32.88 | 6.95 | 27.08 | 228.50 | 8.90 | 33.37 | 7.29 | 23.65 | 243.38 | 7.89 |
DES- 2008 - 106 | 7/13/2008 | 31.83 | 7.32 | 27.44 | 233.01 | 8.73 | 32.89 | 7.53 | 25.71 | 247.68 | 8.46 |
DES- 2008 - 107 | 7/15/2008 | 32.54 | 6.95 | 24.31 | 226.16 | 7.91 | 32.52 | 6.85 | 22.28 | 222.62 | 7.25 |
DES- 2008 - 108 | 7/17/2008 | 31.39 | 6.00 | 13.73 | 188.19 | 4.31 | 31.96 | 5.99 | 20.58 | 191.38 | 6.58 |
DES- 2008 - 109 | 7/18/2008 | 32.73 | 5.39 | 24.41 | 176.43 | 7.99 | 32.59 | 5.30 | 17.72 | 172.81 | 5.77 |
DES- 2008 - 110 | 7/21/2008 | 30.15 | 7.35 | 16.84 | 221.57 | 5.08 | 30.80 | 7.74 | 16.75 | 238.21 | 5.16 |
DES- 2008 - 111 | 7/23/2008 | 30.66 | 5.15 | 18.63 | 157.89 | 5.71 | 31.35 | 5.34 | 18.14 | 167.48 | 5.69 |
DES- 2008 - 112 | 7/27/2008 | 30.19 | 4.88 | 11.82 | 147.32 | 3.57 | 30.70 | 5.09 | 11.50 | 156.16 | 3.53 |
DES- 2008 - 113 | 7/29/2008 | 31.28 | 4.95 | 11.69 | 154.83 | 3.66 | 31.84 | 4.96 | 11.48 | 157.85 | 3.66 |
DES- 2008 - 114 | 7/29/2008 | 30.30 | 5.79 | 16.19 | 175.44 | 4.91 | 30.93 | 5.91 | 16.31 | 182.64 | 5.04 |
Total | 432 | 7.036 | 331 | 3,039 | 102 | 440 | 101.779 | 310 | 3,193 | 98 | |
Average | 31 | 0.503 | 24 | 31 | 7.270 | 22 | |||||
Max | 33 | 10.570 | 40 | 34 | 11.438 | 37 | |||||
Min | 23 | 4.880 | 12 | 23 | 4.957 | 11 | |||||
Correlation | 0.99 | 1.00 | 0.95 |
Pincock, Allen & Holt | REVISED | 16.1 |
90533 February 26, 2009 |
The coefficient of correlation is excellent for all determinations, including weight (99 percent), silver (100 percent) and lead (95 percent).
Figure 16-1 shows correlation between silver assays of both laboratories.
PAH believes that an adequate amount of checking has been conducted and that the results are representative of the mineralization and concentrates produced at La Encantada and shipped to the smelter.
PAHs conclusion is that the results from check assaying are reasonable, including appropriate preparation procedures that the sampling results appear to be reasonably representative of the deposit mineralization and concentrates, and should be usable with acceptable confidence in the estimation of the mineable reserves.
Pincock, Allen & Holt | REVISED | 16.2 |
90533 February 26, 2009 |
17.0 ADJACENT PROPERTIES
No adjacent properties exist within the surrounding area of La Encantada. The El Plomo mine was operated as an independent mine for a period of time during the early stages of La Encantada development; however, in 1983 it was purchased by Minera La Encantada and it has been part of La Encantada mine since then. Underground developments of La Encantada and El Plomo were connected and established as one underground system. No other mine exists nearby the La Encantada area.
La Encantada mine is located at about 100km from the cities of Ocampo and Muzquiz, in Coahuila, México.
La Encantada mine housing facilities include 180 single family houses, events center, hotel and three restaurants, elementary school facilities, secondary school by teleconferences, sport facilities for soccer, squash and bowling, apart from the administration offices and warehouses, etc. Refurbishing of required facilities is in progress.
FMS has consolidated ownership of the La Encantada mine area by acquiring all mining claims and additional concessions around the property. Surface rights have also been acquired by La Encantada from the local Ejido (land community) under expropriation proceedings in accordance with the Mining Laws.
Pincock, Allen & Holt | REVISED | 17.1 |
90533 February 26, 2009 |
18.0 METALLURGICAL TESTING AND MINERAL PROCESSING
The ore processed at La Encantada is a complex mixture of oxide and sulfide minerals and is consequently difficult to process efficiently. The principal economic minerals are as follows:
The gangue is principally limestone and hematite with minor amounts of quartz, manganese, and zinc.
The ore is relatively soft and friable making for easy crushing and grinding. The ore processing method consists of crushing and grinding followed by two sequential flotation steps, the first consists of sulfide mineral flotation and the second is oxide mineral flotation. The reason for floating the ore in two stages is because the reagents used for oxide flotation are detrimental to sulfide flotation. Recoveries are poor, a reflection of the difficult mineralogy of the rock.
A cyanide leach plant is currently under construction at La Encantada and plans are to place it in operation in April 2009. The plant will process ore from the mine and waste dumps and from the three existing tailings containments: No. 1, No. 2 and No. 3.
Metallurgical testwork has been conducted on cyanide leaching of old tailings and of flotation concentrate. Results of the testwork are presented in Table 18-1 and 18-2, respectively.
Table 18-1 shows that cyanide leaching achieves relatively good recovery, averaging 59 percent, from the lower-grade, lower-tonnage No. 1 Tailings, and relatively poor recovery, averaging 40 percent, from the higher-grade, higher-tonnage No. 2 Tailings. Recovery from the composite sample, a mixture of fresh ore and Tailings No. 1 and No. 2, was good at 67 percent, though the sample is not particularly representative of what will be fed to the plant.
Table 18-2 shows that cyanide leaching of one sample of flotation concentrate gave very good recovery, at 98 percent. When the cyanide leach plant becomes operational, one option for the future plans is to eliminate flotation and instead, cyanide leach the ore and waste dump rock in the new plant following crushing and grinding in the existing mill. Direct cyanide leaching the ore and waste dump rock is projected to be 78 percent in the FMS Cash Flow Model, which appears reasonable based on the results of leaching concentrate and old tailings; however, the testwork is limited but the results were comfirmed with historic testworks made by Penoles.
One area of concern in the cyanide leaching plant is that the process water used at La Encantada is slightly saline and testwork conducted thus far has been with standard potable water. It may well be that the use of plant process water will be of no consequence but, until this is tested, this uncertainty remains.
Pincock, Allen & Holt | REVISED | 18.1 |
90533 February 26, 2009 |
TABLE 18-1
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Cyanide Leach Testwork, Tailings and Ore/Tailings Composite
Parameter | Units | Jales 1 | Jales 2 | Composite* |
FMS Cash Flow Model | ||||
Resource | tonnes | 900,375 | 4,015,711 | |
Silver Grade | grams/tonne | 72 | 168 | 187 |
Projected Recovery | percent | 52 | 48 | 59 |
Laboratory Results | ||||
Silver Grade | ||||
June 22, 2007 | grams/tonne | 89 | 163 | |
July 12, 2008 | grams/tonne | 163 | 231 | |
March 14, 2008 | grams/tonne | 103 | 104 | |
Cyanide Consumption | ||||
June 22, 2007 | grams/tonne | |||
July 12, 2008 | grams/tonne | 4.3 | 4.0 | |
March 14, 2008 | grams/tonne | 3.3 | 3.4 | |
Silver Recovery | ||||
June 22, 2007 | percent | 59 | 43 | |
July 12, 2008 | percent | 46 | 67 | |
March 14, 2008 | percent | 59 | 31 | |
Average | percent | 59 | 40 |
* Made up of 37.5% mine ore, 31.25% Tailings No. 1, and 31.25% Tailings No. 2
TABLE 18-2
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Cyanide Leach Testwork, Flotation Concentrate
Parameter | Units | Value |
Head Grade | ||
Silver | grams/tonne | 9,350 |
Lead | percent | 35.13 |
Zinc | percent | 1.77 |
Iron | percent | 6.65 |
Manganese | percent | 0.44 |
Test Conditions | ||
Weight of sample | kilograms | 13 |
Cyanide additon | grams | 699.2 |
Lime adition | grams | 132.8 |
Water addition | liters | 26 |
Cyanide strength | grams/liter | 27 |
pH | 11.5 | |
Slurry density | weight percent | 33 |
Leach time | hours | 24 |
Test Results * | ||
Cyanide addition rate | kilograms/tonne | 54 |
Lime addition rate | kilograms/tonne | 10 |
Silver recovery | percent | 97.53 |
*Note: Residual concentrations of cyanide and lime
could not be determined because of the strong yellow
color of the leach solution.
Pincock, Allen & Holt | REVISED | 18.2 |
90533 February 26, 2009 |
19.0 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
La Encantada uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineral resources and reserves. FMS has initiated the compilation of all data to incorporate it into a database and create a geologic model in SURPAC software which has been acquired by the company. FMS has reviewed and calculated resources and reserves for La Encantada to assess the current status of the property and to use it as a basis for future updated estimates. FMS assumed control of La Encantada Silver Mine operation from November 2006. FMS estimated the first resource/reserve base for the La Encantada mine as of May 31, 2007. This estimate is an update of October 31, 2007, resource/reserve base and it incorporates exploration and underground development results for the mine. During the current period, November, 2007 to September 2008, La Encantada mined a total of about 205,000 tonnes of ore, from which only 90,000 tonnes were mined out of the previously reported reserves and also increased the reserves during the period to about 5.2 million tones, including 4.0 million tones of tailings to be processed by cyanidation. This resource/reserve update calculation has been estimated as of September 30, 2008.
19.1 Introduction
FMS estimated proven and probable reserves, as of October 31, 2007, amounted to 1.2 million tonnes at an average grade of 312 g/tonne Ag and 1.77 percent Pb. Cutoff grade was estimated as 256 g/tonne Ag only, and 241 g/tonne Ag equivalent net of Pb credit. The estimated reserves were included in the deposits of: Breccia Milagros, Azul y Oro, Breccia Keylor, Cuerpo 660, Mantos 314, Chicotón Stope, San Francisco, La Piedra, Cola Gallo deposits and some dumps.
FMS has implemented exploration programs based on drifting, drilling and channel sampling. During this reported period, October, 2007 through September 2008, FMS has increased the silver contained in the resource/reserve base for the La Encantada mine by about 31 percent including proven and probable reserves and measured and indicated resources. Additional inferred resources have been delineated and other exploration targets are under further investigations. Additional resources and reserves were developed within the La Encantada mine in the Breccia Milagros, Bonanza, San Francisco, Azul y Oro and Jorobada deposits. A new discovery was made during the drilling program of the Azul y Oro deposit, the Buenos Aires deposit, which has been currently estimated in additional resources for La Encantada in excess of 536,000 tonnes of Indicated Resources at an average grade of 395 g/tonne Ag (7.2 million ounces of silver equivalent) and 560,000 tonnes of Inferred Resources at an average grade of 339 g/tonne Ag (6.5 million ounces of silver equivalent). Silver equivalent includes Pb credits. Dump materials and tailings dams have been sampled and measured resulting in additional reserves and resources for the La Encantada mine.
19.2 Methodology
Under the La Encantada mines diverse geologic environment, the resource and reserve blocks have been defined at the various drift levels where sampling has found mineable ore within the mineralized zones.
Pincock, Allen & Holt | REVISED | 19.1 |
90533 February 26, 2009 |
The reserve tonnage and grade are based largely on channel samples along drifts, crosscuts and other mine workings. Drilling from underground sites was initiated to explore the San Francisco, Breccia Milagros, San Javier and Azul y Oro mineralized structures to depth. This program was completed with 29 drill holes and a total depth of 6,660 meters. FMSs surface drilling program has been on hold due to delay in delivery of geophysical exploration program report.
Reserve and resource blocks range in length according to variable extensions of breccia or mineralized zones, and are from 50 to 150 meters in length along the mineralized structures. The resource and reserve blocks are developed by drifting across breccia zones and structures. Proven reserve blocks are projected up to 15 meters from the drift in which the channel samples were taken, and Probable blocks extending another 25 meters beyond the proven blocks where the geology and mine developments may allow.
All adits, drifts ramps and access development headings are regularly surveyed by La Encantada staff. The mineralized zones are subdivided into vertical sections through the multiple horizontal levels, such that each vertical section has 10 meter horizontal separation from the immediately adjacent sections. For reserve estimation, the cross sectional area of mineralization is drawn on each of these 10 meter spaced sections using Auto CAD software and the assayed sample lengths. The volume of mineralization on each section is calculated for the mineralized zone extending 5 meters on either side of the section. The density factor (specific gravity) is then input into the calculation, and tonnage is calculated based on the formula; Length (in meters) X Width (in meters) X Height (in meters) X Specific Gravity = tonnes of material.
The density factor used to convert reserve block volumes into tonnes has been determined as a weighted average from ore samples representative of the various deposit areas. The density tests were performed by Peñoles and by FMS. Numerous samples have been sent to an external lab (Inspectorate Lab) for determination. Currently FMS has carried out density tests of representative samples of the different deposits within the mine. Breccia Milagros samples density determinations have reported an average of 2.98, El Plomo area (3.07), Bonanza (3.14), San Javier (2.75) and Dique San Francisco (2.96) . La Encantada continues to follow a conservative approach by taking an average density of 2.70.
PAH believes that, on average, the density for mineralization is reasonable. PAH recommends that additional representative samples be taken periodically, as checks for bulk density determination, to ensure and properly adjust the application of an appropriate density factor as required.
To estimate the average grade and thickness for each 10 meter section that crosses a reserve block, La Encantada composites all the sample grades in the drift that occur within 5 meters on either side of the section. La Encantada has determined that the most appropriate filter for grade outliers is to assign a top grade of 1,000 g/tonne Ag to those samples. The total length of samples in the composite is then divided by the total number of composites, giving the average width of the mineralization in the drift at that section. Similarly, the average silver grade of the samples, weighted by length, gives the average silver grade for the drift at that section.
Pincock, Allen & Holt | REVISED | 19.2 |
90533 February 26, 2009 |
The tonnes and grade for each reserve block are then determined by combining the tonnes and grade results obtained for each 10 meter section that crosses the block. The resource block tonnes and grade are tabulated by La Encantada personnel on a series of spreadsheet summaries.
PAH notes that the sampling conducted across the mineralized zones for use in the reserve estimates is done with cutoff grade and width considerations, at a minimum mining width of 2.00m. This minimum width typically includes zones within the structures that are above the cutoff grade, as well as sub-ore grade mineralization below the cutoff grade, in which case La Encantada eliminates these areas when possible.
PAH also notes that in a few local areas, the drift is wholly enclosed by the mineralized structures and, unless there are some additional crosscuts or drilling, the vein width is taken as that measured across the confines of the drift opening. PAH recommends that the true structure widths, measured by cross cuts and/or the drill holes, be used as much as possible in the blocks of reserve and resource estimation.
The reserve blocks estimated by La Encantada are exclusive of the resource blocks.
In PAHs opinion the reserve and resource block estimates carried out by La Encantada have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves.
19.3 Cutoff Grade Calculations
PAH has used more conservative metal prices than those used by First Majestic, mainly because most pricing used by the company is much higher than current international pricing levels, and PAH has chosen more conservative pricing in view of the current international economic trends. PAHs prices are about 13.4 percent lower than First Majestics prices. A comparison of metals prices is shown in Table 19-1.
TABLE 19-1
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada
Silver Mine
Comparison of Metal Prices for 43-101 (U.S. Dlls)
Commodity |
First Majestic
Average Prices |
3-Year Rolling
Average Prices |
Average October
2008 Prices |
PAH Prices |
Gold ($/oz.)
Silver ($/oz.) Lead ($/lb.) Zinc ($/lb.) |
$699
$12.70 $0.90 $0.85 |
$708
$13.23 $0.90 $1.28 |
$807
$10.44 $0.67 $0.57 |
$708
$12.00 *$0.75 *$0.50 |
*PAH lead and zinc prices in line with current pricing and predicted trends
19.3.1 Underground Mine Cut-Off Grade
For the current reserve, PAH has calculated breakeven cutoff grades for both the underground mine operations and also the dump recovery program. The basic parameters applicable to the cutoff grade calculations for the underground mine are shown in the following Table 19-2 and Tables 25-13 and 25-14 in Section 25.8.2 of this report.
Pincock, Allen & Holt | REVISED | 19.3 |
90533 February 26, 2009 |
TABLE 19-2
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
*Cutoff Grade Parameters (U/G Mine Only)
Concepts | Costs and Other |
Average Total Operating Cost Per Tonne | $55.01 |
COG Silver only (g/t Ag) | 250 |
COG - With Lead Credits (g/t Ag) | 228 |
Totall Milled in Period (Jan-Sep, 2008) | 136,326 |
Silver Recovery in Mill (%) | 60% |
Payable Silver from Smelter | 95% |
Payable Lead from Smelter | 90% |
Gold Price ($/oz.) | $708 |
Silver Price ($/oz.) | $12.00 |
Lead Price ($/lb.) | $0.75 |
Zinc Price ($/lb.) | $0.50 |
Monetary Exchange Rate | $12.50 pesos: $1.00 |
*Based on January-September, 2008 Operating Data
Equating the parameters in the above table (U/G mine only), the breakeven cutoff grade for silver (C Ag ), based solely on silver for total operating costs (Table 25-13) and process recoveries anticipated is as follows:
CM Ag =Total operating costs/ (silver price X mill recovery X smelter payable metal)
CM Ag = $55.01/( $12.00 X 0.60 X 0.95) = 8.04 oz Ag per tonne or 250 g Ag/t.
However, there is a lead contribution for La Encantada ores. Production of lead in the concentrates from the mine only throughSeptember 2008 is about 777.5 tonnes. The calculation for lead contribution is as follows:
Revenues for Mine from lead (R m ) = Lbs lead in concentrates X payable from smelter X lead price:
R m =777.5 t X 2204.6 lbs/t X 0.90 X $0.75
R m = $1,157,002
R m / tonnes mined & milled = $1,157,002/ 136,326 t = $8.49/t
The silver equivalent of lead contribution = $8.49 /$12.00 = 0.71 oz Ag/t or 22 g Ag/t.
Pincock, Allen & Holt | REVISED | 19.4 |
90533 February 26, 2009 |
The adjusted mine cutoff grade (CM Ag ) is then: 250 g Ag/t -22 g Ag/t = Ag = 228 g Ag/t .
19.3.2 Mine Dump Recovery Cutoff Grade
The basic parameters used for the cutoff grade calculations for the recovery of dump material are shown in Table 19-3 as follows:
TABLE 19-3
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
*Cutoff Grade Parameters (Mine Dump Recovery)
Concepts | Costs and Other |
Average Total Operating Cost Per Tonne | $40.98 |
COG Silver only (g/t Ag) | 203 |
COG - With Lead Credits (g/t Ag) | 184 |
Total Milled in Period (Jan-Sep, 2008) | 42,155 |
Silver Recovery in Mill (%) | 55% |
Payable Silver from Smelter | 95% |
Payable Lead from Smelter | 90% |
Gold Price ($/oz.) | $708 |
Silver Price ($/oz.) | $12.00 |
Lead Price ($/lb.) | $0.75 |
Zinc Price ($/lb.) | $0.50 |
Monetary Exchange Rate | $12.50 pesos: $1.00 |
*Based on January-September 2008 Operating Data
Equating these parameters (dumps only), the breakeven cutoff grade for mining and processing of the in-situ dumps, based solely on silver for the total operating costs (Table 25-14) and process recoveries anticipated, is as follows:
CD Ag = Total Operating Costs/ (silver price X mill recovery X smelter payable metal).
CD Ag = $40.98/ ($12.00 X 0.55 X 0.95) = 6.54 oz Ag/t or 203 g Ag/t.
A lead contribution is also applicable for recovery of dump material. About
183 tonnes of lead in concentrates have been produced through September2008. The calculation for the lead contribution is as follows:
Revenues for lead from Dumps (R d )= Lbs in concentrates X payable from smelter X lead price:
R d = 183 tonnes X 2204.6 lbs/t X 0.90 X $0.75
R d = $272,323
Pincock, Allen & Holt | REVISED | 19.5 |
90533 February 26, 2009 |
R d per tonne of dumps processed = $272,323/42,155 = $6.46/t.
Ag Equivalent per tonne = R d / Ag price = $6.46/ $12.00 = 0.54 oz Ag/t or 17 g Ag/t.
Adjusted Cut-off Grade (CD Ag ) for dumps = 203 g Ag/t 17Ag/t = 186 g Ag/t.
19.3.3 Tailings Recovery Cutoff Grade
First Majestic is constructing a new 3,500-tpd processing plant, principally for the recovery of silver values from the flotation tailings. This plant will employ a grinding circuit with thickeners, counter-current decantation and a Merrill-Crowe metals recovery system. PAH has calculated a breakeven cutoff grade for the recovery of silver from the tailings, based on the parameters such as plant recoveries and operating costs set forth in First Majestics metallurgical test-work reports, and that First Majestic will send silver-gold precipitates to La Parrilla unit, where bullion bars will be produced. The basic parameters used for the Tailings Recovery cutoff grade estimation are shown in Table 19-4.
TABLE 19-4
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
*Cutoff Grade Parameters (Tailings Recovery)
Concepts | Costs and Other |
Average Total Operating Cost Per Tonne | $17.00 |
COG Silver only (g/t Ag) | 111 |
**Total Milled in Period (Jan-Sep, 2008) | 0 |
Silver Recovery in New Plant (%) | 40% |
Payable Silver from Refinery | 99.5% |
Gold Price ($/oz.) | $708 |
Silver Price ($/oz.) | $12.00 |
Lead Price ($/lb.) | $0.75 |
Zinc Price ($/lb.) | $0.50 |
Monetary Exchange Rate | $12.50 pesos: $1.00 |
*Based on FM Metallurgical Data & Cost
Estimates
**Plant throughput design is 3,500 tpd
The cutoff grade for the tailings is calculated with the formula:
CT Agt = Total Operating Costs/(Plant recovery X silver price X payable metal)
CT Ag = $17.00/(0.40 X $12.00 X 0.995)
Ct Ag = 3.56 oz Ag/t or 111 g Ag/ t
Pincock, Allen & Holt | REVISED | 19.6 |
90533 February 26, 2009 |
19.4 Reserve Estimates
PAH has reviewed La Encantada reserve update of September 30, 2008 along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
La Encantada has estimated mineable Reserves for the following deposits:
The total in-situ diluted hard rock Reserve at a minimum mining width of 2.00m, as reviewed by PAH, is 1.209 million tonnes averaging 343 grams (11 oz) per tonne silver and 2.39 percent (53 lb/tonne) lead, for a total of 13.9 million contained ounces of silver net of lead credit. Additional reserves were estimated from Tailings Dam No. 1, which contains about 4.0 million tones at an average grade of 168 g/tonne (5.4 oz/tonne) silver at estimated at a Cutoff Grade of 111 g/tonne silver, to be reprocessed by cyanidation. As discussed previously in the calculation methodology section, the proven ore category has been projected up to 15 meters from the drift sample data, while the probable ore category is projected another 15 meters beyond the proven ore.
La Encantada has been processing pre-screened dump materials. Results for the month of September 2008 indicate that screened dumps yield about 40 percent of tonnage with increased silver grade from about 67 g/tonne to about 131 g/tonne; therefore, the dump materials have been included as an indicated resource due to silver content of an average grade below the cutoff grade. Estimated recovered screened tonnage from the measured dumps is about 225,000 tonnes. Table 19-5 presents a summary of La Encantada proven and probable reserves. Figure 19-1 shows Buenos Aires resource blocks. Figure 19-2 shows Breccia Milagros reserves. Figure 19-3 shows Azul y Oro resource blocks. Figure 19-4 shows San Francisco Dike reserve blocks.
Pincock, Allen & Holt | REVISED | 19.7 |
90533 February 26, 2009 |
TABLE
19-5
First
Majestic
Silver Corp.
Minera
La
Encantada,
S.A. de
C.V.
La
Encantada
Mine
Mineral
Reserves
Prepared
by FMS,
Reviewd
by PAH as of
September
30, 2008 (1)
Total Proven Reserves (3) | ||||||||
DEPOSIT | CATEGORY | METRIC TONNES | WIDTH | GRADE | METAL CONTAINED (2) | |||
La Encantada | Reserves | meters | Silver, g/tonne | Lead, % | Zinc, % (4) | Silver (Only) oz. | Silver (Eq) oz. | |
Reb 141 | Proven | 3,127 | 1.50 | 1,733 | 18.48 | 2.66 | 174,217 | 176,429 |
Breccia Keylor | Proven | 9,753 | 3.41 | 1,254 | 4.66 | 3.44 | 393,185 | 400,083 |
Ojuelas Amp | Proven | 4,919 | 1.67 | 598 | 8.87 | 4.09 | 94,651 | 98,131 |
Azul y Oro | Proven | 77,979 | 2.41 | 417 | 0.90 | 0.47 | 1,046,648 | 1,101,804 |
Reb 325 (DK Milagros) | Proven | 4,291 | 2.16 | 380 | 2.62 | 0.04 | 52,384 | 55,420 |
San Francisco | Proven | 72,483 | 2.26 | 369 | 1.09 | 0.33 | 859,911 | 911,179 |
Dk. San Fco | Proven | 10,181 | 1.78 | 329 | 3.65 | 3.05 | 107,616 | 114,817 |
Breccia Milagros | Proven | 358,253 | Variable > 2.00 | 322 | 1.52 | 0.94 | 3,705,006 | 3,958,404 |
La Piedra | Proven | 5,988 | 2.84 | 301 | 3.41 | 2.32 | 57,993 | 62,229 |
Cola Gallo | Proven | 3,928 | 4.66 | 296 | 5.56 | 0.00 | 37,376 | 40,154 |
Cuerpo 660 E | Proven | 124,962 | 2.00 | 292 | 4.75 | 0.99 | 1,173,145 | 1,261,533 |
Bonanza | Proven | 8,128 | 2.40 | 289 | 0.48 | 0.27 | 75,468 | 81,217 |
TOTAL | Proven | 683,992 | Over 2.00 | 354 | 2.23 | 0.92 | 7,777,602 | 8,261,401 |
(1) Cut Off Grade estimated as 250 g/tonne Ag
only; and 228 g/tonne Ag eq net of Pb credit. Estimated Reserves are exclusive
of Resources. 7
(2) Silver equivalent includes Pb credit,
at prices US$12.00/oz -Ag, $0.75/lb -Pb. Pb credit=22 g/tonne
-Ag.
(3) Mining dilution is included at a minimum mining
width of 2.00m. Estimates do not include mining recovery.
(4) Zinc is not recovered
Total Probable Reserves (3) | ||||||||
Reb 141 | Probable | 2,438 | 1.50 | 1,876 | 19.38 | 2.69 | 147,043 | 148,767 |
Ojuelas Amp | Probable | 4,919 | 1.67 | 598 | 8.87 | 4.09 | 94,651 | 98,131 |
Breccia Keylor | Probable | 3,603 | 3.48 | 516 | 4.92 | 1.32 | 59,790 | 62,339 |
Azul y Oro | Probable | 56,356 | 2.33 | 510 | 1.19 | 0.32 | 924,540 | 964,401 |
Reb 325 (DK Milagros) | Probable | 2,196 | 2.03 | 359 | 7.06 | 0.00 | 25,351 | 26,904 |
Cuerpo 660 E | Probable | 75,632 | 2.00 | 352 | 4.44 | 2.25 | 855,932 | 909,428 |
San Francisco | Probable | 79,582 | 2.31 | 345 | 1.16 | 0.28 | 882,724 | 939,014 |
Dk. San Fco | Probable | 7,758 | 1.93 | 331 | 3.09 | 3.07 | 82,681 | 88,169 |
La Piedra | Probable | 2,740 | 2.48 | 330 | 5.91 | 2.95 | 29,071 | 31,009 |
Bonanza | Probable | 6,899 | 2.40 | 289 | 0.48 | 0.27 | 64,057 | 68,937 |
Breccia Milagros | Probable | 160,916 | Variable > 2.00 | 271 | 0.96 | 0.79 | 1,401,309 | 1,515,128 |
Jorobada | Probable | 10,280 | 2.62 | 261 | 8.46 | 1.92 | 86,367 | 93,638 |
Sn. Javier. Ext | Probable | 82,655 | 1.95 | 223 | 4.67 | 3.95 | 592,976 | 651,439 |
Tailings Dam # 2 (5) | Probable | 4,015,711 | Variable > 2.00 | 168 | 2.43 | 2.67 | 21,690,160 | 21,690,160 |
TOTAL | Probable | 4,511,686 | Over 2.00 | 186 | 2.45 | 2.54 | 26,936,651 | 27,287,462 |
(1) Cut Off Grade estimated as 250 g/tonne Ag
only; and 228 g/tonne Ag eq net of Pb credit. Estimated Reserves are exclusive
of Resources
(2) Silver equivalent includes Pb credit, at
prices US$12.00/oz -Ag, $0.75/lb -Pb. Pb credit=22 g/tonne -Ag.
(3) Mining dilution is included at a minimum mining width of 2.00m.
Estimates do not include mining recovery.
(4) Zinc is not
recovered
(5) Tailings COG estimated at 111 g/tonne.
Total Reserves Proven plus Probable (3) | ||||||||
Total | Proven | 683,992 | Over 2.00 | 354 | 2.23 | 0.92 | 7,777,602 | 8,261,401 |
Total | Probable | 4,511,686 | Over 2.00 | 186 | 2.45 | 2.54 | 26,936,651 | 27,287,462 |
Total Reserves Proven + Probable | 5,195,677 | Over 2.00 | 208 | 2.42 | 2.33 | 34,714,253 | 35,548,863 |
(1) Cut Off Grade estimated as 299 g/tonne Ag only;
and 274 g/tonne Ag eq net of Pb credit. Estimated Reserves are exclusive of
Resources.
(2) Silver equivalent includes Pb credit, at prices US$12.00/oz
-Ag, $0.75/lb -Pb. Pb credit=22 g/tonne -Ag.
(3) Mining dilution is included at a minimum mining width of 2.00m.
Estimates do not include mining recovery.
(4) Zinc is not
recovered
Pincock, Allen & Holt | REVISED | 19.12 |
90533 February 26, 2009 |
La Encantada deposits occur in breccia zones and faults or fracturing intersections that make wide and irregular deposits. These generally present widths greater than 2.00m which is estimated to be the minimum mining width due to the mining equipment in use at the mine. Therefore, mining dilution is only significant when the mining is developed along narrow structures. Provisions have been taken to include the mining dilution for those areas.
19.5 Resource Estimation
Resource calculations by FMS at La Encantada are based on projections of the mineralized zones in the underground mine workings; 10m to 15m beyond the areas of reserves for the measured resources; and another 15m beyond the boundaries of the measured resources for the blocks of indicated resources. inferred resources are estimated by projecting up to 50m beyond the indicated resource block boundaries along mineralized structures, and another 15m beyond the blocks width. The estimated resource blocks may be limited by underground levels and previous mining extraction. Longitudinal projections depend on the drift development along the mineralized zones and it may vary from about 50m up to 150m in length.
La Encantada mineral resource estimates were applied only to adjacent blocks from the estimated reserves. Resource estimates were made for blocks that include only oxidized mineralization, such as the Breccia Keylor, Azul y Oro, Breccia Milagros, Cuerpo 660, Cuerpo 660 W and San Francisco deposits. Sulfides mineralization is only estimated in the La Morena deposit. Sulfides are only considered as resources because the processing facilities for the zinc circuit at the plant are not currently operating.
The grade for these blocks is determined from the grade estimated for the adjacent reserve blocks, and sampling in mine workings and drill holes located within the block area.
Geologic potential still exists within the mines area to investigate targets that may result in additional resource development for La Encantada. Exploration and full development of breccia zones, such as: Milagros, San Javier, Keylor, San Francisco and Azul y Oro may result in high-tonnage resource development. The Breccia Milagros appears to be a significant deposit. Other areas that appear to represent important targets for exploration are breccia La Escalera and the area west of the La Prieta deposit beyond the María Isabel fault. This area appears to be downthrown to the west of La Prieta deposit, which represents the largest known deposit within La Encantada area.
In addition to the reserves, La Encantada has estimated resources in blocks within the following areas:
Pincock, Allen & Holt | REVISED | 19.13 |
90533 February 26, 2009 |
Additional inferred resources have been projected in the Azul y Oro, Buenos Aires, Breccia San Javier, Bonanza, Intrusivo Milagros and San Francisco zones.
La Encantadas estimate of measured and indicated resource blocks as reviewed by PAH, is shown in Table 19-6. The measured and indicated silver resources consist of 5.4 million tonnes averaging 176 grams (5.6 oz) per tonne silver, for a total content of 33.4 million ounces of silver equivalent. This resources grade has been estimated in situ, and the silver equivalent content is net of lead credit, at 22 g/tonne Ag. The tailings dams No.1 and No.2 and dumps material have been included as indicated resources. This estimate is based on the following prices: Ag - $12.00/oz and Pb - $0.75 / lb.
Table 19-6 is the measured and indicated resource estimate for La Encantada. PAH notes that these resources are in addition to the previously reported reserves.
La Encantada has estimated additional silver resources at a distance beyond the proven and probable reserves. These additional resources lack sufficient drifting, raising, sampling, drill holes or old workings with production data, and are estimated at a lower degree of confidence than other reserve or resource categories. PAH considers these additional resources to be of an inferred category and they are based on projections of presumed vein continuity ahead, above, and below current mining; and are based on very widely-spaced drill holes, surface sampling or old surface workings. These resources are presented by La Encantada as inferred resources.
Each reserve and resource category presented in this Report are exclusive of each other.
The inferred resources need considerable grade and tonnage information before they can be proved up to Mineable Reserves. To date, La Encantada has demonstrated a continuity along about 4.0 kilometers of strike length and down dip to about 700 meters; so it is reasonable to assume that in the future resources will continue to be converted to ore as additional drifting, crosscutting and raising define vein configurations, sampling and assaying determine the grade, and diamond drilling confirms vein extensions and fills in data gaps. Inferred resources for La Encantada are presented in the lower portion of Table 19-6. Inferred resources are exclusive of reserves and measured and indicated resources.
Pincock, Allen & Holt | REVISED | 19.14 |
90533 February 26, 2009 |
TABLE 19-6
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada
Mine
Mineral Resources Prepared by FMS, Reviewd by PAH as of September
30, 2008 (1)
Total Measured Resources (3) | ||||||||
DEPOSIT | CATEGORY | METRIC TONNES | WIDTH | GRADE | METAL CONTAINED (2) | |||
RESOURCES | meters | Silver, g/tonne | Lead, % | Zinc, % (4) | Silver (Only) oz. | Silver (Eq) oz. | ||
Reb 141 | Measured | 2,438 | 1.50 | 1,876 | 19.38 | 2.69 | 147,043 | 148,767 |
Breccia Keylor | Measured | 10,810 | 3.48 | 516 | 4.92 | 1.32 | 179,367 | 187,013 |
Azul y Oro | Measured | 42,676 | 2.21 | 437 | 1.05 | 0.43 | 599,130 | 629,315 |
Cuerpo 660 W | Measured | 111,337 | 16.71 | 405 | 6.46 | 1.94 | 1,449,725 | 1,528,475 |
Cuerpo 660 | Measured | 191,960 | Variable > 2.00 | 390 | 4.71 | 0.00 | 2,409,828 | 2,545,604 |
Reb 325 (DK Milagros) | Measured | 2,196 | 2.03 | 359 | 7.06 | 0.00 | 25,351 | 26,904 |
Dk. San Fco | Measured | 6,616 | 2.06 | 336 | 3.21 | 3.09 | 71,447 | 76,126 |
San Francisco | Measured | 73,955 | 2.28 | 334 | 0.59 | 0.18 | 794,155 | 846,464 |
Bonanza | Measured | 3,663 | 2.40 | 289 | 0.48 | 0.27 | 34,011 | 36,602 |
TOTAL | Measured | 445,650 | Over 2.00 | 399 | 4.15 | 0.65 | 5,710,055 | 6,025,271 |
(1) Cut Off Grade estimated as 250 g/tonne Ag
only; and 228 g/tonne Ag eq net of Pb credit. Estimated Resources are exclusive
of Reserves.
(2) Silver equivalent includes Pb credit, at
prices US$12.00/oz -Ag, $0.75/lb -Pb. Pb credit=22 g/tonne-Ag.
(3) Mining dilution is included at a minimum mining width of 2.00m.
Estimates do not include mining recovery.
(4) Zinc is not
recovered.
Total Indicated Resources (3) | ||||||||
Azul y oro Ext. al SW | Indicated | 169,231 | 12.00 | 442 | 0.52 | 0.65 | 2,404,879 | 2,524,579 |
Buenos Aires | Indicated | 536,160 | 4.32 | 395 | 0.57 | 0.68 | 6,806,268 | 7,185,503 |
Reb 325 (DK Milagros) | Indicated | 2,196 | 2.03 | 359 | 7.06 | 0.00 | 25,351 | 26,904 |
Dk. San Fco | Indicated | 7,103 | 2.06 | 338 | 3.16 | 3.03 | 77,179 | 82,203 |
San Francisco | Indicated | 73,024 | 2.26 | 332 | 0.44 | 0.18 | 779,462 | 831,113 |
Jorobada | Indicated | 10,280 | 2.62 | 261 | 8.46 | 1.92 | 86,367 | 93,638 |
Sn. Javier. Ext | Indicated | 41,327 | 1.95 | 223 | 4.67 | 3.95 | 296,488 | 325,719 |
Bonanza | Indicated | 27,906 | 2.69 | 204 | 1.05 | 1.05 | 183,029 | 202,767 |
Bonanza | Indicated | 19,855 | 2.46 | 184 | 1.24 | 1.25 | 117,457 | 131,501 |
Bonanza | Indicated | 18,724 | 2.56 | 183 | 0.93 | 0.92 | 110,164 | 123,408 |
Bonanza | Indicated | 33,584 | 2.62 | 181 | 1.28 | 1.29 | 195,435 | 219,189 |
Breccia Milagros | Indicated | 382,673 | 2.12 | 171 | 2.05 | 0.12 | 2,103,851 | 2,374,522 |
OJ Alto del DK la Escon. | Indicated | 839,194 | Variable > 2.00 | 151 | 1.87 | 0.00 | 4,073,427 | 4,667,003 |
Cuerpo 660 (Pilares) | Indicated | 105,445 | Variable > 2.00 | 135 | 1.25 | 7.73 | 457,668 | 532,251 |
Intrusivo Milagros | Indicated | 467,078 | 2.00 | 102 | 0.00 | 0.00 | 1,531,724 | 1,862,096 |
Cuerpo de Zinc N-1535 | Indicated | 151,900 | 1.72 | 93 | 1.21 | 8.85 | 454,184 | 561,625 |
La Morena Sulfides (8) | Indicated | 263,610 | Variable > 2.00 | 65 | 0.76 | 4.14 | 550,892 | 737,347 |
SUB - TOTAL | Indicated | 3,149,290 | Over 2.00 | 200 | 1.18 | 1.30 | 20,253,824 | 22,481,368 |
Jal Producc. 2008 | Indicated | 204,951 | Variable > 2.00 | 111 | 1.84 | 731,595 | 731,595 | |
Talings Dam # 1 | Indicated | 900,374 | Variable > 2.00 | 72 | 0.00 | 0.00 | 2,084,234 | 2,084,234 |
Presa 3 | Indicated | 529,735 | Variable > 2.00 | 68 | 2.73 | 0.06 | 1,154,744 | 1,154,744 |
SUB - TOTAL (5) | Indicated | 1,635,060 | Over 2.00 | 76 | 1.12 | 0.02 | 3,970,572 | 3,970,572 |
Terreros | Indicated | 89,407 | Variable > 2.00 | 131 | 1.29 | 1.53 | 376,561 | 425,427 |
Mine Dumps | Indicated | 57,345 | Variable > 2.00 | 94 | 0.00 | 0.00 | 173,306 | 204,649 |
SUB - TOTAL (6) (7) | Indicated | 146,752 | Over 2.00 | 117 | 0.79 | 0.93 | 549,867 | 630,076 |
TOTAL | Indicated | 4,931,103 | Over 2.00 | 156 | 1.15 | 0.87 | 24,774,263 | 27,082,017 |
(1) Cut Off Grade estimated as 250 g/tonne Ag
only; and 228 g/tonne Ag eq net of Pb credit. Estimated Resources are exclusive
of Reserves. 24,774,263
(2) Silver equivalent includes Pb
credit, at prices US$12.00/oz -Ag, $0.75/lb -Pb. Pb credit=22
g/tonne-Ag.
(3) Mining dilution is included at a minimum
mining width of 2.00m. Estimates do not include mining recovery.
(4) Zinc is not recovered.
(5) Tailings are
considered as indicated resources because require of bulk testing. Cut Off Grade
at Ag-111 g/tonne.
(6) Dump stockpile is considered as
indicated resource because the average grade is below COG.It represents 40.19%
of measured tonnes.
(7) Dump stockpile Cut Off Grade is
estimated at 203 g/tonne Ag, including Pb credit is 186g/tonne Ag. Pb credit =
17 g/tonne Ag.
(8) La Morena sulfides deposit requires of
additional metallurgical testwork to prove its economic recovery. La Encantada
mill does not have an operating zinc circuit at this time.
Total Resources Measured plus Indicated (3) | ||||||||
TOTAL | Measured | 445,650 | Over 2.00 | 399 | 4.15 | 0.65 | 5,710,055 | 6,025,271 |
TOTAL | Indicated | 4,931,103 | Over 2.00 | 156 | 1.15 | 0.87 | 24,774,263 | 27,082,017 |
Total Resources Measured + Indicated | 5,376,753 | Over 2.00 | 176 | 1.40 | 0.85 | 30,484,318 | 33,107,288 |
(1) Cut Off Grade estimated as 250 g/tonne Ag
only; and 228 g/tonne Ag eq net of Pb credit. Estimated Resources are exclusive
of Reserves.
(2) Silver equivalent includes Pb credit, at
prices US$12.00/oz -Ag, $0.75/lb -Pb. Pb credit=22 g/tonne-Ag.
(3) Mining dilution is included at a minimum mining width of 2.00m.
Estimates do not include mining recovery.
(4) Zinc is not
recovered.
(5) Tailings are considered as indicated
resources because require of bulk testing. Cut Off Grade at Ag-111
g/tonne.
(6) Dump stockpile is considered as indicated
resource because the average grade is below COG.It represents 40.19% of measured
tonnes.
(7) Dump stockpile Cut Off Grade is estimated at
203 g/tonne Ag, including Pb credit is 186g/tonne Ag. Pb credit = 17 g/tonne
Ag.
(8) La Morena sulfides deposit requires of additional
metallurgical testwork to prove its economic recovery. La Encantada mill does
not have an operating zinc circuit at this time.
Total Inferred Resources (1) (2) (3) | ||||||||
Azul y Oro ext. al SW | Inferred | 194,163 | 10.85 | 454 | 0.49 | 0.66 | 2,834,088 | 2,971,423 |
Azul y Oro | Inferred | 97,164 | 2.27 | 434 | 0.93 | 0.38 | 1,355,415 | 1,424,141 |
Dk. San Fco | Inferred | 27,065 | 2.06 | 390 | 8.28 | 2.43 | 339,646 | 358,789 |
Reb 325 | Inferred | 2,196 | 2.03 | 359 | 7.06 | 0.00 | 25,351 | 26,904 |
Buenos Aires | Inferred | 561,824 | 3.40 | 339 | 0.50 | 0.59 | 6,122,437 | 6,519,825 |
San Francisco | Inferred | 186,000 | 2.40 | 304 | 0.64 | 0.14 | 1,817,932 | 1,949,492 |
Sn. Javier. Ext | Inferred | 171,509 | 1.95 | 223 | 4.67 | 3.95 | 1,230,425 | 1,351,736 |
Bonanza | Inferred | 22,000 | 2.77 | 220 | 1.12 | 1.12 | 155,610 | 171,171 |
Breccia San Javier | Inferred | 1,015,000 | Variable > 2.00 | 105 | 0.57 | 0.78 | 3,426,465 | 4,144,392 |
Intrusivo Milagros | Inferred | 280,000 | 2.00 | 102 | 0.00 | 0.00 | 918,225 | 1,116,274 |
TOTAL (4) | Inferred | 2,556,921 | Variable > 2.00 | 222 | 0.87 | 0.82 | 18,225,593 | 20,034,145 |
(1) Cut Off Grade estimated as 250 g/tonne Ag only;
and 228 g/tonne Ag eq net of Pb credit. Estimated Resources are exclusive of
Reserves.
(2) Silver equivalent includes Pb credit, at prices US$12.00/oz
-Ag, $0.75/lb -Pb. Pb credit=22 g/tonne-Ag.
(3) Mining dilution is included at over 2.00m width. Estimates do not include
mining recovery.
(4) Zinc is not recovered.
Pincock, Allen & Holt | REVISED | 19.15 |
90533 February 26, 2009 |
19.6 Conclusion
PAH believes that these reserve and resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of resources. PAH believes that the classification of the reserves and resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The reserves and resources herein reported by La Encantada Silver Mine were reviewed by PAH and constitute part of an operation by Minera La Encantada, a Mexican subsidiary of FMS. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these reserves and resources may not be materially affected by issues that could prevent their extraction and processing.
Pincock, Allen & Holt | REVISED | 19.16 |
90533 February 26, 2009 |
20.0 OTHER RELEVANT DATA AND INFORMATION
La Encantada mine has been in operation for over 25 years. Reported silver production for that period by Peñoles is about 80 million ounces of silver, in addition to significant lead content and minor gold. This production was extracted from about 6 Million tonnes of ore.
Historical mineral concentrations at La Encantada consist of mineralized breccia pipes (chimneys) and metasomatic zones, which typically contain up to 2.0 million tonnes; breccia zones that range up to 1.0 million tonnes; vein deposits that may contain up to 0.5 million tonnes, and mantos or bedded deposits that may hold up to 50,000 tonnes of usually high grade concentrations.
Major underground workings were developed by Peñoles at La Encantada, to connect the various parts of the mine, as well as to explore and mine mineralized zones within the Aurora limestone/dolomite formation. These workings extend along a 4km-long mineralized structural zone, with access to mine levels at elevations of 1,535m to about 2,300m. These connections are accessible by shafts and ramps.
Through the underground development, numerous exploration targets have been projected, identified or discovered.
At the closure of La Encantada mine by Peñoles in June 2002, several exploration targets remained to be investigated. Some of these areas require significant development as well as drilling from underground locations, such as Breccia Milagros, Breccia San Javier, Bonanza zone, Mantos San Francisco, etc. Other longer-term exploration targets may result in discoveries which may be as significant as those previously mined such as La Prieta and La Escondida, these areas are La Escalera, Ojuela and Cuerpo 660.
Other important areas for future development by FMS are represented by primary sulfide mineralization located at depth, in proximity to the granodiorite intrusive stocks, such as Cuerpo La Morena, Cuerpos 660 E and W, and Ojuela, which may enhance and extend La Encantada mine life.
La Encantada exploration investigations have resulted in validation and a significant increment of previous reserve and resource estimates. Proven and probable reserve estimates as of September 30, 2007 are about 70 percent higher than the reserves estimated for May 31, 2007, while measured and indicated resources were augmented nearly 500 percent, including tailings from previous Peñoles operations, which have been tested for processing by cyanidation. Inferred resources are also increased by about 30 percent. Numerous additional exploration targets have been identified by La Encantada staff.
During the exploration program for 2008, La Encantada exploration team discovered additional resources while drilling another target. The new area has been denominated Buenos Aires and partially investigated with about 15 drill holes resulting in indicated and inferred resources containing about 536,000 tonnes of Indicated Resources at an average grade of 395 g/tonne Ag (7.2 million ounces of silver equivalent) and 560,000 tonnes of Inferred Resources at an average grade of 339 g/tonne Ag (6.5 million ounces of silver equivalent). Silver equivalent includes Pb credits. Additional drilling and underground development are in progress to further define the mineral deposit and upgrade the resources.
Pincock, Allen & Holt | REVISED | 20.1 |
90533 February 26, 2009 |
In PAHs opinion, La Encantada has developed a highly successful exploration program based on underground development and drilling which has resulted in increasing resources and reserves and identifying other exploration targets; therefore, La Encantada investments in exploration and development have been well justified.
Pincock, Allen & Holt | REVISED | 20.2 |
90533 February 26, 2009 |
21.0 INTERPRETATION AND CONCLUSIONS
Recorded production in about 25 years by Minera La Encantada, S.A. de C.V. is approximately 6.0 million tonnes of ore at an average grade of Ag-418 g/t (13.44 oz/t) and Pb-9.83 percent (over 80 million ounces of silver and about 1.3 billion lbs of lead) until June 2002 when Peñoles shut the operation down. Mining and processing by FMS through its wholly-owned subsidiaries, Desmín and Minera La Encantada, was approximately 175,000 tonnes of ore to October 31, 2007.
Mineralization at La Encantada is a typical assemblage of metasomatic deposits with a high content of silver and lead. This mineral assemblage has been affected by a long process of oxidation and secondary enrichment. The most important mineralization consists of unconsolidated massive concentrations of oxides including hematite, limonite and other iron oxides as well as carbonates and sulphates, including the minor presence of zinc oxides. Silver and lead represent the main economic minerals within the oxidized deposits at La Encantada. Silver mineralization occurs as argentite and native silver. Lead mineralization is present as carbonates (cerussite) and sulfates (anglesite) and other oxides.
La Encantada mineral assemblage occurs within a range of about 435m in vertical extension (2035m to 1600m asl). Below the 1600m elevation, at the La Morena deposit in the SW portion of La Encantada area, primary sulfide mineralization has been identified. This mineralization includes primarily sphalerite, galena and pyrite. FMS has identified other regional areas of geologic interest. These areas appear to represent potential exploration targets that may extend the mineralized system.
FMS initiated preliminary drilling, during the period of June through October, 2007 while expecting new drill rigs to carry out a more comprehensive drilling program to investigate several targets. Exploration investigations during this period by La Encantada staff have resulted in about 6.2 million tonnes of additional reserve and resource blocks within the mining areas. These include dumps materials and tailings being investigated by FMS as resources. A new mineralized zone located within the Azul y Oro and La Escalera breccia zones was recently discovered by diamond drilling. Currently it is estimated to contain about 850,000 tonnes of silver mineralization containing about 13 million ounces of silver equivalent. This area requires of additional drilling for upgrading the currently delineated resources.
The mine was initially developed from the shafts as a conventional operation with rail haulage levels, and utilizing standard rail-bound loading and hauling equipment. Subsequently, La Encantada mine has been converted to a mainly trackless operation, although rail haulage is still used on a few of the deeper levels of the mine.
The main access to the current mine operations is a trackless adit at the 1,870 elevation. This working has been enlarged to accommodate 20-t capacity highway-type dump trucks for ore and waste haulage from the mine. Drifts and ramps are driven with cross-sectional area of about 3- X 3- meters, and the enlarged drifts and ramps to accommodate the larger dump trucks are about 4.5 - X 5.0 - meters in cross-section. Most areas of the mine are unsupported, but in a few places, rock bolts and wire mesh has been installed, and in other heavy ground areas, it has been necessary to install steel arches with timber lagging.
Pincock, Allen & Holt | REVISED | 21.1 |
90533 February 26, 2009 |
A ramp system in the interior of the mine provides access for low-profile diesel mobile equipment up to the 2035 level and down to the 1710 level. The portion of the ramp above the 1870 level is being enlarged to accommodate the highway-type dump trucks. Mining operations at La Encantada mine are partially mechanized. Drilling of headings for both development and stoping is accomplished using pneumatic hand-held jackleg machines. Loading and tramming is done with diesel-powered, low profile front-end loaders (load-haul-dumps, or LHDs), and haulage is usually with highway-type diesel rear-dump trucks, or battery powered rail haulage trains.
The ore processed at La Encantada is a complex mixture of oxide and sulfide minerals and is consequently difficult to process efficiently. The principal economic minerals are as follows:
The ore is relatively soft and friable, which is easily crushed and milled. The ore processing method consists of crushing and grinding followed by two sequential flotation steps. The first consists of sulfide mineral flotation and the second is oxide mineral flotation. Installed capacity at La Encantada is 800 tpd; however, it is currently operated at about 800 tpd. Recoveries are modest, a reflection of the difficult mineralogy of the rock; operating costs are modest, a consequence of the softness of the rock.
FMS are currently building a 3,500 tpd cyanide leach plant and plans are to switch from flotation processing to cyanidation of the mined ore and to process it in conjunction with reclaimed tailings that have accumulated on the site over the prior decades of operation. There is some uncertainty as to the outcome of this plan since it is based on limited testwork. The plant will go into operation in the second quarter of 2009 and actual results established by yearend.
Peñoles estimated proven and probable reserves as of December 2002 amounted to 484,857 tonnes at an average grade of 570 g/t Ag and 3.98 percent Pb. No cutoff grade was reported. The estimated reserves were included in the deposits of: Bonanza, El Milagro, Estructuras Irregulares Bonanza, Estructuras Irregulares San Javier, Breccia San Javier, Ojuelas, San Francisco, and Azul y Oro deposits.
FMS has initiated exploration programs based on drifting, channel sampling, drilling, geophysical investigations and some geochemical studies. Peñoles reported (2002) reserve or resource blocks are a primary target for confirmation, validation and further exploration by FMS, as well as other promising areas of reserves.
PAH has reviewed La Encantada Reserve update of October 31, 2007, along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
Pincock, Allen & Holt | REVISED | 21.2 |
90533 February 26, 2009 |
La Encantada has estimated mineable reserves for the following deposits:
The total in-situ diluted Reserve as of September 30, 2008, at a minimum mining width of 2.00m, as reviewed by PAH, is 5.2 million tonnes including 4.0 million tones of tailings, averaging 208 grams (6.7 oz) per tonne silver and 2.42 percent (53 lb/tonne) lead, for a total of 35.5 million contained ounces of silver net of lead credit. The tailings appear to be amenable for reprocessing by cyanidation; therefore, they have been included as probable reserves.
In addition to reserves, the La Encantada holds measured and indicated mineral resources that include estimates for the following areas: Azul y Oro, Buenos Aires, Breccia Milagros, Cuerpo 660, Cuerpo 660 W and Breccia Keylor deposits. Sulfide mineralization is only estimated in the La Morena deposit. Sulfides are only considered as Resources because the processing facilities for the zinc circuit at the plant are currently out of order. Dump materials have been screened, concentrated, and processed in the flotation plant to fill operating capacity, and have been included as resources after screening. Estimated resources for La Encantada Silver Mine total 5.4 million tonnes at an average grade of 176 g/tonne (5.7 oz/tonne) Ag and 1.40 percent (31 lb/tonne) Pb. Measured and indicated resources to September 30, 2008, are estimated to contain about 33.1 million ounces of silver equivalent net of lead credit.
In addition to measured and indicated resources, La Encantada has estimated about 2.6 million tonnes of inferred resources at an average grade of 220 g/tonne (7 oz/tonne) Ag and 1.0 percent (22 lb/tonne) Pb, for a total silver equivalent of 20.0 million ounces.
To date, La Encantada has demonstrated a continuity along approximately 4.0 kilometers of strike length and down dip for about 700 meters; so it is reasonable to assume that in the future resources will continue to be converted to ore as additional drifting, crosscutting and raising define vein configurations, sampling and assaying determine the grade, and diamond drilling confirms vein extensions and fills in data gaps. Geophysical investigations carried out during the period have confirmed previously delineated anomalous zones which require of a drilling program from surface sites.
Pincock, Allen & Holt | REVISED | 21.3 |
90533 February 26, 2009 |
During the period of January to September 2008 the La Encantada mine operation totaled 178,480 tonnes of silver mineralization which was extracted from previously estimated reserves (70,000 tonnes) and from other areas (108,480 tonnes) that were discovered during the development for extraction of the reserves.
All reserve and resource blocks at La Encantada are exclusive of each category.
PAH believes that these reserve and resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves and resources. PAH believes that La Encantada Silver Mine classification of reserves and resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
An economic analysis of FMSs La Encantada Silver Mine indicates that the mines reserve/resources may be extracted at a profit, and PAH did not identify any significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these reserves and resources may not be materially affected by issues that could prevent their extraction and processing.
Pincock, Allen & Holt | REVISED | 21.4 |
90533 February 26, 2009 |
22.0 RECOMMENDATIONS
La Encantada Silver Mine has been in operation since the 1950s, with intense extraction and processing operations from the early 1970s. Its production, by Peñoles records, amounts to over 80 million ounces of silver and over 1.3 billion pounds of lead. La Encantada is by no means exhausted; its geologic potential remains to be fully explored. Several zones within the mine area have been identified that may contain significant mineralization, such as Breccia La Escalera, Breccia Milagros, Breccia San Javier and others that enable the operators to increase La Encantadas production. Aside from the oxidized mineralization, there are sulfide deposits identified within the skarn areas at Cuerpo 660, La Morena and deeper areas under the La Prieta and La Escondida chimneys. These areas require intense exploration direct methods, such as diamond drilling and drifting.
FMS has initiated an aggressive program of exploration based on drifting and diamond drilling. Preliminary results of this program have resulted in a significant increment of resources and reserves for the La Encantada Silver Mine for the period between June and October, 2007. For instance, the Breccia Milagros and the San Francisco areas have produced high grade ores through exploration development and appear to be developing into significant ore deposits. Exploration drilling for the Azul y Oro zone has intersected other mineralized zone located between the Azul y Oro and the La Escalera breccia zones denominated as Buenos Aires. This zone consists of a series of mineralized structures containing high grade silver mineralization which full extension is being investigated.
PAH agrees with the continued implementation of the exploration program and recommends additional support for exploration activities at La Encantada. Positive results would develop resources into reserves and extend the mines life.
Care must be taken to prioritize the exploration targets since the area holds a broad potential for development and possible discovery of new ore bodies. Potential high volume areas should have priority in the exploration program, since these large volume deposits could potentially help to lower mine operating costs.
FMS has suggested an exploration budget of US$2.50 Million for 2009 at La Encantada. If successful, this program may result in a significant increment of resources and additional reserves. The program includes approximately 7,850 meters of drilling from underground sites and 5,000 meters from surface locations. Underground exploration development in drifting, access ramps, crosscutting and drill sites preparation amounts to about 850 meters for the year. The budget for this program also includes geochemical sampling of about 500 samples to validate geophysical exploration targets. PAH believes that this exploration program, budget and exploration targets are reasonable for continued investigation the La Encantada geologic potential. Table 22-1 shows the La Encantada exploration budget for 2009.
PAH recommends that La Encantada follow budgeted capital-expenditure plans for the ore processing facilities. With the exception of the funds budgeted to complete the cyanidation plant, the plan is generic with a fixed annual amount for ongoing capital expenditures. The estimated 2009 cost for completing the cyanidation plant is $8.2 million of the 21.5 million original budget and the ongoing annual ore-processing-related capital expenditure estimate is $135,000.
Pincock, Allen & Holt | REVISED | 22.1 |
90533 February 26, 2009 |
TABLE 22-1
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
PAH Recommendations Estimated Budget
Exploration Activities | Objective | Area | Total Develop, m | Est. Cost US$ |
Underground Drilling | Explore extensions, confirm and delineate Resource blocks. | Azul y Oro, Buenos Aires, La Escalera, Cedrito, Bonanza, Falla María Isabel. | 25 DH - 7,850 | 750,000 |
Underground Development | Crosscuts, drifts, ramps and drill sites. | 1790 Mine Level, Buenos Aires zone, San Francisco, Bonanza and Azul y Oro. | 850 | 340,000 |
Surface Drilling | Geophysical anomalies |
El Plomo, Anomalies
"A", "B", "C", "D". |
5,000 | 750,000 |
Geochemical Surveying | Evaluate Geophysical Anomalies | El Plomo, La Escalera, etc. | 500 | 25,000 |
Geotechnical Studies | Investigate La Prieta and Escondida area. | San Francisco and María Isabel Shafts | - | 250,000 |
UG Mine Ventilation System | Study on ventilation system | Entire Mine | - | 250,000 |
Other | Improve Ore Processing | Flotation and Cyanide Plants | - | 135,000 |
TOTAL | 2,500,000 |
Much of the mines mobile equipment at La Encantada is very old and requires replacement. FMS has a plan in place to replace some of the older mine equipment in the near future and has purchased some new units in 2008 and plans additional purchases in 2009.
PAH has noted the possibility of significant ground movements that may affect the integrity of either or both the San Francisco and Maria Isabel Shafts, which are the major ore hoisting and service facilities for the mine. In addition, the geotechnical studies should also include ground control methods at the mine and recommendations for improvement. The estimated cost of the initial geotechnical study will range from $150,000 to $250,000.
PAH also notes that the ventilation system in the mine is inadequate and much improvement is needed. A comprehensive survey and study of the ventilation system and corresponding recommendations by an outside expert is recommended. The estimated cost of the initial survey will be in the range of $100,000 to $250,000.
The Capital expenditures suggested for the plant and mine are scheduled to improve the operation and, through a successful exploration program, increase the mines reserves and resources and therefore the mine life. A summary of the PAH recommendation is found in Table 22-1.
Pincock, Allen & Holt | REVISED | 22.2 |
90533 February 26, 2009 |
23.0 REFERENCES
|
Resource and Reserve Estimates by First Majestic Silver Corp. for La Encantada Silver Mine. Prepared by FMS staff and reviewed by PAH. September 30, 2008. |
|
|
Exploration data including drilling, core sampling, underground development, mapping, channel sampling, and operating results carried out and provided to PAH by La Encantada Staff. September 30, 2008. |
|
|
Monthly Operating Reports of La Encantada Silver Mine, including exploration, mine, processing plant all supporting operating aspects of the mine operation for the months of January through September 30, 2008. Prepared by La Encantada General Manager and Staff. |
|
|
Technical Report for the La Encantada Silver Mine, Coahuila State, México, prepared for First Majestic Silver Corp. dated July 24, 2007, Amended by Pincock, Allen & Holt, Inc., and was published in SEDAR on July 25, 2007, is referred to as Technical Report Amended herein. |
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|
Pruebas Metalúrgicas para Determinar la Disolucion de Plata y Oro for Cianuracion, de Cinco Muestras de Mineral. Preparado para Minera La Encantada, S.A. de C.V., por SGS de Mexico, S.A. de C.V. Durango, Durango, 22 de Junio de 2007. |
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Pruebas Metalúrgicas para Determinar la Disolución de Plata y Oro por Cianuaración, de dos Muestras de Mineral. Preparada para Minera La Encantada, S.A. de C.V., por SGS de México, S.A. de C.V. Durango, Durango, 12 de Julio de 2007. |
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|
Pruebas Metalúrgicas para Determinar Las Extracciones de Plata y Oro por Cianuración y Concentración Gravimétrica de Dos Muestras de Jales de La Encantada, Además del ¥ndice de Bond de Una de Ellas. Preparada para First Majestic, S.A. de C.V., por SGS de México, S.A. de C.V., Durango, Durango, Marzo 14, 2008. |
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Peñoles (Largest Silver producer in the World) information as owner and operator of La Encantada Mine for a period of 25 years, including public records, operating reports, geological studies, surveying, sampling data, drilling, geologic modeling and resource estimates, production records and historical reserve estimates as of January 2003. It includes the following reports: |
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Plan y Programa de Exploración 2001 2002. Prepared by Ing. Pantaleón Trejo, Manager of Explorations for Mining Operations, Peñoles. June 2002. |
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Desglose de Mineral Probado y Probable por Cuerpos para 2003. Prepared by: Minera La Encantada, S.A. de C.V., Ing. Pantaleón Trejo, Manager of Explorations for Mining Operations, Peñoles. |
Pincock, Allen & Holt | REVISED | 23.1 |
90533 February 26, 2009 |
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Relación de Fundos Mineros Minera La Encantada, S.A. de C.V., Unidad David Contreras. Prepared by Minera La Encantada, Peñoles. Febrero 2007. This report was updated by FMS including additional claims in May 2007. |
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Database and modeling files for the La Encantada deposits by Peñoles. Provided to FMS in April 2007. |
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Legal Opinions Minera La Encantada, S.A. de C.V., a wholly owned subsidiary of First Majestic Silver Corp. Legal Opinions by Durango-based office of legal advisers, by Mr. Carlos Galván Pastoriza, Abogado, prepared on October 31, 2008. |
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Environmental and Permitting Opinions Minera La Encantada, S.A. de C.V., a wholly owned subsidiary of First Majestic Silver Corp. Opinion and List of Permits by Corporate Environmental and Permitting Adviser, by Mr. José Luis Hernández Santibañez, prepared on October 31, 2008. |
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Geochemical and Isotopic Study of Calcite Stockworks at La Encantada Mining District; Relationships with Orebodies and Implications for Exploration. A Thesis submitted to the Faculty of the DEPARTMENT OF MINING AND GEOLOGICAL ENGINEERING, in partial fulfillment of the requirements for the degree of Master of Science with a Major in Geological Engineering. By: Raúl Díaz-Unzueta, 1987. |
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Evaluación Geológica Unidad Minera La Encantada, Municipio de Ocampo, Coahuila, México. Prepared by: Exploraciones Geológico-Mineras de Occidente, S.A. de C.V. Septiembre 2006. |
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Geologic Evaluation of the La Encantada Property, State of Coahuila de Zaragoza, México. Prepared by: J.N. Helsen, Ph.D., P. Geo. December 2006. |
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Data provided by Desmín, S.A. de C.V. as operator of La Encantada under lease from Peñoles, July 1, 2004 to November 1, 2006. |
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Information provided by FMS as owner and operator of La Encantada mine. |
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PAH observations on site visit during the periods of May 18 23 and November 13 18, 2007 and October 28 31, 2008. |
Pincock, Allen & Holt | REVISED | 23.2 |
90533 February 26, 2009 |
24.0 DATE AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite
950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
leonel.lopez@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Encantada Silver Mine, Coahuila State, Mexico dated February 26, 2009 (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, a Member (No. 1943910RM) as SME Founding Registered Member, a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, other short courses and seminars on mineral economics and other technical and economic subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and economic evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the La Encantada Deposit North, as Division Manager of Exploration for Peñoles until 1985. As part of this study, I visited the project site from May 1523, November 11-18, 2007 and October 2931, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, reviewing sampling procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
Pincock, Allen & Holt | REVISED | 24.1 |
90533 February 26, 2009 |
7. |
I am the primary author of the Technical Report. I am responsible for and supervised the preparation of all the report sections. I have visited the project in May 2007, and November, 2007 and in July and October-November, 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 26 th day of February 2009
Leonel López
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | REVISED | 24.2 |
90533 February 26, 2009 |
Richard Addison
165 So. Union Blvd., Suite
950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing., for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Encantada Silver Mine, Coahuila State, Mexico dated February 26, 2009 (the Technical Report).
1. |
My residential address is: 857 S. Van Gordon Court, #G207, Lakewood, Colorado 80228. |
2. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
3. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EU. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
4. |
I have worked as a metallurgical engineer for a total of 44 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
5. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
6. |
I am responsible for the preparation of the paragraph summarizing ore processing in Section 3.0, Executive Summary; Section 18 Metallurgical Testing and Mineral Processing; those paragraphs covering ore processing in Section 21, Interpretations and Conclusions; Section 25.4, Mineral Processing Plant; and Section 25.7, Product Marketing. |
7. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
Pincock, Allen & Holt | REVISED | 24.3 |
90533 February 26, 2009 |
8. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
9. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
10. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 26 th day of February 2009
Richard Addison
_______________________________________
Richard Addison, P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | REVISED | 24.4 |
90533 February 26, 2009 |
25.0 |
ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT PROPERTIES AND PRODUCTION PROPERTIES |
25.1 Introduction
La Encantada Silver Mine is located in the municipality of Ocampo in the northwestern part of the state of Coahuila, Mexico. The mining district in which La Encantada is located is the David Contreras (La Encantada) district. Mining has been carried out in La Encantada area since the early 1940s with some limited extraction of high-grade lead-silver oxides from the skarn deposits of the area. Historically ore extraction in the district was done by underground methods, and this has been continued at La Encantada.
In the early 1970s a 60/40 joint venture was formed between Lacana Mining of Canada and Industrias Peñoles to develop and exploit the silver-lead orebodies discovered at La Encantada. The joint venture, operating under the name of Compañia Minera La Encantada, S.A. de C.V., sank two main production shafts for La Encantada project, the San Francisco and the Maria Isabel, and started exploitation of La Prieta high-grade silver chimney. The operator constructed a magnetic separation plant to process the ore at project inception, but two years later, replaced the plant with a 1,000 tonnes per day differential flotation plant. All products from this plant are concentrates, which were, and continue to be, marketed to the Peñoles Met-Mex smelter, located in the city of Torreón, Coahuila. Peñoles, as the operator, worked the mine steadily from 1974 until 1986, when it was stopped due to poor profitability. Peñoles restarted operations in 1990 after discovery of significant high-grade reserves.
During the 35 years Peñoles operated the property, about 6.0 million tonnes of mainly oxidized silver-lead ores, which averaged about 418 grams Ag and 9.9 percent Pb per tonne, were mined and processed. In 2003, Peñoles leased the mine to a small company, Desmín, S.A. de C.V., who operated it from 2003 until November 2006, when Desmín was acquired by First Majestic Silver Corporation (FMS) giving FMS control over the mine. FMS then acquired Minera La Encantada S.A. de C.V. (a wholly owned subsidiary of Peñoles) in March 2007 giving FMS complete ownership of the mine. There was no hiatus in the mine production program through the acquisition period, and Desmín continued the operations until First Majestic took over in late November 2006. First Majestic continued with Desmíns development and production programs after the acquisition. FMS made several changes in early 2007, and current production is about 20,000 tonnes per month of oxidized silver-lead ores. Mill feed is not only derived from the underground mine, but also from old dump material left by both Peñoles and Desmín; the split for the first nine months of FMS operations in 2008 is about 15,000 tonnes per month from the mine and 6,000 tonnes per month from dump material. Ore is campaign-milled at the site in the differential flotation plant, which was originally constructed by Peñoles in the 1970s. The mine produces a silver-lead concentrate, and paid metal production is currently in average for the period of January to September about 112,800 ounces of silver and 235,300 pounds of lead per month.
The historic production from La Encantada has resulted in storage of about 5.0 million tonnes of mainly flotation tailings, which still contain significant silver values. The company is currently constructing a 3,500-tpd process plant in which the tailings will be reprocessed together with mine and dump ore, and silver and small amounts of gold will be recovered in a cyanide circuit with a Merrill-Crowe precious metals recovery system. FMS projects that 3.6 million ounces of silver will be produced per annum, of which 1.8 million ounces will be obtained from the old tailings and 1.8 million ounces will be obtained from processing mine ore and dump recovery ore. The new plant is scheduled for startup in the second quarter of 2009.
Pincock, Allen & Holt | REVISED | 25.1 |
90533 February 26, 2009 |
25.2 Mine Design and Production
La Encantada mine has largely been developed below ore zones indicated from surface exploration work within a block about four kilometers long, 700 meters wide and 500 meters in height. The mine was initially developed from shafts as a conventional operation with rail haulage levels, and utilizing standard rail-bound loading and hauling equipment. Subsequently, La Encantada was converted to a mainly trackless operation, although rail haulage is still used on a few levels of the mine. The mine has been developed to the northeast of the shafts over a vertical range of about 400 meters from the surface (2,035 meters asl) to about the 1525 level (1,525 meters asl), where the water table has been encountered. The mine has not been developed into the large prospective area to the southwest of the shafts, which is situated at the southwest boundary of the developed mine area.
The San Francisco and María Isabel shafts were sunk by the Peñoles-Lacana joint venture, mainly for the development and extraction of the Escondida and La Prieta chimneys and these shafts continue to be used by the current operators. The collar elevations of both shafts, which are situated only about 100 meters apart, is 1,800 meters asl for the María Isabel, and 1805 meters asl for the San Francisco, and the depths of both are about 300 meters. Both the San Francisco and María Isabel Shafts provide access to the deeper levels of La Prieta and Escondida areas of the mine.
The southern-most María Isabel Shaft is L-shaped with a manway cut-out and it is equipped with two in-balance 3.7 -t capacity skips, and a man cage. The man cage capacity is about 15 people. The furnishings in the shaft are all constructed of steel, including dividers. The guides for the ore skips are cables, and the guides for the man cage are steel H-beams. The main air lines and electric power cables into the mine are installed in the manway compartment of the María Isabel Shaft. The María Isabel ore hoist is a 500-hp Canadian Ingersoll-Rand 2-drum hoist, and the man-hoist is a Vulcan 125-hp 1-drum hoist.
The rectangular San Francisco Shaft is set up for ore hoisting only, with only a small emergency manway located in a corner of the shaft. The Shaft is fitted with two in-balance 4.8 -t capacity skips, but has no man cage. The main pumping station for the mine is located on the San Francisco Shaft, and the mine pump lines are located in the shaft near the emergency manway. The San Francisco ore hoist is a 2-drum 400-hp Canadian Ingersoll-Rand unit.
The main access to the current mine operations the trackless Los Angeles adit at the 1,870 elevation. This working has been enlarged to accommodate 20-t capacity highway-type dump trucks for ore and waste haulage from the mine. Drifts and ramps are driven at a cross-section of about 3 X 3 meters, and then enlarged to accommodate the larger dump trucks to about 4.5 X 5.0 meters in section. Most ramps are driven at a maximum gradient of 15 percent. Many areas of the mine are unsupported, but in a few places, shotcrete and/or rock bolts and wire mesh or combinations of the same have been installed. In heavy ground areas, it has been necessary to install steel arches with timber lagging. FMS develops most of its short raises (<60 meters) by conventional methods, and most raises are driven at a cross-section area of about 1.5 X 1.5 meters. Historically long ore and waste pass raises, ventilation raises, etc. have been developed by raise boring contractors, and FMS will continue this policy as the need arises.
Pincock, Allen & Holt | REVISED | 25.2 |
90533 February 26, 2009 |
A ramp system in the interior of the mine provides access for low-profile diesel mobile equipment up to the 2035 level and down to the 1635 level. The portion of the main ramp above the 1870 level is being enlarged to accommodate the highway-type dump trucks. Peñoles established the 1790 main rail haulage level (from the María Isabel Shaft) to the stoping and exploration areas northeast of the shaft. In addition a rail level was also developed at the 1635 level. Both the rail levels are still in use. A longitudinal section of the mine with major shafts, and levels are included in Figure 9-2 of this report.
Mining operations at La Encantada mine are partially mechanized. Drilling of headings for both development and stoping is accomplished using pneumatic hand-held jackleg machines. Loading and tramming is done with diesel-powered, low profile front-end loaders (load-haul-dumps, or LHDs), and haulage is usually with highway-type diesel rear-dump trucks, or battery powered rail haulage trains.
Before FMS acquired La Encantada from the previous operator, Desmín, little exploration and development work had been done in the mine. Since taking over the operation in November 2006, FMS has undertaken an intensive exploration and development effort. As stated above, some mine workings are being slashed out to accommodate highway-type dump trucks, but the advance for these is not included in the development totals.
A diagram of typical drilling patterns for the different sizes of drifts and ramps driven in La Encantada Mine are shown in Figure 25-1.
During the first 9 months of 2008, the average development advance is about 570 meters per month. About 146 meters per month are classified as exploration, and the remaining 424 meters per month are for stope preparation and other development. The development totals for 2008 are shown in Table 25-1.
The principal mining method employed at La Encantada is overhand mechanized cut-and-fill (Figure 25-2), utilizing development waste for fill. Ramps are driven in the orebodies and stopes are developed from sill drifts driven in the ore zones and slashed out the full width of the ore. Stopes are drilled with jacklegs, and the main blasting agent is a commercial ammonium nitrate product, which is initiated with sausages of water-gel explosive primed with cap and fuse. Rounds are fired with Ignitacord (B-cord) as the fuse initiator. Stopes are mucked with rubber-tired 1.0 - to 3.5 yd 3 Load-Haul-Dump (LHDs) machines, which also tram the broken ore to ore passes or remuck stations. Completed stope cuts are backfilled with development waste, which is passed through raises into the stope or trammed into the stope with the LHD units.
Pincock, Allen & Holt | REVISED | 25.3 |
90533 February 26, 2009 |
TABLE 25-1
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
2008 Exploration and Mine Preparation Advances (Lineal
Meters)
Month | Exploration | Mine Preparation | Total Advance |
January | 417 | 137 | 553 |
February | 208 | 139 | 347 |
March | 121 | 324 | 445 |
April | 63 | 264 | 327 |
May | 92 | 448 | 540 |
June | 170 | 521 | 691 |
July | 123 | 644 | 767 |
August | 57 | 675 | 733 |
September | 61 | 665 | 725 |
Totals | 1,312 | 3,817 | 5,128 |
A modification of overhand cut and fill stoping that has been adopted for extraction of some breccia pipes and chimney orebodies is post pillar stoping, which is essentially a room and pillar method, but on multiple horizons. Post-pillar stopes in La Encantada mine are backfilled with waste, and are mined overhand progressing from the sill level to the next level above. Most development ramps for post pillar stoping are developed in waste outside the orebody. All other parameters for stoping the post pillar areas are the same as for a standard mechanized overhand cut and fill stope. A diagram of a typical La Encantada post pillar stope is shown in Figure 25-3.
Stope production is about 11,200 tonnes per month, and there are currently about 15 stopes in production. The monthly mine production for 2008 is shown in Table 25-2.
TABLE 25-2
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Mine Production for 2008 (wet metric tonnes)
Month | Ore from Stopes | Ore from Development | *Total Ore Mined | Average Head Grade |
January | 7,639 | 5,997 | 13,635 | 382 |
February | 11,207 | 2,634 | 13,840 | 344 |
March | 13,282 | 2,661 | 15,942 | 304 |
April | 11,471 | 1,717 | 13,187 | 344 |
May | 13,834 | 2,182 | 16,015 | 302 |
June | 13,110 | 4,374 | 17,483 | 384 |
July | 11,089 | 5,272 | 16,360 | 298 |
August | 9,733 | 4,963 | 14,695 | 314 |
September | 10,373 | 4,795 | 15,167 | 302 |
Totals | 101,734 | 34,591 | 136,326 | 330 |
*Totals will not coincide with totals for process due to moisture content of mine ore, which is normally < 6 percent.
Much of La Encantada mine development and stoping work is done by outside contractors, using company equipment. Mucking and haulage operations are done with company crews, and maintenance and other mine services are also done with company personnel. If the company does not have sufficient personnel to operate the mobile mucking and haulage equipment, the contractors will operate the equipment for extra fees. Ore haulage to the mine patios is done with contractor dump trucks, and ore transfers from the patios to the mill crusher bins are also done with outside contractors using their own trucks.
Pincock, Allen & Holt | REVISED | 25.6 |
90533 February 26, 2009 |
FMS plans to eventually reinitiate extraction of La Prieta and La Escondida abandoned chimneys, which were first mined by caving methods by Peñoles in the early years of the mine operation. The workings for the extraction of both chimneys caved in and were lost, with much waste rock material dumped into the glory-holes which had holed through to the surface. The purpose of the waste rock was to stabilize the areas proximal to the chimneys. Some ground movements have occurred in the form of concentric cracks around the ore boundaries of the chimneys, and since the chimneys are situated very near to both the main production shafts, ground movements could affect the stability of these installations. In fact some cracks in the walls of hoist room of the San Francisco shaft have been noted, apparently as a result of caving of the chimneys. Extraction of remnants left in these chimneys is technically possible, but should be delayed until the two shafts are no longer required for production or service. PAH recommends that FMS commission an updated geotechnical study and evaluation of the old mining areas near the shafts, so that any potential problem will be revealed and mitigation steps taken.
Mine ventilation is through natural air flows into and out of the mine. The maximum intake airflow is about 40,000 ft³/min. (25 m³/sec.), which is actually air flowing into the upper part of the mine through old mine workings. The maximum exhaust air flow is about 88,000 ft³/min. (54 m³/sec.) through the Los Angeles Adit level (1865 level), which is above most of the current active mining levels. From Figure 25-4 it can be appreciated that the air flows in most of the mine are very small. Although aided by using auxiliary axial fans, there is much heat buildup and stagnant air in many of the active mine workings. This problem is compounded by the use of diesel mobile equipment in the mine. The ventilation system requires a substantial up grade, and First Majestic should commission a ventilation study with independent experts, and then proceed to install major fan(s), booster fans and air-flow regulators to conduct much greater volumes of fresh air into the mine. PAH recommends that FMS commission an in-depth study of the ventilation system as a first step toward upgrading it.
A separate mine dump recovery effort continues at the mine site. This operation consists of the excavation and screening of old dump material from the previous operations, and transporting the screened product to the mill ore bins as supplemental mill feed material. The company uses a portable screening plant for the operation and the recovery operation is conducted by a combination of company operators and contractors. This material has been viable if screened to remove coarse waste material, and screened material recovered and processed totaled 42,154 tonnes at an average grade of about 119 gpt Ag during the first nine months of 2008. A summary of the month by month screened dump material recovered and processed during the first nine months of the year is shown in Table 25-3.
The mine currently operates on two 12-hour shifts per day, 7 days per week. Crews currently work two weeks at site with one week off. Both contractor crews and company personnel work the same shift schedule. Most company and contractor personnel live in the town of Muzquiz, Coahuila, which is situated about 210 km on paved highways to the northwest of the La Encantada Mine.
Pincock, Allen & Holt | REVISED | 25.8 |
90533 February 26, 2009 |
TABLE 25-3
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Mine Dump Production for 2008 (dry metric tonnes)
Month | Ore Mined & Milled | Average Grade |
(tonnes) | (gpt Ag) | |
January | - | - |
February | - | - |
March | 3,280 | 155 |
April | 8,229 | 118 |
May | 6,859 | 108 |
June | 3,799 | 159 |
July | 6,270 | 119 |
August | 7,558 | 107 |
September | 6,158 | 101 |
Totals | 42,153 | 119 |
The company is currently transporting many personnel to and from Muzquiz to the mine site in a company bus. Peñoles constructed and maintained about 180 houses, as well as a primary school, stores and recreational facilities in the proximity of the mine site, and FMS has refurbished some of the housing and ancillary facilities to accommodate the workforce in company-controlled living quarters: presently much of the housing is occupied by contractor personnel, who are working on construction of the new 3,500-tpd cyanide plant.
The current mine workforce as of September 30, 2008 totals 490 people including contractors. There are currently 123 contractors on site, who are engaged in the new cyanide plant construction. A summary of personnel at La Encantada as of the end of September is shown in Table 25-4.
The operations budget for the first 9 months of 2008 is for milling of 136,816 tonnes from the mine and 53,734 tonnes from the old mine dumps. The average grades to the mill are budgeted at 345 gpt Ag for the mine and 104 gpt Ag for the dumps. The actual mine tonnes milled through the nine-month period total 136,327 tonnes and actual grades through the first 9 months of 2008 have averaged 352 gpt Ag. The actual mine dump tonnes removed and processed for the first 9 months of 2008 total 42,154 tonnes at an average grade of 119 gpt Ag. A summary of the 2008 mining and milling budgets for both the underground mine and the surface mine dump recovery is found in Table 25-5.
25.3 Mine Equipment
Most of the mine equipment used at La Encantada was inherited from the previous operator; Desmín and Desmín acquired most it from Peñoles. As can be appreciated from the table below, much of the mine mobile equipment fleet is very old, and FMS management has started a program of replacing much of the older equipment in the fleet.
Pincock, Allen & Holt | REVISED | 25.10 |
90533 February 26, 2009 |
TABLE 25-4
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
La Encantada Mine Manpower, Including Contractors (September 30, 2008)
Department & Category | Company |
Mine
Contractors |
Totals | |
Hourly | Staff | |||
SITE ADMINISTRATION
Manager & General Office Safety & Environment Sub-Total |
7 2 9 |
13 2 15 |
|
20 4 24 |
MINE
Miners, helpers, etc. Equipment operators, etc. Supervision, admin. Sub-Totals |
36 36 |
6 6 |
148 5 153 |
148 36 11 195 |
MINE TECHNICAL SUPPORT
Engineering & Planning Geology Sub-Total |
5 2 7 |
1 7 8 |
|
6 9 15 |
MINE DUMP RECOVERY
Dump recovery Supv. & Admin. Sub-Total |
5 5 |
1 1 |
0 |
5 1 6 |
MILL & PROCESS PLANT
Mill & Plant Assay Laboratory New mill plant construction Sub-Total |
36 6 42 |
5 2 4 11 |
123 123 |
41 8 127 176 |
MAINTENANCE
Mine & plant maintenance Supv. & Administration House keeping & construction Sub-Total |
38 38 |
7 7 |
2 27 29 |
38 9 27 74 |
TOTALS | 137 | 48 | 305 | 490 |
In fact the company has a purchase agreement with a major supplier, Sandvik, to acquire new modern mobile mine equipment. In addition to supplying the equipment, Sandvik contractually agrees to maintain it. The 2008 mine capital expenditures program included purchase of mobile equipment units in several sizes, ranging from 1.0 -yd 3 to 3.5 -yd 3 capacity, of primarily diesel-powered LHDs. A summary of La Encantada mine equipment is shown in Table 25-6.
25.4 Mineral Processing Plants
25.4.1 Flotation Plant
Principal parameters of the flotation ore processing plant, including concentrate freight, smelting and refining values, are presented in Table 25-7 and a listing of the principal equipment is shown in Table 25-8. A general flow diagram of the plant is provided in Figure 25-5 and a more detailed flow diagram of the flotation section is provided in Figure 25-6. The plant was constructed in 1973 and at that time incorporated magnetic separation. In 1977 the plant was modified to convert it to flotation separation.
Pincock, Allen & Holt | REVISED | 25.11 |
90533 February 26, 2009 |
TABLE 25-6
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver Mine
Summary of Major Mine Equipment for Encantada Mine
MOBILE EQUIPMENT | ||||
No.of Units | Description of Unit | Make & Model | Size or Other | Date(s) Acquired |
1 | LHD (load-haul-dump) | Wagner Micro-Scoop (Atlas Copco) | ½ yd 3 | 2007 |
2 | LHD (load-haul-dump) | Wagner ST-1A (Atlas Copco) | 1 yd 3 | 1995 |
2 | LHD (load-haul-dump) | Wagner ST-2D (Atlas Copco) | 2yd 3 | Unknown |
2 | LHD (load-haul-dump) | Wagner ST-2D (Atlas Copco) | 2yd 3 | 1989 |
2 | LHD (load-haul-dump) | Wagner ST-2D (Atlas Copco) | 2yd 3 | 1995 & 1996 |
2 | LHD (load-haul-dump) | Wagner ST-2D (Atlas Copco) | 2yd 3 | 1998 |
1 | LHD (load-haul-dump) | Tamrock Toro (Sandvik) | 1yd 3 | 2007 |
1 | LHD (load-haul-dump) | Tamrock Toro (Sandvik) | 1½ yd 3 | 2007 |
1 | LHD (load-haul-dump) | Tamrock Toro (Sandvik) | 2yd 3 | 2007 |
1 | LHD (load-haul-dump) | Tamrock Toro (Sandvik) | 4yd 3 | 2007 |
1 | Mine Truck-Teletram | EJC (Sandvik) | 10 tonnes | 2000 |
1 | Mine Truck-Teletram | EJC (Sandvik) | 13-tonnes | 2007 |
1 | Electro-Hydraulic Drill Jumbo | Tamrock (Sandvik) | Single boom | Unknown |
2 | Diesel Locomotives | Plymouth | 8 tonnes | 1997 |
1 | Front-End Loader | Caterpillar 938-G | 3.0 yd 3 | 2005 |
1 | Front-End Loader | Michigan M-75 | 2½yd 3 | Unknown |
1 | Front-End Loader | Caterpillar 928-G | 2.5yd 3 | 1998 |
1 | Mine Tractor | Ford-New Holland 5610 | NA | 1995 |
1 | Mine Tractor | Ford New Holland 6600 | NA | Unknown |
1 | U/G Road Grader | Huber F-1700 | ? | 1979 |
15 | Rail Mine Cars | Granby-Type | 2.8 M 3 Each | Unknown |
MINE HOISTS | ||||
1 |
Two-Drum Ore Hoist
MARIA ISABEL SHAFT |
Canadian Ingersoll-Rand
Motor - 500 hp, 2200 v, 705 rpm |
72- X 54-in Drums
450 Meters, 11/8-in CABLES |
Unknown
|
1 |
One-Drum Man Hoist
MARIA ISABEL SHAFT |
Vulcan Ironworks
Motor - 125 hp, 440v, 705 rpm |
Drum Size - N.A.
450 Meters, 1¼-in.Cable |
Unknown
|
1 |
Two-Drum Ore Hoist
SAN FRANCISCO SHAFT |
Canadian IngersollL-Rand
Motor - 400 hp, 2300v, 505 rpm |
72-X54-in Drums
450 Meters, 11/8-in Cables |
Unknown
|
MINE STATIONARY AIR COMPRESSORS | ||||
1 |
Air Compressor
|
Ingersoll-Rand
440 hp, Reciprocating, XLE |
2,400 cfm
|
Unknown
|
1 |
Air Compressor
|
Sullair
350 hp, Screw, 25-300L |
1,600 cfm
|
Unknown
|
PNEUMATIC DRILLING EQUIPMENT | ||||
10 | Stoper Rock Drills | Mid-Western Machinery | N.A. | Unknown |
2 | Jackleg Rock Drills | Gardner-Denver, 58F | N.A. | Unknown |
16
|
Jackleg Rock Drills
|
Refacciones Pneumaticas
De San Luis Potosi, S.A. |
N.A.
|
Unknown
|
DIAMOND DRILLING EQUIPMENT | ||||
1 | U/G Diamond-Drill Rig | Diamec Model 250 (Atlas-Copco) | Wireline | Unknown |
OTHER MINE EQUIPMENT | ||||
1 | Mine Ventilation Fan | Spendrup | 350 hp, 3,500 m 3 permin. | Unknown |
2 | Mine Dewatering | Gardner-Denver | Duplex, 30 hp electric motor | Unknown |
2 | Mine Dewatering | Sulzer | 300hp, 23.6 l/sec. | Unknown |
1 | Mine Dewatering | Unknown | 40 hp electric motor | Unknown |
1 | Mine Pickup | GMC, Series 1 GTC C | Diesel pickup | 1995 |
Pincock, Allen & Holt | REVISED | 25.13 |
90533 February 26, 2009 |
TABLE 25-7
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Flotation Plant, Principal Parameters
Parameter | Units | Mine | Dumps | Combined |
Plant Capacity | ||||
Annual | thousand tonnes/year | 300 | ||
Daily | tonnes/day | 800 | ||
Actual Throughput Rate | ||||
Annual | thousand tonnes/year | 180 | 55 | 235 |
Daily | tonnes/day | 500 | 150 | 650 |
Ore Grade | ||||
Silver | grams/tonne | 350 | 120 | 300 |
Lead | percent | 2.5 | 1.5 | 2.3 |
Recovery | ||||
Silver | 60 | 55 | 60 | |
Lead | 25 | 25 | 25 | |
Concentrate Grade | ||||
Silver | grams/tonne | 8,000 | 4,500 | 7,500 |
Lead | percent | 25 | 25 | 25 |
Concentrate Quantity | dry tonnes/year | 5,500 | ||
Primary Grind | percent minus 200 mesh | 55-60 | ||
Plant Operating Cost | $/tonne ore | 6.32 | ||
FSR Values | ||||
Freight cost | $/dry tonne concentrate | 109 | ||
Smelting cost | $/dry tonne concentrate | 505 | ||
Refining cost | $/payable kg silver | 48 | ||
Payables | ||||
Silver | percent | 95 | ||
Lead | percent | 90 |
TABLE 25-8
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Flotation Plant, Principal Equipment List
Item |
Type/Size |
Qty.
Oper. |
Qty.
Instal. |
Coarse ore bin | 100-tonne capacity, stationary grizzly | ||
on top with 12-inch openings | 1 | 1 | |
Primary crusher | Jaw, 24- x 36-inch | 1 | 1 |
Vibrating screens | 6- x 14-ft, 3/8-inch openings | 2 | 2 |
Secondary crusher | Cone, 4-1/4-ft | 1 | 1 |
Crushed ore silos | 500-tonne capacity | 2 | 2 |
Ball mill | 9.5-ft dia. x 11-ft long, overflow | 1 | 1 |
Cyclone feed pumps | 1 | 2 | |
Cyclones | 20-inch dia. | 1 | 2 |
Sulfide flotation cells | Galigher, 100-ft 3 | 12 | 12 |
Oxide flotation cells | Galigher, 100-ft 3 | 10 | 10 |
Tailings thickener | 125-ft dia. | 1 | 1 |
Concentrate thickener | 50-ft dia. | 1 | 1 |
Concentrate filter | Larox pressure filter | 1 | 1 |
Pincock, Allen & Holt | REVISED | 25.14 |
90533 February 26, 2009 |
Ore is from two sources: from the underground mine and from old mine dumps with the mine contributing about 71 percent of the feed while the processing of dump material accounts for the rest. The dump rock is screened ahead of the plant which results in upgrading the rock to about twice the grade of unscreened material. Mine and dump ore are not mixed; they are campaign processed through the plant.
The plant is a simple flotation plant in a single-line arrangement. Crushing is accomplished using two stages of crushing closed on the second stage, and the ore is milled in a single ball mill closed with a cyclone. The mill is rubber lined and is charged with 2-1/2-inch diameter grinding balls. Sulfide minerals and oxide minerals are floated sequentially and both circuits incorporate just one stage of cleaning.
Concentrates from both the sulfide and oxide circuits are combined in a concentrate thickener. Thickened concentrates are filtered on a pressure filter press and the filtered concentrate, which contains about 20 percent moisture, is sun dried on a concrete patio to about 10 percent moisture, then trucked to the Peñoles smelter at Torreón.
Tailings are thickened and then pumped to a nearby tailings containment. Tailings thickener overflow and the decant water from the tailings containment are pumped to a recycle-water tank and reused in the process.
25.4.2 Cyanidation Plant
La Encantada is currently building a 3,500 tonne per day cyanidation plant. The plant is expected to commence operations in the April 2009. Feed to the plant will be reclaimed tailings and the mined ore and waste dump rock currently processed in the existing flotation plant. The crushing and grinding of the mined ore and waste dump rock will continue to be done in existing crushing and grinding equipment. The cyanidation plant will incorporate a mill for mild regrinding of reprocessed tailings.
Principal parameters of the cyanidation plant are presented in Table 25-9 and a listing of the principal equipment is shown in Table 25-10. A general flow diagram of the plant is provided in Figure 25-7 and the layout of the plant is shown in Figure 25-8.
Tailings from the new plant will be pumped to new lined tailings containment in a small valley below the plant. Decant water from the tailings will be pumped back to the plant and reused in the process.
25.5 Infrastructure
The infrastructure for La Encantada was very well developed by the previous operators, especially Peñoles. The operations support facilities, located near the plant, include administrative offices, a medical clinic, warehouse, airstrip, assay laboratory, power generation plant, fuel storage facilities, maintenance shops, mine compressor building, surface maintenance shop, mine dry, water storage tanks, employee hotel and dining hall, contractor offices and security guard shack.
Pincock, Allen & Holt | REVISED | 25.16 |
90533 February 26, 2009 |
TABLE 25-9
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Cyanidation Plant, Principal Parameters (FMS Cash Flow Model)
Parameter |
Units |
Mine &
Dumps |
Tailings
No. 1 |
Tailings
No. 2 |
Combined |
Plant Throughput | |||||
Annual | thousand tonnes/year | 200 | 180 | 620 | 1,000 |
Daily | tonnes/day | 700 | 628 | 2,172 | 3,500 |
Ore Grade, Silver | grams/tonne | 350 | 72 | 168 | 187 |
Silver Recovery | percent | 78 | 52 | 48 | 59 |
Silver Production | |||||
Annual | tonnes/year | 110 | |||
Annual | thousand ounces/year | 3,600 | |||
Particle Size | |||||
Feed | percent minus 200 mesh | ~70 | |||
Product | percent minus 200 mesh | ~85 | |||
Power Consumption | kilowatt-hours/tonne | 4.0-4.5 | |||
Plant Operating Cost | $/tonne ore | 6.60 |
TABLE 25-10
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Cyanidation Plant, Principal Equipment List
Item |
Size |
hp
each |
Qty.
Oper. |
Qty.
Instal. |
Semi-rich solution tank | 11.5-m dia. x 12.6-m high | 1 | 1 | |
Water monitor pumps | 75 | 2 | 3 | |
Water monitors | 2 | 2 | ||
Repulping bins | 2 | 2 | ||
Vibrating screens | 10 | 2 | 2 | |
Slurry mix tanks | 9-m dia. x 10-m high | 60 | 2 | 2 |
Attritioning tanks | 5-m dia. x 2-m high | 100 | 2 | 2 |
Ball mill | 10.5-ft dia. x 14-ft long | 900 | 1 | 1 |
Cyclone feed pumps | 200 | 2 | 2 | |
Cyclones | 20-inch dia. | 4 | 4 | |
Primary thickener | 125-ft dia. x 10-ft high | 13 | 1 | 1 |
Leach tanks | 30-ft dia. x 43-ft high | 60 | 17 | 17 |
Intermediate thickener | 125-ft dia. x 10-ft high | 13 | 1 | 1 |
CCD thickeners | 125-ft dia. x 10-ft high | 13 | 4 | 4 |
Semi-rich solution tank | 12-m dia. x 13-m high | 1 | 1 | |
Dirty pregnant solution tank | 12-m dia. x 13-m high | 1 | 1 | |
Clarifying filters | 2 | 3 | ||
Clean pregnant solution tank | 12-m dia. x 13-m high | 1 | 1 | |
Deoxygenation towers | 2 | 2 | ||
Vacuum pumps | 2 | 2 | ||
Zinc dust feeders | 2 | 2 | ||
Press feed pumps | 2 | 3 | ||
Precipitate filter presses | 4 | 4 | ||
Precipitate dryer | 1 | 1 | ||
Barren solution cistern | 1 | 1 | ||
Emergency pond | 1 | 1 |
Pincock, Allen & Holt | REVISED | 25.18 |
90533 February 26, 2009 |
The Maintenance Department operates from the surface shops, and also from an underground shop (840 level), located near the center of the mine. Road maintenance is done with a fleet of company tractors, road grader and wheel loaders. Dump trucks for ore haulage and road maintenance are largely vehicles contracted locally. The company has a passenger bus for transporting operations personnel to and from the town of Muzquiz, where most employees have homes.
The company also has a town constructed by Peñoles, and which is partially occupied at this time. The town site has 180 housing units of which 80 percent are occupied. There is also a kitchen/dining room for salaried staff and some contractor managers and visitors, a primary school, a church, a store, recreational facilities, etc.
The electric power for the operation and supporting infrastructure is generated on-site. The power generation plant consists of three General Motors 3,250 KVA diesel-powered motor generators. In addition there are two 1,000 KVA CAT D399 motor-generator sets for site power, when the mill and process plant are idle. Power consumption is presently about 800,000 kilowatt-hours per month. The new cyanide leach plant will have its own generating plant.
Potable water for the offices and employee housing is derived from a well in the mine, which penetrates below the water table. The industrial water for the mine and plant is obtained from a series of wells located about 25 kilometers from the site. A system diagram for the industrial water is shown in Figure 25-9. This water is pumped to and stored in a number of storage tanks located throughout the plant and mine site.
Communications to and from La Encantada is via satellites, both for wireless internet information systems, and also for the telephone system. Currently the telephone system has two lines. La Encantada has a site radio system for instant communications between all Supervisors and Managers, and all surface vehicle operators also have radio communication capabilities.
There is a FMS owned airstrip located in the broad valley to the northwest of the mine site. This strip is suitable for light planes, and is used for flying in supplies, or for transporting mine personnel, visitors and others into and out of La Encantada, and other nearby locations. The airstrip is 1,200 meters long, 17 meters wide, and has a gravel surface.
The site is connected with the national highway system and, although in a remote location, La Encantada is reasonably accessible. The access to the mine from the town of Muzquiz, Coahuila, which lies to the northeast of La Encantada, accessible via a 45 kilometers of gravel road, and then another 170 kilometers on a paved highway to Muzquiz.
Pincock, Allen & Holt | REVISED | 25.21 |
90533 February 26, 2009 |
25.6 Product Marketing
FMS has a purchase agreement with MET-MEX Peñoles located in the city of Torreón, State of Coahuila, México. The purchase agreement establishes the obligation to sell all mineral production from La Encantada mine to the Peñoles smelter assuming other more competitive rates are not available to FMS. This, however, is the natural market for concentrates since the MET-MEX Peñoles smelter is the closest such facility for shipping La Encantada concentrates. The contract between La Encantada and Peñoles for sales of bulk flotation concentrate is typical for this product.
La Encantada purchase contract of concentrates with Peñoles includes typical conditions and related charges as follows:
25.7 Environmental Safety Review
Minera La Encantada has been operating the La Encantada mine since the early 1970s with the necessary land-use and water extraction permits in effect for the operation. FMS has purchase the land surface rights, under expropriation procedures from Ejido Tenochtitlán, where the camp, water wells, mine and plant installations are located to better manage the property. Through the years and changes in the regulatory framework, La Encantada has been required to update the necessary operation permits.
In April 24, 2007 La Encantada presented a notification of reactivation of operations at the mine to the National Water Commission (C.N.A.), to SEMARNAT, to Secretaría del Trabajo y Previsión Social, and to PROFEPA. La Encantada mine was declared in suspension of activities by Peñoles in 2003.
PAHs environmental and safety review consisted of discussions with FMS COO Ing. Ramón Dávila Flores, and mine manager and supervisors, Ing. Salvador Hernández, Manager of Operations and other personnel. PAH visited the site to observe the current site safety and environmental conditions and to identify any potential liabilities having significant economic impacts, and a briefly reviewed file records provided to PAH during the site visit. PAHs assessment was not intended as an environmental and safety compliance audit, although prudent practices were considered in the review. In PAHs opinion, La Encantada is in compliance with regulatory requirements, which are current accoprding to Legal Opinion issued by Durango-based Legal Firm of Lic. Carlos Galván Pastoriza issued on October 31, 2008, and document on Environmental and Operating Permits issued by Mr. José Luis Hernández Santibañez, Corporate Manager on Environmental and Permitting for FMS, in a document issued on October 31, 2008 showing current status and confirmation of the required permits and authorizations.
Pincock, Allen & Holt | REVISED | 25.23 |
90533 February 26, 2009 |
In general, surface disturbance related to mining is limited to the access road to the mining levels, waste rock dumps at each portal, and auxiliary support areas. Development waste rock is used for fill inside the mine and limits the size of waste rock dumps at the surface. Most of these activities are carried out on land owned by La Encantada. No acid rock drainage (ARD) is produced from the mine workings.
PAH noted no visible evidence of ARD on the active and historic tailings deposition areas or spent heap leach pile. The surface of the active tailings impoundment is wetted, which controls fugitive dust emissions.
The grinding area, agitated leach tanks, wash thickeners, cyanide mix tank, and several other process vessels in the mill area have spill containment. There are minimal stormwater control measures to route uncontaminated runoff away from the mill or to collect and contain stormwater runoff from around the mill site.
La Encantada has good control of the storage of hazardous chemicals and lubricants at the mill site and has installed concrete pads and fenced areas for drums.
Although Mexican environmental legislation is not explicit in the requirements for remediation, reclamation, and closure, the SEMARNAP expresses concern for the preservation and restoration of the environment and natural ecosystems in its environmental management guidance for industry. In fact, SEMARNAP recommends that facilities establish and implement a program for remediation of spills and releases to the environment.
La Encantada has not supplied to PAH the estimated costs for reclamation and mine closure of the mine or mill and tailings containment areas; however, PAH considers the costs will be low because La Encantada owns most of the surface rights where the installations and mine are located.
PAHs estimate for the costs required to comply with and remediate the environmental issues for the project is approximately $150,000 in addition to the salvage value of plant and mine equipment. These costs are based on PAHs experience in mining projects in México, and are not the result of detailed analysis. Actual costs will depend on site conditions and impacts from the operation, regulatory requirements at the time of compliance, and corporate environmental management standards.
25.8 Economic Analysis
25.8.1 Capital Costs
The FMS capital expenditures for January to September 2008 total $11.82 million. The 5-year capital budget (2009 thru 2013) is $26.1 million including costs for construction of a new 3,500-tpd cyanide plant, existing mill and flotation plant upgrades, power plant upgrades, mine equipment additions and replacements, exploration and mine development programs and infrastructure upgrades and additions. Major capital expenditures in the program registered for the first nine months of 2008 includes expenditures for exploration programs, expenditures for certain mine development, some mine equipment purchases, improvements to the existing process plant and construction of the new 3,500-tpd cyanide process plant. The 2008 actual capital expenditures for the first nine months of 2008 versus the Budget are shown in Table 25-11, and the capital investment schedule for la Encantada five-year plan is shown in the Table 25-12.
Pincock, Allen & Holt | REVISED | 25.24 |
90533 February 26, 2009 |
TABLE 25-11
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
2008 Capital Expenditures
Category | Actual | Plan | Difference |
Mine Development | 3,759,840 | 3,711,875 | (47,965) |
Sandvik (Mining Equipment) | 838,692 | 3,667,092 | 2,828,400 |
3,500-tpd Cyanide Plant Project | 6,998,376 | 13,300,000 | 6,301,624 |
Fixed Assets and Other | 419,279 | 346,560 | (72,719) |
Total | $12,016,187 | $21,025,527 | $9,009,340 |
TABLE 25-12
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Estimated Capital Expenditures Summary (5 years)
2009 | 2010 | 2011 | 2012 | 2013 | TOTALS | |
New 3,500-TPD Cyanide Plant
Sub-Total |
8,212,059
8,212,059 |
|
|
|
|
8,212,059
8,212,059 |
Exploration & Development
Diamond Drilling Development & Exploration Sub-Total |
600,000 2,400,000 3,000,000 |
600,000 2,400,000 3,000,000 |
600,000 2,400,000 3,000,000 |
600,000 2,400,000 3,000,000 |
600,000 2,400,000 3,000,000 |
3,000,000 12,000,000 15,000,000 |
Mine Equipment
Scooptrams Trucks Auxilliary Equipment Compressors Safety Equipment & Mine Rescue Sub-Total |
200,000 75,000 100,000 25,000 400,000 |
200,000 75,000 100,000 25,000 400,000 |
200,000 75,000 100,000 25,000 400,000 |
200,000 75,000 100,000 25,000 400,000 |
200,000 75,000 100,000 25,000 400,000 |
1,000,000 375,000 500,000 125,000 2,000,000 |
Construction & Plant Improvements
Upgrade Flotation Plant Upgrade Power Plant Buildings and Offices Sub-total |
100,000 34,660 134,660 |
100,000 34,660 134,660 |
100,000 34,660 134,660 |
100,000 34,660 134,660 |
100,000 34,660 134,660 |
500,000 173,300 673,300 |
Mining Rights
Annual Payments Sub-Total |
40,000 40,000 |
40,000 40,000 |
40,000 40,000 |
40,000 40,000 |
40,000 40,000 |
200,000 200,000 |
TOTALS | 11,786,719 | 3,574,660 | 3,574,660 | 3,574,660 | 3,574,660 | 26,085,359 |
Pincock, Allen & Holt | REVISED | 25.25 |
90533 February 26, 2009 |
25.8.2 Operating Costs
La Encantada operating costs for the first nine months of 2008 have averaged $51.69 per tonne of ore processed, inclusive of dump material, which equates to a cost per ounce of silver of $9.09. The costs include downstream concentrate freight and processing costs of about $21.54 per tonne milled or $3.35 per ounce of silver recovered. The average combined operating cost for 2008 has averaged about $51.69 per tonne milled. A summary of the combined mine and dump recovery operating costs for the first nine months of 2008 is found in Table 25-13.
TABLE 25-13
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Summary of Unit Operating Costs for 2008, Jan - Sept ($US )
Cost Area |
Total Cost
($000's) |
*Cost per
Tonne |
**Cost per Oz.
Ag |
U/G Mine | 1,912 | 10.71 | 1.67 |
Mill & Concentrator | 1,070 | 6.00 | 0.93 |
Site G&A | 2,401 | 13.45 | 2.09 |
Conc. FSR | 3,844 | 21.54 | 3.35 |
Totals | $9,226 | $51.69 | $8.05 |
*Based on 135,109 tonnes from U/G mine
and 42,153 tonnes from dump recovery or 177,262 tonnes.
**Based on 1,014,813 equivalent oz Ag from U/G mine and 131,406
equivalent oz Ag from dump recovery or 1,146,219 equivalent oz.Ag.
The average mine-only operating cost is $55.01 per tonne, and also includes costs for concentrate freight to the Peñoles smelter and the downstream processing of the silver-lead concentrates. The site-only operating cost for the mine generated ore has averaged about $33.47 per tonne, and the total cost per ounce of silver obtained from mine ore has averaged $4.43 per oz Ag for 2008. The downstream concentrate freight and smelting and refining costs are $21.54 per tonne or $2.85 per oz Ag for the first nine months of 2008. A summary of the mine-only operating costs is shown in Table 25-14.
TABLE 25-14
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Summary of Unit Operating Costs for First 9 Months of 2008; U/G Mine Only
($US)
Cost Area | Total Cost ($000's) | *Cost per Tonne | **Cost per Oz. Ag |
U/G Mine | 1,912 | 14.02 | 1.86 |
Mill & Concentrator | 817 | 6.00 | 0.79 |
Site G&A | 1,834 | 13.45 | 1.78 |
Total Direct Costs | 4,563 | 33.47 | 4.43 |
***Concentrate Freighting, | |||
Smelting & Refining | |||
Freighting | 121 | 0.89 | |
Smelting and Refining | 2,815 | 20.65 | |
Total Conc. FSR | 2,936 | 21.54 | 2.85 |
TOTALS | $7,499 | $55.01 | $7.28 |
*Based on 135,326 tonnes from U/G Mine
*Based on 923,754
oz Ag + 106,378 oz Ag from Pb credit = 1,030,132
***Based on September
2008 concentrate grades & FSR from mine &
smelter
Pincock, Allen & Holt | REVISED | 25.26 |
90533 February 26, 2009 |
The average costs for extraction and processing of the old dump material for the first nine months of 2008 are $40.98 per tonne, or $14.88 per oz Ag produced. The site-only cost for extraction, screening, milling and processing of the old mine dumps is $19.45 per tonne, or $7.06 per ounce. Concentrate freight and downstream smelting and refining for the dump material have averaged an additional $21.54 per tonne of ore extracted.
Table 25-15 is a summary of the operating costs for the first nine months of 2008 for the dump recovery effort.
TABLE 25-15
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada Silver
Mine
Summary of Unit Operating Costs for First 9 months of 2008; Dump
Recovery Only ($US)
Cost Area | Total Cost ($000's) | *Cost per Tonne | **Cost per Oz. Ag |
Dump Recovery | - | 0.00 | 0.00 |
Mill & Concentrator | 253 | 5.99 | 2.18 |
Site G&A | 567 | 13.45 | 4.88 |
Total Site Operating | 820 | 19.44 | 7.06 |
***Concentrate Freighting, | |||
Smelting & Refining | |||
Freighting | 47 | 1.12 | 0.41 |
Smelting and Refining | 861 | 20.42 | 7.41 |
Total Conc. FSR | 908 | 21.54 | 7.82 |
TOTALS | $1,728 | $40.98 | $14.88 |
*Based on 42,153 tonnes milled from dumps
**Based on 91,059
oz. Ag + 25,028 equiv. oz. Ag from Pb credit = 116,087 equiv. oz. Ag from
Dumps
***Based on September
2008 concentrate grades & FSR from dump recovery
The company is currently constructing a 3,500-tpd mill and cyanide processing plant, mainly for reprocessing at least 5.0 million tonnes of old tailings, stored below the mine site. The company developed a cost per tonne, and metallurgical recoveries for recovery of silver-and small amounts of gold from the old tailings material. FMS plan to produce silver/gold precipitates in the plant, and are still evaluating shipping the precipitate to La Parrilla for smelting into bullion bars, or producing their own bullion bars at La Encantada.
First Majestic has estimated the all-in direct operating costs for tailings recovery, reprocessing, ancillary services and downstream costs at about $17.00 per tonne processed. A breakdown of this cost estimate is shown in Table 25-16.
25.8.3 Economic Analysis
A simplified production plan has been prepared by First Majestic, and is presented as Table 25-17 and a Life of Mine cash-flow is shown in Table 25-18. First Majestic has predicated this cash flow on bringing the new 3,500-tpd mill and cyanide plant on stream during April 2009, after which the shipment of flotation concentrates to outside smelters will cease, and mine ore and old tailings will be processed in the new plant. Bullion precipitates will be produced in the new plant and these will be shipped to La Parrilla Mine for processing into bullion bars. The First Majestic Life of Mine production plan, included in the cash flow, covers the period from January 2009 through December 2015. However, the Proven and Probable ore reserves for the underground mine will be exhausted by 2013 at which time the production for the subsequent years will be extracted from the measured and indicated resources. In the interim, it is expected that underground exploration will be advanced through both diamond drilling and drifting, and those reserves will continually be added over time. Likewise at planned production rates, the proven and probable reserve for the tailings recovery will be exhausted by 2014, and subsequently all production will be obtained from the underground mine.
Pincock, Allen & Holt | REVISED | 25.27 |
90533 February 26, 2009 |
TABLE 25-16
First Majestic Silver
Corp.
Minera La Encantada, S.A. de C.V.
La Encantada
Silver Mine
Estimated Operating Costs for Tailings Recovery Project
COST AREA | *Total Cost | Cost per Tonne | **Cost per Oz. Ag |
Mining, Haulage, Other | $3,517,650 | $4.50 | $1.93 |
Mill & Cyanide Plant | 4,299,350 | 5.50 | 2.36 |
Tailings Disposal | 1,250,720 | 1.60 | 0.69 |
Site G&A | 2,657,780 | 3.40 | 1.46 |
Sub-Total Site Operating | $11,725,500 | $15.00 | $6.44 |
Freight, Smelting & Refining (FSR) | |||
Smelting and Refining | 1,563,400 | 2.00 | 0.86 |
Sub-Total FSR | $1,563,400 | $2.00 | $0.86 |
TOTALS | $13,288,900 | $17.00 | $7.30 |
*Based on 0.781 million tonnes per year of tailings
**Based on production of 1.824 million oz. Ag per year
The basic parameters for the FMS cash flow involve the long-term silver price, which is projected as $12/ounce. The average projected long-term gold price is about $708 per oz Au, while the lead price is projected at $0.75/lb. No escalation was considered for operating costs and expenses. Reclamation expenditures are considered spent in the last three years of the period. It can be seen from the table that a net present value for the project at a 15 percent discount rate is approximately $53.0 million, and the internal rate of return (IRR) is 120.6 percent
The parameters for the plant recoveries in the 3,500-tpd mill and cyanidation plant are based on preliminary testwork. Dumps included represent 89,000 tonnes plus 57,000 tonnes of Indicated Resources. Plant operating costs used in the cash flow are calculated costs, and will not be confirmed until several months of actual operation have taken place. Therefore; PAH has predicated cut-off grades for the mine and mine dump recoveries on the basis of the current operation; i.e., continuance of milling and processing operations (Milling and Flotation) as per current practice.
Once the new plant is started up metallurgical parameters and operating and ancillary costs are well defined, First Majestic can revaluate the cut-off grades for the mine, mine dump recovery and tailing recovery based on actual operating data, and issue a new reserve/resources statement. PAH would then proceed with an updated audit, based on the material change in the operation.
Pincock, Allen & Holt | REVISED | 25.28 |
90533 February 26, 2009 |
Pincock, Allen & Holt | REVISED | 25.29 |
90533 February 26, 2009 |
Pincock, Allen & Holt | REVISED | 25.30 |
90533 February 26, 2009 |
Sensitivity analyses were performed at different discount rates and the analysis shows robust economics for La Encantada, as follows:
As expected, the project exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally. In all cases, however, the La Encantada mine shows positive economics as measured by a cash flow exercise, except when the price of silver falls by 20 percent. Therefore, the postulated reserve position is accepted.
It can be seen from Tables 25-17 and 25-18 that there is sufficient after-tax operational cash flow in any year to adequately cover projected capital expenditures.
The mine life, including tailings recovery, based on the proven/probable reserve position, is over 4.0 years and covers production through 2013.
Pincock, Allen & Holt | REVISED | 25.31 |
90533 February 26, 2009 |
26.0
ILLUSTRATIONS
The illustrations supporting the various sections of this report are located within the relevant sections immediately following the references to the illustrations, for ease of reference. An index of tables and illustrations is provided at the beginning of this report.
Pincock, Allen & Holt | REVISED | 26.1 |
90533 February 26, 2009 |
24.0 DATE AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite 950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
llopez@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Parrilla Silver Mine, Durango State, México dated February 16, 2009, (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, an SME Founding Registered Member (#1943910), a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, and other technical subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the La Parrilla Silver Mine, as part of a PAH team to audit the operation in 2006. As part of this study, I visited the project site from May 15 18 and November 13 18, 2007, July 15 - 18 and October 30 November 1, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, reviewing sampling procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
Pincock, Allen & Holt | 24.1 |
90534 February 16, 2009 |
7. |
I am the primary author of the Technical Report. I am responsible for all report sections including those report sections outside of my discipline of geology and resource estimates, which were prepared by other Pincock, Allen & Holt representatives that were qualified in those particular disciplines (mining, metallurgical and processing and economics), which I believe to be reliable work. I have visited the project in May 2007, and November, 2007 and in July and October- November, 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 16 th day of February 2009.
Leonel López
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | 24.2 |
90534 February 16, 2009 |
Richard Addison
165 So. Union Blvd., Suite 950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing., for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Parrilla Silver Mine, Durango State, México dated February 16, 2009, (the Technical Report) that:
1. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
2. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EU. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
3. |
I have worked as a metallurgical engineer for a total of 42 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
4. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
5. |
I am responsible for the preparation of the ore processing and infrastructure paragraphs in Section 3.0, Executive Summary; Section 18, Mineral Processing and Metallurgical Testing; the paragraphs concerning ore processing in Section 21, Interpretation and Conclusions; Section 25.5, Metallurgy and Processing; Section 25.6, Infrastructure; and Section 25.9, Product Marketing. |
6. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
7. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
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90534 February 16, 2009 |
8. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
9. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 16 th day of February 2009.
Richard Addison
______________________________________
Richard Addison,
P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | 24.4 |
90534 February 16, 2009 |
Technical Report for the
La Parrilla Silver Mine,
State of Durango,
México
Prepared for
First Majestic Silver Corp.
February 16,
2009
90534
Prepared by
Pincock, Allen &
Holt
Richard Addison,
P.E.
Leonel López, C.P.G.
1.0 TITLE PAGE
This technical report has been prepared in accordance with the National Instrument 43-101 standards of disclosure for mineral projects (NI 43-101) and the contents herein are organized and in compliance with form 43-101F1 contents of the technical report (43-101F1). This technical report is an update of Technical Reports Amended for the La Parrilla Silver Mine, Durango State, México; which was prepared by Pincock, Allen & Holt, Inc. for First Majestic Silver Corp. dated March 18, 2008 and published in SEDAR in March 19, 2008 and January 25, 2008 and published in SEDAR in January 26, 2008. The first two items are the title page and table of contents that are presented previously in this report and are simply mentioned herein to maintain the specific report outline numbering contained in form 43-101F1 contents of the technical report.
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90534 February 16, 2009 |
2.0 TABLE OF CONTENTS
See discussion in Section 1.
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Pincock, Allen & Holt | ii |
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TABLES
Pincock, Allen & Holt | iii |
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FIGURES
Pincock, Allen & Holt | iv |
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Pincock, Allen & Holt | v |
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3.0 EXECUTIVE SUMMARY
First Majestic Silver Corp. (FMS) retained Pincock, Allen and Holt (PAH) to prepare a Technical Report covering updated results of operations at La Parrilla Silver Mine (La Parrilla) located in the Municipality of Nombre de Dios, Durango State, México. The objective of this Technical Report is to provide FMS with a report that will comply with existing regulations in Canada. This report meets the requirements for NI 43-101 and conforms to form 43-101F1 for technical reports.
La Parrilla mine is owned and operated by First Majestic Plata, S.A. de C.V. (FMPlata) a wholly-owned subsidiary of FMS through its newly created Mexican holding company, Corporación First Majestic, S.A. de C.V. (CFM) which went into effect on August 14, 2007. La Parrilla Silver Mine was previously operated by First Majestic Resources México, S.A. de C.V.
La Parrilla Silver Mine consists of underground silver/lead/zinc mining operations, and cyanidation and flotation ore processing plants. La Parrilla represents a typical Mexican mining district which was discovered in Colonial times (XVI XVII centuries) and only developed from outcroppings by following mineralization on the structures, until high grade ore shoots were discovered and depleted at times of high prices of the metals.
FMPlata owns mining rights that cover 53,249.22 hectares (131,581.20 acres). The duration of the mineral rights concessions is 50 years, renewable over similar time periods.
La Parrilla mine consists of underground mine development that includes drifts, ramps, raises, stopes and other old workings along the S-SE-trending Los Rosarios system. This system consists of a 2-km-long mineralized structure that encloses numerous veins that branch out into veinlets and stockwork zones. The Los Rosarios system comprises La Rosa, Rosarios, La Blanca and San José mines and it intersects the NS-trending San Marcos vein. Other mineralized zones are located within the surrounding skarn zone of a regional diorite intrusive stock. These include Quebradillas, Protectora, San Nicolas, San José, Las Vacas, Santa Paula, etc.
Historical production records, plus surveys of old stopes within the La Parrilla district, suggest that approximately 1.37 million tonnes of silver ores were extracted from these mines at an estimated average grade of 310 g/tonne Ag, 1.9 percent Pb and 1.5 percent Zn. This estimate includes production by Mina Los Rosarios between 1978 and 1991 and FMSs production from 2004 to September 30, 2008. The production amounts to 13.7 million ounces silver, 58.4 million pounds lead and 44.4 million pounds zinc.
FMPlata has developed an on-going aggressive exploration program that includes ramps, drifting and crosscutting into the old working areas of the Los Rosarios system. The exploration budget proposed for the period of 2009 is $5.18M. It includes 97 drill holes totaling 17,200m, geophysical and geochemical surveying, and approximately 5,800m of drifting, crosscutting and ramps development. This program is based on the following premises:
Pincock, Allen & Holt | 3.1 |
90534 February 16, 2009 |
Prepare the La Parrilla operation with sufficient mineral reserves to sustain economic production throughout periods of low metals prices.
Plan and develop systematic production and increase operating capacity.
Recover oxides and sulfides mineralization, consolidating mining blocks, and increasing Reserves to support a reasonable production schedule.
Support exploration activities for development, channel sampling and underground drilling.
Carry out an aggressive exploration program including deep drilling from underground and surface sites.
Focus exploration efforts on regional exploration targets.
PAH has reviewed the La Parrilla mine Reserve update of September 30, 2008, along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several Reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
The La Parrilla mine has estimated mineable Reserves for the following deposits:
The Proven ore category has been projected up to 20 meters from the drift sample data, while the Probable ore category is projected another 20 meters beyond the Proven ore. The total in situ diluted Proven and Probable Reserves at a minimum mining width of 2.00m, as reviewed by PAH, is 0.50 million tonnes of oxides and sulfides averaging 295 grams per tonne silver, 1.40 percent lead and 1.01 percent zinc, for a total of 4.8 million contained ounces of silver only; or 5.2 million ounces of silver equivalent with gold and lead credits.
Resource calculations by FMPlata at La Parrilla are based on projections of the mineralized zones in the underground mine workings, 20m beyond the areas of Reserves for the Measured Resources, and another 20m beyond the boundaries of the Measured Resources for the blocks of Indicated Resources. Inferred Resources are estimated by projecting up to 50m beyond the Indicated Resource block boundaries along mineralized structures, and another 20m beyond the blocks width. La Parrilla mineral resource estimates were applied mostly to diamond drilling intercepts, as well as to some adjacent blocks from the estimated reserves. The grade for these blocks is determined from the grade estimated for the
Pincock, Allen & Holt | 3.2 |
90534 February 16, 2009 |
drill hole intercepted grade and from the adjacent Reserve blocks, and sampling in mine workings and drill holes located within the block area.
The Measured and Indicated silver Resources, including oxides and sulfides mineralization, consist of 3.1 million tonnes averaging 255 grams per tonne silver, for a total content of 30.7 million ounces of silver equivalent inclusive of gold credit for oxides and lead and zinc credit for sulfides. The resources grade has been estimated in situ above cutoff grade, and the silver equivalent content is inclusive of gold credit in oxides, at 6 g/tonne Ag, and inclusive of lead and zinc credit for sulfides, at 47 g/tonne Ag and 30 g/tonne respectively, for sulfides. This estimate is based on sales and on the following prices: Ag - $12.00/oz, Au - $708/oz, Pb - $0.75/lb and Zn $0.75/lb.
Table 3-1 presents a summary of the La Parrilla Proven and Probable Reserves and Measured and Indicated Resources, in addition to Inferred Resources at the bottom of the table. These Reserves and Resources are exclusive of each other category. Figure 3-1 shows the Los Rosarios system Reserve/Resource Blocks.
PAH has excluded the zinc mineralization from the Reserve Base. However, zinc may represent a significant value for the La Parrilla operation at better market conditions with higher prices and possibly lower smelter charges. In the current resource grade estimates, the zinc has been considered as part of the blocks grade, and estimated at a 70 percent metallurgical recovery included in the value for silver equivalent calculation.
PAH notes that these Resources are in addition to the previously reported Reserves.
Additional geologic potential exists within the area of La Parrilla to investigate targets that may result in significant resource development for the mining operation. Direct exploration of geophysical anomalies may result in significant target zones for further exploration. FMS has determined anomalous areas of interest for further exploration investigations, which may represent concentrations of sulfides or other conductive minerals.
Other areas representing interesting geologic potential within the FMPlata holdings are the following:
Pincock, Allen & Holt | 3.3 |
90534 February 16, 2009 |
TABLE
3-1
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A. de
C.V.
La
Parrilla
Silver Mine
Mineral
Reserves
and
Resources
Prepared
by
FMPlata,
Reviewed
by PAH as of
September
30, 2008
(1) Estimates by First Majestic Plata, reviewed
by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery
included.
(2) Silver equivalent based on sales. Prices used for evaluation:
Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb.
(3) Oxides Ag equivalent includes gold credit based on FMPlata
sales. Au Credit = 6 g/tonne Ag.
(4) Sulfides Ag equivalent includes Pb credit = 47 g/tonne Ag.
Zinc is considered at 70% met. recovery = 30 g/tonne Ag.
(5) Cut Off Grade estimated as 184 g/tonne Ag net of Au credit
in oxide ores; and 246 g/tonne Ag net of Pb credit in sulfide ores. Zinc not
considered in COG estimates.
(6) Preliminary Quebradillas Block Model estimate at COG>50
g/tonne Ag.
(7) Reserves and resources in this report are exclusive of each
other.
(8) Rounded figures.
Pincock, Allen & Holt | 3.4 |
90534 February 16, 2009 |
Additional Inferred Resources have been projected in Rosarios, Quebradillas, and San Marcos zones.
FMS operates three mines in La Parrilla area. The Rosa/Rosario and La Blanca, the San Marcos, and Quebradillas operations, all are separate mines within an area of about 10 km 2 . The production from the mines during 2008 has been about 143,838 tonnes at an average grade of 213 g/tonne Ag. This production includes about 24,000 tonnes of ore extracted from development workings. Oxide ore mined was about 82,419 tonnes, while sulfide ore mined was about 61,419 tonnes.
The La Parrilla processing plant has both an oxide recovery circuit and sulfide recovery circuit; therefore both doré metal bars and flotation concentrates are produced. Products are marketed to Met-Mex Peñoles’ smelter and refineries, located in Torreón, Coahuila. The tonnes milled during the first 9 months of 2008 totaled 143,838 tonnes. Silver production for the first 9 months was about 731,259 equivalent ounces of silver. The company’s 5-Year Plans requires improvements in production rates, ore head grades and mill recoveries to achieve about 1.94 million ounces of silver equivalent production per year by the end of 2009.
Mining is semi mechanized with trackless loading and hauling. Some drilling is done with a 2-boom and 1-boom electro-hydraulic drill jumbo, but most development and production drilling is accomplished with hand-held jackleg drills. The principal stoping method for the near-vertical veins of La Parrilla is overhand cut and fill, with backfill mainly obtained from development waste. However, the operators are currently experimenting with long-hole open stoping. Drifting and ramping is all trackless, and at times old drifts and other workings that are used in the modern La Parrilla operations are slashed out to accommodate the trackless equipment. Raising is mainly done conventionally as “bald-headed raises,” but some major raises, ventilation, orepasses, etc, are done with contracted raise boring equipment.
The mines are dry and very little water handling is required. Ventilation is primarily by natural flow, and the operators are in the process of boring exhaust ventilation raises for the mines. Compressed air is provided from surface compressor stations in all three operations.
The ore processing plant at La Parrilla processes both oxide and sulfide silver ore in two separate parallel circuits. The oxide circuit has a process capacity of 420 tonnes per day of which during 2008, an average of 300 tonnes per day of ore from La Parrilla containing 211 grams per tonne of silver and recovers about 65 percent of the contained silver as silver bars. The sulfide circuit has a 420 tonnes per day capacity of which during 2008 an of average of 230 tonnes per day of ore were from La Parrilla containing about 218 grams per tonne silver and 2.0 percent lead and recovers about 65 percent of the silver and about 55 percent of the lead into a concentrate containing about 4.0 kilograms per tonne silver and 28 percent lead.
The plant was extensively expanded and modified in 2006 to allow processing of both oxide and sulfide ore at a rate of 420 tonnes per day each. Metal recoveries are expected to gradually rise to 70 percent, and may, perhaps, improve further as the mineral processed is extracted from other areas of the mine outside of the transition zone. In addition to the plant, the tailing containment area with 10 years of life has been built. Figure 3-2 shows the Ore Processing Plant Layout.
Pincock, Allen & Holt | 3.6 |
90534 February 16, 2009 |
Infrastructure for the operation is well established with adequate roads, buildings and utility systems. Power and water supply systems were expanded in 2006 to mine and process ore at a higher rate than in the past.
PAH is not aware of any environmental liabilities within the La Parrilla mining district. FMS applied for modifications to the previous operating permits (Permiso Unico Ambiental) to accommodate the expansion for the processing plant installations. This was granted on March 23, 2006.
The mine operations are contracted to outside contractors, and surface ore and waste haulage is also contracted. The administration, beneficiation plant and ancillary functions are all accomplished with company personnel. The total personnel on site at the end of September 2008 totaled 509 people of which 458 were outside contractors. The overall efficiencies achieved to date (September 30) in 2008 were about 1.1 tonnes per man-shift, while that for the mine operation only, were about 2.3 tonnes per man-shift.
Site operating costs have averaged about $47 per tonne mined and milled for the nine-month period of 2008. The all-in costs including mining, milling and downstream processing have averaged about $50 per tonne for oxides and $67 per tonne for sulfides. The mining costs were an average of about $18 per tonne, milling costs were about $24 for oxide ores and $21 for sulfide ores per tonne and site G&A costs averaged about $6.30 per tonne. A summary of the 2008 operating costs is shown in Table 3-2.
TABLE 3-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Summary of Operating Costs
Concept Area | Type of Ore | |
Oxides | Sulfides | |
Mine | 18.50 | 17.52 |
Mill | 23.50 | 20.81 |
Site G&A | 6.32 | 6.32 |
Marketing, SR, Freights, etc. | 1.55 | 22.29 |
Total OC for Cutoff | $49.87 | $66.94 |
Capital expenditures are estimated at about $6.8 million in 2008, including $3.2 million for exploration and mine development. Projected capital expenditures budgets decrease to $3.9 million in 2009 and are at about $2.9 million per year for the remaining three years of the 5-Year Plan. The detail of the capital costs is found in Table 3-3.
An economic analysis of the project, at a discount rate of 10 percent, resulted in a net present value of $13.65M with an Internal Rate of Return of 205 percent. These values show La Parrillas current conditions, which are based on mining lower tonnage at lower grades due to mine preparation developments, and lower metallurgical recoveries due to processing ores from the oxides/sulfides transition zone.
Pincock, Allen & Holt | 3.8 |
90534 February 16, 2009 |
TABLE 3-3
First Majestic Silver
Corp
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Projected Capital Expenditures, 2009 through 2013 ($U.S)
AREA | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | TOTALS |
Mine | |||||||
Exploration | 5,103,135 | 600,000 | 600,000 | 600,000 | 600,000 | 600,000 | 8,103,135 |
Mine Development | 3,725,198 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 12,725,198 |
Mine Equipment and Other | 2,372,080 | 525,000 | 525,000 | 530,000 | 530,000 | 530,000 | 5,012,080 |
Sub-total | 11,200,413 | 2,925,000 | 2,925,000 | 2,930,000 | 2,930,000 | 2,930,000 | 25,840,413 |
Plant | |||||||
Equipment & Installations | 980,202 | 980,202 | |||||
Sub-total | 980,202 | 980,202 | |||||
Other G&A, Infrastructure | |||||||
Equipment & Installations | 733,821 | 62,216 | 62,216 | 7216 | 7216 | 7216 | 879,901 |
Grupo Mexico Inc. VAT | 912,233 | 912,233 | |||||
Sub-total | 733,821 | 974,449 | 62,216 | 7216 | 7216 | 7216 | 1,792,134 |
TOTALS | 12,914,436 | 3,899,449 | 2,987,216 | 2,937,216 | 2,937,216 | 2,937,216 | 28,612,749 |
These conditions are also affected by high capital and operating costs generated by equipment acquisitions, an aggressive exploration program and mine preparation investments. In PAHs opinion the La Parrilla mill and process plant will likely reach planned throughput rates in 2009 as shown in Table 3-4.
TABLE 3-4
First Majestic Silver
Corp.
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Economic Analysis Results for 5-year Plan
ECONOMIC EVALUATION |
Discount Rate
(%) |
NPV
($US) |
NPVs |
0%
10% 15% 20% 25% |
19,369,314
13,655,502 11,628,858 9,982,165 8,629,095 |
IRR | 176% |
PAH believes that the La Parrilla Reserve and Resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of Reserves and Resources. PAH believes that the classification of the Reserves and Resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The Reserves and Resources herein reported by FMPlata for the La Parrilla Silver Mine were reviewed by PAH and constitute part of an operation by FMS. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these Reserves and Resources may not be materially affected by issues that could prevent their extraction and processing.
An economic analysis of the La Parrilla operation shows positive economics as measured by a cash flow exercise, and thus the postulated Reserve position is accepted.
Pincock, Allen & Holt | 3.9 |
90534 February 16, 2009 |
4.0 INTRODUCTION
First Majestic Silver Corp. (FMS) retained Pincock, Allen and Holt (PAH) to prepare a Technical Report covering the La Parrilla Silver Mine (La Parrilla) located in the Municipality of Nombre de Dios, Durango State, México. This report is an update of Technical Reports for the La Parrilla Silver Mine, Durango State, México, prepared for First Majestic Silver Corp. dated July 24, 2007, Amended by Pincock, Allen & Holt, Inc., and was published in SEDAR on July 25, 2007, and Technical Report for the La Parrilla Silver Mine, Durango State, México, dated January 25, 2008, and published in SEDAR in January 29, 2008, and Technical Report Amended dated March 18, 2008 and published in SEDAR in March 19, 2008, and they are referred to as Technical Reports herein.
The objective of this Technical Report is to provide FMS with an updated report that will follow existing regulations in Canada. This report meets the requirements for NI 43-101 and conforms to form 43-101F1 for technical reports.
4.1 Qualified Person and Participating Personnel
The principal author of this report is Leonel López, a Certified Professional Geologist (AIPG-C.P.G.-08359), Registered Professional Geologist in the State of Wyoming (PG-2407), a Registered Professional Member of The Society of Mining Engineers (No.1943910) and a PAH Principal Geologist. Mr. López has visited the site during the periods of May 1518 and November 13-18, 2007 to review current status of the property. Another team of PAH professionals visited La Parrilla Silver Mine to review environmental, mine, plant and safety issues during the period of April 1315, 2007. Mr. Lópezs prior visit to La Parrilla Silver Mine was in June 21, 2006 as part of a PAH team of professionals to review the operations. Mr. López and Mr. Richard Addison visited the property during the period of October 30 to November 1, 2008 to review available information on La Parrilla Silver Mine and has assembled the location, tenure, history, environmental considerations, and all aspects of the geology, and reviewed the sampling, data verification, drilling and project resources. Other PAH members collaborated in the review of reserve estimates, mine and processing, operations and operating and capital costs for La Parrilla Silver Mine and operation.
4.2 Terms and Definitions
La Parrilla consists of silver/lead/zinc oxidized and sulfides mineral deposits located in the State of Durango, México. La Parrilla comprises numerous mineralized structures, vein, breccia zones and metasomatic mineral concentrations within the area, including additional geologic potential to discover other projected concentrations along regional and local structures and their projected intersections. Some of the known deposits within the La Parrilla area are the following:
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90534 February 16, 2009 |
In this report:
FMS refers to First Majestic Silver Corp.
CFM refers to Corporación First Majestic, S.A. de C.V. a Mexican holding company wholly owned subsidiary of FMS, which was incorporated on July 31, 2007 and effected corporate restructuring on August 14, 2007 by which CFM now holds all ownership, including all shares of La Encantada, El Pilon and FMPlata. FMS Press Release of November 29, 2007 published on SEDAR site.
FMPlata refers to First Majestic Plata, S.A. de C.V. a wholly owned subsidiary of Corporación First Majestic, S.A. de C.V. It was incorporated on July 31, 2007 to hold the La Parrilla Silver Mine mineral rights, ownership and obligations held through First Majestic Resources México, S.A. de C.V. including all FMRM shares and acquisitions from Industrial Minera México, S.A. de C.V., its subsidiaries and other third parties. All changes were effected on August 14, 2007.
FMRM refers to First Majestic Resources México, S.A. de C.V., a wholly-owned Mexican subsidiary of FMS held under the Mexican holding company CFM, and operator of La Parrilla Silver Mine. FMRM ownership and rights were transferred to FMPlata on August 14, 2007.
PAH refers to Pincock, Allen & Holt, Inc., a Division of Runge, Inc., and its representatives.
Peñoles refers to Industrias Peñoles, S.A. de C.V., MET-MEX Peñoles and Grupo Peñoles.
La Parrilla Silver Mine, La Parrilla mine, La Parrilla district or La Parrilla refers to the operating underground mines, processing plants and infrastructure facilities that form this industrial complex and all the surrounding ground owned by FMPlata.
Mina Los Rosarios, S.A. de C.V. is a Mexican mining company owned by Mr. José Antonio Gámiz Quiñones and Family, former operator of the La Parrilla mine and plant. FMRM acquired the rights to La Parrilla from this company.
Grupo México refers to the corporation that holds ownership of ASARCO, former ASARCO Mexicana, and a group of Mexican Companies, subsidiaries of Industrial Minera México, S.A. de C.V., including Minera Montana, S. de R.L. de C.V., Mexicana del Arco, S.A. de C.V. and Minerales Metálicos del Norte, S.A. de C.V., from which FMRM has purchased mining concessions and properties within La Parrilla area.
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90534 February 16, 2009 |
Resource and Reserve definitions are as set forth in the CIM Definitions Standards dated December 15, 2005.
Resource definitions are as set forth in an appendix to Companion Policy 43-101CP, Canadian Institute of Mining, Metallurgy and Petroleum Definitions Adopted by CIM Council, August 20, 2000.
CFM refers to Comisión de Fomento Minero, a Mexican Federal Entity responsible for support and promoting mining activities, including financing and exploration, mining and processing through contracting by small-scale miners (gambusinos). It was shut down by the Mexican Federal Government. All former CFM activities were transferred to other Federal Institutions as Fideicomiso de Fomento Minero (FIFOMI) and Servicio Geológico Mexicano (SGM).
4.3 Units
All units are carried in metric units, also unless otherwise noted. Grades are described in terms of percent (%) or grams per metric tonne (gptonne or g/tonne), with tonnages stated in metric tonnes. Salable metals are described in terms of tonnes, or troy ounces (precious metals) and percent weight.
Unless otherwise stated, Dollars are US Dollars. The following abbreviations are used in this report:
Abbreviation | Unit or Term |
Al 2 O 3 | Alumina |
ANFO | Ammonium nitrate/fuel oil |
ASTM | American Society for Testing and Materials |
Sb | Antimony |
Ag | Silver |
As | Arsenic |
Au | Gold |
Bi | Bismuth |
Cd | Cadmium |
Co | Cobalt |
Cu | Copper |
In | Indium |
Fe | Iron |
g/tonne (gptonne) | Grams per tonne |
ha | Hectare (10,000 m 2 ) |
kcal | Kilocalories |
kg | Kilograms |
km | Kilometer |
k | Thousands |
Pb | Lead |
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90534 February 16, 2009 |
LOM | Life of Mine |
Mn | Manganese |
Hg | Mercury |
m | Meters |
masl | Meters Above Sea Level |
mm | Millimeters |
M | Million |
Mt | Million Tonnes |
mtpd | Metric tonnes per day |
Mtpy | Million tonnes per year |
NPV | Net Present Value |
Ni | Nickel |
oz | Ounces |
% | Percent by weight |
Patio | refers to yard, court or stocking ground |
Se | Selenium |
SiO | Silica |
Sn | Tin |
T or t | Metric Tonne (2,204 lbs) |
Te | Tellurium |
Ti | Titanium |
tpa | Tonnes per annum |
tpy | Tonnes per year |
tpd | Tonnes per day |
ug | Underground |
WO | Tungsten Oxide |
Zn | Zinc |
$ | United States Dollars |
MX$ | Pesos, New Mexican Pesos |
CA$ | Canadian Dollars |
4.4 Source Documents
The source documents for this report are summarized in Section 22.
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90534 February 16, 2009 |
5.0 RELIANCE ON OTHER EXPERTS
This report was prepared for First Majestic Silver Corp. (FMS) by the independent consulting firm Pincock, Allen & Holt, Inc. (Consultant) and is based in part on information prepared by other parties. PAH has relied primarily on information provided as part of the following reports, investigations and operating results:
• |
Resource and Reserve Estimates by FMS for La Parrilla Silver Mine. Prepared by FMPlata and FMRM staff and reviewed by PAH. September 30, 2008. |
|
• |
Technical Report for the La Parrilla Silver Mine Amended, Durango State, México (Technical Report Amended). Prepared for First Majestic Silver Corp. Prepared by Pincock, Allen & Holt, Inc., March 18, 2008, and published in SEDAR in March 19, 2008. |
|
• |
Technical Report for the La Parrilla Silver Mine Amended, Durango State, México (Technical Report Amended). Prepared for First Majestic Silver Corp. Prepared by Pincock, Allen & Holt, Inc., July 24, 2007, and published in SEDAR on July 25, 2007. |
|
• |
La Parrilla Geologic Report, Durango, México. Prepared by the consulting firm of Exploraciones Geológico-Mineras de Occidente, S.A. de C.V., Ing. Florentino Muñoz Cabral, April 2004. |
|
• |
Legal Opinion First Majestic Plata, S.A. de C.V., a wholly owned subsidiary of Corporación First Majestic, S.A. de C.V. wholly owned subsidiary of First Majestic Silver Corp. Legal Opinion by Durango-based office of legal advisers, by Mr. Carlos Galván Pastoriza, Abogado, prepared on September 30, 2008. |
|
• |
Geological Evaluation of the La Parrilla Property, State of Durango, México. Prepared by: J.N. Helsen, Ph.D., P.Geo. March 27, 2006. |
|
• |
Information provided by FMRM and FMS as owners and operators of La Parrilla mine, including data from January to September 2008. |
|
• |
Information provided by FMS Corporate Manager of Environmental and Permitting, on Permits and Environmental Requirements compliance on behalf of the La Parrilla mining operation. This document of statement and list of permits and requirements was provided to PAH by FMS Corporate Manager of Environmental and Permitting, Mr. José Luis Hernández Santibañez, dated on October 31, 2008. It includes the following: |
|
|
Delegación Federal de la SEMARNAT, Estado de Durango, Unidad de Gestión Ambiental. April 17, 2006. Authorization to change the Licencia Ambiental Unica No. LAU-10/016-2005 dated March 16, 2005 to updated terms due to increment of operating capacity at La Parrilla, registration No. FMR141001611 dated April 17, 2006. |
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90534 February 16, 2009 |
|
Delegación Federal de la SEMARNAT, Estado de Durango, Unidad de Gestión Ambiental on resolution to authorize construction and use of Tailings dam Parrilla II. Document No. SG/130.2.1.1/000897. Dated April 16, 2007. It includes other documents in which FMRM is authorized to change the use of the land, etc. |
||
|
State Manager of CNA (Comisión Nacional del Agua), Estado de Durango. Official notification of Concesión Title No. 03DGO102200/11IMGE06 for the use of water at La Parrilla, dated December 18, 2006. Registration of title rights on October 26, 2006. |
||
|
Delegación Federal de la SEMARNAT, Estado de Durango. Permit as industry that uses and handles dangerous substances, including the use of Sodium Cyanide. Dated June 15, 2006. |
||
|
Delegación Federal Durango, Subdelegación de Gestión para la Protección Ambiental y Recursos Naturales, Unidad de Aprovechamiento y Restauración de Recursos Naturales. Document No. SG/130.2.2./000979. Authorization to change the use of land for the project construction and operation of the La Parrilla II Tailings Dam of the La Parrilla Mining Operation. Dated on Durango city April 27, 2007. |
||
|
Program of Environmental Audit has been presented to SEMARNAT with pending resolution for approval. |
||
|
Permit for the use of explosives. |
||
|
Permit to allow discharge of fluids. |
||
|
Annual Operating Permit. |
||
|
Risk Analysis for the Plant. |
||
|
Program of Accidents Prevention. |
||
|
The following studies have been completed on behalf of the La Parrilla Silver Mine operation: |
||
- |
Dust in surrounding areas, May 2005, August 2007 and July 2008. |
||
- |
Sampling and analysis of tailings for cyanide and arsenic, May 2005 and Jun 2008. |
||
- |
Sampling and analysis of water from domestic water wells, May 2005, July 2007 and June 2008. |
||
- |
Program of Environmental Audit in application since February 2006. |
||
- |
Risks study, February 2006. |
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90534 February 16, 2009 |
- |
Program of Accidents Prevention, February 2006. |
||
- |
Study of noises in the surrounding areas, May 2006 and July 2008. |
||
- |
Study of noises in the working areas, April 2007. |
||
- |
Termic conditions study in working areas, April 2007. |
||
- |
Study of illumination conditions in working areas, April 2007. |
||
- |
Study of the presence of dust in working areas, April 2007. |
||
- |
Study on characterization of soils and tailings, August 2007. |
||
|
PAHs observations during site visits on the periods of June 20-25, 2006; April 13-15, 2007; May 1518, 2007 and November 1318, 2007. |
PAH believes that this information is reliable for use in this report. Environmental review of documents, permits and studies for the La Parrilla Silver Mine were provided to PAH by the FMS Corporate Manager of Environmental and Permitting, Mr. José Hernández Santibañez in document dated October 31, 2008.
This information was also reviewed by FMPlata legal advisers and a legal opinion was provided to PAH by the Durango City-based Lawyers Firm of Mr. Carlos Galván Pastoriza, dated September 30, 2008. Therefore, PAH believes all above described documents and information regarding the property current status, legal title and environmental compliance for the La Parrilla Silver Mine mining metallurgical operation to be accurate and current in legal standing.
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90534 February 16, 2009 |
6.0 PROPERTY DESCRIPTION AND LOCATION
La Parrilla Silver Mine is owned and operated by First Majestic Plata, S.A. de C.V. (FMPlata) a wholly-owned subsidiary of Corporación First Majestic, S.A. de C.V., a Mexican holding company wholly owned by First Majestic Silver Corp. of Vancouver, Canada (FMS).
Additional details of property description and location are presented in Technical Report Amended for La Parrilla Silver Mine of March 18, 2008 and published in SEDAR on March 19, 2008 and in Technical Report Amended of July 24, 2007 and published in SEDAR on July 25, 2007. Figure 6-1 presents a general site map and Figure 6-2 is a general location map.
Location coordinates to approximate center of La Parrilla Silver Mine are as follows:
Geographic | UTM |
North 23º 44 16 | North 2,625,000 |
West 104º 06 26 | East 591,500 |
6.1 Property Description
This Technical Report presents an update of La Parrillas current operating conditions and projections as planned by FMS. La Parrilla property modifications for the period of January to September, 2008 include the following:
The La Parrilla mining rights covered by First Majestic Resources México, S.A. de C.V. a wholly owned subsidiary of FMS have been transferred to the newly founded First Majestic Plata, S.A. de C.V. a corporation owned by the newly created Mexican holding company Corporación First Majestic, S.A. de C.V. which consolidates all shares and ownership of the Mexican operations by First Majestic Silver Corp. of Vancouver, BC.
All the Mining Concessions legal status was provided by legal opinion, dated September 30, 2008 from the Durango City based firm of Mr. Carlos Galván Pastoriza, legal advisers for FMS in México. PAH also requested and received an updated review by legal advisers of the mining concessions current status showing that all mining claims owned by FMPlata are current in meeting the legal obligations and requirements by Mexican Mining and Environmental Laws and Regulations including assessment works, property taxes and operating permits for the period that covers to December 31, 2008. Figure 6-3 is a mining concessions map.
La Parrilla consists of 38 contiguous mining concessions in the La Parrilla mining district that cover mineral rights for 53,249.21 hectares (131,581.20 acres). All these mining concessions hold exploitation rights for 50 years from the date of registration.
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90534 February 16, 2009 |
Table 6-1 presents a list of La Parrilla Silver Mine concessions.
TABLE 6-1
First Majest Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Mining Concessions
No. | Name | Title No. | Surface Ha. | Ownership |
1 | Protectora 2 | 169,302 | 32.3560 | FMPlata |
2 | Extensión Rosa | 169,303 | 6.0000 | FMPlata |
3 | Rosa y Anexas | 169,304 | 4.0000 | FMPlata |
4 | Rosario | 169,305 | 5.3670 | FMPlata |
5 | El Salvador | 169,306 | 1.0000 | FMPlata |
6 | Ampliación Los Rosarios | 169,307 | 4.0000 | FMPlata |
7 | Los Michosos | 169,308 | 15.9673 | FMPlata |
8 | San José | 169,309 | 6.0000 | FMPlata |
9 | San Marcos | 169,310 | 10.0000 | FMPlata |
10 | La Protectora | 169,311 | 83.8767 | FMPlata |
11 | Ampliación del Rosario 2 | 169,312 | 7.5000 | FMPlata |
12 | San Nicolás | 169,313 | 95.4983 | FMPlata |
13 | Los Rosarios | 171,082 | 11.0000 | FMPlata (2) |
14 | La Encarnación | 150,935 | 16.0000 | FMPlata (2) |
15 | San Ignacio Dos | 158,205 | 8.9286 | FMPlata (2) |
16 | Parrilla II | 203,302 | 16.0000 | FMPlata (2) |
17 | Parrilla V | 203,987 | 0.4088 | FMPlata (2) |
18 | El Tecolote | 121,256 | 20.0000 | FMPlata (2) |
19 | Las Vacas | 122,739 | 40.0000 | FMPlata (2) |
20 | La Asunción de Quebradillas | 124,290 | 12.0000 | FMPlata (2) |
21 | El Socorro | 136,808 | 15.3702 | FMPlata (2) |
22 | Parrilla 18 | 210,061 | 9.2208 | FMPlata (2) |
23 | Parrilla 16 | 214,003 | 44.4244 | FMPlata (2) |
24 | Parrilla 19 | 214,557 | 30.0068 | FMPlata (2) |
25 | Parrilla 21 | 216,554 | 26.8962 | FMPlata (2) |
26 | Parrilla 20 | 216,723 | 9.0000 | FMPlata (2) |
27 | Parrilla 22 | 219,888 | 53.9870 | FMPlata (2) |
28 | Parrilla XIV | 198,568 | 33.1581 | FMPlata (2) |
29 | Parrilla Sur | 198,569 | 874.6880 | FMPlata (2) |
30 | Parrilla Norte | 198,570 | 1,742.3879 | FMPlata (2) |
31 | Parrilla III | 204,357 | 32.5267 | FMPlata (2) |
32 | Parrilla VI | 204,358 | 10.0000 | FMPlata (2) |
33 | Parrilla VII | 204,520 | 20.8434 | FMPlata (2) |
34 | Parrilla IV | 211,943 | 38.1396 | FMPlata (2) |
35 | Parrilla 15 | 212,351 | 8.9420 | FMPlata (2) |
36 | La Zacatecana | 217,646 | 88.0107 | FMPlata (2) |
37 | Michis | 230,602 | 31,350.0000 | FMPlata |
38 | La Providencia | 229,493 | 18,465.7120 | FMPlata |
Total Hectares | 53,249.2165 |
(1) All concessions have been transferred to FMPlata
(2) Concessions with provisions to pay royalties
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90534 February 16, 2009 |
6.2 Mineral Tenure
FMS acquisition rights of La Parrilla claims purchased from Grupo México include a Net Smelter Return (NSR) of 1.5 percent royalty payments that may be acquired by FMPlata for a total of US$2,000,000. There are no other encumbrances on La Parrilla mining concessions. FMPlata has recently negotiated a lease on the land where the second tailings dam has being built and is now operating; this includes a yearly payment to the Ejido San José de La Parrilla.
6.3 Environmental
All mining and environmental activities in México are regulated by the Dirección General de Minas and by the SEMARNAP from México City, under the corresponding Laws and Regulations. All minerals below surface rights lie with the State; while surface rights are owned by ejidos (communities) or private individuals, allowing them the right of access and use of their land.
La Parrilla area is located, within the Ejido San José de la Parrilla and also within private property. La Parrilla has made an Agreement for the surface rights from Ejido San José de La Parrilla under the provisions included in the Mexican Mining Law to permit the use of surface rights for development of projects that are of general economic interest, including mining operations.
PAH is not aware of any pending environmental liabilities within the La Parrilla area of operations. A list and statement of all operating permits and their current status was provided to PAH by FMS Corporate Manager of Environmental and Permitting regarding the La Parrilla, dated October 31, 2008. Environmental Permits and Requirements are current.
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90534 February 16, 2009 |
7.0 |
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY |
La Parrilla Silver Mine is located in the south-eastern part of the state of Durango, at about 60km to the southeast from the capital city of Durango. It is located in the municipality of Nombre de Dios, at about 1km to the SE of the village of San José de la Parrilla.
Geographic coordinates for the central part of the La Parrilla area are as follows:
N 2,625,000; E 591,500
La Parrilla district consists of numerous silver/gold/lead/zinc underground mines, Los Rosarios, La Rosa, San José, La Blanca, San Marcos, Las Vacas, Quebradillas, Las Víboras, San Marqueña, Sacramento, Cerro Santiago, Santa Paula and other small workings. FMS has consolidated the district into the La Parrilla Silver Mine operation.
Additional details on Accessibility, Infrastructure, Climate, Vegetation, Physiography, Hydrology and Local Resources are presented in Technical Reports. A project access map is shown in Figure 7-1.
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90534 February 16, 2009 |
8.0 HISTORY
La Parrilla mining district was discovered during the Spanish Colonial Times of the XVI century, when mining activity began in the region. Mining districts that are still in operation within this region include mines at Fresnillo, San Martín, Sombrerete, La Colorada, Cerro del Mercado, and others.
La Parrilla consists of underground silver-gold-lead mines with a processing facility that was originally constructed in 1956. The mine and plant were operated until 1999, when operations were shut down due to low silver prices. In 1960, the mining claims were acquired by Minera Los Rosarios, S.A. de C.V. who operated the mine until 1999. The Comisión de Fomento Minero (CFM), a Mexican Federal Entity responsible for promoting and supporting mining, constructed a 180 tpd flotation plant at La Parrilla, which operated as a custom mill, processing ores from nearby areas, such as Chalchihuites, Sombrerete, Zacatecas, etc. This plant was purchased in 1990 by Minera Los Rosarios from CFM. Subsequently, in 2004, FMS acquired the mining rights and the plant from Minera Los Rosarios and in 2006 successfully negotiated the acquisition of the mineral rights held by Grupo México which surrounded the original La Parrilla mine. Today FMS has consolidated ownership of the plant and all the land surrounding La Parrilla, where numerous mineral occurrences and mineral deposits are being investigated.
Production records by ASARCO and Consejo de Recursos Minerales, plus surveying volumes of old stopes within La Parrilla district, suggest that approximately 1.37 million tonnes of silver ores have been extracted from the various mines that make up this industrial complex at an estimated grade of 310 g/tonne Ag, 1.9 percent Pb and 1.5 percent Zn.
FMSs production from the La Parrilla area (June 2004 to September 2008) amounts to 443,340 tonnes with recovered average grade of 215 g/tonne Ag and 1.05 percent Pb. These are included in total production within the mining district. Table 8-1 summarizes the La Parrilla districts historical production.
TABLE 8-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Historical Mineral Production (*)
Mine | Metric Tonnes | Average Grade | ||
Silver g/tonne | Pb % | Zn % | ||
Los Rosarios | 530,000 | 450 | 2.60 | 2.80 |
San Marcos | 100,000 | 250 | 2.20 | 0.50 |
San José | 50,000 | 125 | 2.00 | 0.80 |
La Rosa | 20,000 | 350 | 2.50 | 2.00 |
Mina Los Rosarios, SA de CV | 231,000 | 235 | 1.89 | 1.74 |
FMPlata production (2) | 443,000 | 215 | 1.05 | - |
Total Estimated Recovered Production | 1,374,000 | 310 | 1.93 | 1.47 |
Total (ounces, lbs, lbs) = | 13,705,219 | 58,416,698 | 44,443,816 |
(*) Data provided by FMS from ASARCO, Consejo de
Recursos Minerales and FMPlata.
(1) reported production by Mina Los Rosarios, S.A. de C.V. (1978
- 1991). Rounded figures.
(2) FMS production from Jun 2004 to Sep 2008, including 16,589
tonnes of reprocessed dumps.
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90534 February 16, 2009 |
FMS has consolidated ownership of the La Parrilla concessions and property under First Majestic Resources, SA de CV and newly renamed (July 31, 2007) the operating company First Majestic Plata, S.A. de C.V. (FMPlata). This operating company is held under FMS's newly created wholly owned Mexican Holding Company, Corporación First Majestic, S.A. de C.V. (CFM). These changes have been incorporated as of August 14, 2007.
FMS resumed operations at La Parrilla in June, 2004, with plans to improve and expand operations. In 2006 FMS initiated construction of a flotation plant within the cyanidation plant facilities, for total production capacity of 800 tonnes per day, including 400 tpd of oxide ore and 400 tpd of sulfide ore. This flexibility allows for a more efficient processing of the ores extracted from the various mines within the La Parrilla land holdings.
FMPlata has been developing an aggressive exploration program in the area to increase the La Parrilla Resources and Reserves. This program included drilling with six surface drilling rigs operating in the area. During the third quarter of 2008 the drilling activity was reduced to four drill rigs and by September 2008 only one drilling machine was left in operation for underground investigations. The recommended drilling program for 2009 includes 97 drill holes with a total depth of 17,200 meters.
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90534 February 16, 2009 |
9.0 GEOLOGICAL SETTING
Please refer to La Parrilla Silver Mine Technical Reports dated July 24, 2007 and March 18, 2008, which were published on July 25, 2007 and March 19, 2008 respectively in SEDAR.
La Parrilla Silver Mine district is located in the border zone between the physiographic provinces of the Sierra Madre Occidental and the Mesa Central, within the sub-province of Sierras y Llanuras de Durango. La Parrilla Silver Mine is located in the northern side of a contact zone between a dioritic intrusive stock and a sequence of Cretaceous sedimentary rocks. Figure 9-1 shows La Parrilla Silver Mine Regional Geologic Map.
To this date, there are no changes to report regarding the La Parrilla geology.
National Instrument 43-101 Standards of Disclosure for Mineral Projects. Form 43-101F1 Technical Report Instructions (5), December 23, 2005.
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90534 February 16, 2009 |
10.0 DEPOSIT TYPES
La Parrilla Silver Mine mineral deposits consist of structurally-controlled mineral concentrations of silver/gold/lead/zinc and other secondary minerals. These occur associated and partly enclosed by the metasomatic zone created by a stock of dioritic composition intruding a sequence of calcareous rocks of Cretaceous age.
The plutonic cycle originated uplifting and intense faulting and fracturing of the pre-existing sedimentary rocks. A broad zone of metasomatic alteration was developed around the outer zone of the intrusive and into the sedimentary rocks, which may reach up to about 2km in the southern part of the outcropping contact zone at the La Parrilla Silver Mine area. Figure 10-1 shows a sketch of a typical skarn deposit.
To this date, there are no changes to report regarding the La Parrilla Silver Mine geology.
For additional details on the deposit types at La Parrilla Silver Mine, please refer to La Parrilla Silver Mine Technical Report Amended dated July 24, 2007, which was prepared by Pincock, Allen & Holt, Inc. for First Majestic Silver Corp. and published on July 25, 2007 in SEDAR.
National Instrument 43-101 Standards of Disclosure for Mineral Projects. Form 43-101F1 Technical Report Instructions (5), December 23, 2005.
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90534 February 16, 2009 |
11.0 MINERALIZATION
Mineralization at La Parrilla Silver Mine is a typical assemblage of metasomatic deposit and hydrothermal vein deposits with a high content of silver. These mineral assemblages have been affected by processes of oxidation and secondary enrichment. They mainly consist of pyrite, sphalerite, galena, some chalcopyrite, argentite and other silver sulfosalts associated with calcite and quartz as gangue minerals. Oxidation and secondary enrichment of these sulfides makes up the mineral concentrations in the upper parts of the deposits, which consists of sulfosalts (ceragyrite, pyrargyrite, stephanite) carbonates (cerussite, hydrozincite, hemimorphite), sulfates (anglesite, willemite), and iron oxides, hematite, limonite, etc. Figure 11-1 Quebradillas mine High Grade oxides mineralization.
Silver mineralization occurs as argentite and native silver. Lead mineralization is present as carbonates (cerussite) and sulfates (anglesite) and other oxides. Figure 11-2 shows High Grade oxides at Quebradillas vein, Stope 538. Figure 11-3 shows exploration drilling at Stope 7564 of La Rosa vein.
The La Parrilla Silver Mine mineralization occurs along a vertical range of about 600m in vertical extension (2,300m to 1,700m above sea level). This extension is known through underground development and drill holes and it is still open to depth. Known longitudinal extensions vary from about 1,200 meters at the Los Rosarios system, 500 meters at the San Marcos vein system, and about 400 meters at the Quebradillas area; however some of these systems may be continuous, such as Los Rosarios System and San Marcos.
FMS has delineated an area of approximately 200m by 200m for possible open pit mining. Preliminary estimates based on 33 drill holes with a total depth of 2,905m has indicated 3.3m tones at an average grade of 100 g/tonne Ag in oxides mineralization. Figure 11-4 shows the Quebradillas outcropping 3D Block Model representation.
To this date, there are no changes to report regarding the La Parrilla Silver Mine mineralization.
For additional details on the deposit types at La Parrilla Silver Mine, please refer to La Parrilla Silver Mine Technical Report Amended dated July 24, 2007, which was prepared by Pincock, Allen & Holt, Inc. for First Majestic Silver Corp. and published on July 25, 2007 in SEDAR.
National Instrument 43-101 Standards of Disclosure for Mineral Projects. Form 43-101F1 Technical Report Instructions (5), December 23, 2005.
Pincock, Allen & Holt | 11.1 |
90534 February 16, 2009 |
12.0 EXPLORATION
12.1 Introduction
La Parrilla Silver Mine represents a typical Mexican mining district which was discovered in Colonial times (XVI XVII centuries) and only developed from outcroppings by following mineralization along the structures, until high grade ore shoots were discovered and depleted at times of high metals prices. Common practice in these districts development was to mine out high grade ores, for the most part, by direct exploration development.
For additional details on the deposit types at La Parrilla Silver Mine, please refer to La Parrilla Silver Mine Technical Report Amended dated July 24, 2007, which was prepared by Pincock, Allen & Holt, Inc. for First Majestic Silver Corp. and published on July 25, 2007 in SEDAR.
FMS through its wholly-owned Mexican subsidiary FMPlata continues development of an aggressive exploration program that includes underground workings, such as ramps of access, drifting and crosscutting into the old working areas of the Los Rosarios System including La Blanca, San Marcos, Quebradillas and Vacas areas. It also includes, for 2009 the completion of investigations for the potential development of the Quebradillas outcroppings area by open pit methods. This program is based on the following premises:
Prepare the La Parrilla Silver Mine operation with sufficient mineral Reserves to sustain economic production throughout periods of low metals prices.
Plan and develop systematic production and increasing operating capacity.
Recover oxides and sulphides mineralization consolidating mining blocks and increasing Reserves to support reasonable production schedule.
Support exploration activities for development, channel sampling and underground drilling.
Carry out an aggressive exploration program including deep drilling from underground and surface sites, and
Focus exploration efforts into regional exploration targets.
FMPlata is focusing exploration efforts on large volume targets while mining small to medium size volume mineral concentrations that were left within blocks and accessible areas along the workings. Part of the efforts during 2008 focused on the probable development of the Quebradillas outcroppings area by open pit methods. Table 12-1 shows the exploration programs at La Parrilla Silver Mine for 2009.
Pincock, Allen & Holt | 12.1 |
90534 February 16, 2009 |
TABLE
12-1
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A. de
C.V.
La
Parrilla
Silver
Mine
Exploration
Program
2009
Exploration Activites |
Objective |
Area |
Unit |
Quantity |
Total Estimated
Cost US$ |
Geophysical Survey IP | Define Areas for Drilling | Cerro Santiago | Km | 15 | 45,000 |
La Cruz | " | 15 | 45,000 | ||
30 | 90,000 | ||||
Geochemical Survey | Define Areas for Drilling | Cerro Santiago | Samples | 250 | 10,000 |
Providencia | " | 250 | 10,000 | ||
La Cruz | " | 100 | 8,000 | ||
Michis | " | 300 | 12,000 | ||
Assays DDH | " | 1,000 | 40,000 | ||
1,900 | 80,000 | ||||
Surface Diamond Drilling | Develop Resources | Quebradillas | 20 Drill holes, m | 3,000 | 300,000 |
Vacas | 4 Drill holes, m | 1,000 | 100,000 | ||
Cerro Santiago | 4 Drill holes, m | 1,000 | 200,000 | ||
Sacramento | 15 Drill holes, m | 5,000 | 500,000 | ||
10,000 | 1,100,000 | ||||
Underground Diamond Drilling | Develop Resources at Depth | La Rosa Rosarios | 2 Drill holes, m | 500 | 50,000 |
Quebradillas | 29 Drill holes, m | 4,200 | 420,000 | ||
San Marcos | 8 Drill holes, m | 500 | 50,000 | ||
La Blanca | 15 Drill holes, m | 2,000 | 200,000 | ||
7,200 | 720,000 | ||||
Underground Development Ramps, Drifts, Crosscuts | Develope Reserves and Resources | Quebradillas-Vacas (ramp) | Meters | 5,800 | 3,190,000 |
Total US$ | 5,180,000 |
Pincock, Allen & Holt | 12.2 |
90534 February 16, 2009 |
12.2 Exploration Programs
FMPlata exploration programs for the La Parrilla district during 2009 are designed to investigate principally two types of targets:
To increase La Parrilla Reserve/Resource base within currently producing areas. These targets include mine workings and drilling for confirmation of blocks and areas in the Los Rosarios System, La Blanca, San Marcos, Quebradillas, Las Vacas, etc.
To investigate geophysical, geochemical and structural targets that may indicate significant concentrations of minerals. These target areas may represent large-volume exploration targets. These areas are generally associated with the contact zone between the regional intrusive stock and sedimentary formations, or with dykes and sills that may indicate favorable zones for mineral concentrations. Geophysical investigations are programmed for the Cerro Santiago and La Cruz areas. Geochemical sampling is scheduled for Cerro Santiago, Providencia, La Cruz, Michis and additional assays of drill core.
Access, prepare and develop old mine workings such as Quebradillas, Las Vacas, San Marcos, etc.
FMPlata has considered a significant budget for investment in exploration at La Parrilla. This budget includes programs of exploration that have already shown positive results by indicating an important Reserve/Resource base for the mine. It appears that, at no other time during the life of the mine, La Parrilla has shown the Reserves and Resources currently estimated by FMPlata. Estimated budget for exploration during 2009 is shown in Table 12-1. Due to current market conditions, at the time of writing this report, this program is presently on hold.
12.2.1 Geophysical Exploration
FMPlata carried out geophysical investigations during the period of April to June, 2007 to confirm previous studies within the areas of Quebradillas, Sacramento, Las Vacas, and Santa Paula (formerly Los Perros). These investigations have confirmed the presence of Induced Polarization and Resistivity anomalies which will be further investigated by direct methods, such as drilling and underground access where possible. Figure 12-1 shows Resistivity Profile of Line Y-900 at Las Vacas area.
The geophysical survey was developed by Geolinsa, a Monterrey city based geophysical company. Methodology and results were described in Report dated August 30, 2007, Informe Técnico Exploración Geofísica en La Parrilla, Durango. This Surrey consisted in measuring electric resistivity and induced polarization (IP). The data was processed by EarthImager 3D Software including topographic information.
Pincock, Allen & Holt | 12.3 |
90534 February 16, 2009 |
The resulting interpretation was presented in plan view to show anomalous zones and projected cross sections indicating electrical resistivity and induced polarization (chargeability) in 2D vertical representation. The survey was completed for the following Areas:
The IP survey was developed by the Dipole Dipole method with readings at 100m along the lines. The topographic survey included location of control points at 50m spacing along the lines.
The geophysical survey resulted in prospective anomalous zones showing high resistivity and high chargeability. Drill sites were recommended to investigate the most outstanding anomalies as indicated above. Figure 12-2 shows Induced Polarization response at Profile Y-900 at the Las Vacas area.
FMPlata has included in 2009 additional exploration programs for IP and Resistivity surveying at the Cerro Santiago and La Cruz areas. Total estimated length of IP surveying is 30km.
12.2.2 Geochemical Exploration
FMPlata exploration program for 2009 includes geochemical investigations to complement exploration investigations by geophysical methods at the Cerro Santiago, Providencia, La Cruz and Michis areas. This program includes about 800 samples to detail, confirm or evaluate some of the geophysically anomalous areas. Additional geochemical sampling has been scheduled to assay about 1,000 representative samples of drill core to investigate probable geochemical signatures. This core sampling is intended to establish a database that may help to make future interpretations of other target zones within the mining district. FMPlata exploration program for La Parrilla during 2009 include geologic mapping and geochemical sampling of the Quebradillas and Víboras areas.
12.3 Drilling
Drilling programs at La Parrilla Silver Mine have been limited by past operations, since the best exploration results may have been obtained through underground development. However, FMPlata has obtained positive results by increasing drilling to define and evaluate new mineralized zones as well as to investigate continuity of ore shoots for development.
FMPlata initiated an aggressive drilling program to explore the various areas of interest within La Parrilla holdings in 2005. The entire program through to September 30, 2008, has consisted of 310 diamond drill holes completed by FMPlata for a total drilled depth of 72,084m at an average depth of 233m per drill
Pincock, Allen & Holt | 12.5 |
90534 February 16, 2009 |
hole. FMPlata completed drilling program was developed to investigate 13 areas within the mining district. Table 12-2 shows completed drilling at La Parrilla Silver Mine by FMS through September 2008.
TABLE 12-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
FMPlata Drilling Programs through September 2008
Area | Drilling | |
No. Drill Holes | Meters | |
La Blanca | 31 | 9,153 |
La Rosa | 36 | 6,668 |
Los Rosarios System | 39 | 11,440 |
Oxidos | 17 | 1,565 |
Quebradillas | 42 | 9,042 |
Tajo Quebradillas | 34 | 2,923 |
San José | 4 | 740 |
San Marcos | 41 | 9,480 |
San Nicolás | 9 | 3,143 |
Las Vacas | 45 | 14,995 |
Santa Paula | 4 | 1,107 |
Sacramento | 6 | 1,315 |
Víboras | 2 | 513 |
Total | 310 | 72,084 |
Average drilled depth | 233 |
FMPlata contracted and operated six drill rigs to carry out the 2008 program that included 24,700m of drilling in the Quebradillas, Vacas, San Marcos, Santa Paula, Cerro Santiago, Sacramento and Michis areas. At the time of PAHs visit, four drill rigs were operating, including one underground. Currently, the La Parrilla Silver Mine drilling program comprises one underground drill rig.
Table 12-3 shows exploration programs completed by FMS at La Parrilla through 2007. In addition to these investigation FMS has completed diamond drilling during 2008 as shown in Table 12-2. Figure 12-3 shows the Vacas area surface expression. Figure 12-4 Underground Drilling at Quebradillas vein.
TABLE 12-3
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Exploration Programs Through 2007
Area | Studies | Drilling | Total | UG Development Workings m | Total | |||
No. Drill Holes | Grupo México m | First Majestic m | m |
Grupo México
m |
First Majestic
m |
m | ||
Rosarios | Geology/Geochemistry | 35 | 13,126 | 13,126 | 5776 | 5,776 | ||
La Rosa | " | 30 | 5,748 | 5,748 | - | |||
Rosarios Oxidos | " | 17 | - | 1,623 | 1,623 | - | ||
San Marcos | " | 38 | - | 8,317 | 8,317 | 1097 | 1,097 | |
La Blanca | 29 | 8,416 | 8,416 | 1153 | 1,153 | |||
Quebradillas | 36 | 8,674 | 8,674 | 2580 | 2,580 | |||
Quebradillas/Vacas/Others (G.M) | 85 | 15,563 | 15,563 | 1,663 | 1,663 | |||
Vacas | IP-1200m - 10 Sec. | 22 | 6,745 | 6,745 | - | |||
Santa Paula | IP-1000m - 4 Sec. | 1 | - | 300 | 300 | - | ||
San Nicolás | IP-1000m - 7 Sec. | 5 | - | 1,364 | 1,364 | - | ||
Sacramento A | IP-2000m - 9 Sec. | - | - | |||||
Sacramento B | IP-1000m - 5 Sec. | - | - | |||||
Parrilla District | Airborne magnetometry | - | - | |||||
Total | 298 | 15,563 | 54,313 | 69,875 | 1,663 | 10,606 | 12,269 |
Pincock, Allen & Holt | 12.7 |
90534 February 16, 2009 |
12.4 Opinion
In PAHs opinion the exploration programs developed by FMPlata within the La Parrilla Silver Mine district have been successful in testing exploration targets, increasing the mines Reserve/Resource base and indicating new targets of exploration within the mining district. FMPlata has assembled an experienced and enthusiastic team of exploration professionals to cover all facets of the exploration requirements. In PAHs opinion FMPlata exploration programs have established a significant Resource/Reserve base for La Parrilla Silver Mine to sustain continued operation during a significant period of time. Table 12-4 presents FMS all drilling at La Parrilla Silver Mine from 2006 to 2008.
Pincock, Allen & Holt | 12.10 |
90534 February 16, 2009 |
13.0 DRILLING
FMPlata has been drilling at La Parrilla Silver Mine since June 2005, shortly after acquisition of the Project took place. FMPlata is currently drilling with one drill rig from underground sites, and has contracted four drill rigs with Cau S.A. de C.V. (Causa). Causa is a Gómez Palacio, Durango, México based drilling company. This program includes drilling from surface and underground sites.
FMPlatas 2009 exploration drilling program, even though it is presently on hold due to market conditions, includes a total of 97 holes planned for a total depth of 17,200m distributed for exploration within the following areas: Quebradillas, Vacas, San Marcos, La Blanca, Cerro Santiago, and Sacramento. This program has been outlined in Table 12-1.
Figure 13-1 shows the La Parrilla general map showing all the areas under exploration within the mining district. Figure 13-2 shows channel sampling at San Marcos Drift 042-N. Figure 13-3 shows channel sampling at La Rosa vein, L-8450.
FMPlatas drill hole database is compiled in electronic format, which contains collar, assay intervals, lithology, and assay information with gold/silver/lead/zinc values. Most of the holes are drilled at an angle to intersect vein or mineralized structures that generally dip at near vertical angles. According to FMPlata, based on geologic interpretations, no apparent deviation has been detected in drill holes. FMPlata has established a surveying procedure which is performed during the drilling due to the fact that most of the holes are now longer than 150 meters. Deviation is defined with one survey reading at the bottom for holes of 150 meters in depth and 2 survey readings for holes longer than 150 meters; one reading at the middle and one reading at the bottom of the hole.
Logging is performed by the project geologist in each of the areas being investigated. The project geologist also determines the sample intervals. Trained assistants are in charge of core splitting and sampling as per the projects geologist indications.
PAH believes that FMPlatas drilling program from surface and underground sites, in combination with underground development, is appropriate and well designed to explore promising targets and ore deposits continuity. Table 13-1 Drilling and mine development for exploration, 2007 2008.
Geologic potential exists to discover additional mineralized zones along the development workings.
In PAHs opinion FMPlatas exploration drilling program is well designed and is justified as an investment as it has consistently developed additional Reserves/Resources for La Parrilla Silver Mine. The estimated budget for the next program anticipated for 2009 is included in Section 22 of this Report - Recommendations.
Pincock, Allen & Holt | 13.1 |
90534 February 16, 2009 |
TABLE 13-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Drilling and Mine Development Programs, 2007 and 2008
Month | Drilling, m | UG Development, m | ||
2007 | 2008 | 2007 | 2008 | |
January | 2,345 | 1,690 | 74 | 336 |
February | 2,884 | 2,478 | 94 | 99 |
March | 1,988 | 2,803 | 189 | 199 |
April | 2,163 | 1,632 | 138 | 174 |
May | 3,029 | 2,197 | 6 | 112 |
June | 2,974 | 2,354 | 144 | 182 |
July | 2,712 | 2,791 | 84 | 152 |
August | 2,733 | 2,490 | 115 | 213 |
September | 2,866 | 1,646 | 113 | 183 |
October | 2,964 | 0 | 114 | |
November | 2,293 | 0 | 176 | |
December | 1,530 | 0 | 239 | |
TOTAL | 30,481 | 20,081 | 1,486 | 1,651 |
Pincock, Allen & Holt | 13.5 |
90534 February 16, 2009 |
14.0 SAMPLING METHOD AND APPROACH
PAH reviewed La Parrilla Silver Mines sampling program for the preparation of this Technical Report. La Parrilla Silver Mines current sampling team consists of three sampling crews with three employees each for underground sampling, one sampler for drill core, and one sampling supervisor. This process is managed by the mine geologists.
14.1 Channel Sampling
Exploration sampling for Reserve delineation at La Parrilla Silver Mine is conducted by drifting along the mineralized zones so that channel samples can be taken. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structures, across the back of the drift and across the drifts and workings, generally from the footwall towards the hanging wall of the mineralized structure. Sampling crews take channel samples at regular intervals of 2m to 3m, typically with several samples along every sampling channel on new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles. Channel samples are taken in consecutive lengths of less than 1.50m along the channel, depending on geologic features. Channel samples are taken with chisel and hammer, collected in a canvas tarp and deposited in numbered bags for transportation to the laboratory.
A channel line typically consists of two or more individual samples taken to reflect changes in geology and/or mineralogy across the structural zone. Each sample weighs approximately 4kg. All channels for sampling are painted by the geologist and numbered on the drifts walls for proper orientation and identification.
The La Parrilla sampling quality control program consists of checking the assays of one duplicate sample for every 20 regular samples from pulp samples. La Parrilla also includes duplicate drill core samples, at a rate of about 1 duplicate for every 40 samples, to confirm the sample preparation and assaying methods.
La Parrilla Silver Mines duplicate samples for this period included 44 samples from drill core samples of exploration areas. Additionally the program included assays of 31 duplicate pulp samples.
All samples are assayed at La Parrilla Silver Mines lab, while duplicate samples are sent to BSI-Inspectorate laboratory a US lab located in Reno, Nevada with representation and sampling preparation facilities in Durango City, México.
14.2 Drill Core Samples
FMPlata exploration drilling is performed by the contractor firm of Causa. This company is based in the city of Gómez Palacio, Durango State, Mexico and at the time of the PAH visit, presently is operating four drilling rigs within the La Parrilla Silver Mine area.
Pincock, Allen & Holt | 14.1 |
90534 February 16, 2009 |
Sampling of the drill core is made after the core has been logged by the mine geologists. The geologist marks the core on the basis of geologic and mineralization features. Then the sampling crew splits the core with diamond saw, as indicated by the geologist and one half of the core is placed in a numbered bag and sent to Inspectorate lab in Durango City. Generally the samples represent core lengths of less than 1.50m. All the core samples are sent for assaying by Inspectorate. The core samples are crushed and pulverized at Inspectorate in Durango City and 250g pulp samples are sent to Reno, Nevada for assaying.
Duplicate core samples are taken by FMPlata crew from the remaining half of the core, by again splitting the core to a one quarter size. Therefore, one quarter of the core still remains in the box for future reference. Duplicate samples are taken at a rate of approximately one duplicate sample from every twenty regular samples. Figure 14-1 shows core samples of the La Blanca Vein, LB-13.
Drill hole data are included in the Resource/Reserve calculations, and are generally applied by La Parrilla Silver Mine in the resource projections. Drilling results are applied in the grade calculations giving more weight to the larger-size channel sample data.
PAH's opinion regarding the channel sampling applied by FMPlata's exploration and mining crews, is that it is done carefully and responsibly by well trained samplers. The sampling appears to reconcile with silver production and sales by FMPlata. The channel samples appear to properly represent the mineralization of the various La Parrilla Silver Mine deposits; therefore, they are acceptable for Resource and Reserve estimates.
Pincock, Allen & Holt | 14.2 |
90534 February 16, 2009 |
15.0 SAMPLE PREPARATION, ANALYSIS AND SECURITY
15.1 Sample Preparation
La Parrilla FMPlatas sample preparation descriptions were presented in previous PAHs Technical Reports as follows: Exploration, mine development, production, and plant samples are sent to FMPlatas on-site laboratory for chemical analysis of silver/gold/lead/zinc and copper. Silver and gold assays are carried out by fire assaying methods, while the rest of the elements are assayed by atomic absorption (AA).
A typical channel sample received by the laboratory, weighing approximately 4 kilograms, is passed through a jaw crusher to reduce it to a 1.3 -centimeter (1/2) size. A 500-gram split is taken and passed through gyratory or disk crushers to reduce it to a 10-mesh (1/8) size. A 200 to 300 gram split is taken and placed in a drying oven at 120 degrees Centigrade. After drying, the material is put into two pulverizers, one disk pulverizer and one ring pulverizer, to grind the rock to minus 100 mesh. The resulting pulp is homogenized and 10 grams taken for fire assay analysis of silver and gold for geology samples and for concentrates; 20 grams are taken for head samples; and 1 gram is required for precipitate samples.
The 10-gram pulps are placed in fusion crucibles and placed into an electric furnace for fusion into lead buttons. The lead buttons are placed in cupellation cupels and placed into an electric furnace for cupellation into a silver-gold bead. The bead is weighed and then put into nitric acid to dissolve away the silver and then the remaining gold bead is weighed again. The microbalance used has a sensitivity of + 1 per 10,000 (equivalent to an actual grade of +0.1 gram per tonne), while the gold beads commonly range in weight from 100 milligrams down to less than 1 milligram. As a result, the determination of the smaller bead weight is at or below the detection limits of the microbalance. Figure 15-1 shows AA unit at La Parrilla Lab. Figure 15-2 shows La Parrilla sample preparation flow chart.
15.2 Laboratory Facilities
PAH notes that the La Parrilla FMPlata laboratories generally appear to be adequate, with reasonable cleaning and organization. The laboratory currently processes about 250 samples by fire assay and by AA per day, including exploration samples, development samples, and mill samples. Laboratory personnel include five sample preparation operators, one Chief Chemist/AA and one Assistant Operator in fire assay and AA, and one person who weigh samples and reports results. La Parrilla Silver Mine supports students under scholarship programs for practicing at the laboratory during the summer months.
The on-site laboratories consist of two separate buildings for sample preparation and for assaying. The assaying facility includes electric equipment, two crushers, one ball mill and electric and LPG fueled furnaces. Solution samples are analyzed with a Perkin Elmer Analyst 400 Atomic Absorption unit.
Pincock, Allen & Holt | 15.1 |
90534 February 16, 2009 |
The La Parrilla lab includes facilities for metallurgical test work. Test work for flotation, cyanidation and gravimetric concentration is done in the lab.
FMPlatas QC procedure consists in sending mine samples and/or pulps to an outside laboratory, usually BSI-Inspectorate Labs in Reno, Nevada. Samples of concentrates are regularly sent to Peñoles for check assays. The laboratory duplicates pulp assays at 1 sample for every 20. FMPlata has established a QC procedure by checking assays. Drill samples are duplicated as one sample for every twenty regular samples. PAH recommends that standard samples and blank samples also be included in the duplicate sampling.
15.3 Check Assaying
To evaluate sample quality control, FMPlata performs periodic check analyses on samples. For the period to September 30, 2008, FMPlata has sent 119 samples to Inspectorate Laboratories, an independent commercial laboratory in Reno, Nevada for duplicate analysis. All core samples are sent to the BSI-Inspectorate lab for assaying; therefore, the assay check was also performed by the same lab. Statistics and correlation were applied to 44 duplicate samples and 31 pulp duplicate samples. Table 15-1 is a list of duplicate core samples for assays check.
Figure 15-3 is a graph that shows the assay check results for silver, lead and zinc from the core samples and comparison of Inspectorate Laboratories assays of regular and duplicate samples, for 44 samples from the period of November, 2007 to September, 2008.
Table 15-2 presents the database for 31 duplicate pulp samples corresponding to V-29 drill hole. These were assayed by the La Parrilla Silver Mine lab and checked by Inspectorate Lab for silver, lead and zinc.
Figure 15-4 shows three graphs representing the assay check results for silver, lead and zinc from the 31 pulp samples and comparison between the Inspectorate Laboratories assays and the La Parrilla Silver Mine lab assays.
No gold assays are performed at the La Parrilla FMPlatas lab. The correlation for silver assays of core samples is excellent at 99 percent while the pulp duplicates correlation is acceptable at 91 percent. The correlation for assays of lead is 97 percent and 81 percent respectively. The correlation for zinc assays is 97 percent for duplicate samples and 40 percent for pulp sample duplicates. The poor correlation for zinc samples is probably due to presence of oxidizes within the mineralization. The range of silver values is from 0 to 1,137 g/tonne, with an average grade of 119 g/tonne, while the range for lead is 0 to 22 percent with an average of 2.44 percent and for zinc is 0 to 19 percent with an average grade of 4.12 percent.
Channel sample checks are performed by analyzing random sample pulps at the La Parrilla lab with assay checking by the SGS de México lab at Durango. The assays include silver, lead and zinc.
Pincock, Allen & Holt | 15.4 |
90534 February 16, 2009 |
TABLE 15-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Duplicate Samples Assays Check to September 30, 2008
La Parrilla Lab | Inspectorate Lab | ||||||
Sample ID | Ag g/tonne | Pb % | Zn % | Sample ID | Ag g/tonne | Pb % | Zn % |
9729 | 373 | 6.49 | 10.30 | 9951 | 342 | 6.48 | 15.60 |
9737 | 25 | 0.45 | 9.98 | 9952 | 30 | 0.58 | 8.27 |
9740 | 171 | 4.83 | 7.07 | 9953 | 210 | 5.54 | 8.12 |
10299 | 535 | 5.04 | 9.75 | 9954 | 516 | 5.05 | 9.41 |
12300 | 0 | 0.00 | 0.00 | 9955 | 3 | 0.05 | 0.06 |
12030 | 0 | 0.01 | 0.17 | 9956 | 0.1 | 0.01 | 0.20 |
15310 | 2 | 0.01 | 0.01 | 9957 | 1 | 0.01 | 0.02 |
12226 | 321 | 8.23 | 8.70 | 9958 | 377 | 6.93 | 9.55 |
12367 | 3 | 0.01 | 0.02 | 9959 | 3 | 0.04 | 0.06 |
12207 | 301 | 7.04 | 11.40 | 9960 | 300 | 6.04 | 15.40 |
12212 | 325 | 9.39 | 10.10 | 9961 | 451 | 10.60 | 10.40 |
12339 | 33 | 0.17 | 4.12 | 9962 | 31 | 0.23 | 4.01 |
12349 | 90 | 0.63 | 19.00 | 9963 | 86 | 0.49 | 17.70 |
16264 | 12 | 0.02 | 0.02 | 9964 | 8 | 0.02 | 0.11 |
8010 | 1 | 0.00 | 0.00 | 9965 | 0 | 0.00 | 0.02 |
12352 | 107 | 0.63 | 8.42 | 9966 | 135 | 0.73 | 14.60 |
15485 | 1 | 0.01 | 0.15 | 9967 | 1 | 0.01 | 0.29 |
15500 | 49 | 0.01 | 2.20 | 9968 | 52 | 0.02 | 2.82 |
8036 | 0 | 0.00 | 0.02 | 9969 | 0 | 0.00 | 0.03 |
16270 | 0 | 0.09 | 0.00 | 9970 | 0 | 0.00 | 0.01 |
16279 | 8 | 0.10 | 0.03 | 9971 | 9 | 0.00 | 0.04 |
16154 | 1 | 0.01 | 0.01 | 9972 | 0 | 0.01 | 0.01 |
15325 | 1 | 0.05 | 0.01 | 9973 | 1 | 0.01 | 0.01 |
15332 | 27 | 0.03 | 0.26 | 9974 | 24 | 0.25 | 0.24 |
15337 | 18 | 0.04 | 0.01 | 9975 | 17 | 0.05 | 0.01 |
15478 | 6 | 0.04 | 0.05 | 9976 | 3 | 0.03 | 0.04 |
8056 | 1137 | 22.00 | 10.90 | 9977 | 1206 | 25.20 | 13.50 |
8067 | 295 | 11.30 | 11.00 | 9978 | 352 | 13.10 | 10.40 |
8076 | 369 | 7.33 | 5.05 | 9979 | 356 | 9.41 | 5.00 |
8080 | 88 | 2.05 | 13.80 | 9980 | 111 | 2.52 | 14.10 |
8235 | 28 | 0.86 | 1.95 | 9981 | 43 | 1.53 | 2.82 |
8380 | 183 | 0.30 | 7.55 | 9982 | 200 | 0.35 | 8.07 |
8390 | 21 | 0.04 | 6.45 | 9983 | 40 | 0.05 | 6.63 |
8400 | 130 | 9.95 | 12.20 | 9984 | 190 | 10.30 | 12.30 |
8410 | 3 | 0.00 | 0.02 | 9985 | 1 | 0.02 | 0.27 |
8420 | 2 | 0.01 | 0.18 | 9986 | 0 | 0.01 | 0.11 |
8430 | 0 | 0.01 | 0.06 | 9987 | 1 | 0.01 | 0.07 |
8440 | 2 | 0.00 | 0.40 | 9988 | 1 | 0.00 | 0.30 |
8450 | 4 | 0.00 | 0.15 | 9989 | 3 | 0.00 | 0.10 |
8467 | 471 | 10.10 | 8.46 | 9990 | 501 | 8.07 | 6.88 |
8660 | 4 | 0.01 | 0.56 | 9991 | 6 | 0.04 | 0.55 |
8670 | 20 | 0.01 | 0.49 | 9992 | 23 | 0.03 | 0.46 |
8680 | 5 | 0.00 | 0.04 | 9993 | 4 | 0.00 | 0.03 |
8690 | 71 | 0.01 | 0.10 | 9994 | 78 | 0.01 | 0.09 |
44 | General Statistics | ||||||
Average | 119 | 2.44 | 4.12 | 130 | 2.59 | 4.52 | |
Maximum | 1137 | 22.00 | 19.00 | 1206 | 25.20 | 17.70 | |
Minimum | 0 | 0.00 | 0.00 | 0 | 0.00 | 0.01 | |
StdDev | 213 | 4.59 | 5.16 | 227 | 5.00 | 5.68 | |
Correlation | 0.99 | 0.99 | 0.97 |
Pincock, Allen & Holt | 15.5 |
90534 February 16, 2009 |
TABLE 15-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Duplicate Pulp Samples Assays Check to September 30, 2008
Sample | Assays | |||||
No. | Ag g/Tonne | Pb % | Zn % | |||
DH - Vacas 27 | Lab Parrilla | Inpectorate | Lab Parrilla | Inpectorate | Lab Parrilla | Inpectorate |
VC-29 8374 | 183 | 3 | 0.55 | 0.01 | 0.33 | 0.33 |
VC-29 8375 | 495 | 543 | 0.69 | 1.19 | 3.28 | 3.40 |
VC-29 8376 | 12 | 13 | 0.10 | 0.17 | 0.35 | 0.35 |
VC-29 8377 | 10 | 8 | 0.04 | 0.01 | 0.17 | 0.17 |
VC-29 8378 | 35 | 32 | 0.03 | 0.03 | 1.36 | 1.36 |
VC-29 8379 | 3 | 4 | 5.23 | 0.01 | 11.90 | 11.90 |
VC-29 8380 | 178 | 183 | 0.41 | 0.30 | 1.22 | 7.55 |
VC-29 8381 | 26 | 37 | 0.03 | 0.07 | 4.42 | 6.85 |
VC-29 8382 | 110 | 3 | 0.21 | 0.01 | 1.90 | 1.10 |
VC-29 8383 | 202 | 201 | 0.18 | 5.10 | 0.28 | 14.30 |
VC-29 8384 | 50 | 66 | 0.07 | 0.07 | 9.65 | 13.50 |
VC-29 8385 | 25 | 8 | 0.02 | 0.02 | 9.61 | 12.80 |
VC-29 8386 | 18 | 12 | 0.02 | 0.03 | 14.32 | 23.00 |
VC-29 8387 | 33 | 32 | 0.02 | 0.05 | 9.95 | 17.00 |
VC-29 8388 | 24 | 3 | 0.00 | 0.00 | 0.86 | 0.86 |
VC-29 8389 | 12 | 10 | 0.04 | 0.00 | 3.16 | 4.65 |
VC-29 8390 | 27 | 21 | 0.01 | 0.04 | 4.68 | 6.45 |
VC-29 8391 | 49 | 42 | 0.03 | 0.01 | 2.15 | 4.05 |
VC-29 8392 | 210 | 197 | 0.51 | 0.67 | 0.83 | 29.50 |
VC-29 8393 | 118 | 99 | 1.07 | 1.01 | 20.20 | 27.50 |
VC-29 8394 | 132 | 127 | 0.96 | 0.74 | 1.32 | 25.00 |
VC-29 8395 | 114 | 113 | 2.18 | 1.47 | 1.52 | 19.50 |
VC-29 8396 | 208 | 175 | 2.13 | 2.60 | 2.31 | 27.50 |
VC-29 8397 | 64 | 88 | 0.04 | 0.05 | 4.88 | 8.70 |
VC-29 8398 | 55 | 9 | 0.16 | 0.02 | 4.31 | 3.30 |
VC-29 8399 | 216 | 179 | 5.65 | 3.80 | 1.08 | 26.00 |
VC-29 8400 | 126 | 130 | 7.60 | 9.95 | 12.48 | 12.20 |
VC-29 8401 | 116 | 132 | 7.15 | 9.45 | 1.43 | 13.60 |
VC-29 8402 | 44 | 117 | 0.65 | 0.27 | 11.85 | 25.50 |
VC-29 8403 | 92 | 118 | 0.54 | 0.74 | 5.18 | 15.10 |
VC-29 8404 | 88 | 98 | 2.19 | 2.20 | 4.24 | 9.05 |
31 | General Statistics | |||||
Average | 99 | 90 | 1.24 | 1.29 | 4.88 | 12.00 |
Maximum | 495 | 543 | 7.60 | 9.95 | 20.20 | 29.50 |
Minimum | 3 | 3 | 0.00 | 0.00 | 0.17 | 0.17 |
StdDev | 100 | 107 | 2.15 | 2.55 | 5.08 | 9.47 |
Correlation | 0.91 | 0.81 | 0.40 |
Pincock, Allen & Holt | 15.6 |
90534 February 16, 2009 |
PAH recommends that a more strict and systematic program of assay checks of the mine samples, including field samples and pulps, be implemented, to correlate assays between the mine and the plant.
PAH suggests the implementation of a strict program of Quality Control of the mined out and processed ores by introduction of blank and standard samples, as well as the insertion of field duplicate samples to keep a close control of the assay results. PAH recommends that a similar program as that for core samples be established, to compare assay results between La Parrilla Silver Mines lab and Inspectorate for channel and production samples.
15.4 Conclusion
Overall, PAH found that the results from the check assaying are reasonable. PAH recommends the inclusion of standard samples to assess analytical precision. In addition, field duplicate samples and blank samples would allow for an assessment of sample preparation procedures.
It is PAHs opinion that the sample methods and analyses are representative of the deposits at La Parrilla Silver Mine, and that most of FMPlatas data was generated by procedures that were carried out according to accepted industry standards using accepted practices.
PAH finds that the exploration, sampling, and laboratory analysis for the La Parrilla Silver Mine operation is being conducted by FMPlata in a reasonable manner, consistent with standard industry practices. PAH would expect the sampling results to be reasonably representative of the mineralization of the deposits, and believes that they may be used with acceptable confidence in the estimation of the mineable Reserves.
Pincock, Allen & Holt | 15.9 |
90534 February 16, 2009 |
16.0 DATA VERIFICATION
PAH has not taken independent samples from the surface or underground exposures of the mineral concentrations at La Parrilla Silver Mine, as other Qualified Persons have previously sampled the mineralization as discussed in this report, and the production records are the most reliable data of mineralization contained in the ore deposits under development at the mine.
FMPlata has established a systematic procedure to verify data and quality control which has proven effective and accurate. Assay data and information generated by the operation is transmitted manually; however, the entire paper trail is accessible and available for inspection.
FMPlata initiated an effective control of the La Parrilla Silver Mine operations since January 2004 when it took control of the mining operation.
La Parrilla Silver Mine maintains an active program of assay checks for the production of concentrates at the mines lab, in addition to a sampling and assaying program by a sales representative in the city of Torreón, Coahuila to check the assays reported by the MET-MEX Peñoles smelter.
Table 16-1 presents a summary of Concentrates and Doré shipments for the month of August, 2008. It includes 9 shipments of concentrates for a total tonnage of 327 tonnes and 4 shipments of La Parrilla Silver Mine Doré with assays reported by FMPlata and by Peñoles laboratories.
Statistical correlation for weight and assays of shipments between the La Parrilla Silver Mine and Peñoles labs is 100 percent for weight and silver assays and 96 percent for lead assays.
Statistical analysis of these results indicates a coefficient of correlation of about 83 percent for the gold in concentrates and 100 percent for the gold in Doré shipments between measurements and assays at La Parrilla FMPlata and Peñoles laboratories.
Table 16-1 shows a list of 9 shipments of concentrates embarked to Met-Mex Peñoles during the month of August, 2008. These concentrates were assayed for gold, silver and lead. Correlation of assay results between the La Parrilla Silver Mine and Peñoles labs is represented at the bottom of the Table 16-1. The coefficient of correlation for silver assays is 100 percent, while for lead is 96 percent. La Parrilla Silver Mine also shipped, during the month of August 2008, 4 loads of Doré to Peñoles resulting in a total weight of 1.218 tonnes containing 3.724 kilograms of silver (39,169 oz) and 1,355 grams of gold (43.5 oz) and assays correlation of about 100 percent.
PAH believes that an adequate amount of checking has been conducted and that the results are representative of the Doré and concentrates produced at La Parrilla Silver Mine and shipped for sales.
PAHs conclusion is that the results from check assaying are reasonable, including appropriate preparation procedures, that the sampling results appear to be reasonably representative of the various deposit
Pincock, Allen & Holt | 16.1 |
90534 February 16, 2009 |
TABLE
16-1
First
Majestic
Silver Corp.
First
Majestic
Plata S.A. de
C.V.
La
Parrilla
Silver Mine
Dore and
Concentrate
Checks
for
August,
2008
Shipments
Concentrates | First Majestic Plata | Met Mes Peñoles S.A. de C.V. | |||||||||||||
Shipment | Date | Weight | Assays | Content | Assays | Content | |||||||||
No | (Tonnes) | Silver | Lead | Gold | Silver | Lead | Gold | Tonnes | Silver | Lead | Gold | Silver | Lead | Gold | |
kg/tonne | % | g/tonne | kg | Tonnes | grams | kg/tonne | % | g/tonne | kg | Tonnes | grams | ||||
137-08 | 02/Aug/08 | 0.30255 | 943.8020 | 1.260 | 285.5473 | 381.2 | 0.302582 | 946.887 | 1.020 | 286.4636 | 308.5830 | ||||
138-08 | 09/Aug/08 | 0.24673 | 928.4460 | 1.081 | 229.0755 | 266.7 | 0.246752 | 937.420 | 1.005 | 231.2634 | 247.9360 | ||||
139-08 | 23/Aug/08 | 0.43697 | 932.5770 | 1.050 | 407.5082 | 458.8 | 0.437051 | 934.830 | 1.177 | 408.5216 | 514.3500 | ||||
140-08 | 23/Aug/08 | 0.23187 | 912.9360 | 1.184 | 211.6825 | 274.5 | 0.231915 | 904.925 | 1.224 | 209.8204 | 283.8030 | ||||
C79-08 | 02/Aug/08 | 32.335 | 4.8600 | 42.600 | 157.147 | 13.7747 | 32.105 | 4.793000 | 47.64 | 153.879265 | 15.2948220 | ||||
C80-08 | 12/Aug/08 | 33.232 | 4.8600 | 42.600 | 161.5100 | 14.1570 | 33.051 | 4.484000 | 45.61 | 148.200684 | 15.0745611 | ||||
C81-08 | 15/Aug/08 | 65.177 | 4.1060 | 46.223 | 267.5890 | 30.1270 | 65.678 | 4.192000 | 47.77 | 275.322176 | 31.3743806 | ||||
C82-08 | 23/Aug/08 | 99.465 | 3.5540 | 38.636 | 353.5130 | 38.4290 | 96.965 | 3.600000 | 36.60 | 349.074000 | 35.4891900 | ||||
C83-08 | 27/Aug/08 | 96.679 | 3.2090 | 29.177 | 310.2410 | 28.2080 | 95.061 | 2.965000 | 28.90 | 281.855865 | 27.4726290 | ||||
-0.174 | |||||||||||||||
Dore | |||||||||||||||
Total | 1.21812 | 3717.761 | 4.575 | 1133.8135 | 1381.2 | 1.2183 | 3724.062 | 4.426 | 1136.069 | 1354.672 | |||||
Average | 0.30453 | 929.44025 | 1.14375 | 0.304575 | 931.0155 | 1.1065 | 284.01725 | ||||||||
Max | 0.43697 | 932.577 | 1.26 | 0.437051 | 946.887 | 1.224 | 408.5216 | ||||||||
Min | 0.23187 | 912.936 | 1.05 | 0.231915 | 904.925 | 1.005 | 209.8204 | ||||||||
Correlation | 1.000 | ||||||||||||||
Concentrate | |||||||||||||||
Total | 326.888 | 20.589 | 199.236 | 1250 | 124.6957 | 322.86 | 20.034 | 206.52 | 1208.33199 | 124.7055827 | |||||
Average | 65.3776 | 4.1178 | 39.8472 | 64.572 | 4.0068 | 41.304 | |||||||||
Max | 99.465 | 4.86 | 46.223 | 96.965 | 4.793 | 47.77 | |||||||||
Min | 32.335 | 3.209 | 29.177 | 32.105 | 2.965 | 28.9 | |||||||||
Correlation | 1.000 | 1.000 | 0.959 | -0.174 |
Pincock, Allen & Holt | 16.2 |
90534 February 16, 2009 |
mineralization and concentrates, and should be usable with acceptable confidence in the estimation of the mineable Reserves, and that the sales of Doré and concentrates are a clear representation of FMPlata production sales.
During PAH's site visit, drilling from underground sites was in progress at Quebradillas and at the La Rosa vein. PAH reviewed cores of the La Rosa, La Blanca and San Marcos veins in previous visits. PAH notes that the core is kept in boxes with clear markings of samples and depth. The core has been split in half and occasionally in one quarter for assaying. The mineralization intercepts are sampled and FMPlata provided copies of the assay certificates. PAH reviewed the original certificates, which are kept at FMPlata's office in the city of Durango. PAH believes that an adequate amount of checking has been performed at La Parrilla Silver Mine and that the results are representative of the mineralization in the various deposits.
Pincock, Allen & Holt | 16.3 |
90534 February 16, 2009 |
17.0 ADJACENT PROPERTIES
No adjacent properties exist within the surrounding areas of La Parrilla Silver Mine. Several mines, including: Quebradillas, La Blanca, Las Vacas, San Nicolás and other mines, are covered by mining concessions owned by FMPlata. Therefore, as reported in previous PAHs Technical Reports, FMPlata has consolidated ownership of the area surrounding the La Parrilla Silver Mine.
FMPlata owns 38 contiguous mining claims within the La Parrilla Silver Mine and surrounding area. The claims provide coverage of 53,249.21 hectares. These claims have been registered at the Dirección General de Minas under FMS Mexican subsidiary FMPlata. According to Legal Opinion by the Durango-based Legal Firm of Carlos Galván Pastoriza issued on September 30, 2008, all of these mining claims are current in legal standing.
No other mines exist nearby the La Parrilla Silver Mine area. Other mining districts located within the La Parrilla Silver Mine region are the following:
The Chalchihuites mining district, partially owned by FMS, is located approximately S50ºE and 50km from the La Parrilla Silver Mines district. The areas within this district owned by FMS include the Perseverancia silver mine and the San Juan silver mine which are part of a project FMS calls the Del Toro Silver Mine.
La Colorada mine, owned and operated by Pan American Silver is located about 70 km S40ºE from La Parrilla Silver Mine, and
The San Martín/Sabinas/Los Tocayos mining district, with mines operated by Grupo México, Peñoles and others near the city of Sombrerete, Zacatecas, is about 60km to the S75ºE from the La Parrilla Silver Mine area.
La Parrilla Silver Mine district and other regional mining districts as shown in Figure 17-1.
Surface rights for installations, waste dumps, tailings, and some of the mines within the La Parrilla Silver Mine area, have been obtained by FMPlata in an Agreement for the use of surface rights with the Ejido of San José de La Parrilla, for 15 years, covering 69 hectares, and also FMPlata purchased an additional 30.5 hectares of surface rights from Grupo México.
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90534 February 16, 2009 |
18.0 MINERAL PROCESSING AND METALLURGICAL TESTING
The ore processed from the La Parrilla mining district consists of two essential types: oxides and sulfides. Oxides are the in-situ oxidation product of the sulfide ore. For both ore types the principal economic component is silver. The ores also contain minor amounts of gold, lead, and zinc. Oxide ores are processed by cyanide leaching to produce Doré metal; sulfide ores are processed by differential flotation to produce a silver-rich lead concentrate.
Metal recoveries are currently low by general industry standards, about 60 percent of the silver in both the cyanide leaching and flotation circuits, and about 55 percent for lead in the flotation circuit. Expectations of higher recoveries of silver in both the leaching and flotation circuits and of lead in the flotation circuit have not been met. The valuable mineral in the sulfide ore is essentially argentiferous galena. It is suspected that part of the gold is present in slightly-auriferous pyrite. The mineralogy of the oxide ore is essentially the oxidation product of the sulfides. It is probable that most of the silver occurs as argentite, but it is likely that some of the silver is present as naumannite (silver selenide) since selenium is found as an impurity in the Doré bars.
Ore processed in the plant up to now has been mostly from the Rosa/Rosario and La Blanca veins with smaller amounts from the San Marcos and Quebradillas veins.
Results of recent metallurgical test work are summarized in Table 18-1. As shown on the table, flotation of Quebradillas ore shows slightly better results than those of the plant operation, but upgrading of the concentrate will result in lowering of the recoveries. Flotation of Vacas ore, which is of high lead and zinc grade, gave good results, indicating the ore does not exhibit intense mineral intergrowth, a problem that sometimes occurs in such ores.
Pincock, Allen & Holt | 18.1 |
90534 February 16, 2009 |
TABLE 18-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Metallurgical Testwork Summary
Vein | Quebradilla | Vacas | |
Ore Type | Sulfide | Sulfide | |
Test Type | Flotation | Flotation | |
Test Date | Units | Sep-08 | Jul-08 |
Feed Grade | |||
Silver | grams/tonne | 200 | 181 |
Lead | percent | 2.13 | 3.44 |
Zinc | percent | 1.28 | 8.51 |
Recovery | |||
Silver | percent | 75.9 | 84.7 |
Lead | percent | 54.0 | 94.3 |
Zinc | percent | 10.1 | 95.6 |
Concentrate Grades | |||
Lead | |||
Silver | grams/tonne | 3,456 | 1,650 |
Lead | percent | 21.3 | 46.1 |
Zinc | percent | 20.3 | 50.5 |
Reagent Consumptions | |||
Cyanide | grams/tonne | ||
Lime | grams/tonne |
Pincock, Allen & Holt | 18.2 |
90534 February 16, 2009 |
19.0 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
La Parrilla Silver Mine uses conventional, manual methods, supported by computer applications and software, to calculate the tonnage and average grades of the mineral Resources and Reserves. FMPlata has initiated the compilation of all data to incorporate it into a database and create a geologic model in SURPAC software which has been acquired by FMS. Preliminary modeling in SURPAC was applied to the Quebradillas outcropping area for projected open pit mining. Currently FMPlata maintains geologic interpretations and mine plans in AutoCAD and databases in Excel spreadsheets. PAH has reviewed FMPlata calculated Resources and Reserves for La Parrilla Silver Mine to assess the current status of the property and to use it as a basis for future updated estimates and reconciliation. This estimate is also the basis for design and evaluation of exploration programs for the mine. This Resource/Reserve calculation has been estimated as of September 30, 2008.
19.1 Introduction
FMPlata initiated exploration activities at the La Parrilla Silver Mine area in July 2005. Diamond drilling and underground development works were focused in exploring the Los Rosarios System. Other than exploration by Grupo México at Quebradillas and Vacas mines, no other significant exploration studies had been carried out at La Parrilla until FMS initiated these investigations. Currently FMPlata is exploring by underground development and drilling at La Blanca, La Rosa, Rosarios, San Marcos, Quebradillas, Las Vacas, San Onofre, and Santa Paula areas. As a result of these exploration efforts, other areas have been located that will be included in future FMPlata programs, such as the probable open pitable area to the East of Quebradillas and geophysical anomalies at Cerro Santiago and La Cruz.
FMPlata initiated exploration programs based on drifting and channel sampling. Old workings and accessible areas within the Los Rosarios system of mines are a primary target for confirmation and further exploration by FMPlata, as well as other promising areas of resources.
Exploration studies by FMS at La Parrilla Silver Mine to September, 2008, adds up to 310 drill holes with a total drilled depth of 72,084m; 274.2km of geophysical surveying (IP/RA), including 46 km carried out by FMPlata during 2007; 36sq km of aeromagnetic investigations; and about 4,100 samples for geochemical research, in addition to 17,540m to September of 2008, of underground development .
Quebradillas mine was acquired by FMPlata from Grupo México and initiated aggressive mine development and drilling to validate those Reserves and Resources. During this period, FMPlata has estimated at Quebradillas about 67,000 tonnes in Reserves in addition to about 489,000 tonnes of ore in Resources. These Reserves and Resources were estimated with drill hole sample assays and underground development, with assays at La Parrilla lab and at Inspectorate lab. Geologic projections of the Quebradillas deposit appear to indicate a significant deposit to be further developed. Current estimates indicate silver content of about 4.2 million ounces of silver within the Quebradillas Reserves and Resources.
Pincock, Allen & Holt | 19.1 |
90534 February 16, 2009 |
19.2 Methodology
La Parrilla Silver Mines actual Reserve and Resource blocks are primarily located in the Los Rosarios system, in the San Marcos and Quebradillas mines. Mineralization at La Parrilla Silver Mine is controlled by regional and local mineralized structures, intrusive stocks, dikes, sills and the metasomatic zone that surrounds the main granodiorite stock.
Regional and local geologic features appear to indicate that the main mineral concentrations are emplaced in the surrounding area to deep granodiorite stocks. These stocks are well defined by magnetic anomalies. Geologic structures are located and oriented around the boundaries of the deep igneous bodies, which probably have originated them during the tectonic events. Breccia zones and intense fracturing of some areas were also originated by the igneous events. Chemically and structurally favorable enclosing rocks allow deposition and replacement of the economic mineralization in the area.
Under this propitious geologic environment, the Resource and Reserve blocks have been defined at the various mineralized structures, veins, veinlets, intersections and stockwork zones at the drift levels along the Los Rosarios system and others mines within the area, where sampling has found economically mineable mineralization.
The Reserve tonnage and grade are based largely on channel samples, while the Resources are largely determined by diamond drilling. Reserve blocks range in length according to variable extensions of the ore shoots along the veins and breccia or mineralized zones; they may reach lengths of up to 200 meters, and are dependant on the ore shoot extensions. The vertical extension of the Reserve and Resource blocks is projected between contiguous drift levels. Vertical extension if generally projected to 30m, but in some cases it may reach 50m. The Los Rosarios system has been developed and partially drilled, in its central portion, along an extension of approximately 1.50km. Within this distance FMPlata has defined four ore shoots. This system includes, from the SE, the La Blanca, Rosarios and La Rosa mines. This central portion of the system comprises the main mining development within La Parrilla Silver Mine, and it also holds the most significant Reserves and Resources known to date.
The San Marcos vein occurs in a general NS strike at the eastern part of the area, and it tends to intercept the Los Rosarios system. The San Marcos mine was developed near the area where this projection may take place. FMPlata is reopening and developing the old mine in a systematic manner with ramps and regular drifting to prepare mine blocks for production, as well as for exploration. An ore shoot of approximately 200m long has been delineated and some Reserves are already accessible for production. An intense drilling program indicates continuity of the mineralization to depth as well as along strike.
Other significant Resources within the area are now under investigation by FMPlata, in the Quebradillas, where an interesting breccia pipe is under investigation and development, San José, Vacas, Las Víboras, Sacramento, Santa Paula, etc.
Pincock, Allen & Holt | 19.2 |
90534 February 16, 2009 |
Geophysical anomalies within the area represent a significant target for exploration since these may indicate geological features that appear appropriate for finding other mineral concentrations. Geochemical sampling may be a useful tool to qualify these anomalies. FMPlata is utilizing all these techniques to investigate the La Parrilla district for satellite mineral deposits within the area.
For Reserve estimation, the cross sectional area of mineralization is drawn on each of the blocks using Auto CAD software and the assayed sample lengths. The volume of mineralization on each section is calculated for the mineralized zone. The Reserve Blocks are projected up and down by a maximum length of 20m in vertical extension, although they may be limited by mine drifts or other workings. Mine dilution is adjusted to a minimum mining width of 2.00m. Proven Reserves are based on channel sampling of contiguous drift levels and accessible raises and other mine works. Probable Reserves are projected at 20m beyond the proven blocks. Measured and Indicated Resources are projected beyond the Probable Reserves, considering geologic features and evidences of mineralization continuity. Resource estimates are projected at 25m from the drill intercepts.
In PAH's opinion the La Parrilla Silver Mine Reserve/Resource Blocks estimation is in accordance to acceptable engineering practices and appropriate for the geologic characteristics of the mineral deposits within the La Parrilla Silver Mine district.
The density factor (specific gravity) is then input into the calculation and tonnage is calculated based on the formula; Length (in meters) X Width (in meters) X Height (in meters) X s.g. = tonnes of material.
The density factor used (2.70) to convert reserve block volumes into tonnes has been determined as a weighted average from ore samples representative of the various deposit areas. The density tests were performed by Mr. Manuel Yañez Escareño, Manager of the La Parrilla lab and by Inspectorate.
PAH believes that on average the density for mineralization is conservative since the results indicate a general average of 2.79. PAH recommends that samples be periodically taken as checks for bulk density determination to ensure the application of an appropriate density factor.
To estimate the average grade and thickness for each Reserve/Resource Block at La Parrilla Silver Mine, composites of all channels and sample grades that occur on either side within the block’s drifts are taken in consideration. The total length of samples in the composite is then divided by the total number of composites, giving the average width of the mineralization in the drift at that section. Similarly, the average silver grade of the samples, weighted by length, gives the average silver grade for the drift at that section.
The tonnes and grade for each Reserve Block are then determined by combining the tonnes and grade results obtained for each section that crosses the block. The Resource Block tonnes and grade are tabulated by FMPlata on a series of spreadsheet summaries.
PAH notes that the sampling conducted across the mineralized zones for use in the Reserve estimate is done with cutoff grade and width considerations, at a minimum mining width of 2.00m. This minimum
Pincock, Allen & Holt | 19.3 |
90534 February 16, 2009 |
width typically includes zones within the structures that are above the cutoff grade, as well as some non economic mineralization below the cutoff grade, in which case FMPlata eliminates these areas when possible.
PAH also notes that in a few local areas, the drift is wholly enclosed by the mineralized structures and, unless there are some additional cross cuts or drilling, the vein width is taken as that measured across the confines of the drift opening. PAH recommends that the true structure widths, measured by cross cuts and/or drill holes, be used as much as possible in the blocks of Reserve and Resource estimation.
The Reserve Blocks estimated by FMPlata are not included within the Resource Blocks.
In PAHs opinion the Reserve and Resource Block estimates carried out by FMPlata at La Parrilla Silver Mine have been reasonably prepared and conform to acceptable engineering standards for reporting of Reserves.
19.3 Cutoff Grade Calculations
For the current reserve, PAH has calculated breakeven cutoff grades for both the extraction and processing of oxide ore as well as extraction and processing of sulfide ore in La Parrilla underground mine operations. PAH calculated reasonable long-term metal prices based on the 3-year rolling averages and recent 2008 price trends. The metal price comparisons are shown in Table 19-1.
TABLE 19-1
First Majestic Silver
Corp.
FM Plata, S.A. de C.V.
La Parrilla Silver
Mine
Comparison of Metal Prices for 43-101 (USD)
Commodity |
First Majestic
Average Prices |
3-Year Rolling
Avergage Prices |
Average
September 2008 |
PAH Prices |
Gold ($/oz.) | $708 | $699 | $829 | $708 |
Silver ($/oz.) | $12.00 | $13.15 | $12.37 | $12.00 |
Lead ($/lb.) | $0.75 | $1.04 | $0.93 | $0.75 |
Zinc ($/lb.) | $0.50 | $1.29 | $1.01 | $0.75 |
The basic parameters applicable to the cutoff grade calculations for the underground mine are shown in Table 19-2.
19.4 Oxide Ore
Equating the parameters from Table 19-2 (oxide ore only), the breakeven cutoff grade for silver (C Ag ),based solely on silver for total operating costs and process recoveries is as follows:
CM Ag =Total operating costs/ (Silver price X mill recovery X refinery payable metal)
CM Ag = $49.87 per tonne/($12.00 X 0.684 X 0.995) =6.10 oz Ag per tonne or 190 g Ag/t.
Pincock, Allen & Holt | 19.4 |
90534 February 16, 2009 |
TABLE 19-2
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla
Silver Mine
Cutoff Grade Parameters for Oxide Ore
CONCEPTS | COSTS & OTHER |
Average Total Operating Cost Per Tonne | $49.87 |
COG Silver Only (g/t Ag) | 190 |
COG -Gold Credits (g/t Ag) | 184 |
Silver Recovery in Mill (%) | 62.4% |
Payable Silver from Refinery | 99.5% |
Payable Gold from Refinery | 99.5% |
Silver Price ($/oz.) | $12.00 |
Gold Price (S/oz) | $708 |
Lead Price ($/lb.) | $0.75 |
Zinc Price ($/lb.) | $0.75 |
Monetary Exchange Rate | $11.00 pesos:$1.00 |
82,369 tonnes of oxides processed in first 9 months of 2008.
However, there is a small gold contribution for La Parrilla oxide ores. Production of gold in the Doré from the mine only for the first 9 months of 2008 was 19.15 kilograms. The calculation for gold contribution is as follows:
Revenues from gold (R m ) = Ounces of gold in Doré X payable from refinery X gold price.
R m = 286 oz Au X 0.995 X $708 Rm = $201,475
R m / tonne mined = $201,475 / 82,369 = $2.45
The silver equivalent of gold contribution = $2.45 / $12.00 = 0.20 oz Ag/t or 6 g Ag/t.
The adjusted mine cutoff grade (CM Ag ) is then: 190 g Ag/t Ag - 6 g Ag/t = Ag = 184 g Ag/t .
The basic parameters used for the cutoff grade calculations for the mining and processing of sulfide ore from La Parrilla are shown in Table 19-3.
9.5 Sulfide Ore
Equating the parameters from Table 19-3, the breakeven cutoff grade for mining and processing of the sulfide ore, based solely on silver, for the total operating costs and process recoveries anticipated, is as follows:
CD Ag = Total Operating Costs / (silver price X mill recovery X smelter payable metal) .
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90534 February 16, 2009 |
CD Ag = $66.94/ $12.00 X 0.624 X 0.95) = 9.41 oz Ag/t or 293 g Ag/t.
TABLE 19-3
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla
Silver Mine
Cutoff Grade Parameters for Sulfide Ore
CONCEPTS | COSTS AND OTHER |
Average Operating Cost per Tonne | $66.94 |
COG Silver Only (g/t Ag) | 293 |
COG - Lead Credits (g/t Ag) | 246 |
Silver Recovery in Mill (%) | 62.4% |
Payable Silver from Refinery | 95.0% |
Lead Recovery in Mill (%) | 55.0% |
Payable Lead from Refinery (%) | 88.0% |
Silver Price ($/oz.) | $12.00 |
Lead Price ($/lb.) | $0.75 |
Zinc Price ($/lb.) | $0.75 |
Monetary Exchange Rate | $11.00 pesos: $1.00 |
61,419 tonnes of sulfides processed in first 9 months of 2008.
A lead contribution is obtained from mining and processing sulfide ore at La Parrilla. About 1,767 tonnes of lead in concentrates were produced the first nine months of 2008. The calculation for the lead contribution is as follows:
Revenues for lead (R Pb )= Lbs in concentrates X payable from smelter X lead price.
R Pb = 740.5 tonnes X 2204.6 lbs / t X 0.90 X $0.75
R Pb = $1,101,942
R Pb per tonne of sulfide ore processed = $1,101,942 / 61,419 = $17.94 / t
Ag Equivalent per tonne = R Pb / Ag price = $17.94 / $12.00 = 1.50 oz Ag/t or 47 g Ag/t.
Adjusted Cut-off Grade (CD Ag ) for sulfides = 293 g Ag/t 47 g Ag/t = 246 g Ag/t.
19.6 Reserve Estimates
PAH has reviewed the La Parrilla Silver Mine Reserve update of September 30, 2008, along with factors for mining dilution to a minimum mining width of 2.00m and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several Reserve Blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
Pincock, Allen & Holt | 19.6 |
90534 February 16, 2009 |
FMPlata has estimated mineable Reserves for La Parrilla Silver Mines following deposits:
The total in-situ diluted Proven and Probable Reserves at a minimum mining width of 2.00m, as reviewed by PAH, is 0.50 million tonnes averaging 295 grams per tonne silver, 1.40 percent lead and 1.00 percent zinc, for a total of 4.8 million contained ounces of silver only or 5.2 million ounces of silver equivalent contained with gold and lead credits. As discussed previously in the calculation methodology section, the Proven ore category has been projected up to 20 meters from the drift sample data, while the Probable ore category is projected another 20 meters beyond the proven ore. Table 19-4 presents a summary of La Parrilla Silver Mine Proven and Probable Reserves.
Figures 19-1, 19-2, 19-3, and 19-4 show cross sections of the San Marcos, Las Vacas, Section 4-4 of Las Vacas and Stopes of the San Marcos vein showing Reserve and Resource Blocks.
PAH notes that the Reserve and Resource blocks are exclusive of each other.
La Parrilla Silver Mine deposits occur in vein deposits and breccia zones and faults or fracturing intersections that make wide and irregular deposits. Generally ore shoots occur at La Parrilla Silver Mine in alternating zones of wide and narrow areas along the mineralized structures. These generally present widths greater than 2.00m which is estimated to be the minimum mining width due to the mining equipment in use at the mine. Therefore, mining dilution is only significant when the mining is developed along narrow structures. Provisions have been taken to include the mining dilution for those areas.
19.7 Resource Estimation
Resource calculations by FMPlata at La Parrilla Silver Mine are based on projections of the mineralized zones in the underground mine workings, 20m beyond the areas of Reserves for the Measured Resources, and another 20m beyond the boundaries of the Measured Resources for the blocks of Indicated Resources. Inferred Resources are estimated by projecting up to 50m beyond the Indicated Resource Block boundaries along mineralized structures, and another 20m beyond the blocks width. The estimated Resource blocks may be limited by underground levels and previous mining extraction.
Longitudinal projections depend on the drift development along the mineralized zones and on the ore shoots projections and they may reach 200m in length as in the Rosarios system.
La Parrilla Silver Mine mineral Resource estimates were applied mostly to diamond drilling intercepts, as well as to some adjacent blocks from the estimated reserves.
Pincock, Allen & Holt | 19.7 |
90534 February 16, 2009 |
TABLE
19-4
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A. de
C.V.
La
Parrilla
Silver Mine
Mineral
Reserves
Prepared
by
FMPlata,
Reviewed
by PAH as of
September
30, 2008
CATEGORY | Mineralization | Metric | Width | Au | Ag | Pb | Zn | Contained Metal | |
Type | Tonnes | Meters | g/tonne | g/tonne | % | % | Ag (only) oz | Ag eq oz | |
MINERAL RESERVES | |||||||||
PROVEN | Oxides | ||||||||
La Rosa - Rosarios | Oxides | 96,723 | 2.64 | 320 | 994,307 | 1,012,966 | |||
San Marcos | Oxides | 13,262 | 2.31 | 272 | 115,810 | 118,369 | |||
Quebradillas | Oxides | 17,793 | 6.12 | 220 | 125,577 | 129,010 | |||
Total | Oxides | 127,778 | 3.09 | 301 | 1,235,695 | 1,260,344 | |||
PROVEN | Sulfides | ||||||||
La Rosa - Rosarios | Sulfides | 144,540 | 2.75 | 319 | 1.24 | 0.67 | 1,481,747 | 1,700,159 | |
Quebradillas | Sulfides | 16,150 | 2.42 | 154 | 2.41 | 3.20 | 80,045 | 104,449 | |
Total | Sulfides | 160,690 | 2.72 | 302 | 1.36 | 0.93 | 1,561,792 | 1,804,608 | |
Total Proven | Oxides plus Sulfides | 288,468 | 2.88 | 302 | 1.36 | 0.93 | 2,797,487 | 3,064,952 | |
PROBABLE | Oxides | ||||||||
La Rosa - Rosarios | Oxides | 83,842 | 2.62 | 300 | 808,085 | 824,259 | |||
San Marcos | Oxides | 11,060 | 2.28 | 257 | 91,386 | 93,519 | |||
Quebradillas | Oxides | 17,489 | 6.01 | - | 220 | 123,699 | 127,072 | ||
Total | Oxides | 112,391 | 3.11 | 283 | 1,023,170 | 1,044,851 | |||
PROBABLE | Sulfides | ||||||||
La Rosa - Rosarios | Sulfides | 88,519 | 2.84 | 316 | 1.31 | 0.79 | 898,943 | 1,032,702 | |
Quebradillas | Sulfides | 16,150 | 2.42 | 154 | 2.23 | 2.95 | 80,045 | 104,449 | |
Total | Sulfides | 104,669 | 2.78 | 291 | 1.45 | 1.12 | 978,988 | 1,137,152 | |
Total Probable | Oxides plus Sulfides | 217,060 | 2.95 | 287 | 1.45 | 1.12 | 2,002,158 | 2,182,002 | |
TOTAL RESERVES | Oxides plus Sulfides | 505,528 | 2.91 | 295 | 1.40 | 1.01 | 4,799,645 | 5,246,954 |
(1) Estimates by First Majestic Plata, reviewed
by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery
included.
(2) Silver equivalente based on sales. Prices used for evaluation:
Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb.
(3) Oxides Ag equivalent includes gold credit based on FMPlata
sales. Au Credit = 6 g/tonne Ag.
(4) Sulfides Ag equivalent includes Pb credit = 47 g/tonne Ag.
Zinc is not considered in reserves due to low prices and high smelter charges.
(5) Cut Off Grade estimated as 184 g/tonne Ag net of Au credit
in oxide ores; and 246 g/tonne Ag net of Pb credit in sulfide ores. Zinc not
considered.
(6) Reserves and resources in this report are exclusive of each
other.
Pincock, Allen & Holt | 19.8 |
90534 February 16, 2009 |
The grade for these blocks is determined from the grade estimated for the drill hole intercepted grade and from the adjacent Reserve Blocks, and sampling in mine workings and drill holes located within the block area.
FMPlata continues to identify Reserve and Resource blocks, and exploring additional areas. The estimated mineral Resources are considered conservative, since only adjacent blocks are projected from the Reserve Blocks. Mineralization within the metasomatic zone in the contact between the intrusive stock and the carbonaceous Cuesta del Cura Formation has shown high probability of occurrence as Skarn deposits.
Additional geologic potential exists within the La Parrilla area to investigate targets that may result in significant resource development for the operation such as the outcropping Quebradillas and the Las Vacas areas. Direct exploration of the geophysical anomaly areas may be confirmed as significant target zones for further exploration. Geophysical investigations by FMPlata during 2007 have indicated anomalous areas of interest for further exploration, which confirm previous investigations by Grupo México with magnetic and IP methods and may represent concentrations of sulfides or other conductive minerals.
Other areas representing interesting geologic potential within the FMPlata holdings are the following:
Additional Inferred Resources have been projected in the La Rosa/Rosarios/La Blanca system, San Marcos, Quebradillas and Las Vacas zones.
PAH has included the zinc mineralization in the La Parrilla Resources due to the current low prices and high smelter charges for concentrates made by Met-Mex Peñoles; as a result FMS has suspended the activation of the zinc flotation circuit until the market prices improve.
FMPlata estimate of Measured and Indicated Resource Blocks as reviewed by PAH is shown in Table 19-5. Most of the Resources are defined by diamond drilling. The Measured and Indicated silver Resources, including oxides and sulfides mineralization, consist of 3.1 million tonnes averaging 255 grams per tonne silver, for a total content of 25.4 million ounces of silver only contained or 30.7 million ounces of silver
Pincock, Allen & Holt | 19.13 |
90534 February 16, 2009 |
equivalent net of gold credit for oxides and lead for sulfides. The Resources grade has been estimated in situ above cutoff grade, and the silver equivalent content is net of gold credit in oxides, at 6 g/tonne Ag, and net of lead credit for sulfides, at 47 g/tonne Ag respectively. This estimate is based on the following prices: Ag - $12.00/oz, Au - $708/oz, Pb - $0.75/lb and Zn-$0.75/lb.
Table 19-5 shows the Measured and Indicated Resources and the Inferred Resource estimate for La Parrilla Silver Mine. PAH notes that these Resources are in addition to the previously reported Reserves.
FMPlata has estimated additional silver Resources at a distance beyond the Proven and Probable Reserves. These Inferred Resources are estimated at 8.0 million tonnes at an average grade of 169 g/tonne Ag, representing a content of 43.9 million ounces of silver only, or 52.8 million ounces of silver equivalent including Au, Pb and zinc, within the Resource. These Inferred Resources include a preliminary estimate of Resources at the Quebradillas area for projected open pit mining. These additional Resources lack sufficient drifting, raising, sampling, drill holes or old workings with production data and are estimated at a lower degree of confidence than the other Reserve or Resource categories. PAH considers these additional Resources to be of an Inferred category and they are based on projections of presumed vein continuity ahead, above, and below current mining; and are based on widely-spaced drill holes, surface sampling or old surface workings. These Resources are presented by FMPlata as Inferred Resources.
The Inferred Resources need considerable grade and tonnage information before they can be proved up to mineable Reserves. To date, Los Rosarios system at La Parrilla has demonstrated a continuity along about 2.0 kilometers of strike length and down dip to about 400 meters; so it is reasonable to assume that in the future, Resources will continue to be converted to Reserves (ore) as additional drifting, crosscutting and raising define vein configurations, sampling and assaying determine the grade, and diamond drilling confirms vein extensions and fills in data gaps. Inferred Resources for La Parrilla are presented in the lower portion of Table 19-5.
19.8 Conclusion
PAH believes that these Reserve and Resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of Resources. PAH believes that the classification of the Reserves and Resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The Reserves and Resources herein reported by FMPlata were reviewed by PAH and constitute part of an operation by FMPlata, a Mexican subsidiary of FMS. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these Reserves and Resources, which are exclusive of each other category, may not be materially affected by issues that could prevent their extraction and processing.
Pincock, Allen & Holt | 19.14 |
90534 February 16, 2009 |
TABLE
19-5
First
Majestic
Silver Corp.
First
Majestic
Plata, S.A. de
C.V.
La
Parrilla
Silver Mine
Mineral
Resources
Prepared
by
FMPlata,
Reviewed
by PAH as of
September
30, 2008
CATEGORY | Mineralization | Metric | Width | Au | Ag | Pb | Zn | Contained Metal | |
Type | Tonnes | Meters | g/tonne | g/tonne | % | % | Ag (only) oz | Ag eq oz | |
MINERAL RESOURCES | |||||||||
MEASURED | Oxides | ||||||||
La Rosa - Rosarios | Oxides | 105,321 | 4.51 | 0.10 | 454 | 1,538,046 | 1,558,363 | ||
San Marcos | Oxides | 251,538 | 3.28 | 0.21 | 357 | 2,884,020 | 2,932,543 | ||
Quebradillas | Oxides | 197,771 | 5.82 | 0.12 | 201 | 1,280,773 | 1,318,924 | ||
Total | Oxides | 554,630 | 4.42 | 0.15 | 320 | 5,702,839 | 5,809,830 | ||
MEASURED | Sulfides | ||||||||
La Rosa - Rosarios | Sulfides | 687,871 | 7.89 | 0.17 | 319 | 1.73 | 0.95 | 7,046,016 | 8,748,914 |
San Marcos | Sulfides | 48,830 | 4.09 | 0.19 | 321 | 2.20 | 1.43 | 503,915 | 624,799 |
Quebradillas | Sulfides | 272,832 | 4.80 | 0.00 | 270 | 3.79 | 5.11 | 2,365,955 | 3,041,380 |
Vacas | Sulfides | 631,285 | 6.12 | - | 149 | 3.04 | 8.44 | 3,018,892 | 4,581,706 |
Total | Sulfides | 1,640,818 | 6.58 | 0.08 | 245 | 2.59 | 4.54 | 12,934,778 | 16,996,798 |
Total Measured | Oxides plus Sulfides | 2,195,448 | 6.04 | 0.10 | 264 | 2.59 | 4.54 | 18,637,618 | 22,806,628 |
INDICATED | Oxides | ||||||||
La Rosa - Rosarios | Oxides | 21,818 | 3.23 | 0.14 | 203 | 142,397 | 146,606 | ||
San Marcos | Oxides | 406,627 | 3.05 | 0.22 | 303 | 3,964,892 | 4,043,332 | ||
Total | Oxides | 428,445 | 3.06 | 0.22 | 298 | 4,107,289 | 4,189,938 | ||
INDICATED | Sulfides | ||||||||
La Rosa - Rosarios | Sulfides | 77,301 | 3.27 | 0.19 | 164 | 3.00 | 1.83 | 407,789 | 599,156 |
San Marcos | Sulfides | 25,218 | 4.09 | 0.19 | 321 | 2.20 | 1.43 | 260,260 | 322,689 |
Quebradillas | Sulfides | 18,057 | 3.80 | 0.01 | 253 | 2.24 | 5.94 | 146,903 | 191,605 |
Vacas | Sulfides | 312,467 | 5.01 | - | 185 | 3.75 | 7.50 | 1,863,445 | 2,636,991 |
Total | Sulfides | 433,043 | 4.59 | 0.05 | 192 | 3.46 | 6.07 | 2,678,396 | 3,750,441 |
Total Indicated | Oxides plus Sulfides | 861,488 | 3.83 | 0.13 | 245 | 3.46 | 6.07 | 6,785,685 | 7,940,379 |
TOTAL RESOURCES (8) | Oxides plus Sulfides | 3,100,000 | 5.34 | 0.11 | 255 | 2.80 | 4.90 | 25,400,000 | 30,700,000 |
INFERRED MINERAL RESOURCES | |||||||||
La Rosa - Rosarios | Oxides | 802,644 | 3.05 | 0.08 | 318 | 8,201,831 | 8,356,664 | ||
San Marcos | Oxides | 484,049 | 3.05 | 0.16 | 326 | 5,078,617 | 5,171,992 | ||
Quebradillas | Oxides | 5,670 | 3.50 | - | 285 | 4.53 | 1.64 | 51,954 | 53,048 |
Quebradillas Open Pit (6) | Oxides | 3,300,000 | 3.50 | - | 100 | 10,610,000 | 11,200,000 | ||
Total Inferred (8) | Oxides | 4,600,000 | 3.37 | 0.03 | 162 | 0.01 | 0.00 | 23,900,000 | 24,800,000 |
La Rosa - Rosarios | Sulfides | 2,616,850 | 3.87 | 0.15 | 191 | 1.98 | 1.66 | 16,040,595 | 22,518,888 |
Quebradillas | Sulfides | 7,088 | 4.20 | 0.01 | 215 | 2.18 | 5.58 | 48,995 | 66,542 |
Vacas | Sulfides | 801,803 | 7.95 | 0.03 | 136 | 2.19 | 9.44 | 3,515,546 | 5,500,495 |
Total Inferred (8) | Sulfides | 3,400,000 | 4.86 | 0.12 | 179 | 2.05 | 3.51 | 20,000,000 | 28,000,000 |
Total Inferred (8) | Oxides plus Sulfides | 8,000,000 | 4.00 | 0.07 | 169 | 0.87 | 1.49 | 43,900,000 | 52,800,000 |
(1) Estimates by First Majestic Plata, reviewed
by PAH. Estimates based on Minimum Mining Width >2.00m. No mine recovery
included.
(2) Silver equivalente based on sales. Prices used for evaluation:
Ag - $12/oz; Au - $708/oz; Pb - $0.75/lb; Zn - $0.75/lb.
(3) Oxides Ag equivalent includes gold credit based on FMPlata
sales. Au Credit = 6 g/tonne Ag.
(4) Sulfides Ag equivalent includes Pb credit = 47 g/tonne Ag.
Zinc is considered at 70% met. recovery = 30 g/tonne Ag.
(5) Cut Off Grade estimated as 184 g/tonne Ag net of Au credit
in oxide ores; and 246 g/tonne Ag net of Pb credit in sulfide ores. Zinc not
considered in COG estimates.
(6) Preliminary Block Model estimate at COG>50 g/tonne Ag.
(7) Reserves and resources in this report are exclusive of each
other.
(8) Rounded figures.
Pincock, Allen & Holt | 19.15 |
90534 February 16, 2009 |
20.0 OTHER RELEVANT DATA AND INFORMATION
La Parrilla consists of several mines within FMPlatas large land holding which make up the operations of the La Parrilla Silver Mine. Many of these mines have been in operation intermittently since the sixteenth century, when many of the mining districts in the region were discovered, such as Zacatecas, Fresnillo, San Martín/Sabinas/Tocayos near Sombrerete, Cerro del Mercado, etc. Silver production from the La Parrilla district until 2007, based in unpublished reports by ASARCO, the Comisión de Fomento Minero, production records from Mina Los Rosarios, S.A. de C.V. and production records from FMS from June 2004 to September 30, 2008, is estimated at a total production of about 1.374 million tonnes of ore at an average grade of 310 g/tonne Ag, 1.93 percent Pb, about 1.47 percent Zn and some Au. This represents about 13.7 million ounces of silver, 58.4 million pounds of lead and about 44 million pounds of zinc.
Mineralization at the Los Rosarios system, which includes the mines of Rosarios, La Rosa, La Blanca and San José, consists of a vein system that has been partially developed to depths of less than 250m at Ore Shoot 1 of the Rosarios area, while at other mines of similar geologic environments within the region, such as the San Martín/Sabinas and La Colorada mines, the ore deposits have been developed to depths greater than 600m to 800m.
FMPlata underground development has identified numerous exploration targets. One immediate target for exploration is the intersection zone between the Los Rosarios system and the San Marcos vein and follow up exploration investigations at Las Vacas and Quebradillas areas.
FMPlatas acquisition of mining concessions owned by Grupo México surrounding the La Parrilla includes highly promising prospecting areas that may increase FMPlatas Resource/Reserve base. FMPlata is developing exploration programs through drilling and underground workings to validate Grupo Méxicos reported historical Resources and Reserves for Quebradillas and other areas within the concessions. Drilling and underground development in the Quebradillas area have resulted in about 65,000 tonnes in Proven and Probable Reserves plus about 0.50 million tonnes in Measured and Indicated Resources. These Quebradillas Reserves and Resources contain an estimated 4.2 million ounces of silver in addition to Pb and Zn metals. The Quebradillas outcropping zone may be mined by open pit methods. Preliminary block model estimates resulted in estimated Inferred Resources of 3.3 million tones at an average grade of 100 g/tonne Ag in oxides mineralization.
In PAHs opinion numerous outcropping mineralized structures and alteration zones within the La Parrilla district still remain to be explored. No other mines are operating within adjacent areas to the FMPlatas holdings.
Pincock, Allen & Holt | 20.1 |
90534 February 16, 2009 |
21.0 INTERPRETATION AND CONCLUSIONS
La Parrilla Silver Mine represents a typical Mexican mining district developed by prospectors (gambusinos) into a small to medium scale mining operation. Typically, no exploration investigations were carried out in these mining districts, other than following the mineralized structures. Development of these mines was based in accordance with metals prices or other geopolitical issues.
Modern exploration investigations within these old mining districts often result in discovery of significant mineral deposits, as was the case in Guanajuato, Fresnillo, Cananea, Parral, etc.
FMPlatas exploration programs are based on investigating old mining districts; therefore, its rate of success for discovering new mineral deposits has resulted in a higher-than-average rate of success.
La Parrilla district consists of a mineralized region where a plutonic intrusive in contact with carbonaceous sedimentary rocks, in addition to subsequent hydrothermal mineralizing events, have originated adequate geologic conditions and mineral deposition creating numerous mineral deposits within the district. These mineral deposits occur, associated or enclosed by, the regional intrusive stock, stockwork zones, breccia zones and vein structures. Similar geologic conditions exist at San Martín/Sabinas, near Sombrerete; at Fresnillo; at Zacatecas; at Chalchihuites; at Concepción del Oro, and at Peñasquito mining districts, all within the State of Zacatecas, México.
Partial records of historic production at La Parrilla indicate a total of approximately 1.37 million tonnes containing about 13.7 million ounces of silver, about 58.4 million pounds of lead, and about 44.4 million pounds of zinc. These estimated metals include FMS production to September 30, 2008. This recorded production was primarily extracted from the Los Rosarios system, including the Rosarios, La Rosa, La Blanca and San José mines, and from the San Marcos vein.
Current exploration studies by FMPlata and previous operators in the area have indicated significant geologic potential within the La Parrilla district, along and to depth of the Los Rosarios system (La Blanca, La Rosa, Rosarios, San José); along and to depth of the San Marcos vein system; at the QuebradillasLas Víboras zone; at Vacas mine; as well as at numerous geophysical magnetic and IP anomalies. FMPlata is planning to carry out an aggressive exploration program for the following several years to investigate the districts numerous exploration targets.
FMPlata is integrating the old mining workings into new underground mines that include ramps of access to the production zones, crosscuts and drifts that incorporate development into accessible and more productive blocks of mineralization for mining by the cut-and-fill method. Mine preparation requires a lengthy program of workings based on sound planning. This mine preparation eventually leads to a more efficient operation, at lower operating costs, and a predictable production schedule.
During 2008 FMPlata has completed programs to upgrade processing facilities and increase recoveries by replacing a significant numbers of parts or pieces of equipment from the cyanidation plant, such as one
Pincock, Allen & Holt | 21.1 |
90534 February 16, 2009 |
of the filters, two new leaching tanks, one thickener tank and parts of mthe crushing system. These upgrades should result in operating at scheduled capacity with a more effective operation that should result in consistent processing and recoveries. Adjacent to the cyanidation plant a new flotation circuit was built to process primary sulfides mineralization, since some of the mines are reaching the transition zone where oxidized and sulfides minerals are extracted. La Parrilla's two processing circuits are capable of processing the ores produced from the different mines within the FMPlata land holdings.
FMPlata's exploration and development efforts and investments at La Parrilla have resulted in estimated Reserves and Resources for the operation as of September 30, 2008 containing 5.2 million ounces of silver equivalent in Proven and Probable Reserves, which represent a decrement of 14 percent over previously reported estimates; 30.7 million ounces in Measured and Indicated Resources, an increment of 5 percent; and 52.8 million ounces in Inferred Resources, or 37 percent above those from the previous estimate. This resource increment is due to the continued exploration efforts by FMPlata's programs. These estimates include about 10.6 million ounces of silver contained in the Quebradillas Resources projected for open pit mining.
FMPlata has initiated training and support for educational programs to attract experienced personnel and in preparing for the future. These programs include coordination and support to nearby communities as part of social responsibilities.
La Parrilla estimated Resource/Reserve base for this period represents an important step towards consolidating the mining operation under a solid scenario of mineable Reserves for the following fiscal operating periods. This step also represents a base for further Reserves increment through exploration and development.
In PAH's opinion FMPlata's operation at La Parrilla is being conducted with sound engineering practices and acceptable methods of general application within the World mining industry; therefore, PAH believes that the exploration, mining and processing methods applied by FMPlata at La Parrilla are acceptable and justified, in accordance with good engineering practices.
Pincock, Allen & Holt | 21.2 |
90534 February 16, 2009 |
22.0 RECOMMENDATIONS
La Parrilla Silver Mine represents a typical Mexican mining district which was discovered in Colonial times (XVI XVII centuries) and only developed from outcroppings by following mineralization along the structures, until high grade ore shoots were discovered and depleted at times of high metals prices. No significant exploration programs were generally carried out in these districts. Historical records and estimates by surveying of old stopes show production from the numerous mines within the La Parrilla district of 13.7 million ounces silver, 58.4 million pounds lead and 44.4 million pounds zinc, including FMPlata operations to September 2008.
FMPlata has considered significant budgets for investment in exploration at La Parrilla. These programs of exploration appear to have already shown positive results by indicating an important Resource/Reserve base for the mine. PAH highly recommends to continue with these programs in the Los Rosarios system, San Marcos, Vacas and Quebradillas areas. FMPlata has estimated an expenditure of $3.79 Million for the period of 2009 presented in Tables 12-1 and 22-1. In PAHs opinion, this investment represents a reasonable budget for exploration of targets that show geologic potential and highly promising evidences of mineral concentrations within accessible areas of the mining district.
The FMPlata exploration program includes geophysical investigations by magnetic and IP surveying (30km) at an estimated budget of $90,000. It also includes geochemical investigations (1,900 samples) at an estimated cost of $80,000. Diamond drilling from surface and underground sites (total 97 drill holes) is estimated at $1.82M. The program also includes underground drifting and crosscuts and preparation and access for drill sites, for a total development of about 2,800m at an estimated cost of $1.8 million. PAH agrees with implementation of this exploration program and the cited estimated expenditures, since positive results may develop additional Resources and extend the life of the mine.
PAH recommends completing Pre Feasibility investigations for the projected Quebradillas open pit mining prior to initiate development. These should include particularly detailed metallurgical testwork for recoveries and operating costs.
PAH recommends continuation of the geochemical investigations from drilling samples. This includes core sampling of the different rock formations, other than mineralized zones. The intention is to apply geochemical investigations by rock formations, and to establish a signature and database that may aid in interpretations in other target zones within the mining district. This requires taking selected core intervals within each geologic unit. An estimated budget for these investigations includes about 1,900 samples at an estimated cost of $80,000, which has been included in the 2009 budget.
In PAHs opinion the La Parrilla programmed capital expenditures for the period of 2009, for a total of $3.79 Million are scheduled to improve the operation and through a successful exploration program, increase the mines Reserves and Resources and therefore extend the mine life. PAH notes that as of the writing of this report, FMS has temporarily suspended this budget due to current market conditions.
Pincock, Allen & Holt | 22.1 |
90534 February 16, 2009 |
Other recommendations by PAH related to operating practices, for which no budget can be estimated, are the following:
La Parrillas operators must address discrepancies between the milled grades of both oxide and sulfide ore versus the average Reserve and Resource grades. The head grade problems are mainly due to the contract miners extracting more dilution than necessary. PAH recommends that mine geologists and mining engineers develop and execute stricter grade control procedures in all the operations. These measures should result in tonnage and grade reconciliation between production, Reserves and sales.
Metallurgical accounting must be more accurate. The operators must closely control the ore flow and stockpiles for both La Parrilla and the ore from outside operations, such as Del Toro.
Ground control in the mines still requires attention, especially in the loose oxide zones of the orebodies. PAH recommends that rock bolting with mesh and straps, and possibly shotcrete be employed consistently in areas of poor ground.
A system of long-range planning should be adopted by the mine engineering group at La Parrilla. Current long-range plans are general and lack detail.
Table 22-1 shows recommended exploration budget for 2009 at La Parrilla Silver Mine.
TABLE 22-1
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla
Mine
Recommended Exploration Budget for 2009
Exploration | Quantity | Total estimated |
Activities | cost US$ | |
Geophysical Survey IP | 30km | 90,000 |
Geochemical Survey | 1,900 samples | 80,000 |
Surface Diamond Drilling (at a cost of $100 per meter) | 10,000m (43 dh) | 1,100,000 |
Underground Diamond Drilling (at a cost of $100 per meter) | 7200m (54 dh) | 720,000 |
Underground development | 2800 m | 1,800,000 |
Total Recommended Budget | 3,790,000 |
Pincock, Allen & Holt | 22.2 |
90534 February 16, 2009 |
23.0 REFERENCES
1. |
Resource and Reserve Estimates by First Majestic Plata for La Parrilla Silver Mine. Prepared by FMS and its Mexican subsidiary companies, FMPlata and FMRM staff and reviewed by PAH. September 2008. |
2. |
Informe Técnico Exploración Geofísica en La Parrilla, Durango. Solicitante First Majestic. Elaborado por GEOLINSA, S.A. de C.V. Linares, Nuevo León, México. Agosto 30, 2007. |
3. |
La Parrilla Silver Mine Technical Report Amended for the La Parrilla Silver Mine, Durango state, México; which was prepared for First Majestic Silver Corp. by Pincock, Allen & Holt, Inc. Dated July 24, 2007 and published in SEDAR in July 25, 2007. |
4. |
News release by First Majestic Silver Corp. highlights from 3rd quarter financial statements. Dated November 29, 2007. |
5. |
La Parrilla Geologic Report, Durango, México. Prepared by the consulting firm of: Exploraciones Geológico-Mineras de Occidente, S.A. de C.V., Ing. Florentino Muñoz Cabral, April 2004. |
6. |
Property Risk Control Survey Report, First Majestic Resource Corp. La Parrilla Silver Mine, San José de La Parrilla, Durango, México. Prepared by Marsh a MMC (Marsh & McLennan Companies, Guy Visón, P. Eng. December 19, 2006. |
7. |
Legal Opinion First Majestic Plata, S.A. de C.V., a wholly owned subsidiary of First Majestic Silver Corp. Legal Opinion by Durango-based office of legal advisers, by Mr. Carlos Galván Pastoriza, Abogado, prepared on September 30, 2008. |
8. |
Geological Evaluation of the La Parrilla Property, State of Durango, México. Prepared by: J.N. Helsen, Ph.D., P.Geo. March 27, 2006. |
9. |
Information provided by FMRM as owner and operator of La Parrilla mine, including data from 2006 to May 2007. |
10. |
Information provided by FMS Corporate Manager of Environment5al and Permitting, Mr. José Luis Hernández Santibañez, dated October 27, 2008, regarding FMPlata permits and environmental regulations compliance on behalf of the La Parrilla Silver Mine operation, including the following: |
|
Delegación Federal de la SEMARNAT, Estado de Durango, Unidad de Gestión Ambiental. April 17, 2006. Authorization to change the Licencia Ambiental Unica No. LAU-10/016-2005 dated March 16, 2005 to updated terms due to increment of operating capacity at La Parrilla, in registration No. FMR141001611 dated April 17, 2006. |
Pincock, Allen & Holt | 23.1 |
90534 February 16, 2009 |
|
Delegación Federal de la SEMARNAT, Estado de Durango, Unidad de Gestión Ambiental on resolution to authorize construction and use of Tailings dam Parrilla II. Document No. SG/130.2.1.1/000897. Dated April 16, 2007. It includes other documents in which FMRM is authorized to change the use of the land, etc. |
|
|
State Manager of CNA (Comisión Nacional del Agua), Estado de Durango. Official notification of Concesión Title No. 03DGO102200/11IMGE06 for the use of water at La Parrilla, dated December 18, 2006. |
|
|
Delegación Federal de la SEMARNAT, Estado de Durango. Permit as industry that uses and handles dangerous substances. Dated March 1, 2005 and update of June 15, 2006. |
|
|
Delegación Federal Durango, Subdelegación de Gestión para la Protección Ambiental y Recursos Naturales. Document No. SG/130.2.1.1/000897 dated on April 16, 2007. Resolución en Materia de Impacto y Riesgo Ambiental para el Proyecto de Construcción y Operación de la Presa de Jales Parrilla II. |
|
|
Delegación Federal Durango, Subdelegación de Gestión para la Protección Ambiental y Recursos Naturales. Document No. SG/130.2.2./000979 dated on April 27, 2007. Authorization to change use of land for construction of Tailings Dam Parrilla II. |
|
|
COMISION NACIONAL DEL AGUA. Título de Concesión para explotar, usar o aprovechar aguas nacionales. Document No. 2914392 dated October 26, 2006. |
|
11. |
PAH observations on site visits during the periods of June 20-25, 2006; April 1315, May 1518 and November 1318, 2007; July 1518 and October 30November 1, 2008. |
Pincock, Allen & Holt | 23.2 |
90534 February 16, 2009 |
24.0 DATE
AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite
950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
llopez@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Parrilla Silver Mine, Durango State, México dated February 16, 2009, (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, an SME Founding Registered Member (#1943910), a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, and other technical subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the La Parrilla Silver Mine, as part of a PAH team to audit the operation in 2006. As part of this study, I visited the project site from May 15 18 and November 13 18, 2007, July 15 - 18 and October 30 November 1, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, reviewing sampling procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
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90534 February 16, 2009 |
7. |
I am the primary author of the Technical Report. I am responsible for all report sections including those report sections outside of my discipline of geology and resource estimates, which were prepared by other Pincock, Allen & Holt representatives that were qualified in those particular disciplines (mining, metallurgical and processing and economics), which I believe to be reliable work. I have visited the project in May 2007, and November, 2007 and in July and October- November, 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 16 th day of February 2009.
Leonel López
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | 24.2 |
90534 February 16, 2009 |
Richard Addison
165 So. Union Blvd., Suite
950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing., for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Parrilla Silver Mine, Durango State, México dated February 16, 2009, (the Technical Report) that:
1. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
2. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EU. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
3. |
I have worked as a metallurgical engineer for a total of 42 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
4. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
5. |
I am responsible for the preparation of the ore processing and infrastructure paragraphs in Section 3.0, Executive Summary; Section 18, Mineral Processing and Metallurgical Testing; the paragraphs concerning ore processing in Section 21, Interpretation and Conclusions; Section 25.5, Metallurgy and Processing; Section 25.6, Infrastructure; and Section 25.9, Product Marketing. |
6. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
7. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
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90534 February 16, 2009 |
8. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
9. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 16 th day of February 2009.
Richard Addison
______________________________________
Richard Addison, P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | 24.4 |
90534 February 16, 2009 |
25.0 |
ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT PROPERTIES AND PRODUCTION PROPERTIES |
25.1 Introduction
La Parrilla Silver Mine is operated by First Majestic Plata, S.A. de C.V. (FMPlata), a wholly-owned subsidiary of Vancouver, Canada based First Majestic Silver Corp. (FMS). La Parrilla operation, located in the State of Durango about 75 km southeast of the city of Durango, has been in production off and on since the Spanish conquest. FMS acquired the property in early 2004 and commenced operations in July of that year. A research of old records from past producers indicates that, since the early 1920s, the total production from La Parrilla area (through September 30, 2008) is about 1.3 million tonnes of ore at an average grade of about 313 g/tonne Ag with minor values of gold, lead and zinc; however little is known about early Spanish production, which was mainly derived from near surface oxide ores. Most of the ore extracted prior to 2006 was oxides and only silver and gold were recovered through leaching. FMPlata commenced operations utilizing a 180-tpd cyanide leach plant, constructed by previous operators.
In 2006, FMS recognized that the tenor of the ore in the different veins of their La Parrilla operations was changing from oxides to primary sulphides as the mines were deepened. Consequently, the operators installed a 420 tpd flotation circuit in their mill and process plant for the recovery of silver, gold, lead and zinc values contained in primary sulphide ores. At the same time, the company expanded the capacity of the cyanide circuit to 420 tpd. The new 840 tpd dual cyanidation/flotation circuits were started up in the first quarter of 2007.
Currently, production from the plant consists of a silver-gold-lead concentrate and silver-gold Doré bars, which are primarily shipped to the Peñoles smelter in Torreón, Coahuila for smelting and refining. The 2007 production of silver equivalents was about 1.00 million ounces, and the silver equivalent production for the first 9 months of 2008 is about 0.73 million ounces. The operators plan to ramp up production to 1.91 million ounces per year for the next five years beginning in 2009.
25.2 Mine Design and Production
Mine design, recent production, mine equipment, anticipated mine capital expenditures and current and expected mine operating costs are described in this section of the report.
La Parrilla mine operations currently consist of three different mines, La Rosa/Santa Rosa and La Blanca, San Marcos and Quebradillas. The Quebradillas project along with an extensive land package was acquired from Grupo Mexico, S.A. de C.V. during 2006, and FMPlata immediately commenced development and exploitation of the property in the third quarter of 2006. During the last few months of 2008, FMPlata has been exploring and evaluating an open pit potential above the Quebradillas mine operation. Another new project during 2007 and 2008 has been the direct exploration of the old Las Vacas mine, where significant zinc mineralization has been indicated with good grades of silver.
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90534 February 16, 2009 |
The mine engineering department does mine planning and engineering, which is under the control of the Mine Superintendent. The planning mainly consists principally of day-to-day planning, and the mine engineering department has also begun work on long-range planning. The engineers also do rock mechanics and ventilation planning, and develop programs for remediation of problems in these areas.
The 2007 mine and mill production from La Parrilla mines was 1,000,823 equivalent ounces of silver from 80,058 tonnes of oxide ores and 43,180 tonnes of sulphide ores. During 2008, the silver production through the first nine months of the year totals 731,259 equivalent ounces from milling 143,838 tonnes of oxides and sulphides. Mine production was about 190,051 tonnes for the first nine months of 2008 with about 23,056 tonnes obtained from development and exploration work, with the rest was from stopes. The difference of approximately 46,200 tonnes between mine and mill production was stored on the mill patios, near the coarse ore bins. The mine production for 2008 is shown in Table 25-1.
The actual milled production with the respective ore grade from each category, oxide or sulphide, versus the 2008 budget is shown in Table 25-2.
The 2008 budgeted production rates (based on 330 days per year) from the three mines are variable, but the goal is to produce about 253 tpd of oxide ore and 297 tpd of sulphide ore from Rosa/Rosario and La Blanca, 63 tpd of oxides from San Marcos and 45 tpd of oxides and 32 tpd of sulphides from Quebradillas. Sulphide production will be ramped up significantly over the next few years as both the Rosa-Rosario and La Blanca mines, and the Quebradillas mine are deepened below the water tables and into the primary sulphide zones of each. Rosa/Rosarios and La Blanca mine and San Marcos mine will continue to produce significant amounts of oxides in the next few years.
La Parrilla mining operations are contracted to three different firms, who supply part of the equipment and manpower for mining and development. Ore and waste haulage from the mines to the ore bins or mill patios and waste dumps, respectively, is also contracted to private parties. The principal mining contractor for the Rosa/Rosarios and La Blanca operations is MGA Contratista, S.A. de C.V. of Guadalupe Victoria, Durango. The mining contractor assigned to the San Marcos and Quebradillas development and stoping is Minas de San Rafael y Fanny, S.A. de C.V. of Durango, Durango. The third mine contractor , MECOMIN of Durango, Dgo. has been conducting the underground mine development and exploration program for the San Jose decline in the Rosarios mine and also for the Las Vacas area. The haulage contractors, Edgar Moreno, Gerardo Salas and Angel Calzada, are based in La Parrilla village.
The three mine operations have all been developed as trackless operations, utilizing rubber-tired, and diesel load-haul-dump (LHD) units for loading and hauling, and on-highway-type diesel dump trucks for hauling from the mines to the surface ore storage bins or to waste dumps. Most stope and development drilling is done with hand-held pneumatic jackleg drills, although in the last two years, the company has purchased a 2-boom and a 1-boom electro-hydraulic drill rig for development, and a single-boom pneumatic rig for long-hole stoping.
The haulage contractors use on-highway type rear-dump trucks to haul material (ore or waste) from the Rosa/Rosarios and La Blanca mines to the mill ore bins or patios or to the berm construction of the new
Pincock, Allen & Holt | 25.2 |
90534 February 16, 2009 |
Pincock, Allen & Holt | 25.3 |
90534 February 16, 2009 |
tailings impoundment or to waste dumps, respectively. The San Rafael and Fanny contractor hauls all ore from the Quebradillas mine to surface patios, where it is loaded onto third party contractor dump trucks for subsequent haulage to the mill bins or patios. At this time most mine waste in all the operations is used for stope backfill or for construction projects, and very little waste is currently placed on surface waste dumps.
The near-vertical veins in the mines are exploited with the overhand cut and fill method, utilizing LHD equipment for loading and hauling. Stoping is largely accomplished with breast mining techniques, removing an entire cut from the back of a stope and later backfilling the mined out void. Recently, the operators have been experimenting with longhole open stoping and have prepared and commenced mining a stope by this method. Drilling of the longhole stope block is done with a Boart Stopemate ® rig equipped with a pneumatic drill. Mucking of the longhole stope with LHD equipment is done in drawpoint crosscuts located at the bottom sill of the stope. Once the longhole block is completed it will also be backfilled. Backfill mainly consists of waste from development and exploration headings. The minimum mining width is currently about 2.0 meters. A diagram of a vertical-longitudinal section of a typical overhand cut and fill stope in La Parrilla mines is shown in Figure 25-1, and a diagram of the longhole stope is shown in Figure 25-2.
Development and exploration headings, as well as stope cuts, are drilled mainly with jackleg drills, but as stated above the company has a 1 and a 2 boom jumbo on hand for major development projects. Drift and ramp sizes are 4.0 X 4.0 meters for main haulageways, and secondary development and exploration headings are driven at 3.0 X 3.0 meters. Ramp gradients are usually about 12 percent and steeper ramp sections are seldom above 15 percent. Raising is largely done as bald-headed raises, driven conventionally from platforms installed on stulls; raises typically have a 1.5 -X1.5 meter section. Some long ventilation raises, typically about 1.8 meters in diameter, are bored by contractors.
Mine development advances are averaging about 586 meters per month in 2008. The monthly advances in exploration and development headings during 2008 are found in the Table 25-3.
Drifts and ramps require very little ground support, although the mines utilize some split-set bolts and at times also install wire mesh, with or without shotcrete. Stopes and raises are largely unsupported, and bolting is done very infrequently.
The five-year plan for La Parrilla is for the production of 1.32 million equivalent ounces of silver in 2008, and 1.94 million equivalent ounces of silver in the period 2009 through 2012. The operator’s forecast for silver only production is 1.66 million ounces in 2008 and 1.94 million ounces per year in subsequent years. The principal by-product from the cyanide plant is gold and production is slightly less than 500 oz per year throughout the 5-year plan. The main payable by-product from the sulphide flotation operation is lead and it is planned at about 1,400 tonnes of lead metal per year for the 5 years. The zinc circuit in the new flotation section of the mill has not yet produced a saleable zinc concentrate, and PAH has not considered zinc production in the Reserve characterization, however, it was considered for Resource estimates since the parameters for mill recoveries, smelter charges and penalties and market prices are expected to be better in the future and revenues from zinc sales are realized.
Pincock, Allen & Holt | 25.4 |
90534 February 16, 2009 |
TABLE 25-3
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
2008 Exploration and Mine Preparation Advances (Jan-Sept, Lineal
Meters)
|
Development
Advance |
Preparation
Advance |
Exploration
Advance |
Total Actual
Advance |
January | 173.43 | 103.04 | 336.21 | 612.68 |
February | 116.38 | 176.59 | 99.3 | 392.27 |
March | 133.59 | 217.28 | 199.17 | 550.04 |
April | 126.53 | 252.73 | 174.3 | 553.56 |
May | 149.01 | 267.17 | 112.08 | 528.26 |
Jun | 178.44 | 133.16 | 181.54 | 493.14 |
July | 448.43 | 237.29 | 151.59 | 837.31 |
August | 263.72 | 231.84 | 213.47 | 709.03 |
September | 261.38 | 149.69 | 183.22 | 594.29 |
TOTAL | 1,850.91 | 1,768.79 | 1,650.88 | 5,270.58 |
The planned production for La Parrilla operation for the five-year period, 2008 through 2012 is shown in Table 25-4.
25.3 Mine Equipment
Fifty percent of the mine equipment used in La Parrilla mines is contractor supplied. The mines appear to be adequately equipped for the planned production rates, however much of the contractor equipment is very old and marginally maintained. The company has its own equipment, some purchased new in 2007 and 2008, all of which is loaned to the mining contractors, mainly MGA. The haulage contractors for surface haulage from both San Marcos and Quebradillas have their own, relatively new trucks as does the contractor who hauls ore and waste from the Rosa/Rosarios and La Blanca mine as well as on the surface. A summary of the major mine equipment, including contractor equipment is shown in Table 25-5.
25.4 La Parrilla Manpower
About 509 people currently (as of September 30, 2008) are working at the La Parrilla industrial complex. Some of these are temporary contractors engaged in completion of the mill expansion, but mine and haulage contractors are on a semi-permanent basis. Including staff and other salaried personnel, there are about 51 company employees working at La Parrilla, and there are about 458 contract personnel assigned to the mine, mine equipment maintenance, surface haulage and surface construction activities.
The operations shift schedule has been changed to two 12-hour shifts per day, with contract personnel working a 3 weeks on and one week off schedule. La Parilla staff work the 12-hr per day shifts, but on a schedule of 4 days on and three days off per week. Overall productivities in 2008 have been about 1.1 tonnes per man-shift (based on 8-hr shifts); while mine productivity is about 2.3 tonnes per man-shift. A summary of the manpower working at La Parrilla on September 30, 2008 is shown in Table 25-6.
Pincock, Allen & Holt | 25.7 |
90534 February 16, 2009 |
TABLE 25-4
First Majestic Silver
Corp.
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Five-Year Production Plan, 2009-2013
ITEM | 2009 | 2010 | 2011 | 2012 | 2013 | Totals |
OXIDES | ||||||
Tonnes Milled | 145,635 | 145,635 | 145,635 | 145,635 | 145,635 | 728,175 |
Au grade | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 |
Ag grade | 250 | 250 | 250 | 250 | 250 | 250 |
Process Recovery & Payables | ||||||
Ag-% | 69.9 | 69.9 | 69.9 | 69.9 | 69.9 | 69.9 |
Au-% | 69.6 | 69.6 | 69.6 | 69.6 | 69.6 | 69.6 |
Silver Ounces | 819,490 | 819,490 | 819,490 | 819,490 | 819,490 | 4,097,448 |
Eq Ounces of silver from Gold | 28,862 | 28,862 | 28,862 | 28,862 | 28,862 | 144,311 |
NSR VALUE Bulllion Production ($) | ||||||
DORE | 9,905,583 | 9,905,580 | 10,720,972 | 10,720,972 | 11,536,364 | 52,789,472 |
Subtotal NSR | 9,905,583 | 9,905,580 | 10,720,972 | 10,720,972 | 11,536,364 | 52,789,472 |
Freight & Insurance | 174,174 | 174,174 | 174,174 | 174,174 | 174,174 | 870,872 |
Sub-Total | 9,731,409 | 9,731,406 | 10,546,798 | 10,546,798 | 11,362,190 | 51,918,600 |
SULFIDES | ||||||
Tonnes Milled | 148,428 | 148,428 | 148,428 | 148,428 | 148,428 | 742,140 |
Au grade | 0.10 | 0.10 | 0.10 | 0.10 | 0.10 | 0.10 |
Ag grade | 250 | 250 | 250 | 250 | 250 | 250 |
Pb% | 1.6 | 1.6 | 1.6 | 1.6 | 1.6 | 1.6 |
Zn% | 0.11 | 0.11 | 0.11 | 0.11 | 0.11 | 0.11 |
Process Recovery & Payables | ||||||
Ag-% | 69.9 | 69.9 | 69.9 | 69.9 | 69.9 | 69.9 |
Au% | 58.9 | 58.9 | 58.9 | 58.9 | 58.9 | 58.9 |
Pb-% | 58.9 | 58.9 | 58.9 | 58.9 | 58.9 | 58.9 |
Zn-% | NA | NA | NA | NA | NA | NA |
Ounces Ag Production | 894,863 | 894,863 | 894,863 | 894,863 | 894,863 | 4,474,316 |
Eq Silver Ounces from Lead | 196,336 | 196,336 | 196,336 | 196,336 | 196,336 | 981,682 |
Net Smelter Return | ||||||
Subtotal NSR | 9,866,193 | 9,866,279 | 10,716,399 | 10,716,399 | 11,566,519 | 52,731,787 |
Freight & Insurance | 131,112 | 131,112 | 131,112 | 131,112 | 131,112 | 655,561 |
NSR less Freight & Ins | 9,735,081 | 9,735,166 | 10,585,286 | 10,585,286 | 11,435,406 | 52,076,226 |
OXIDES+SULFIDES | ||||||
Silver Ounces | 1,714,353 | 1,714,353 | 1,714,353 | 1,714,353 | 1,714,353 | 8,571,764 |
Eq Ounces of silver from Gold | 28,862 | 28,862 | 28,862 | 28,862 | 28,862 | 144,311 |
Eq Silver Ounces from Lead | 196,329 | 196,336 | 196,336 | 196,336 | 196,336 | 981,675 |
Total Eq Ounce of Silver | 1,939,544 | 1,939,551 | 1,939,551 | 1,939,551 | 1,939,551 | 9,697,749 |
TOTAL NSR VALUE ALL PRODUCTION | 19,466,489 | 19,466,572 | 21,132,084 | 21,132,084 | 22,797,596 | 103,994,827 |
Metals Prices | ||||||
Silver ($US/oz) | $12.00 | $12.00 | $13.00 | $13.00 | $14.00 | $12.80 |
Gold ($US/oz) | $708.00 | $708.00 | $708.00 | $708.00 | $708.00 | $708.00 |
Lead ($US/lb) | $0.75 | $0.75 | $0.75 | $0.75 | $0.75 | $0.75 |
Zinc ($US/lb) | $0.75 | $0.75 | $0.75 | $0.75 | $0.75 | $0.75 |
Pincock, Allen & Holt | 25.8 |
90534 February 16, 2009 |
TABLE 25-5
First Majestic Silver Corp.
La
Parrilla Silver Mine
Major Mine Equipment, Including Contractors
Contactor and Description of Unit | Make & Model | Size or Other | No. of Units | |
Minas de San Rafael y Fanny Equipment | Company | Contractors | ||
Scooptram | Wagner ST-2, B-D | 2yd 3 | 6 | |
Scooptram | Toro & Wagner ST 3.5 | 3.5yd3 | 3 | |
Scooptram | Wagner St-6 | 6yd 3 | 1 | |
Mine Truck | Elmac | 9-tonnes | 1 | |
Mine Truck | EJC | 10-tonnes | 1 | |
Surface Dump Truck | International | 7m 3 | 2 | |
Other Pickups, Light Trucks,SUV | Various | N.A. | 7 | |
Jackleg Drills | RNP | N.A. | 16 | |
Shotcrete Rigs | Red Loba, LA 8-4, LA 16-4 | N.A. | 2 | |
Mine Lamps w/ Racks | N.A. | N.A. | 90 lamps + racks | |
Mine Fan | 24-in., 30 hp | N.A. | 1 | |
Mine Compressors | Atlas Copco | 250, 600 & 850 cfm | 3 | |
Mine Compressor | Ingersoll-Rand | 375 cfm | 1 | |
Motor Generator | Caterpillar | 3416 Engine | 1 | |
Surface Maintenace Shop | Misc. | N.A. | 1 | |
MGA Mine Equipment | ||||
Scooptram | Jarvis Clark | 2yd 3 | 1 | |
Scooptram | Wagner | 2yd 3 | 1 | |
Scooptram | Wagner | 2yd 3 | 1 | |
Jackleg Drills | RN-FlL-7 | N.A | 7 | |
Drift Pumps | Wilden | Air | 4 | |
Concrete Mixer | N.A. | N.A | 1 | |
MIne Lamps w/ Charging Racks | N.A. | N.A | 65 | |
Company Mine Equipment | ||||
Scooptrams | Sandvik, LH 307 (Toro 6) | 4.5 yd 3 | 4 | |
Scooptrams | Sandvik LH-203 | 2.0 yd 3 | 3 | |
Mine Trucks | Sandvik EJC-417 | 15-tonnes | 3 | |
Drill Jumbo | Tamrock Axera | 2-boom, electro-hydraulic | 1 | |
Drill Jumbo | Sandvik, DD-210 | 1-boom, electro-hydraulic | 1 | |
Stope Drill Jumbo | Boart, "Stopemate" | LH rig,1-boom pneumatic | 1 | |
Mine Compressor | Ingersoll-Rand (NA) | 1,600 cfm | 1 | |
Mine Compressor | Ingersoll-Rand (NA) | 892 cfm | 1 | |
Mine Compressor | Ingersoll-Rand (NA) | 1,395 cfm | 1 | |
Mine Compressor | Gardner-Denver (NA) | 375 cfm | 1 | |
Mine Compressor | INC (NA) | 750 cfm | 1 | |
Mine Hoist | N.A. | One-Drum, 90 hp | 1 | |
Lokotrack | Model LT-105 | Electric (?) | 1 | |
Lokotrack | Model LT-200 | Electric (?) | 1 | |
Bulldozer | Caterpillar (?) | Diesel, N.A. | 1 | |
Mine Tractor | John Deere (?) | Diesel,N.A. | ||
Drift Pumps | Wilden M-15 | Air | 2 | |
Submersible Pumps | Tsurumi | Electric, 15 hp | 2 | |
Vertical Well Pump | N.A. | Electric, 40 hp | 1 | |
Pickup | Dodge Ram 150 | N.A. | 1 |
25.5 Metallurgy and Ore Processing Plant
25.5.1 Metallurgy
The ore processed from the district consists of two essential types: oxides and sulphides. Oxides are the in-situ oxidation product of the sulphide ore. For both ore types the principal economic component is silver. The ores also contain lead and zinc and minor amounts of gold. Oxide ores are processed by cyanide
Pincock, Allen & Holt | 25.9 |
90534 February 16, 2009 |
TABLE 25-6
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Manpower, Including Contractors (September 30, 2008)
Company | Mine & Other | ||
Department & Category | Staff | Contractors | TOTALS |
SITE ADMINISTRATION | |||
General Manager | 1 | 1 | |
Safety & Environmental | 2 | 5 | 7 |
Accounting | 2 | 1 | 3 |
Human Resources & Social Work | 2 | 2 | |
Warehouse | 1 | 3 | 4 |
Purchasing | |||
Sub-Total | 8 | 9 | 17 |
Preparation & Development | 48 | 48 | |
Stoping | 48 | 48 | |
Mucking & Hauling | 28 | 28 | |
Hoistmen | 14 | 14 | |
Mechanical Maintenance | 18 | 18 | |
Contracted Maintenance (Sandvik) | 8 | 8 | |
Other Services | 12 | 12 | |
FM Mine Supervision | 6 | 6 | |
Supervision | 23 | 23 | |
Mine Construction, Other | |||
Mina Mecomin | 30 | 30 | |
Jose Garcia Ontiveros | 6 | 6 | |
Sub-Total | 6 | 235 | 241 |
MILL & PROCESS | |||
Crushing | 11 | 11 | |
Grinding | 4 | 4 | |
Flotation | 4 | 4 | |
Precipitation | 3 | 3 | |
Chemical Treatment | 4 | 4 | |
Concentrate Handling | 2 | 2 | |
Thickener Operators | 4 | 4 | |
Bullion Smelter | 3 | 3 | |
Tailings | 7 | 7 | |
Plant Supervision | 10 | 10 | |
Mechanical Maintenance | 8 | 8 | |
Electrical Maintenance | 5 | 5 | |
Other Services | 5 | 5 | |
Maintenance Supervision | 10 | 10 | |
Tailings Impoundment | |||
Fabian Salas | 6 | 6 | |
Sub-Totals | 20 | 66 | 86 |
ASSAY & METALLURGICAL LAB | |||
Sample Preparation | 4 | 4 | |
Assayers | 2 | 3 | 5 |
Metallurgical Testing | 1 | 1 | 2 |
Sub-Totals | 3 | 8 | 11 |
GEOLOGY | |||
Exploration | |||
Sampling | 14 | 14 | |
Supervision & Technical | 8 | 8 | |
Surface Diamond Drilling | |||
CAUSA | 35 | 35 | |
Sub-Totals | 8 | 49 | 57 |
MINE ENGINEERING | |||
Engineering & Planning | 2 | 2 | |
Surveyors | 3 | 3 | 6 |
Sub-Total | 5 | 3 | 8 |
GENERAL SERVICES & OTHER | |||
Surface Maintenance | 0 | ||
Dining Hall | 3 | 3 | |
Watchman & Security | 1 | 14 | 15 |
Supervision | 3 | 3 | |
Sub-Total | 1 | 20 | 21 |
OTHER SURFACE CONTRACTORS | |||
Civil Construction | |||
Refugio Contreras Rivota | 44 | 44 | |
Hugo Lopez Garcia | 5 | 5 | |
Construcción Metálica de Fresnillo | 4 | 4 | |
Surface Ore & Waste Haulage | |||
Edgar Moreno | 5 | 5 | |
Angel Calzada | 5 | 5 | |
Gerardo Salas Flores | 5 | 5 | |
Sub-Total | 0 | 68 | 68 |
TOTALS | 51 | 458 | 509 |
Total Company | 51 | ||
Total Contractors | 458 |
Pincock, Allen & Holt | 25.10 |
90534 February 16, 2009 |
leaching to produce Doré metal; sulphide ores are processed by differential flotation to produce a silver-rich lead concentrate.
Metal recoveries are currently low by general industry standards, about 70 percent of the silver in cyanide leaching, and about 60 percent for silver and 55 percent for lead in the flotation circuit.
The valuable mineral in the sulphide ore is essentially argentiferous galena. It is suspected that part of the gold is present in slightly auriferous pyrite. The mineralogy of the oxide ore is essentially the oxidation product of the sulphides. It is probable that most of the silver occurs as argentite, but it is likely that some of the silver is present as naumannite (silver selenide) since selenium is found as an impurity in the Doré bars.
Consideration has being given to further process the sulphide flotation tails in the oxide cyanide leach circuit but the capacity of the oxide cyanide leach circuit is limited and would require expansion to allow this.
25.5.2 Ore Processing Plant
Principal parameters for the plant are presented in Table 25-7. A flow diagram of the plant is provided in Figure 25-3 and a listing of the principal equipment is shown in Table 25-8. A general site map, which shows the existing and expanded tailings containments, is provided in Figure 6-1 and the layout of the ore processing plant is shown in Figure 3-2.
TABLE 25-7
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver Mine
Ore Processing, Principal Parameters
Parameter | Units | Oxide | Sulfide |
Plant Capacity | |||
Annual | thousand tonnes/year | 140 | 140 |
Daily | tonnes/day | 400 | 400 |
Actual Throughput Rate | |||
Annual | thousand tonnes/year | 120 | 100 |
Daily | tonnes/day | 325 | 275 |
Ore Grade | |||
Silver | grams/tonne | 210 | 220 |
Gold | grams/tonne | 0.24 | 0.15 |
Lead | percent | 1.6 | |
Recovery | |||
Silver | percent | 68.50% | 62.40% |
Gold | percent | 90.00% | |
Lead | percent | 55.30% | |
Doré Grade | |||
Silver | grams/tonne | 920 | |
Gold | grams/tonne | 1.5 | |
Concentrate Grade | |||
Silver | kilograms/tonne | 4.5 | |
Lead | percent | 40.00% | |
Doré Quantity | kilograms/year | 17,500 | |
Concentrate Quantity | dry tonnes/year | 3,250 | |
Plant Operating Cost | $/tonne ore | $23.50 | $20.81 |
Pincock, Allen & Holt | 25.11 |
90534 February 16, 2009 |
TABLE 25-8
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Ore Processing, Principal Equipment List
|
Lead
Flotation |
Zinc
Flotation |
|||||
Item | Size | Qty. | h.p. | Qty. | h.p. | Qty. | h.p. |
COMMINUTION CIRCUIT | |||||||
Ore Receiving Hoppers | |||||||
Oxide ore | 200 tonnes each | 4 | |||||
Sulfide ore | 80 tonnes each | 3 | |||||
Mobile Crushing System | |||||||
Jaw crusher | 28- x 42-inch | 1 | 150 | ||||
Cone crusher | HP-200 | 1 | 175 | ||||
Stationary Crushing System | |||||||
Jaw crusher | 22- x 32-inch | 1 | 50 | ||||
Cone crushers | |||||||
3-ft | 1 | 50 | |||||
4-1/4-ft | 1 | 150 | |||||
Vibrating Screen | 5- x 10-ft | 1 | 15 | ||||
Crushed Ore Bins | |||||||
Oxide ore | 800 tonnes | 1 | |||||
Sulfide ore | 100 tonnes each | 4 | |||||
Grinding Mills | 8-1/4- x 12 | 1 | 350 | 1 | 350 | ||
Cyclone feed pumps | 6- x 6-inch | 2 | 20 | 2 | 20 | ||
Cyclones | 1 | 1 | |||||
CYANIDATION CIRCUIT | |||||||
Grind Thickener | 40-ft daim. | 1 | 3 | ||||
Leach Tanks | |||||||
No's 1 -3 | 19-1/2- x 17-ft | 3 | 30 | ||||
No's 4 & 5 | 16-1/2- x 16-1/2-ft | 2 | 30 | ||||
No's 6 - 11 | 13- x 13-ft | 6 | 15 | ||||
Air Compressors | |||||||
rotary screw | 1 | 200 | |||||
1 | 60 | ||||||
CCD Thickeners | 24-1/2-ft dia | 4 | 5 | ||||
CCD Thickeners | 40-ft dia | 1 | 7.5 | ||||
Butter's Filters | 4 | ||||||
Pregnant Solution Tanks | 3 | ||||||
Vacuum Pumps | 2 | 50 | |||||
Precipitate Presses | 3 | ||||||
Barren Solution Tanks | 2 | ||||||
Crucible Furnace | 1 | ||||||
Cyanide Tailings Thickener | 1 | ||||||
FLOTATION CIRCUIT | |||||||
Conditioning Tank | 1 | 15 | 1 | 15 | |||
Rougher flotation | 300-ft 3 | 2 | 30 | 2 | 30 | ||
Rougher scavenger flotation | tank-type | 1 | 1 | ||||
Cleaners (3-stages, 1-cell ea.) | tank-type | 3 | 3 | ||||
Concentrate Thickeners | 1 | 1 | |||||
Concentrator Filter | drum, 4- x 6-ft | 1 | 25 | 1 | 25 | ||
Vacuum Pump | 1 | 50 | |||||
Flotation Tailings Thickener | 1 |
Pincock, Allen & Holt | 25.13 |
90534 February 16, 2009 |
The original ore processing plant was a very small (180 tonne per day capacity) conventional cyanide leach mill that was built as a custom mill to serve small miners in the district by the since-discontinued Federal government agency, Fomento Minero . The plant was expanded in 2006 to process 420 tonnes per day each of both oxide and sulphide ore for an overall capacity of 840 tpd. The crushing circuit consists of two sequential multi-stage crushing circuits; one mobile and the other stationary. The mobile system was brought into service in 2007 because of difficulties in getting adequate throughput with the original stationary equipment.
Both crushing systems consist of jaw and cone crushers. The mobile system consists of two stages in open circuit producing minus-1/2-inch rock. The stationary system has three stages in closed circuit with a double-deck vibrating screen using two cone crushers that operate in parallel, one processing plus one-inch rock and the other plus-3/8-inch/minus-1-inch rock produced by the double-deck screen. Crushed product, minus 1/2-inch from the mobile circuit and minus 3/8-inch from the stationary circuit, is stored in bins and processed in two parallel grinding and ore processing circuits, one for oxide ore and the other for sulphide ore. Each circuit has a single mill closed with cyclones; both mills are of identical size.
In processing oxide ore, cyclone overflow goes to a grind thickener, the overflow of which is pregnant solution. Grind thickener underflow is pumped to a series of agitated leach tanks and then washed in a five-train CCD (counter-current decantation) thickener circuit. The first-stage CCD thickener overflow is used as mill solution; the last-stage thickener underflow goes to the tailing containment.
Pregnant solution is processed in a Merrill-Crowe plant consisting of Butter’s clarifying filters, a de-aeration tower and two plate-and-frame presses. In addition to the plate-and-frame presses in current use there are three older presses that are kept on standby. Precipitate is periodically removed from the presses, dried in an electric oven and smelted in a propane-fired crucible furnace. The Doré bars produced contain about 0.1 percent gold, one percent lead, 0.5 percent copper, and 0.5 to 1.0 percent selenium.
The oxide plant has been in operation for about three years, primarily processing ore from the La Parrilla mine, with small amounts from the Santa Rosa and San Marcos mines and old sulphide-ore tailings from the mill-site. The oxide ore milling rate is currently about 325 tonnes per day. Ore grade is about 210 grams of silver per tonne and the recovery is currently about 70 percent.
The sulphide plant is designed to process lead/zinc ore to sequentially recover lead and zinc and the silver associated with both base metals. Both lead and zinc ore processing circuits are identical, each consisting of two rougher cells in series followed by a single rougher-scavenger cell and three stages of cleaning using one cell for each stage. Concentrate handling is also identical for each circuit, consisting of a thickener and drum filter. Currently only the lead circuit is in use since the ore currently processed contains little zinc. The sulphide circuit has been in operation for about a year. The sulphide ore milling rate is currently about 230 tonnes per day. Ore grade is about 220 grams of silver per tonne and two percent lead; silver recovery is currently about 60 percent and lead recovery is currently about 55 percent.
Pincock, Allen & Holt | 25.14 |
90534 February 16, 2009 |
Tailings from both the cyanide leach circuit and the flotation plant are combined and pumped to the expanded tailing containment. Reclaim solution from the tailing containment is pumped to the oxide ore CCD circuit where it is used as part of the wash solution.
There are about one million tonnes of tailings from past operations in the old tailings containment area. The tailings form a wedge-shaped mass against the hillside adjoining the mill with the upper end at the upper elevation of the mill at the same elevation as the ground and the downhill end being about 15 meters above grade. Use of this tailings containment has been discontinued and reclamation is in progress.
In 2007 the tailings containment area was expanded by leasing land adjoining the old tailing dam and building a starter dike using borrow material from within the dam area and also mine waste rock. The perimeter walls of the dam are raised by manually digging material from within the containment and building walls on the upstream side. The new containment area is now about 12 meters high on the downstream side. Expected life of the new tailings containment dam is 10 years.
25.6 Infrastructure
The infrastructure at La Parrilla is well established. The facility adjoins the local village making for convenient accommodation for the employees and contractors. Operations support facilities, located near the plant, consist of administrative offices, warehouse, maintenance shop, assay laboratory, metallurgical laboratory, mess, change houses, and two houses for senior personnel. There is also an explosive magazine on the site, set apart from other facilities.
Plant power supply was augmented in 2006 by the construction of a new line and substation to connect to one of the major CFE ( Comisión Federal de Elctricidad) lines that run parallel to the Durango-Zacatecas road, which is about two kilometers from the mine. Total mill connected load is about two megawatts.
A line-powered electric well pump located seven kilometers from the mine in the adjoining valley supplies water. Water is also provided from a line-powered electric pump in the shaft of the Quebradillas mine located about two kilometers from the plant.
Diesel fuel is stored in a horizontal 20,000-liter tank in a concrete-walled basin at the site.
Fire protection is based on portable fire extinguishers located throughout the buildings. There is an ambulance on site for emergency use which is also available to the town if required.
Offices are connected to the local phone system and to an internet satellite system. Radios are used for local communication.
Pincock, Allen & Holt | 25.15 |
90534 February 16, 2009 |
25.7 Environmental
FMPlata applied for change of the terms permitted for operations at La Parrilla due to the expansion of processing and mining capacity. The authorization was granted on March 23, 2006 under the operating permit (Permiso Unico Ambiental).
FMPlata obtained Operating Permit (Cédula de Operación Annual) under requirements by SEMARNAPs regulations on February 7, 2008 (Ley General del Equilibrio Ecológico y Protección al Ambiente en Materia de Registro de Emisiones y Transferencia de Contaminantes).
FMPlata presented to PROFEPA the final report on environmental audit, September 8, 2008 (Final Informe del Plan de Acción Resultante de la Auditoría Ambiental). FMPlata expects to receive a Certificato de Industria Limpia before the end of 2008; this certificate will be renewed every two years.
Testing of groundwater from test wells to determine if there is any cyanide contamination is done each month. No evidence of contamination has been found.
In PAHs opinion, La Parrilla, operated by FMPlata is fully permitted for operating under the environmental laws and regulations of México. References for the legal opinion are by Durango-City-based office of legal advisors, by Mr. Carlos Galván Pastoriza, Abogado.
25.8 Economic Analysis
25.8.1 Production
Past and projected production and cost values for La Parrilla are presented in Table 25-9. Projected values shown are those generated by FMS.
25.8.2 Operating Costs
La Parrilla site operating costs are based on mill production of 143,838 tonnes for the first 9 months of 2008. The monetary exchange rate used by PAH MP$11.00: $1.00.
The 2008, January through September, site operating cost for La Parrilla was $ 46.75 per tonne mined and milled. The mining costs for 2008 were an average of $18.08 per tonne; $18.50 per tonne for oxides and $17.52 per tonne for sulphides. Milling costs for 2008 were about $22.35 per tonne; $23.50 per tonne for oxides and $20.81 per tonne for sulphides. Site G&A costs averaged about $6.32 per tonne for both oxides and sulphides in 2008.
In addition to the site costs, concentrate and bullion freight, insurance, and smelting and refining charges are considered. The revenues from the operation are based on net smelter returns for both bullion and concentrates. PAH used the actual costs 2008 as stated above as a basis for the cut-off grades and evaluation of short and long-term mine plans. Add-on costs for downstream processing are $1.55 per
Pincock, Allen & Holt | 25.16 |
90534 February 16, 2009 |
tonne for oxides and $22.29 for sulphides. Smelting charges have been very high during 2008 at over $500 per tonne of concentrate.
The total costs used by PAH were $49.87 per tonne and $66.94 per tonne for oxides and sulphides, respectively, and these are the unit costs used as the basis for calculating the mine cut-off grades (See Sec. 19-3 of this report).
TABLE 25-9
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Production and Costs, Past and Projected
<PAST | PROJECTED > | ||||||||
|
Units |
2007 |
Jan-Sept.
2008 |
All 2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
PRODUCTION | |||||||||
Oxide Ore Processed | |||||||||
Quantity | tonnes | 80,058 | 82,419 | 116,733 | 145,635 | 145,635 | 145,635 | 145,635 | 145,635 |
Grade | |||||||||
Silver | grams/tonne | 213 | 211 | 223 | 250 | 250 | 250 | 250 | 250 |
Gold | grams/tonne | 0.13 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 |
Recovery | |||||||||
Silver | percent | 64.00 | 62.50 | 62.50 | 69.90 | 69.90 | 69.90 | 69.90 | 69.90 |
Gold | percent | 84.10 | 90.50 | 90.50 | 69.60 | 69.60 | 69.60 | 69.60 | 69.60 |
Metal Produced | |||||||||
Silver | ounces | 350,588 | 348,837 | 555,714 | 819,490 | 819,490 | 819,490 | 819,490 | 819,490 |
Eq. Silver Ounces from Gold | ounces | 281 | 21,465 | 66,853 | 28,862 | 28,862 | 28,862 | 28,862 | 28,862 |
Sulfide Ore Processed | |||||||||
Quantity | tonnes | 43,180 | 61,419 | 132,441 | 148,428 | 148,428 | 148,428 | 148,428 | 148,428 |
Grade | |||||||||
Silver | grams/tonne | 168 | 218 | 229 | 250 | 250 | 250 | 250 | 250 |
Lead | percent | 0.80 | 2.20 | 2.00 | 2.10 | 2.10 | 2.10 | 2.10 | 2.10 |
Recovery | |||||||||
Silver | percent | 59.50 | 62.66 | 62.40 | 70.00 | 70.00 | 70.00 | 70.00 | 70.00 |
Lead | percent | 86.40 | 55.30 | 55.30 | 60.00 | 60.00 | 60.00 | 60.00 | 60.00 |
Concentrate Grade | |||||||||
Silver | grams/tonne | 4,038 | 3,950 | 5,133 | 4,500 | 4,500 | 4,500 | 4,500 | 4,500 |
Lead | percent | 28.60 | 40.10 | 40.10 | 40.10 | 40.10 | 40.10 | 40.10 | 40.10 |
Metal Produced | |||||||||
Silver | ounces | 13,874 | 270,353 | 476,909 | 894,863 | 894,863 | 894,863 | 894,863 | 894,863 |
Eq. Silver Ounces from Lead | tonnes | 306 | 90,605 | 8,328 | 196,336 | 196,336 | 196,336 | 196,336 | 196,336 |
OPERATING COSTS | |||||||||
Annual | |||||||||
Mine | $000/year | 3,041 | 2,599 | 3,083 | 3,876 | 3,876 | 3,876 | 3,876 | 3,876 |
Mill | $000/year | 3,723 | 3,214 | 3,778 | 4,522 | 4,522 | 4,522 | 4,522 | 4,522 |
G&A (Indirects) | $000/year | 1,225 | 909 | 1,119 | 1,680 | 1,680 | 1,680 | 1,680 | 1,680 |
Total | $000/year | $7,989 | $6,722 | $7,980 | $10,078 | $10,078 | $10,078 | $10,078 | $10,078 |
Unit | |||||||||
Mine | $/tonne milled | 24.68 | 18.08 | 12.37 | 13.18 | 13.18 | 13.18 | 13.18 | 13.18 |
Mill | $/tonne milled | 30.21 | 22.35 | 15.16 | 15.38 | 15.38 | 15.38 | 15.38 | 15.38 |
G&A (Indirects) | $/tonne milled | 9.94 | 6.32 | 4.49 | 5.71 | 5.71 | 5.71 | 5.71 | 5.71 |
Total | $/tonne milled | $64.83 | $46.75 | $32.02 | $34.27 | $34.27 | $34.27 | $34.27 | $34.27 |
SILVER & EQUIVALENT | |||||||||
SILVER PRODUCTION | Total ozs Ag | 364,462 | 731,259 | 1,107,804 | 1,939,551 | 1,939,551 | 1,939,551 | 1,939,551 | 1,939,551 |
A summary of the 2008 Parrilla site operating costs are shown in Table 25-10, while the costs used for cutoff grade calculations and long-term projections are shown in Table 25-11.
Pincock, Allen & Holt | 25.17 |
90534 February 16, 2009 |
TABLE 25-10
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver Mine
Summary of Jan-Sept Site Operating Costs
AREA |
COSTS | ||
Total Cost | *Cost Per Tonne | **Cost Per Equiv.Oz. Ag | |
Mine | $2,599,282 | $18.07 | $2.70 |
Mill | 3,214,061 | 22.35 | 3.34 |
Site G&A | 908,447 | 6.32 | 0.94 |
TOTALS | $6,721,790 | $46.73 | $6.99 |
*Based on 143, 838 tonnes milled
**Based on about 961,635 equiv. ozs. produced
TABLE 25-11
First Majestic Silver Corp.
First Majestic Plata, S.A. de C.V.
2008 Operating
Costs for Mine Cutoff Grades
Cost Area | Oxide Ore | Sulfide Ore |
Mine | $18.50 | $17.52 |
Mill | 23.50 | 20.81 |
Site & Other G&A | 6.32 | 6.32 |
Sub-Total | $48.32 | $44.65 |
Downstream Freight & Process | ||
Bullion Freight | 0.34 | |
Concentrate Freight | 0.61 | |
*Concentrate Smelting | *20.59 | |
Assaying & Representation | 0.12 | |
Refining | 1.09 | 1.09 |
Sub-Total | $1.55 | $22.29 |
Totals for Cutoff | $49.87 | $66.94 |
*Based on smelting charge @ $520 per tonne of concentrate
25.8.3 Capital Costs
The anticipated 2008 expenditures are consistent with managements goal to continue increasing ore reserves and improve the overall efficiency and production of the present operation. Most of the capital expenditures estimated for 2008 are for the completion of the process plant expansion, mine development and exploration and for mobile mine equipment. PAH finds the capital investment estimates are reasonable and accurate for the spending requirements for the operations during the five-year period 2009 through 2013.
A summary of the projected 2008 Capital Expenditures, and also for 2009 through 2013 is shown in Table 25-12.
All capital cost estimates are presented in third quarter 2008 U.S. dollars with no allowance for inflation or peso devaluation. PAH considers the planned capital investments estimate to be conservative and reasonable.
Pincock, Allen & Holt | 25.18 |
90534 February 16, 2009 |
25.9 Product Marketing
Two products are marketed by La Parrilla: Doré metal and flotation concentrate. Primarily, both are shipped to the Met-Mex Peñoles smelter at Torreon which is 375 kilometres by road from the mine. Freight, smelting and refining (FSR) terms for both Doré and concentrate are summarized in Table 25-13. The terms are standard for the industry. The Doré is almost pure silver with very minor gold content; the flotation concentrate contains about 4.5 kilograms (145 ounces) per tonne of silver and about 40 percent lead.
TABLE 25-12
First Majestic Silver
Corp.
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Project Capital Expenditures for 2008,2009 through 2013 ($U.S)
CATEGORY | 2008 (Actual) | 2009 | 2010 | 2011 | 2012 | 2013 | TOTALS |
Mine & Exploration Projects | |||||||
Geophysics and Geochemestry | |||||||
Underground Development | 3,725,198 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 12,725,198 |
Surface/Underground Diamond Drilling | 5,103,135 | 600,000 | 600,000 | 600,000 | 600,000 | 600,000 | 8,103,135 |
Sub-Total Mine and Expl.Projects | 8,828,333 | 2,400,000 | 2,400,000 | 2,400,000 | 2,400,000 | 2,400,000 | 20,828,333 |
Mine Equipment | |||||||
Scoop Trams | 2,148,881 | 275,000 | 500000 | 500000 | 3,423,881 | ||
Trucks | 275,000 | 500000 | 775,000 | ||||
Tractor | 30000 | 30000 | 30000 | 90,000 | |||
Pick up | 17,346 | 17,346 | |||||
Hoist | |||||||
Other | 205,853 | 250,000 | 250000 | 705,853 | |||
Sub-Total Mine | 2,372,080 | 525,000 | 525,000 | 530,000 | 530,000 | 530,000 | 5,012,080 |
General Infraestructure | |||||||
Housing | 310,439 | 310,439 | |||||
Remediation Old Tailings | 50,000 | 50000 | 100,000 | ||||
Office | 29,891 | 7216 | 7216 | 7216 | 51,539 | ||
Lab.Equipment (furnace) | |||||||
Hardware and Software | 111,677 | 12,216 | 12216 | 136,109 | |||
Grupo Mexico inc VAT | 912,233 | 912,233 | |||||
Sub-Total General Infraestructure | 452,007 | 974,449 | 62,216 | 7,216 | 7,216 | 7,216 | 1,510,320 |
Sub-Total Mill | 980,202 | 980,202 | |||||
Sub-Total Other | 281,814 | 281,814 | |||||
TOTAL | 12,914,436 | 3,899,449 | 2,987,216 | 2,937,216 | 2,937,216 | 2,937,216 | 28,612,749 |
TABLE 25-13
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Product Marketing, Freight, Smelting, and Refining (FSR)
Terms
Parameter | Units | Value | |||
Doré Refining | |||||
Freight and insurance cost | $/kilogram doré | $ | 4.70 | ||
Refining cost | |||||
Metal based | $/kilogram doré | $ | 10.29 | ||
Lot based | per Lot (~300kg) | $ | 300.00 | ||
Combined | $/kilogram doré | $ | 11.29 | ||
Assaying and representation | $/kilogram doré | $ | 2.00 | ||
Payables | |||||
Silver | percent | 100% | |||
Gold | percent | 100% | |||
Concentrate FSR | |||||
Freight and insurance cost | $/dry tonne | $ | 16.00 | ||
Smelting cost | |||||
Base charge | $/dry tonne | $ | 505.00 | ||
Arsenic and zinc penalties | $/dry tonne | $ | 15.00 | ||
Combined | $/dry tonne | $ | 520.00 | ||
Assaying and representation | $/dry tonne | $ | 2.00 | ||
Payables | |||||
Silver & Gold | percent | 99.50% | |||
Lead (minus 3 units) | percent | ~90% |
Pincock, Allen & Holt | 25.19 |
90534 February 16, 2009 |
25.9.1 Economic Evaluation
FMPlata management provided a cash flow based on the 5-year Plan for the operation. The parameters used to build the cash flow are somewhat different than those used by PAH to evaluate La Parrilla Reserves and Resources. Operating costs are lower than 2008 actual costs, smelting terms are lower than the current Peñoles smelting prices, and throughputs are planned much higher than those achieved in 2008. The parameters are shown in Table 25-14 and the Cash Flow is shown in Table 25-15.
TABLE 25-14
First Majestic Silver
Corp.
First Majestic Plata, S.A. de C.V.
La Parrilla Silver
Mine
Principal Parameters for FM Plata 5-year Plan Cash Flow
PARAMETER | COST, PRICE OR OTHER |
Site Operating Costs | |
Mine ($/t) | $15.00 |
Mill ($/t) | 17.50 |
G&A ($/t) | 6.50 |
Sub Total | $39.00 |
Smelting Cost (per t of concentrates) | $430 |
Dore Treatment Charges ($/kg) | $8.04 |
Monetary Exchange Rate (peso/dollar) | $10.90:$1.00 |
Metal Prices | |
Ag ($/oz) | $12.00 |
Au ($/oz) | $708.00 |
Pb ($/lb) | $0.75 |
Zn ($/lb) | $0.75 |
An economic analysis of the project based on the FMPlata cash flow resulted in a net present value of $13.65M and an Internal Rate of Return of 176 percent. These values show La Parrillas current conditions, which are based on mining lower tonnage at lower grades due to mine preparation developments, and lower metallurgical recoveries due to processing ores from the oxides/sulphides transition zone. These conditions are also affected by high capital and operating costs generated by equipment acquisitions, an aggressive exploration program and mine preparation investments. In PAHs opinion La Parrilla operation should reach planned production rates, probably before the end of 2009. A summary of the NPVs for the project at several discounts is shown in Table 25-16.
TABLE 25-16
First Majestic Silver
Corp.
First Majestic Plata, S.A de C.V.
La Parrilla Silver
Mine
Economic Analysis Results for 5-year Plan
Discount Rate | NPV | |
ECONOMIC EVALUATION | (%) | ($US) |
0% | 19,369,314 | |
10% | 13,655,502 | |
NPVs | 15% | 11,628,858 |
20% | 9,982,165 | |
25% | 8,629,095 | |
IRR | 176% |
Pincock, Allen & Holt | 25.20 |
90534 February 16, 2009 |
Pincock, Allen & Holt | 25.21 |
90534 February 16, 2009 |
26.0
ILLUSTRATIONS
The illustrations supporting the various sections of this report are located within the relevant sections immediately following the references to the illustrations, for ease of reference. An index of tables and illustrations is provided at the beginning of this report.
Pincock, Allen & Holt | 26.1 |
90534 February 16, 2009 |
Richard Addison
165 So. Union Blvd., Suite 950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing. for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the San Martin Silver Mine, State of Jalisco, México dated January 15, 2009 (the Technical Report).
1. |
My residential address is: 857 S. Van Gordon Court, #G207, Lakewood, Colorado 80228. |
2. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
3. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EEC. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
4. |
I have worked as a metallurgical engineer for a total of 38 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
5. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
6. |
I am responsible for the preparation of Sections 3.6, Processing Facilities; Section 18, Mineral Processing and Metallurgical Testing; Section 25.3, Ore Processing; Section 25.4, Infrastructure; and Section 25.7.4, Product Marketing. I visited the San Martín project in November 2008. |
7. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
8. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
Pincock, Allen & Holt | 24.3 |
90535 January 15, 2009 |
9. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
10. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 15 th day of January 2009
Richard Addison
_______________________________________
Richard Addison,
P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | 24.4 |
90535 January 15, 2009 |
24.0 DATE AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite 950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
leonel@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the San Martin Silver Mine, State of Jalisco, México dated January 15, 2009 (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, a Member (No. 1943910RM) as SME Founding Registered Member, a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, and other technical subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the San Martín de Bolaños mine, as an independent engineer in 1991 and in 2005. I have previously visited the operation during the periods of May 16-19, 2005 and January 23-26, 2007. As part of this study, I visited the project site from November 2 to 4, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, inspecting exploration drilling locations, reviewing sampling |
Pincock, Allen & Holt | 24.1 |
90535 January 15, 2009 |
procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
|
7. |
I am the primary author of the Technical Report. I am responsible for all report sections including those report sections outside of my discipline of geology and resource modeling, which were prepared by other Pincock, Allen & Holt representatives that were qualified in those particular disciplines (mining, environmental and economics), which I believe to be reliable work. I have visited the project in January 2007 and November 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 15 th day of January 2009
Leonel López, C.P.G.
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | 24.2 |
90535 January 15, 2009 |
Technical Report for
the
San Martín Silver Mine,
State of Jalisco, México
Prepared for
First Majestic Silver Corp.
January 15,
2009
90535
Prepared by
Pincock, Allen & Holt
Richard Addison,
P.E.
Jack Haptonstall
Leonel López, C.P.G.
1.0 TITLE PAGE
This technical report has been prepared in accordance with the National Instrument 43-101 standards of disclosure for mineral projects (NI 43-101) and the contents herein are organized and in compliance with form 43-101F1 contents of the technical report (43-101F1). This technical report is an update of Technical Report Amended for the San Martín Silver Mine, State of Jalisco, México; which was prepared for First Majestic Silver Corp. dated July 24, 2007 and published in SEDAR in July 25, 2007. The first two items are the title page and table of contents that are presented previously in this report and are simply mentioned herein to maintain the specific report outline numbering contained in form 43-101F1 contents of the technical report.
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90535 January 15, 2009 |
2.0 TABLE OF CONTENTS
See discussion in Section 1.
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Pincock, Allen & Holt | i |
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Pincock, Allen & Holt | ii |
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Pincock, Allen & Holt | iii |
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TABLES
Pincock, Allen & Holt | iv |
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FIGURES
Pincock, Allen & Holt | v |
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3.0 SUMMARY
Pincock, Allen & Holt (PAH), a division of Runge, Inc. (Runge) was retained by First Majestic Silver Corp. (FMS), to conduct an independent reserve audit, project update, and prepare a Technical Report in accordance with Canadian National Instrument 43-101 for its San Martín Silver Mine (San Martín) operation, as represented and in operation by its wholly-owned Mexican subsidiary, Minera El Pilón, S.A. de C.V. (El Pilón).
Preparation of this Technical Report for FMS by PAH included a site visit (November 2-4, 2008) to review the San Martín mining operation current status, including underground mine, processing plant facilities and present environmental and infrastructure conditions. This Technical Report is also based on the previous Technical Report for the San Martín Silver Mine, State of Jalisco, México prepared for First Majestic Silver Corp., dated July 24, 2007 Amended and published in SEDAR on July 25, 2007. The PAH site visit also included a visit to El Pilón administrative and support office at Durango city, where Mr. Ramón Dávila, FMS Chief Operating Officer, provided all requested data on the Companys financial statements.
The San Martín mine includes underground operations that have opened six main drifts with levels at an approximate 35-meter vertical separation. Each one of the drifts has been developed to a maximum extension of approximately 3,000 meters, with interconnecting ramps between levels, and all have surface access to the Cerro Colorado hillside. Since 1983, when El Pilón initiated operations in the area, to September 30, 2008, about 4.3 million tonnes of silver ore have been extracted and processed, to produce sales of approximately 33.6 million ounces of silver, including some gold and lead. Most of the San Martín ore production has been mined out from the Zuloaga vein, with minor production extracted from the La Blanca, Rosario and Cinco Señores veins.
3.1 Location
The San Martín mine is located near the town of San Martín de Bolaños on the Bolaños River valley, in the northern portion of the State of Jalisco, México. The San Martín operation is 150 kilometers by air or 250 kilometers by paved road north from Guadalajara. Driving time is four to five hours and flying time is about 45 minutes by commuter or charter plane. The town of San Martín de Bolaños has a population of about 3,000 and the mine is a major contributor to the economy of the town and area.
The plant is located southeast of the town at an elevation of 850 meters asl. The mine is 10 kilometers northwest of the town at elevations between 1,080 and 1,600 asl. The Distance from the mine to the plant is about 13 km.
UTM coordinates at the central part of the San Martín mine operation area are as follows:
North 2,375,500; East 615,000
Pincock, Allen & Holt | 3.1 |
90535 January 15, 2009 |
3.2 Ownership
Minera El Pilón S.A. de C.V. (El Pilón) is a wholly owned subsidiary of First Majestic Silver Corp., which is based in Vancouver, British Columbia. El Pilón corporate offices are located in Durango city and operates the San Martín underground silver mine and ore processing facility near the town of San Martín de Bolaños in the State of Jalisco. Oxidized ore is being mined primarily from the Zuloaga vein and from the adjacent La Blanca, Rosario and Cinco Señores Veins. Exploration is on-going on these vein structures, on other sub-parallel, crossing veins and in a recently identified cymoid structure of the Zuloaga vein at the Ballenas level, in the blocks 5,400 and 5,550, as well as on the Rosario-Condesa vein system. Primary mineralization in sulfides with lead, zinc and copper occurs at the deepest levels, San Juan and San Carlos of the Zuloaga vein. FMS has withheld investigations and development of the sulfides mineralization due to currently low metal prices.
El Pilón holds 31 contiguous mining concessions in the San Martín de Bolaños mining district that cover mineral rights for 7,841 hectares.
3.3 Geology and Mineralization
The project area lies in the southern part of the Sierra Madre Occidental, an extensive volcanic terrain starting near the United States-Mexican border and trending southeast into the states of Zacatecas and Jalisco. The terrain is characterized by Tertiary age volcanic rocks that have been divided into a lower andesitic sequence of early Tertiary age (40 to 70 million years) and an upper rhyolitic sequence of middle Tertiary age (20 to 40 million years). Volcanism, structural development and mineralization in the San Martín area occurred during late Miocene, resulting in a complex geologic framework, (Starling, 2001). Two distinct features have been recognized by different authors, the pre and post mineralization rock formations, and the indicator Guásima Formation.
The mine has been developed on the Zuloaga vein, which has by far been the most extensively developed vein in the district, having accounted for about one-half of the silver production in the district. Production also occurs from the La Blanca vein, a vertical split off of the Zuloaga vein. The Zuloaga vein occurs along an east-west trending normal fault zone that dips an average 75 degrees to the north, with the hanging wall of the fault down-dropped 100 to 200 meters relative to the footwall. The vein has been identified over a strike length of 3 kilometers, with a developed vertical extent of about 350 meters. El Pilón is developing exploration and rehabilitation of workings along crosscutting veins to the Zuloaga structure, at the Rebaje 40 Oriente on the Cangrejos Level, and at the Rebaje 1100 on the Ballenas Level; in both cases NS veins intersecting the Zuloaga vein show high grade mineralization in widths of up to 10 meters to the hanging wall of previously mined narrow structures. Recent FMS exploration works have identified a Cymoidal structure of the Zuloaga vein at the mine levels 5,400 to 5,550 and it is preparing access and drilling to evaluate its potential.
La Blanca vein is a near-vertical split off of the Zuloaga vein that cuts upward through the Zuloaga hanging wall. La Blanca vein is typically irregular and narrow, but where mineralized, has higher silver and zinc grades.
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90535 January 15, 2009 |
Two additional veins, the Condesa and Rosario, occur to the southwest and have northwest trends. Access to these veins is from the town of San Martín via an 11.4 kilometer gravel road. The Condesa structure strikes N 40° W and dips 81° SW. The Condesa workings show mineralization over 150 meters along strike, with mineralized zone ranging from 1.5 to 2.0 meters in width and occurring in a quartz-cemented andesitic breccia. The Rosario mine is located within the Santa Rosa arroyo at an elevation of 1,600 meters. The Rosario mine is 11.7 kilometers from the town of San Martín on the same gravel road leading to the Condesa mine. These vein trends intersect the Zuloaga vein in an area below mineralized surface outcrops of the vein and represent a potential exploration target.
3.4 Exploration and Project Data
Exploration potential for finding and developing new resources/reserves in the San Martín district appears to be promising. Ore bodies in the mine are typically indicated at depth beneath zones of alteration on the surface expression of the Zuloaga vein. The Zuloaga vein projections from developed mine levels towards its outcropping is under development, since it may hold a significant amount of oxides mineralization. Access to the zone is difficult due to topographic constrains; however, FMS is developing access from the La Escondida level, at the Pinolea level. The vein outcroppings show alteration zones that may be correlated to indicate ore concentrations in the upper portion of the Zuloaga vein.
Direct exploration development is integrated into the mine preparation programs, and for vein deposits this has proven to be the most effective method of exploration. For the year 2007, the El Pilóns drilling program completed 3,900 meters from underground access, while for the year 2008, the program of exploration included drilling 15,719 meters from underground workings, in addition to about 3,770 meters of underground development in drifts and crosscuts for exploration and drill site access.
The 2009 drilling program designed for the San Martín mine includes 93 drill holes to explore the La Escondida level, Rosario, Condesa, Providencia, La Esperanza, Cymoid and other areas below the known ore shoots on the Zuloaga vein. These 93 drill holes with a total of 13,400 meters are directed to investigate areas of resources with the objective to increase reserves, and if it is successful, the program should result in additional resources for the mine. Due to current market conditions at the time of writing this report, FMS has delayed this program; however, the estimated investment of drilling from underground workings is US$1.80 million.
Exploration sampling for reserve delineation in the San Martín mine is conducted by drifting along the mineralized zone so that channel samples can be taken and diamond drilling can be conducted. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structure, across the back of the drift. Sampling crews take channel samples at irregular intervals, typically with one sample every 2 to 3.5 meters along new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles.
Core drilling is conducted locally to test the upward and downward projections of the structural zone at a distance from the drifts. Core samples are BQ size, 36 millimeters in diameter, and holes are reportedly of generally good recovery (90 percent), with the remaining bad ground having modest recovery (50 to 60 percent).
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90535 January 15, 2009 |
Channel, exploration, mine development and production, and plant samples are sent to San Martins on site laboratory for chemical analysis of silver and gold. In more recent years additional analyses by atomic absorption for lead and zinc in geology samples have become routine. To evaluate sample quality control, San Martin performs multiple assays, up to three times on some samples, and periodic check analyses on samples. Since 2004, the San Martin mine has sent about 10 pulp samples each month to ALS Chemex Laboratories, amount of duplicate samples to SGS Labs in Guadalajara city, for duplicate analysis, obtaining good correlation in silver values and poor correlation in gold assays. The latter is probably a consequence of the very low gold content of the samples.
3.5 Mining Methods
Current mine production has been averaging about 775 tonnes per day (tpd) from stopes located on La Escondida, San José, Ballenas, Congrejos, San Pablo, San Juan, Santa Elena, and San Carlos levels. Underground drilling is performed using jackleg drills, and blasting is accomplished with ANFO explosives. Underground loading and haulage is performed with 2 cy, 3 cy and 5 cy LHD's (scooptrams) and 10 to 13 tonne-capacity trucks. Opening sizes are driven at 4.0 meters by 3.5 meters. Ramp inclinations are generally limited to about 12 percent. Typically, the total advance for drifting, ramping and raising is about 550 meters per month. The average productivity in headings is 0.7 meters per manshift, which is in the normal range for this type of development.
Mechanized, cut and fill stopes now account for 100 percent of the production, and these are developed either directly on the vein or by first driving a drift on the vein and then driving a parallel drift about 8 meters away, leaving a pillar between the drifts. Crosscuts are then driven about every 10 meters from the parallel drift through the pillar to the vein for ore extraction. Raises are driven as needed to provide access, services and ventilation.
Ore is trammed to surface with LHDs or low-profile dump trucks and stockpiled at surface dump sites. On the surface, the ore is loaded from stockpiles into 22-tonne trucks for transport to the mill some 13 kilometers away over a gravel road. The ore haulage from the mine to the mill is performed by a contractor.
3.6 Processing Facilities
The San Martín processing plant has been in operation since 1983 at an increasing capacity that has reached 750 tonnes per day and is currently being expanded to 1000 tonnes per day. Silver ore is processed by conventional cyanidation, using agitation in tanks, counter-current decantation (CCD) thickening, and precipitation of the dissolved silver and gold by cementation with zinc dust in the Merrill-Crow process. The precipitate is then smelted to produce doré for shipment to commercial refineries. In addition to the cyanidation system, the plant also produces a gravity concentrate which is sold to a smelter; the gravity system recovers about 1 percent of the silver and 3 percent of the gold in the ore.
Pincock, Allen & Holt | 3.4 |
90535 January 15, 2009 |
Since 1983, the San Martin mine has produced more than 33.3 million ounces of silver together with small amounts of gold.
Plant statistics indicate that during the first three quarters of 2008 plant feed rock (a combination of mine ore and fines screened from waste dumps) averaged 131 g/t silver and about 0.23 g/t gold. Silver and gold recovery into Doré and gravity concentrates for the first three quarters of 2008 were 76.39 and 54.91 percent, respectively. FMS built a 500 tpd flotation circuit which was commissioned during the year and is not in operation due to the low lead and zinc prices and higher smelter costs.
3.7 Mineral Reserves/Resources
The San Martin mine uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineable reserves. Reserves are calculated annually, at the end of each calendar year. For this report, PAH has reviewed the reserve dated September 30, 2008 (referred to subsequently as the September 30, 2008 Reserve).
Table 3-1 shows a summary of Mineral Reserves and Resources for the San Martín Silver Mine to September 30, 2008.
3.7.1 Reserve Estimates
Reserve blocks have been defined at the various drift levels in the mine where sampling has found economically mineable mineralization within the Zuloaga, La Blanca and two NS newly-accessed veins. The reserve tonnage and grade are based largely on channel samples, locally with some influence from drill core samples. Reserve blocks range from 10 to 50 meters in length along the vein trend, with proven reserve blocks projected up to 25 meters from the drift in which the channel samples were taken, and probable blocks extending another 25 meters beyond the proven blocks.
For the present (September 30, 2008) mineable reserve, PAHs economic breakeven cutoff grade calculation was based (G ag ), solely on a projected $12.00 per ounce for silver, and the total 2008 operating cost and process recoveries as follows:
G ag = $43.09/( $12.00 x 0.775 X 0.99 ) = 4.68 oz/tonne or 146 g Ag/tonne
All 2007 and 2008 production has come from the mechanized cut and fill mining.
The gold contained in Doré and concentrates was 19,770 grams (635 ounces), which would indicate a recovered grade of about 0.14 g/t. For each ounce of silver paid there were 0.001 ounces of gold paid (635 ounces Au/724,239 ounces Ag). At a gold price of US$708/oz, this represents a contribution of US$0.62 per ounce of silver.
Pincock, Allen & Holt | 3.5 |
90535 January 15, 2009 |
TABLE
3-1
First
Majestic
Silver Corp.
Minera
El Pilón, S.A. de C.V.
San
Martín
Silver Mine
Mineral
Reserves
Prepared
by FMS,
Reviewed
by PAH as of
September
30, 2008
CATEGORY | Mineralization | Metric | Width | Ag | Pb | Zn | METAL CONTAINED | |
Proven Reserves | Type | Tonnes | m | g/tonne | % | % | Silver (Only) oz. | Silver Eq oz. |
SUBTOTAL - 1 | Oxides | 527,373 | 2.72 | 273 | 4,636,211 | 4,805,765 | ||
Probable Reserves | ||||||||
SUBTOTAL - 2 | Oxides | 243,091 | 2.56 | 276 | 2,154,571 | 2,232,727 | ||
Proven and Probable Reserves | ||||||||
TOTAL | Oxides | 770,464 | 2.67 | 274 | 6,790,782 | 7,038,492 | ||
Mineral Resources | ||||||||
Measured Resources | ||||||||
SUBTOTAL - 3 | Oxides | 122,404 | 4.95 | 233 | 915,774 | 955,128 | ||
SUBTOTAL - 4 | Sulfides | 415,771 | 3.23 | 97 | 0.87 | 2.07 | 1,292,213 | 1,292,213 |
Indicated Resources | ||||||||
SUBTOTAL - 5 | Oxides | 294,361 | 4.49 | 288 | 2,729,201 | 2,823,840 | ||
SUBTOTAL - 6 | Sulfides | 670,684 | 4.95 | 116 | 0.94 | 1.64 | 2,498,639 | 2,498,639 |
Measured and Indicated Resources | ||||||||
TOTAL | Oxides plus Sulfides | 1,503,220 | 4.38 | 154 | 0.91 | 1.80 | 7,435,827 | 7,569,820 |
Proven and Probable Reserves plus Measured and Indicated Resources. | ||||||||
TOTAL RESERVES AND RESOURCES | Oxides plus Sulfides | 2,273,684 | 3.80 | 195 | 0.91 | 1.80 | 14,226,609 | 14,608,312 |
(1) Estimated Reserves are exclusive of
Resources.
(2) Cut Off estimates as 146 g/tonne Ag for
mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits =
10g/tonne Ag.
(3) Metal prices at $708/oz-Au, $12.00/oz
-Ag, $0.75/lb -Pb, $0.50/lb -Zn.
(4) Mine dilution is
included at a minimum mining width of 2.00m.
Estimates
do not
include
mining
recovery
.
(5) Base metals, Lead and Zinc are not recovered due to low market
prices.
Inferred Resources | ||||||||
Inferred Resources | ||||||||
TOTAL (6) | Oxides plus Sulfides | 8,200,000 | 5.33 | 185 | 1.40 | 1.60 | 48,900,000 | 50,000,000 |
(1) Estimated Reserves are exclusive of Resources.
(2) Inferred Resources are especulative in nature and may not become
Reserves.
(3) Metal prices at $708/oz-Au, $12.00/oz -Ag, $0.75/lb -Pb, $0.50/lb
-Zn.
(4) Mine dilution is included at a minimum mining width of 2.00m.
Estimates
do not
include
mining
recovery
.
(5) Base metals, Lead and Zinc are not recovered due to low market
prices.
(6) Rounded figures.
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In addition to the Doré sales, a gravity concentrate is produced. During 2008, 43.6 tonnes of concentrate were sold that contained 4,400 kilograms (9,698 lbs) of lead in the concentrates. For each ounce of silver sold, approximately 0.013 kilograms (0.03 lbs) of lead were sold. At US$0.75/lb of lead, this contributes another US$0.02 per ounce of silver.
This would indicate a total contribution of gold and lead of US$0.64 per ounce of silver.
The silver equivalent breakeven cutoff grade (G ag eq ), considering the gold/lead contribution, converted to an equivalent silver grade, would be as follows. Since the metal quantities and values shown in the gold/lead contribution include process recoveries, they are not repeated in the cutoff estimation.
G ag eq = $43.09/(( $12.00 x0.775 X 0.99) + $0.64)) = 4.38 oz Ag eq./tonne, or about 136 grams Ag eq/tonne.
Most of the January through September 2008 production has been derived from the mechanized cut and fill mining of oxide ores, however, a small amount was obtained from the recovery of old dumps at the mine site. Possible resources of dump material remain, and PAH also calculated a cutoff grade for this material as follows:
C Ag = $25.63/( $12.00 X 0.775 X 0.99) = 2.78 oz Ag/tonne or 87 g Ag/tonne
Milled oxide ore production for the first 9 months of 2008 was 145,592 tonnes, at an average grade of 131 g Ag/t, and 0.25 g Au/t. Milling of oxide ore from the underground mine totaled 132,043 tonnes at an average grade of 133 g/t Ag, and that from the mine dump recovery totaled 13,549 tonnes at an average grade of 111 g/t Ag. Gold is present in payable quantities in many areas and lead in some. In the cutoff grade calculation the small gold and lead credits are already included as an operating cost deduction (see Table 25-6).
There was a significant tonnage of sulfide material (57,072 tonnes) extracted from the mine and transported to the mill patios during the first 9 months of 2008, however, only small amounts of this material were processed in the new flotation plant, as test material. The sulfide material remains stockpiled on the mill patios and will not be processed until market conditions improve for lead and zinc, nor will any additional sulfides be extracted from the mine. In view of the foregoing, PAH has not calculated a cutoff grade for San Martín sulfide material.
From the 145,592 tonnes of production, the silver sold in Doré and concentrates during the first 9 months of 2008 was 22.5 million grams (724,239 ozs.). The gold sold in Doré and concentrates during the 9-month period of 2008 was 19,770 grams (635 ounces). The estimated process recovery for gold was 55.4 percent. For each ounce of silver paid there were 0.001 ounces of gold paid (635 ounces Au/ 724,239 oz. Ag). At a gold price of US$708/oz, this represents a contribution of US$0.62 per ounce of silver.
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In addition to the Doré sales, a gravity concentrate is produced. During 2008, 43.6 tonnes of gravity concentrates were sold that contained silver, gold and lead values, and the payable lead content was approximately 4,400 kilos of lead. For each ounce of silver sold, approximately 0.01 kilograms (0.02 lbs) of lead were sold. At a price of $0.75/lb of lead, this contributes another $0.02 per ounce of silver.
This would indicate a total contribution of gold and lead of $0.64 per ounce of silver, which have been included a by-product credit to operating costs (see Table 25-6).
This cutoff estimate was the basis that PAH used to calculate the September 2008 Reserves. PAH notes that that the reserve is in addition to the material considered as resources.
PAH believes that these reserve estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves. PAH believes that the classification of the reserves meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
3.7.2 Resource Estimates
The resource calculations by FMS are based on projections of the mineralized zones of 50 meters beyond the areas of the reserves for the measured resources, and another 50 meters beyond the boundaries of the measured resources for the blocks of indicated resources. The grade for these blocks is determined from the grade estimated for the adjacent reserve blocks, and sampling in mine workings and drill holes located within the block area.
In addition to the reserves, FMS has estimated resources in blocks along the Zuloaga, La Blanca, Plomosa Rosario, and Rosario Condesa veins, and in two other NS newly accessed veins that cross the main mineralized structure. These blocks were estimated in the same manner as that described previously for the reserve blocks, with the additional calculation of lead and zinc assays where they are available. During the period of 2006, the San Martin generated production of lead and gold in gravity concentrates adding some contributions for these metals to the silver recovery and sales. The estimated contribution for these metals was approximately 8 percent for the year; therefore, it is reasonable to add that value to the estimated silver grade, but with no additional contribution of zinc.
FMSs estimated resource blocks do not include the estimated reserve blocks since these have been projected at distances that are adjacent and beyond the reserve blocks boundaries.
Mineral resources do not include development details for underground mine accessibility and mine planning; therefore, in PAHs opinion these resources are appropriately reported as resources, with estimated tonnage and grade calculated from available data on an in-situ basis.
Based on these assumptions, and in the mines silver COG, PAH reviewed FMSs estimates, resulting in measured and indicated resources of silver equivalent, which includes credit for lead and gold at projected prices for the silver US$12/oz, for lead $0.75/lb and for zinc $0.50/lb, which equates to about 10 grams of silver per tonne of ore. These estimates do not take in consideration mine dilution nor mine and metallurgical recoveries, or S&R charges. The resources are estimated as In Situ material as shown in Table 3-1. At the current rate of San Martíns production, the resources may add about five more years of life to the mine, with additional potential of inferred resources.
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The mineral resources estimated by FMS and reviewed by PAH are presented in Table 3-1. PAH notes that these resources are in addition to the previously reported reserve.
PAH believes that these resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of resources. PAH believes that the classification of the resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The reserves and resources herein reported by FMS for the San Martín Silver Mine were reviewed by PAH and constitute part of the San Martin mining operation. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these reserves and resources may not be materially affected by issues that could prevent their extraction and processing.
3.8 Environmental
The San Martín mine has been operating since 1983 with the necessary land-use and water extraction permits in effect for the operation. El Pilón has purchase the land surface rights where the mine and plant installations are located to better manage the property. Through the years and changes in regulatory framework, El Pilón has been required to update the necessary operation permits.
PAHs environmental and safety review consisted of discussions with site management and supervision Ing. Juan Francisco Díaz de León V., Mine Manager of Security and Environmental, and the site visit to observe the current site safety and environmental conditions and to identify any potential liabilities having significant economic impacts. Our assessment is not intended as an environmental and safety compliance audit, although prudent practices were considered in our review. In PAHs opinion, the San Martin mine is in compliance with the required permits and authorizations.
Periodic regulatory inspections of the site by SEMARNAP and the Mines Department are being performed to observe compliance. PAH has reviewed permits and authorizations for the San Martín operation and believes it is in compliance with applicable regulations and obtains permits as required.
3.9 Conclusions
The San Martín Silver Mine is a modest-sized underground operation that has utilized used equipment, whenever possible, and expensed its replacement equipment to a large extent. However, according to a new FMS policy, new equipment has been purchased as part of the capital expenditure program. This program of equipment replacement by FMS has been in place for the last two years, including 7 scoop trams, 5 underground trucks and 1 jumbo.
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Capital forecast for San Martín during the last quarter of 2008 and 2009 is presented in Table 25-9 and totals $1.6 million and $2.1 million. An amount of $150,000 has been estimated for portal closures (ten at $10,000 each) and for tailings pond reclamation. Salvage of plant equipment is forecast to just equal dismantling.
A summary of production including oxides and sulfides is presented in Table 3-2. Production costs for the mine in January to September, 2008 are provided in Table 25-6, based on mine accounting records. A total of US$7.9 million was expended during the 9-months period to produce roughly 184,440 tonnes of ore, containing saleable silver amounting to 796,524 ounces. On a unit basis, cash production costs were $40.87/tonne of ore, and $10.40/oz of silver produced. Unit costs of $41.30/tonne of ore are projected for the rest of 2008 and subsequent years.
TABLE 3-2
First Majestic Silver
Corp.
Cia. Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Summary of Economic Analysis - Sensitivity
Case | Discount | NPV, US$ M |
Base | 12 % | 15.00 |
Increase Silver price | 10 % | 18.60 |
Decrease Silver price | 10 % | 11.60 |
Increase Operating costs | 10 % | 13.40 |
Decrease Operating costs | 10 % | 16.80 |
Increase Capital costs | 10 % | 14.80 |
Decrease Capital costs | 10 % | 15.30 |
A simplified cash flow forecast has been prepared and is presented as Table 25-10. The economics covers the period through December 2011, at which time the known proven/probable reserves will be exhausted. In the interim, of course, it is expected that underground exploration will be advanced through both diamond drilling and drifting, and that reserves will continually be added over time from the strong resource base of the mine. FMS has allocated a high capital investment for San Martín to develop reserves and extend the mine life.
Basic premises for the cash flow involve silver prices, which are taken at $12/ounce for 2008, 2009 and 2010 and $13/ounce thereafter. Gold sales are presented at a percentage of silver revenues and are predicated on historical returns in the past. Operating costs and expenses are projected to be decreased by 24 percent annually. Reclamation expenditures are considered spent in the remaining months of 2008. It can be seen from the table that a net present value for the project at a 12-percent discount rate is approximately $15.00 million.
As expected, the operation exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally. In all cases, however, the San Martín mine shows positive economics as measured by a cash flow exercise, and thus the postulated reserve position is accepted.
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4.0 INTRODUCTION
4.1 Terms of Reference
Pincock, Allen & Holt (PAH), a division of Runge, Inc. (Runge) was retained by First Majestic Silver Corp. (FMS), to conduct an independent reserve audit and project update, and prepare a Technical Report in accordance with Canadian National Instrument 43-101 for its San Martín Silver Mine operation, as represented by its wholly-owned Mexican subsidiary, Minera El Pilón, S.A. de C.V., (El Pilón).
FMS of Vancouver, British Columbia (traded as FR on the Toronto Stock Exchange and as FMV on the Frankfurt Stock Exchange) has been operating the San Martín mine since its acquisition in June 2006, while the mine has been in continuous production since 1983. Total recorded production from the San Martín mine to September 2008, is 33.6 million troy ounces of silver including some gold and lead from 4.3 million tonnes of ore. The operation consists of an underground silver mine and an 800-metric-tonne-per-day (tpd) capacity processing plant that produces Doré and gravity concentrates for shipment to Met-Mex Peñoles (Met-Mex) smelter in Torreón, Coahuila, México. During the first 9 months of 2008, San Martin processed 184,440 tonnes of ore and shipped Doré product that contained 724,240 troy ounces of silver and 691 troy ounces of gold. El Pilón also shipped 43.6 tonnes of gravimetric concentrates to Met-Mex smelter that contained 4,400 kilograms of lead, for a total production of 796,524 ounces of silver equivalent.
4.2 Purpose of the Technical Report
Preparation of this Technical Report for FMS by PAH included a site visit to review the San Martín mining operation current status, including underground mine, processing plant facilities and present environmental and infrastructure conditions. PAH site visit also included a visit to San Martín administrative and support office at Durango city, where Mr. Ramón Dávila, FMS Chief Operating Officer provided all requested data on the Companys financial statements.
During the site visit to San Martín, PAHs personal had the opportunity to interview technical and operative personal for the mine, plant, laboratory, administration, and from other areas of responsibility within the operation. PAH greatly appreciates the support and cooperation provided by FMS Ing. Florentino Muñoz and Ing. Ricardo Flores during the trip and other employees and administrators, including Ing. J. Miguel Ríos G., Mine Manager of Operations, Ing. Rafael Romo Gaucin, Mine Chief Geologist, and Ing. Sergio Oliva, Plant Superintendent, Ing. Cristóbal Jiménez, Geologist, and many others.
The San Martín mining operation is protected by the mineral rights of 31 valid concessions that cover 7,841 hectares (19,375 acres). PAH has not reviewed the legal status of the mineral concessions; however, in title opinion provided to FMS by the legal firm of Carlos Galván Pastoriza from Durango City, dated September 30, 2008, is stated that all mining rights described in Table 6-1 hereto have been validly issued and recorded properly in the Public Registry of Mining when required by law and are in full force and effect. This Technical Report was completed to meet the requirements of Canada National Instrument 43-101.
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4.2.1 Sources of Information
Technical data on the San Martín mining operation was provided by FMS and or its subsidiarys to PAH, including information, maps, and reports generated by its own personnel, as well as reports prepared on behalf of FMS. A list of reports and files is presented in Section 21.0, References.
In addition to the above indicated sources of information, PAHs own references included various Technical Reports (public information) on behalf of FMS, including Technical Report for the San Martín Silver Mine, State of Jalisco, México Amended prepared for First Majestic Silver Corp. dated July 24, 2007 and published at SEDAR on July 25, 2007.
Previous studies by PAH in the San Martín mining district included geologic and exploration investigations of the Bolaños mine, which is located at about 20 kilometers to the North, within the same San Martín mining district.
4.3 Site Visit
The San Martín mine was visited from November 2-4, 2008, by PAH team members Leonel López, Jack Haptonstall and Richard Addison, as PAH representatives, as Independent Engineers and Qualified Persons for the purpose of auditing the reserves, observing the operation of the mine and process facilities, inspecting the condition of support facilities and infrastructure, and observing the general site environmental conditions.
PAH previously visited the San Martín mine to perform independent reserve audits and project updates in late 2001, February 1999, in February 1998, in early 1997, and in 1996 to prepare a valuation of El Pilóns operation prior to First Silver Reserves acquisition of the company in early 1997, and on behalf of FSR during the period of May 1619, 2005 and January 23-26, 2007. Personnel assigned for this study includes the following:
4.4 Terms and Definitions
FMS refers to First Majestic Silver Corp.
FSR refers to First Silver Reserve Inc. A wholly owned subsidiary of FMS since September 2006.
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INEGI refers to Instituto Nacional de Estadística, Geografía e Informática.
Ing. refers to engineer, a University professional graduate.
PAH refers to Pincock, Allen and Holt, Inc., a division of Runge, Inc.
Peñoles or Met-Mex refers to Metalúrgica Mexicana Met-Mex Peñoles, S.A. de C.V.
El Pilón refers to Minera El Pilón, S.A. de C.V., a Mexican corporation wholly-owned subsidiary of First Majestic Silver Corp.
San Martín, San Martín mine or San Martín operation refers to the San Martín Silver Mine and mining operation sometimes referred to in other publications as the San Martín de Bolanos Silver Mine, which includes underground mine, processing plant and ancillary installations, and operated by Minera El Pilón, S.A. de C.V.
Zuloaga mine also refers to San Martín mine, which is developed on the Zuloaga vein.
TSX refers to Toronto Stock Exchange.
RC refers to reverse circulation drilling.
COG refers to Cutoff Grade.
g/t Ag or g/tonne Ag refer to grams per metric tonne.
g/t Au refers to grams per metric tonne.
Pb (%) refers to the grade of lead in percent.
Zn (%) refers to the grade of zinc in percent.
tpd refers to metric tonnes per day.
m refers to meter.
km refers to kilometers, 1,000 meters.
mm refers to millimeters.
asl refers to elevations above sea level.
SEMARNAP refers to Secretaría del Medio Ambiente, Recursos Naturales y Pesca.
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CAN$ refers to Canadian currency.
$ refers to US currency, and
$ Pesos refers to Mexican currency.
4.5 Units
Units in this report are metric unless otherwise noted.
Tonnage figures are dry, metric tonnes, unless otherwise stated.
Precious metal content is reported in grams per metric tonne (g/t) or grams (g), except where otherwise stated.
Elevations reported as meters above mean sea level (asl).
All coordinates used for location and elevations referenced on maps and text in this report are based on newly obtained Universal Transverse Mercator and have been referred to by project personnel as the Global UTM system, and they are based on the Map Datum NAD27-México.
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5.0 RELIANCE ON OTHER EXPERTS
This Technical Report was prepared for First Majestic Silver Corp. (FMS) by the independent consulting firm of Pincock, Allen & Holt (PAH), to report the results of a review performed on its San Martín Silver Mine operations. The mine is operated by FMS through its wholly-owned Mexican subsidiary, Minera El Pilón, S.A. de C.V.
The Technical Report is based on information available and provided to PAH at the time of the report, largely including data by FMS and its subsidiarys and to a lesser extent including information by third parties and generated by PAH. PAH believes that the information contained herein will be reliable under the conditions and subject to the limitations set forth herein. For mineral rights legal title, as well as assessment works and permits required by Mexican Mining and Environmental Laws, PAH has only relied on previous public reports, Legal Opinions, verbal assessments and confirmations by FMS personnel and consultants who are experienced professionals.
According to the Durango-based Legal Firm of Carlos Galván Patoriza, San Martín mining operations are currently and have always been conducted, in compliance with all applicable laws and regulations of the jurisdiction in which the property is located or in which San Martín mining operations are conducted, dated September 30, 2008.
Some parts of this Technical Report have not been included to avoid duplication of information that has not been modified or changed from previous Technical Reports prepared by PAH for First Silver Reserves Inc. regarding the same mining operation of San Martín de Bolaños dated June 23, 2005 and published at SEDAR on July 5, 2005 and Technical Report for the San Martín de Bolaños Silver Mine, State of Jalisco, México Amended dated July 24, 2007 and published in SEDAR on July 25, 2007 prepared by PAH on behalf of FMS.
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6.0 PROPERTY DESCRIPTION AND LOCATION
6.1 Property Description
First Majestic Silver Corp. operates the San Martín Silver Mine that consists of a predominantly silver mine and processing plant through its wholly owned Mexican subsidiary Minera El Pilón, S.A. de C.V. (El Pilón), the project is located near the town of San Martín de Bolaños, in the State of Jalisco, México.
The San Martín mine includes underground operations that have opened six main drifts with levels at an approximate 35-meter vertical separation. Each one of the drifts has been developed to a maximum extension of approximately 3,000 meters, with interconnecting ramps between levels, and all have surface access to the Cerro Colorado hillside. Since 1983, when El Pilón initiated operations in the area, to September 2008, over 4.3 million tonnes of silver ore have been extracted and processed, for sales of approximately 33.6 million ounces of silver, including some gold and lead. Most of the San Martín ore production has been mined from the Zuloaga vein, with only minor production extracted from the La Blanca, Rosario, Cinco Señores and Condesa veins.
The San Martín ore is transported via a 13-kilometer dirt road from the mine installations to the processing plant from an elevation of 1,080-meter above-sea-level (asl), to about 850. The processing plant consists of crushing, grinding and conventional cyanidation by agitation in tanks. Silver and gold values in solution are then precipitated by the Merrill-Crow method, by adding zinc dust and smelting the resulting precipitates into Doré bars for shipment to a smelter. A gravity separation circuit, consisting of two Falcon concentrators and one vibrating Wilffley table has been added to the processing system to recuperate coarse grains of gold and silver and some sulfides that are not recovered in the cyanidation circuit.
Other installations include laboratory facilities, offices, dining room, and some housing for key employees.
In addition to the mineral rights covered by 31 mining concessions that include 7,841 hectares (19,375 acres), El Pilón has purchased the surface rights for 1,295.81 hectares (3,202 acres) of land that include the mine and mine installations, part of the access roads, and surrounding areas. Additionally, El Pilón has acquired the surface rights of 159.52 hectares (394 acres) of land where the plant installations and camp are located.
El Pilóns corporate activities are maintained within FMSs head Mexican offices located in the capital city of Durango, State of Durango, where purchasing, legal and accounting administrative functions provide support to each of FMSs subsidiarys and mining operations.
6.2 Location
The San Martín mine is located near the town of San Martín de Bolaños on the Bolaños River valley, in the northern portion of the State of Jalisco, México. The San Martín operation is 150 kilometers by air or 250 kilometers by paved road north from Guadalajara city. Driving time is four to five hours and flying time is about 45 minutes by charter plane. The town of San Martín de Bolaños has a population of about 3,000 and the mine is a major contributor to the economy of the town and area.
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The plant is located southeast of the town at an elevation of 850 meters asl. The mine is 10 kilometers northwest of the town at elevations between 1,080 and 1,190 asl. Figure 6-1 shows a general location map.
UTM coordinates at the central part of the San Martín mine area are as follows:
North 2,375,500
East 615,000
6.3 Property Ownership
Minera El Pilón was a wholly owned subsidiary of First Silver Reserve Inc. which was acquired in September 2006 by First Majestic Silver Corp. and subsequently delisted from the Toronto Stock Exchange. FMS is based in Vancouver, British Columbia. El Pilóns corporate offices are located in Durango, México. El Pilón operates the San Martín silver mine, an underground silver mine and ore processing facility near San Martín de Bolaños. Ore is being mined primarily from the Zuloaga Vein. Exploration is on-going on the Zuloaga vein and in other sub-parallel and crossing veins that have been uncovered recently on the San Carlos level, as well as on the Rosario-Condesa vein system. Figure 6-2 depicts El Pilóns San Martín general layout.
El Pilón holds 31 contiguous mining concessions in the San Martín mining district that cover mineral rights for 7,840.5692 hectares. These include 31 mining concessions with exploitation rights.
The process to acquire mineral rights from the Mining Department in México (Dirección General de Minas) is initiated by surveying the area of coverage. The applicant must present a location map of the area requested for mineral rights, which includes description of local prominent features and relative position with regards to other adjacent and nearby pre-existing claims. If the claimed area is free at the time of presenting the application, then a Mining Concession is granted for a 50-year term, which may be renewed for similar duration. The Dirección General de Minas issued new Regulations, by Presidential decree, regarding mining concessions in April 26, 2005, to be applied from January 1, 2006, whereby all the Exploration and Exploitation mining claims were transformed to a unique type of Mining Concession for a renewable duration of 50 years. Previous mining claims were automatically adjusted to a 50 year- term from the date of their registration in the Mining Public Registry. The El Pilón title records are maintained in Guadalajara, the state capital city of Jalisco, at the Mining Agency (Agencia de Minería), and at the Central Mining Registry in México City (Dirección General de Minas).
According to El Pilóns concession title dates, mineral rights are due for the earliest titled concessions in the year 2035 (Ampl. Patricia), and most other claims have expiration dates to the years 2050s; these however, may be renewed for another 50 years. PAH reviewed the legal opinion on the current legal status of the properties, which was issued by the legal firm of Carlos Galván Pastoriza from Durango City, where the concessions legal status is confirmed as in good legal standing. Table 6-1 presents a list of El Pilóns mining concessions. Figure 6-3 shows San Martín mining concessions map.
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6.4 Mineral Tenure
According to El Pilóns personal and Mr. Carlos Galván Pastorizas legal opinion, all mineral concessions are current in assessment work, property taxes and other obligations required by Mexican Mining and Environmental Laws and Regulations.
No royalties or any other encumbrances are due on El Pilón mining concessions.
El Pilón also reported that it owns two lots that cover 1,295.8163 hectares (3,202 acres) of surface land surrounding the mine, and owns another 159.520 hectares (394 acres) of surface land in five lots that include the plant site, camp and tailings areas.
All mining and environmental activities in México are regulated by the Dirección General de Minas and by the SEMARNAP from México City, under the corresponding Laws and Regulations. All minerals below-surface rights lie with the State; while surface rights are owned by ejidos (communities) or private individuals, allowing them the right of access and use of their land.
At the San Martín and nearby areas there are no ejidos; most land is privately owned.
Provisions are included in the Mexican Mining Law to permit expropriation of surface rights for development of projects that are of general economic interest, including mining operations.
6.5 Surface Land Ownership
The surface rights to the San Martín mine are mostly owned by El Pilón and only part of the access roads are in land of other private owners. El Pilón has negotiated surface rights agreements with some individual owners for parts of the road of access. An important consideration is the traditional use of land, which in fact, recognizes that mining is the preferred use of the land in and around old mining workings, as well as current conditions for the proper use of the land. In fact, the right of way provisions allow for free access to mining claims despite land ownership. Topographic conditions at the San Martín mine area do not allow for proper development of other economic activities for the use of the land.
According to FMS, there is a good working relationship with people of the town of San Martín de Bolaños, since many of the inhabitants are necessarily employed in the exploration or mining operations. No labor or access problems have been reported by FMS within the area.
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TABLE 6-1
First Majestic Silver
Corp.
Minera El Pilón, S.A de C.V.
San Martín Silver
Mine
Mining Concessions - September 30, 2008
No. | Concession Name | Title No. | Surface Ha. |
1 | La Zuloaga | 178831 | 9.0000 |
2 | La Mancha | 172212 | 270.0000 |
3 | Polo | 178829 | 88.0000 |
4 | San Judas | 179604 | 140.0000 |
5 | Santitos | 179605 | 69.4479 |
6 | Zuloaga Dos | 185281 | 168.8724 |
7 | Pinalillo Dos | 185284 | 79.7712 |
8 | Zuloaga Tres | 185307 | 220.0000 |
9 | Zuloaga Cuatro | 188862 | 282.5180 |
10 | Zuloaga Cinco | 191989 | 245.0970 |
11 | Zuloaga Seis | 188867 | 425.2678 |
12 | Zuloaga Siete | 218104 | 2,102.2937 |
13 | Pinalillo | 181758 | 37.9645 |
14 | La Esperanza | 175485 | 12.5631 |
15 | San Eduardo | 206208 | 51.2962 |
16 | Luis Tres | 218872 | 1,091.9181 |
17 | Ampl. Verónica | 218866 | 148.6571 |
18 | Ampl San Martín de Porres | 221206 | 17.2641 |
19 | Ampl A San Eduardo | 186428 | 71.0181 |
20 | San Martín de Porres | 160810 | 91.4350 |
21 | San Judas Tadeo | 160811 | 94.8922 |
22 | Ampl Patricia | 187325 | 150.0000 |
23 | Santa Elena | 216187 | 322.7636 |
24 | Luis Dos | 220312 | 459.0367 |
25 | Los Cinco Metros | 185282 | 0.1479 |
26 | El Pilón Fracc.I | 124219 | 4.2244 |
27 | El Pilón Fracc.II | 220480 | 187.1202 |
28 | La Condesa | 221189 | 300.0000 |
29 | La Providencia | 221137 | 100.0000 |
30 | Luis Uno | 226108 | 300.0000 |
31 | Luis Cuatro | 226447 | 300.0000 |
TOTAL AREA SAN MARTIN UNIT | 7,840.5692 |
6.6 Environmental and Permitting
PAH is not aware of any environmental liabilities in the San Martín mining district; most of the area covered by El Pilón concessions is mining and prospective land for mineral exploration and mine development. Local topographic conditions are rough. The San Martin mine consists of underground workings, and relatively small waste dumps have been constructed near the mine portals. Mining operations throughout the District present only minor surface disturbances. Most of the mine operations are located within land holdings owned by El Pilón. The San Martín underground operation has been developed on the Zuloaga vein, which strike intersects the western slope of the Cerro Colorado hill, extracting selected ores, and only relatively small waste dumps have been formed during the long history of production. Currently San Martin operates in part with Cut-and-Fill mining methods to avoid accumulation of large waste dumps on surface.
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PAHs environmental and safety review consisted of discussions with site management. Personnel interviewed include Ings. J. Miguel Ríos G., Mine Manager of Operations, and Ing. Rafael Romo Gaucin, Mine Chief Geologist and other plant personnel. PAH also observed the current site safety and environmental conditions to identify any potential liabilities that may have significant economic impacts. A brief review was made of file records provided us during the site visit. Other public references have reported full compliance by El Pilón in Mining and Environmental Regulations (Peter Megaw, May 2003). Our assessment is not intended as an environmental and safety compliance audit, although prudent practices were considered in our review. In PAHs opinion, the San Martin mine is in compliance with the safety and environmental laws and regulations.
PAH has received a copy of document dated October 27, 2008 that presents a list of the permits and authorizations for the San Martín operation and believes that El Pilón is in compliance with applicable regulations and obtains permits as required. Environmental permits in the state of Jalisco are issued by the Subdelegación de Gestión para la Protección Ambiental y Recursos Naturales, Unidad de Gestión Ambiental located in Guadalajara City. This Institution has recently renewed, on November 6, 2006, the Licencia Ambiental Unica No. 14/LU-117/11/06 on behalf of Minera El Pilón, S.A. de C.V. for operating the San Martín mine. The Licencia Ambiental Unica is issued for the duration of the operation, and is subject to compliance with existing regulations and some other requirements. Periodic site inspections by regulators are being performed by Mexican Official Inspectors to observe site safety and environmental conditions.
Environmental studies developed and reported by El Pilón include the following:
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90535 January 15, 2009 |
7.0 |
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY |
7.1 Topography and Accessibility
The San Martín Silver Mine is located on the eastern slopes of the Sierra Madre Occidental, alongside the Bolaños River valley, in the northern portion of the State of Jalisco. It is located within the jurisdiction of the municipality of San Martín de Bolaños. The village of San Martín de Bolaños is located by the Bolaños River, at an elevation of 820 meters asl, while the San Martín processing plant is at about 850 meters and the mine portals at 1,080 to 1,600 meters. The Bolaños River has established a 10 to 15 km broad valley that runs north-south and presents abrupt escarpments of volcanic rocks on both sides. Figure 6-2 shows a topographic map of the area.
Access to the San Martín mine area is from Guadalajara city by a 250-km paved road or by air in small aircraft to the San Martín de Bolaños airstrip located to the northwest of the village. Driving time from Guadalajara city to the mine is approximately four to five hours, and flying time is 45 minutes from the International Airport at Guadalajara city. Please refer to Figure 6-1 that shows a general location and access map of the area.
Access from the mine to the plant is by a 13.5 -km road, built and maintained by El Pilón, which includes a concrete pad at the part that crosses the village, and is constantly irrigated to avoid dust generation.
7.2 Climate and Physiography
The San Martín mine is located at the coordinates 21° 45 North latitude, and 103° 45 West longitude, by the Bolaños river valley. Climate in this area is, according to INEGI (Instituto Nacional de Geografía y Estadística de México) generally warm and semi-wet with rain in the summer season. It presents an average temperature of about 22°C, with the lowest monthly average (19.7°C) in February, and highest in May (30.5° C). Annual freezing temperatures in the region are recorded, mostly during the month of February, from 0 to 20 days, while hail occurs during the rainy season on less than five days per year. Yearly accumulated rainfall in San Martín de Bolaños is registered as 592.1 mm, most of which occurs during June through October. The highest rate of precipitation is recorded at 197.0 mm during the month of October.
The Bolaños River constitutes one of the most important water flows in the State; it forms the Bolaños Hydrological basin that covers approximately 5,100 sq. km. within three States, Aguascalientes, Jalisco, and Nayarit. The Bolaños River discharges its waters into the Santiago River to the south, which drains into the Pacific Ocean. Figure 7-1 shows the San Martin Silver Mine operations.
Climate and topographical conditions in the San Martín de Bolaños area may only support farming and cattle by the river valley; however, in the surrounding areas, only sparse to moderately dense desert vegetation of bushes and shrubs cover the hill slopes. Within the mine area, is a transition zone that changes from the desert grasses in the lower elevations to evergreens, pines and oaks and other types of trees at higher elevations.
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7.3 Local Resources and Infrastructure
The town of San Martín de Bolaños constitutes the commercial center for the population living in the region around the San Martín de Bolaños mining district. San Martín de Bolaños offers retail, medical (including General and Seguro Social hospitals), educational (including Jr. and High School), and communications facilities; however, major facilities, including International Airport, are located in the cities of Guadalajara, Zacatecas and Aguascalientes.
The municipality of San Martín de Bolaños holds 5,400 inhabitants according to INEGIs 2000 census data, in a range of 0-10 inhabitants per sq. km. The town includes approximately 3,000 people, with El Pilón probably being the largest employer. The town is connected to the national power grid (Comisión Federal de Electricidad - CFE), and it has standard telephone lines and satellite communications. Water for the town inhabitants consumption is pumped from wells.
Most of the people living in nearby villages or other small congregations within the area, and mostly along the Bolaños river valley, depend on small scale farming, raising livestock, and growing fruit.
The San Martín mine is also connected to the CFE power grid through a substation located at about 20 km to the north, at the Bolaños mine. Mine and plant are connected to the national power grid. Water source for the processing plant is the Bolaños River, a permanent flow. Mine and plant installations, including camp facilities, tailings storage and waste disposal areas required for the mining and milling operation of San Martín are located on land owned by El Pilón.
The infrastructure on site includes the support facilities for the operations, which are located near the plant and include the main administrative offices, warehouse, assay laboratory, tailings facilities, maintenance buildings, cafeteria and other employee housing. The Maintenance Department operates from the extensive shops and warehouses located at the plant site. Maintenance personnel are supplied for mine and plant requirements from this department. A large fleet of mobile equipment consisting of track type tractors (bulldozers), wheel loaders and road graders are available for feeding ore to the crushing circuit and site and road maintenance.
Power is supplied by the grid at 33 kva and 60 cycle. Two 1,000-volt transformers supply power to the plant. Diesel generators are located at the plant for emergency and stand-by power in case of power interruptions. Air compressors are located at the plant to supply low-pressure air to the leach tanks.
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8.0 HISTORY
8.1 Property History
The San Martín mining district is located in the southern portion of the Bolaños District, which consists of a geologic setting (graben) that includes, 20 km to the north of San Martín, the old Bolaños mine. Most of the historical mining production from the area was extracted since colonial times, from the Bolaños mine, which was developed by Kennecott, Cyprus and other operators, into a 1,500 tpd underground mining and processing operation in recent times (1980s). At the San Martín area, past mining developments included underground workings and partial discoveries of the Zuloaga, Blanca, Condesa, Cinco Señores, and Rosario veins, with some drifting at the Ballenas, Mancha, Plomosa, Melón and Hedionda among other smaller mine developments. Reportedly over 33.6 million ounces of silver have been extracted from about 4.3 million tonnes of silver ore of the Zuloaga and adjacent veins to September 30, 2008.
8.2 Exploration Programs
At San Martin, traditional exploration programs implemented have been based on direct development workings and complemented with limited drilling. This allows for mine preparation at the same time as the exploration advances along the mineralized structures. Topographic characteristics in the mine area do not permit easy drilling from surface access due to the veins strike and dip into the mountain range. However, in recent years, and particularly since the year 2002 when the prices of the precious metals have improved a more aggressive program has been carried out consisting of exploration based on diamond drilling, both from underground accesses and surface sites.
To date, September 30, 2008, drilling has totaled 570 diamond drill holes with a total depth of 61,132 meters, at an average depth per hole of about 107.3 meters. All of the drill core has been kept after logging and sampling.
FMSs staff prepares yearly reports of the San Martín mine silver ore reserves in order to keep accurate accounting records. These reports have been reviewed by PAH since 1996 to 2001, 2005, 2007, and in 2008. PAHs reviews the reserve estimates, including past audits as well as this last visit of November 2008, have concluded that these were prepared in a reasonable manner, and in conformance to acceptable engineering standards for reporting of reserves, and meet the standards for classification of reserves established by Canadian National Instrument 43-101, and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum. Table 8-1 shows San Martín reserve history.
For 2007 and 2008, an aggressive program of exploration based on direct underground exploration/development and diamond drilling at an estimated cost of about $5,000,000 were executed. This program is an on-going effort, and included approximately 19,600 meters of diamond drilling, and 3,900 meters of crosscuts and drifts. As a consequence, the results are advancing resources to reserves and opening other areas for further exploration and development, such as the Cymoid zone of the Zuloaga vein at the La Escondida mine Level 5900, at the Ballenas mine Level 5550, at the La Blanca vein Stope 5735 and at the San Pablo Stope 5920, where sampling and development works have shown high grade silver mineralization. FMSs geological staff at the San Martin includes 8 active and experienced geologists and other company geologists active throughout FMSs other operations within Mexico with full support from Management, to carry out and supervise the exploration efforts in addition to 19 samplers and contractors for field work.
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TABLE 8-1
First Majestic Silver
Corp.
Minera El Pilón, S.A de C.V.
San Martín Silver
Mine
Proven and Probable Reserves
Year | Silver Ore |
Average Grade
Rec. Silver/MT |
Metric Tonnes | ||
1994 | 790,889 | 396 |
1995 | 1,020,044 | 361 |
1996 | 1,271,495 | 355 |
1997 | 1,421,578 | 358 |
1998 | 1,322,437 | 336 |
1999 | 811,695 | 346 |
2000 | 1,350,615 | 343 |
2001 | 634,555 | 421 |
2002 | 614,419 | 384 |
2003 | 397,403 | 305 |
2004 | 676,000 | 273 |
2005 | 619,480 | 277 |
2006 | 414,879 | 302 |
2007 | 492,022 | 314 |
2008 | 770,464 | 274 |
(*) Minera El Pilón data. PAH Feb 12, 2007
8.3 San Martín Silver Production
In 1981, Mr. Héctor Dávila Santos purchased the San Martín property, developed the mine, constructed the process plant, and then began production in 1983. In 1997 First Silver Reserve, Inc. (FSR) by way of reverse takeover, acquired all the shares of the Mexican company Minera El Pilón, S.A. de C.V., owner and operator of the San Martín Silver Mine. In April 2006 First Majestic Resource Corp. entered into an irrevocable share purchase agreement to acquire majority shares of First Silver Reserve Inc. FMS took control of FSR and the San Martin mine in June 2006 and subsequently a business combination was arranged and approved on September 14, 2006. Upon acquisition of First Silver Reserve Inc. by First Majestic Resource Corp. the name was changed to First Majestic Silver Corp. To September 30, 2008, El Pilón has recorded a production of 33.6 million ounces of silver from 4.3 million tonnes of ore. Table 8-2 presents the San Martín mines historical silver production
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TABLE 8-2
First Majestic Silver
Corp.
Minera El Pilon, S.A. de C.V.
San Martín Silver
Mine
Historical Silver Production
Year | Silver Ore |
Silver Ounces
Sold |
Average Grade
Rec. Silver oz/Tonne |
Metric
Tonnes |
|||
1984 | 110,468 | 566,726 | 5.13 |
1985 | 104,707 | 517,265 | 4.94 |
1986 | 108,837 | 579,022 | 5.32 |
1987 | 106,958 | 412,844 | 3.86 |
1988 | 105,419 | 244,554 | 2.32 |
1989 | 88,987 | 206,304 | 2.32 |
1990 | 99,947 | 484,704 | 4.85 |
1991 | 89,816 | 669,121 | 7.45 |
1992 | 72,105 | 563,868 | 7.82 |
1993 | 71,777 | 548,337 | 7.64 |
1994 | 77,313 | 812,650 | 10.51 |
1995 | 135,690 | 1,684,508 | 12.41 |
1996 | 171,099 | 2,148,719 | 12.56 |
1997 | 206,770 | 2,258,759 | 10.92 |
1998 | 257,924 | 2,337,123 | 9.06 |
1999 | 273,791 | 2,288,608 | 8.36 |
2000 | 262,768 | 2,315,143 | 8.81 |
2001 | 260,660 | 2,393,186 | 9.18 |
2002 | 258,219 | 2,399,494 | 9.29 |
2003 | 234,539 | 2,291,955 | 9.77 |
2004 | 266,592 | 2,312,745 | 8.68 |
2005 | 249,239 | 1,957,645 | 7.85 |
2006 | 261,834 | 1,688,564 | 6.45 |
2007 | 239,796 | 1,129,220 | 5.50 |
2008 (1) | 184,440 | 796,525 | 4.30 |
TOTAL | 4,299,695 | 33,607,559 | 7.82 |
(1) January - September 30, 2008
(*) From 2004 Silver ounces equivalent, including gold.
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9.0 GEOLOGICAL SETTING
This section describes the geology for the San Martín mine and is based on reports provided by El Pilón, previous Technical Reports and observations made during site visits. A discussion of the regional and deposit geology has been previously published in a report entitled Geology, Tectonic Environment and Structural Controls in the San Martín de Bolaños District, Jalisco, Mexico by F. R. Scheubel, et. al., published in Economic Geology, Vol. 83, 1988, p. 1703-1720.
On the first Technical Report for the San Martín Silver Mine, State of Jalisco, México prepared by PAH for First Silver Reserve Inc., dated June 23, 2005 as project PAH-9161.01, which was published on the SEDAR web site in July 5, 2005 and also, on the SM 43-101 made for FMS by PAH on March 06, 2007 and Amended on July 24, 2007 contain descriptions of the San Martín mine Geological Setting, including District Regional Geology, Bolaños Regional Stratigraphy, Bolaños Regional Structure, and the San Martín deposit Geology, which have not changed since publication of the Technical Report; therefore, PAH does not consider it necessary to repeat these sections. Figure 9-1 shows the Regional Geological Map.
9.1 Bolaños Mining District Regional Geology
Please refer to Technical Report Amended July 24, 2007, published in SEDAR on July 25, 2007.
9.2 Bolaños Regional Stratigraphy
Please refer to Technical Report Amended July 24, 2007, published in SEDAR on July 25, 2007.
9.3 Bolaños Regional Structure
Please refer to Technical Report Amended July 24, 2007, published in SEDAR on July 25, 2007.
9.4 San Martín Deposit Geology
Please refer to Technical Report Amended July 24, 2007, published in SEDAR on July 25, 2007.
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10.0 DEPOSIT
TYPES
For a more detailed description of this Reports section please refer to Technical Reports dated June 23, 2005, published in SEDAR on July 5, 2005 and July 24, 2007, published in SEDAR on July 25, 2007.
Most of the ore extracted from San Martíns Zuloaga vein includes oxidized mineralization with native silver, secondary acanthite and chlorargyrite; however, at the deepest levels, such as San Juan and San Carlos, some primary sulfides occur associated within the transition zone, such as galena, sphalerite and pyrite. No typical mineral zoning has been defined at the San Martín mine due to the structural complexity of the area. Gold is present in minor amounts in the upper parts of the mine and shows poor correlation with silver, with typical ratios that range from 1:300 to 1:800, averaging about 1:600. Figure 10-1 shows the Deposit Types.
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11.0 MINERALIZATION
Mineralization at the San Martín mining area is exposed in three main structural systems that include sup-parallel veins and faults. Mineralization at San Martín is enclosed by the rhyolites of the formation Zuloaga, with projected base to the top of the andesites of the Guásima formation; meanwhile, the high grade concentrations of silver mineralization encountered at the San Martin mine is capped by the base of the Guásima formation. This may indicate that there is a high possibility to uncover important mineral concentrations under the Guásima formation at San Martín.
Descriptions of the San Martín mineralized structures are taken from the Technical Report for the San Martín de Bolaños Silver Mine, State of Jalisco, México was prepared by PAH for First Silver Reserve Inc., dated June 23, 2005 as project PAH-9161.01 and published in the SEDAR site in July 5, 2005 and Technical Report for the San Martín Silver Mine, State of Jalisco, México Amended prepared by PAH for First Majestic Silver Corp. dated July 24, 2007 and published in SEDAR on July 25, 2007.
11.1 Zuloaga System (EW)
The Zuloaga system includes the La Huichola, La Mancha and El Melón veins. These mineralized structures are oriented mostly EW (from N60ºE to EW), although the La Mancha tends to joint the Zuloaga vein at their western extension. These mineralized structures present recognized outcroppings of 2.5 to 4.0 km, excepting the El Melón which only appears to be mineralized in the faults NE extension (500 m). Some blind veins may be associated to these structures, as is the case of the La Blanca vein which splits off the Zuloagas hangingwall in underground workings, and the parallel vein to hangingwall off Zuloaga at the Rebaje 40 Oriente. This system is the most important in San Martín due to its development along the Zuloaga vein, and it offers important future potential for exploration in the other veins within the system, as well as to depth. Geological reinterpretations of some the Zuloaga vein areas have resulted in identification of the Cymoid zone, which occurs vertically along the Zuloaga vein from the mine Levels of San Juan at 1,400 masl to above the San José Level, with extension along strike from the 5450 E to the 5700 E sections.
11.2 Rosario Condesa System (NS)
This system consists of NS-trending faults and mineralized structures. It has been partially developed along the Rosario, Condesa and Hedionda veins. Mineralization generally occurs in these structures for about 1,000 m, although the fault zones extend to over 4,000 m in the Rosario-Condesa vein (the SE extension of the structure where the two veins form one structure). Other semi parallel structures within this system include Plomosa and a series of faults in the central and eastern parts of the mine area. Some other NS blind veins have been uncovered in the Zuloaga underground workings, such as the vein at Sección 6195 at San Carlos level, and the vein at Crucero 6231 also at the San Carlos level. These NS structures appear to be narrow veins with high-grade silver mineralization. Some of the most important faults within the mining district are oriented NS.
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11.3 Plomosa System (NW)
The Plomosa system consists of NW-trending fault zones and veins. Generally this system shows lower intensity of mineralization with only partial exposure in the Plomosa structure. The SE extension of the Rosario-Condesa occurs parallel to this system, as well as numerous unnamed faults located in the north zone of the mine area.
The surface geologic map appears to indicate a structural window at the San Martín mining area, by showing older rocks of the Toba Alacrán as being pushed up by the Porphyry Rhyolite stock. Strong fracturing, alteration and disseminated mineralization are associated with the Porphyry Rhyolitic stock that occurs in the central portion of the San Martín mining area. This stock has also been identified in the underground workings, by the Section 6405 in the San Carlos level, where it occurs as a mineralized breccia with disseminated sulfides, pyrite, galena and sphalerite, as well as strong propylitic alteration. NS vein structures associated to this stock have shown high grade silver mineralization (350 to 400 grams) in considerable vein widths or brecciated zones. This area is known at the mine as Plutonic Breccia.
Silver occurs in the veins primarily as argentite and was deposited after the base metals. Native silver and possibly chlorargyrite occurs below the surface outcrops and in the upper workings, a product of surficial oxidation of the sulfide mineralization. Gold is only present in minor amounts and shows no correlation with silver, suggesting different mineralizing events. Silver to gold ratios typically range from 300:1 to 800:1 and average about 650:1 for recent production.
Alteration consists predominantly of limited silicification around and next to the veins, with argillic or kaolinization alteration in the surrounding area and a propyllitic halo that extends up to 400 meters from the mineralized zones (Scheubel and others, 1988). X-ray and petrographic investigations (Albison, 2002) concluded that the propyllitic alteration is composed of chlorite-epidote-adularia-calcite with an increase in iron-rich chlorite to the west and depth. It was also concluded that the argillic alteration along vein segments containing high-grade mineralization is dominated by Illite-smectite, and to a lesser degree, kaolinite clays.
El Pilón has commissioned several fluid inclusion studies that show a typical epithermal range of temperatures for the ore formation, from 200ºC to 300ºC, with 1-10 weight percent NaCl equivalent.
Table 11-1 presents a summary of the known extent of the various veins and faults in the San Martín mine area.
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TABLE 11-1
First Majestic Silver Corp.
Minera El Pilon, S.A. de C.V.
San Martín Silver
Mine
General Veins and Faults Systems
System | Veins and Faults | Estimated Extension |
Zuloaga | Zuloaga (*) | 3,500 m; w-0.1 to 10.0 m; depth-+400 m |
(EW) | La Mancha | 4,000 m |
El Melón (Three veins) | (500 m) 3,000 m; w-1.-0 to 2.0 m each. | |
La Huichola | 2,500 m | |
La Blanca (Blind vein) | Unknown | |
Cymoid Zone | From 5450 E to 5700 E and San Juan to San José Mine Levels. | |
Other Blind veins | Unknown | |
Rosario Condesa | Condesa | 1,000 m; w-1.5 to 2.0 m |
(NS) | Rosario | 1,000 m; w 1.5 to 2.0 m |
Hedionda | 1,000 m; w 1.0 to 2.0 m | |
Two Faults in central zone (South of Zuloaga) | 1,000 m each | |
NS vein off Zuloaga (Blind vein) Rebaje 40 Oriente | Unknown | |
NS Rebaje 6231 San Carlos (Blind vein) | Unknown | |
Section 6195 San Carlos (Blind vein) | Unknown | |
Faults to the East of mine area | 1,000 to 2,000 m | |
East limiting faults | 5,000 to 7,000 m | |
Plomosa | Plomosa | (1,000 m) 2,000 m; w 1.0 to 2.0 m |
(NW) | Rosario-Condesa | 3,000 m; w 1.5 to 2.0 m |
North and East zones of mine area | 1,000 to 2,000 m |
(*) The Zuloaga vein has been developed to a depth of approximately 400 meter and it remains open to depth and along strike. All other known veins are undeveloped to depth and strike.
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12.0 EXPLORATION
Nearly 70 million ounces of silver have been recorded as being extracted from the Bolaños Mining District until 2008. To the mid 1980s, most of the mining activities within the district took place at the Bolaños mine 20 km away and has not operated since 1998. Partial and limited mining works were developed at the San Martín mine, and the majority of its silver ore has been extracted from the Zuloaga vein. Numerous other veins occur within the San Martín area, which appear to represent similar structural and mineral characteristics as those of the Zuloaga vein.
The San Martín exploration targets were described in Technical Report of July 24, 2007 that was published in SEDAR on July 25, 2007 on behalf of First Majestic Silver Corp. New geologic interpretation of the Zuloaga vein sections have resulted in the Cymoid zone with additional potential. Other sections of the mine remain the same as of 2008 and are copied below.
Exploration potential for finding and developing new resources/reserves in the San Martín district appears to be promising. Ore bodies in the mine are typically indicated at depth beneath zones of alteration on the surface expression of the Zuloaga Vein. Surface alteration zones have been correlated to indicate ore concentrations in the present mine workings.
X-ray and petrographic studies (Albinson, 2002) developed on alteration zones associated with the mineralization, have identified, and confirm, the geologic evidences for interpretation of mineral concentrations along the veins. Propylitic alteration with argillaceous, kaolinitic and limited silicification appears to indicate high-grade concentrations, as evidenced by a probable correlation with the deposits temperature of deposition; however, consideration must be made regarding the effects that the local structural conditions may have imposed on the original mineral deposit. It is evident that the structural conditions at Zuloaga have caused deep oxidation and originated the concentrations of native silver and oxides accessible to the actual underground workings. It appears that at some deeper parts of the mine, such as at the San Carlos level, the transition zone of oxides/sulfides may have been reached, but this stratigraphic level may vary according to local structural conditions.
An aggressive exploration programs based on economics, direct exploration development and diamond drilling by in-house operators and with contractors for deep drilling has been underway during the period this report covers. During the period from February 1 st , 2007 to September 30 th , 2008 127 drill holes with a total depth of 19,619 meters including underground and surface drilling has been completed. For the year 2009, a program consisting of drilling 26 holes from surface with a depth of 6,900 meters in addition to 67 drill holes from underground with a projected depth of 6,500 meters are planned. The exploration program includes investigation of the Rosario vein, deeper zones into the Gúasima Formation, vetas Condesa and Plomosa, and the La Mancha vein from surface, and upper parts of the Escondida area and deeper zones of the Zuloaga vein from underground access. Due to market conditions at the time of this report, FMS has delayed the 2009 exploration program until conditions change.
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Direct exploration development is integrated into the mine preparation programs and in vein deposits which has proven to be the most effective method of exploration. For the year 2007, the program of underground development completed about 136 meters for exploration and drill site access preparation, while the 2008 program included 3,770 meters.
The drilling program is based on underground drilling with FMSs own equipment, which includes a Diamec 232 electric drilling machine, a Longyear 38, Longyear 44, Onram 1000, CS-1000, LF-70 and a CP 65. This equipment is utilized for drilling shallow to medium depths, while the contracted equipment is only used for deep and surface drilling.
The drilling program is focused in developing accessible resources along the Zuloaga vein in the Cymoid zone in the Ballenas, Cangrejos and San José mine levels. These 93 drill holes planned are directed to investigate areas of resources with the objective to increase reserves, and if it is successful, the program should result in additional reserves for the mine, according to FMSs Geology Department projections. Figure 12-1 shows a long term exploration program along the Zuloaga vein.
Target zones that may result in considerable bulk mineral concentrations are numerous in San Martín, and care must be taken to prioritize the exploration objectives. Some of these zones remain to be investigated from previous programs and are the following:
Resource blocks Nos. 1, 2, 3 and 4 of the Zuloaga vein appear to represent the most significant potential to hold oxides mineralization in the Zuloaga vein. Access to these blocks is difficult due to topographic and underground conditions. Development was initiated along the Pinolea Mine Level; however, more than 800 m of drifting and additional development by raises are required to reach these blocks by underground development.
The Cymoid zone represents additional oxides mineralization and is under exploration drilling and development for extraction along the Zuloaga vein. It holds in parts some filling materials with low grade, which may be recuperated.
Area under the Guásima formation. This stratigraphic area has resulted in large, high-grade mineral concentrations at the nearby Bolaños mine. San Martín and Bolaños mines are located in the same mining district. The exploration blocks 9 to 13 of the Zuloaga vein include deep drilling for this area. This area; however, appears to hold potential for sulfides, which have been placed on hold due to currently low metals prices.
Los Bancos area. Several mineral structures may be intersecting at this zone, such as Zuloaga, La Mancha, Rosario, Condesa and Hedionda. Exploration Block III Los Bancos 7500 includes drilling for this area.
Breccia zone. This area represented by the Porphyry Rhyolite stock in the central portion of the mine area, and localized at the San Carlos level, may indicate one of the mineralizing channels and probable sources of the sulfide concentrations. This area is investigated by drilling in exploration Block I Zuloaga.
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Other veins of the Zuloaga system may present mineral occurrences similar to the Zuloaga vein concentrations, such as the La Mancha and La Huichola veins.
The Rosario-Condesa access and haulage adit is being driven alongside the Rosario-Condesa fault, allowing an excellent opportunity for exploration along this zone; it has advanced to reach the Zuloaga Ballenas level; however, a caved in zone (approximately 150 meters) has not allowed access to this communication.
The La Blanca Vein is a near-vertical split off of the Zuloaga Vein that cuts upward through the Zuloaga hanging wall. The La Blanca Vein is typically irregular and narrow, but were mineralized has higher silver and zinc grades. Sulfides occur as dissemination and clots in the breccia matrix, and locally as massive sulfide lenses. Sulfides consist of galena and sphalerite, with lesser pyrite. Calcite is the predominant gangue mineral.
Two additional veins, the Condesa and Rosario, occur to the southwest and have northwest trends. No production has come from these veins in recent years. The Condesa mine is located on the south side of the Las Peñitas arroyo at an elevation of 1,450 meters. Access is obtained from the town of San Martín via an 11.4 -kilometer gravel road. The Condesa structure strikes N 40° W and dips 81° SW. The Condesa workings show mineralization over 150 meters along strike, with mineralization ranging from 1.5 to 2.0 meters in width and occurring in a quartz-cemented andesitic breccia. The Rosario mine is located within the Santa Rosa arroyo at an elevation of 1,600 meters. The Rosario mine is 11.7 kilometers from the town of San Martín on the same gravel road leading to the Condesa mine. Documented production figures for the Condesa mine, as well as the others in the area, are either not available or incomplete. These vein trends intersect the Zuloaga Vein in an area below mineralized surface outcrops of the vein and represent an encouraging exploration target.
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13.0 DRILLING
The San Martin drill program for the dates from January 1, 2007 to September 30, 2008 included 127 drill holes with a total depth of 19,619 meters of core, in addition to about 3,906 meters of underground development for drill sites and access preparations. Estimated cost for this program was $4.9 million. Tables 13-1 and 13-2 show 2007 and 2008 exploration programs.
TABLE 13-1
First Majestic Silver
Corp.
Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Drilling Program Completed in 2007
TABLE 13- 2
First Majestic Silver
Corp.
Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Density Determinations, 2008
2008 |
Minera El Pilon Equipment | Contractor | Total | ||||||||
Perfomin | Causa | Tecmin | meters | ||||||||
Drilling Equipment | Month | ||||||||||
Diamec-232 | CP-65 | LY-38 | LY-44 | Onram 1000 | CS-1000 | LF-70 | LY-44 | Onram 1000 | |||
January | 40.80 | 84.40 | 160.50 | 72.70 | - | - | - | - | - | 358.40 | |
February | 80.20 | 46.75 | 156.10 | 0.00 | - | - | - | - | - | 283.05 | |
March | 74.95 | 38.25 | 183.20 | 127.90 | 136.85 | 51.30 | - | - | - | 612.45 | |
April | 163.10 | 50.95 | 313.10 | 354.00 | 315.00 | 247.65 | - | 96.60 | - | 1,540.40 | |
May | 61.60 | 38.00 | 176.10 | 254.10 | 320.60 | 410.85 | 432.75 | 615.85 | 830.05 | 3,139.90 | |
June | 102.25 | 79.35 | 177.00 | 193.50 | 252.30 | 326.70 | 628.95 | 355.00 | 743.30 | 2,858.35 | |
July | 118.45 | 127.60 | 83.50 | 331.85 | 178.90 | 390.05 | 150.45 | 288.45 | 247.40 | 1,916.65 | |
August | 38.70 | 131.65 | 92.00 | 253.30 | 289.47 | 33.50 | 317.85 | 627.00 | 453.35 | 2,236.82 | |
September | 123.15 | 47.75 | 63.80 | 58.60 | 27.56 | 104.30 | 361.45 | 436.75 | 488.15 | 1,711.51 | |
October | 100.80 | 56.70 | 0.00 | - | - | - | - | 453.35 | 451.00 | 1,061.85 | |
November | 0.00 | ||||||||||
December | 0.00 | ||||||||||
Total | 15,719.38 | ||||||||||
Minera El Pilon Equipment | Contractor | Pilon & Contractor | |||||||||
Perfomin | Causa | Tecmin | |||||||||
Diamec-232 | CP-65 | LY-38 | LY-44 | Onram 1000 | CS-1000 | LF-70 | LY-44 | Onram 1000 | El Pilon | Contractor | |
Total | 904.00 | 701.40 | 1,405.30 | 1,645.95 | 1,520.68 | 1,564.35 | 1,891.45 | 2,873.00 | 3,213.25 | 3,010.70 | 3,166.63 |
Even though exploration activities at San Martin are on hold due to the present market environment, a program consisting of 93 drill holes for the year 2009, including 67 core holes from underground workings and 26 ore holes to be drilled from surface to investigate deep targets is planned. Total estimated cost for the exploration program is about $2.50 million. If this program is successful in proving economic mineralization within the target areas, it may result in additional resources for the mine.
Pincock, Allen & Holt | 13.1 |
90535 January 15, 2009 |
Underground drilling at San Martín is carried out with Company owned equipment. This includes electric powered drilling machines for underground operations, such as a Diamec 232, a CP 55, and a LY 38. Long Year 38 and 44 are utilized to core drill from surface access. Deep drilling is normally assigned to independent contractors.
Core drilling is incorporated in the regular mining operations to test the vertical vein projections and both walls for mine planning as well as for geologic investigations. FMS’s Geology staff reports core recoveries of about 90 percent with exceptions in brecciated rock where it may drop to 50 percent. Core diameter used at San Martín is generally BQ (36 mm) for underground drill holes and NQ diameter for surface drilling. The core is logged by the Geology staff and sampled, including all the core.
Most of the exploration activity at San Martín was based on direct underground development, particularly during the earlier stages of the operation. In recent years this has been complemented with diamond drilling. The total length of the underground development has not been estimated; however, drifting along the Zuloaga vein as shown on the longitudinal section may add to more than 50 to 70 kilometers, including crosscuts, interconnecting ramps and stopes areas. All this work adds up to a recorded production of 33.6 million ounces of silver to September 30, 2008.
Pincock, Allen & Holt | 13.2 |
90535 January 15, 2009 |
14.0 SAMPLING METHOD AND APPROACH
PAH reviewed, with more detail, San Martins sampling program for the preparation of a Technical Report of April 2001, in May 2005 and again in November 2008. San Martins current sampling team consists of four sampling crews with three employees each. Channel samples are taken with chisel and hammer, collected in a canvas tarp and deposited in numbered bags for transportation to the laboratory. Core samples are taken at the camp facilities after the core logging has been completed.
Exploration sampling for reserve delineation in the San Martín mine is conducted by drifting along the mineralized zone so that channel samples can be taken and diamond drilling can be conducted. Channel samples are the primary means of sampling in the mine and are taken perpendicular to the vein structure, across the back of the drift. Sampling crews take channel samples at irregular intervals, typically with one sample every 2 to 3.5 meters along new openings (drifts, crosscuts, ramps, stopes, etc.) and every day from stope development muck piles.
Channel samples consist of shallow chips broken off the back of the drift. A channel line typically consists of two or more individual samples taken to reflect changes in geology and/or mineralogy across the structural zone. Each sample weighs approximately 4 kilograms. Locally, the drift is completely enclosed by the structural zone, and the full thickness of the vein is not sampled.
Core drilling is conducted locally to test the upward and downward projections of the structural zone at a distance from the drifts. Core samples are BQ size, 36 millimeters in diameter, and holes are reportedly of generally good recovery (90 percent), with the remaining bad ground having modest recovery (50 to 60 percent). Drill hole data are locally included in the reserve calculations, but given the relatively small size of the core sample, it is applied with conservatism. Drilling results are applied in the grade calculations giving more weight to the larger-size channel sample data.
Pincock, Allen & Holt | 14.1 |
90535 January 15, 2009 |
15.0 SAN MARTIN SAMPLE PREPARATION, ANALYSIS AND SECURITY
15.1 Sample Preparation
Channel, exploration, mine development and production, and plant samples are sent to San Martins on-site laboratory for chemical analysis of silver and gold. In more recent years additional analyses by atomic absorption for lead and zinc in geology samples have become routine. A typical channel sample received by the laboratory, weighing approximately 4 kilograms, is passed through a jaw crusher to reduce it to a 1.3 -centimeter (1/2) size. A 500-gram split is taken and passed through a gyratory crusher to reduce it to a 10-mesh (1/8) size. A 200 to 300 gram split is taken and placed in a drying oven at 150°C. After drying, the material is put into two pulverizers, one disk pulverizer and one ring pulverizer, to control the metallic minerals, and to ground the rock to minus 100 mesh. The resulting pulp is homogenized and 10 grams taken for fire assay analysis of silver and gold for geology samples and concentrates; 20 grams for head samples and 1 gram for precipitate samples.
The 10-gram pulps are placed in fusion crucibles and placed into a diesel-fired furnace for fusion into a lead button. PAH notes that the diesel furnace does not have any temperature control and as a result temperatures fluctuate. The lead buttons are placed in cupellation cupels and placed into an electric furnace for cupellation into a silver-gold bead. The bead is weighed and then put into nitric acid to dissolve away the silver and then the remaining gold bead is weighed again. The final gold bead weight is the gold content, while the difference in weight is the silver content for the samples. The microbalance used has a sensitivity of + 1 milligram (equivalent to an actual grade of + 1 gram per tonne), while the gold beads commonly range in weight from 100 milligrams down to less than 1 milligram. As a result, the determination of the smaller bead weight is at or below the detection limits of the microbalance.
15.2 Laboratory Facilities
PAH notes that the laboratory facilities have been upgraded during 2007 and 2008 and are adequate, with reasonable cleaning and organization. The laboratory currently conducts about 200 to 250 assays per day, including exploration samples, development samples, and mill samples. Laboratory personnel include two sample prep operators, one person in the refinery, two weighing samples and reporting results and one Chief Chemist/AA operator.
The on-site laboratory has an electric muffle furnace and an electric cupelling furnace for fire assaying. Solution samples are analyzed with a Perkins Elmer 2380 Atomic Absorption unit. Mine samples are periodically sent to an outside laboratory, usually Chemex and more recently splits of the same samples are also sent to two other Peñoles labs for check assays. No plant samples are sent to outside laboratories. All plant feed and tailings assays are run as triplicate samples and the average value is reported unless the silver values vary by more than 20 g/t. Then the triplicate samples are repeated. Six replicates of Gravity Concentrate are assayed and the average value is reported unless the silver varies by more than 300 g/t. Then, the six replicate samples are repeated. Doré is drilled and six replicates are assayed and the average value reported unless the assay varies by more than 400 g/t. All geological samples are run as triplicates and the samples repeated if the assay exceeds 300 g/t.
Pincock, Allen & Holt | 15.1 |
90535 January 15, 2009 |
15.3 Check Assaying
To evaluate sample quality control, San Martin performs periodic check analyses on samples. Since 2004, samples have been sent each month, from about 10 to 30 samples to Chemex Laboratories, to SGS Laboratory, to Met Mex Peñoles laboratory, and to Laboratorio Industrial Metalúrgica Herrera, for duplicate samples and duplicate pulp samples analysis.
PAH has reviewed assays of duplicated samples from 2007 and 2008 as indicated in Table 15-1. The samples were sent to SGS Lab and included a range of silver grades from 3 to 3,870 g/tonne. The results show that of 54 duplicated samples, the average silver grade at SGS (207 g/tonne) is higher by about 60 percent than at the San Martin laboratory (127 g/t), while the average lead grade resulted in 0.16 percent at SGS and 0.18 percent at the San Martin lab. The samples were also assayed for zinc, resulting in an average grade of 0.23 percent for SGS and 0.22 percent for the San Martin laboratory. The silver assay results present a very close correlation at 92 percent, except for a high grade sample that assayed 3,870 g/tonne at SGS and 1,575 g/tonne at San Martin.
Duplicate pulp samples were also checked by CHEMEX Lab in comparison to the San Martin lab. This check included 53 duplicated samples, which resulted in close correlation for silver at an average of 486 g/tonne for CHEMEX and 485 g/tonne for San Martin. Copper, Lead and zinc check resulted in a correlation of 88 percent, 96 percent and 93 percent respectively, while the gold assays show a poor correlation in pulp duplicate assays due probably to erratic distribution within the ore.
The sample assays obtained at the San Martin laboratory appear conservative. The San Martin laboratory assays are used as a basis for mine reconciliation and production recovery estimates, therefore, these would reflect conservative estimates as well.
In PAH opinion the assay check procedure appears to be adequate and it should be continued as established by comparing duplicate and pulp samples between ALS Chemex and SGS Labs and those obtained at San Martin laboratory.
Table 15-1 shows the assay results and statistics of 54 samples duplicated at SGS Lab and at San Martin laboratories. These samples were assayed between January 2007 and September 2008. Figure 15-1 shows graphic correlation of assay results for duplicate samples. Table 15-2 shows the assay results and statistics of 53 sample pulps duplicated at CHEMEX Lab and at San Martin laboratories. These samples were assayed between January 2007 and September 2008. Figure 15-2 shows graphic correlation of assay results for duplicated sample pulps.
The samples mineral content range includes assays that vary from 3 to 3,870 g/t Ag. Average correlation of the results is 92 percent for the duplicate samples silver assays within a broad range, while the pulp duplicates show results close to 100 percent. High discrepancies occur in the gold assays. PAH reviewed this data in order to evaluate the accuracy of the San Martin laboratory. PAH believes that the reproducibility of silver grades is acceptable and somewhat conservative, considering that the reported values from the San Martin laboratory tend to be lower, but within acceptable industry practices. Gold assays present high variations. Because the gold beads are so small, the assayer is forced to estimate the bead weight in the measurement gold grades in the tenths of a gram per tonne range. PAH believes that the reproducibility of gold grades is reasonable, with some of the variability between sample pairs due to the relatively small quantity of pulp (10 grams) used for the assays. Since the gold values are not used in the determination of the reserve block delineation and stope layouts, PAH does not view this as a significant issue.
Pincock, Allen & Holt | 15.2 |
90535 January 15, 2009 |
TABLE 15-1
First Majestic Silver Corp.
Minera El Pilón, S.A. de C.V.
San Martín Silver Mine
Duplicate Samples, 2008
Sample No. |
Laboratory | |||||
SGS | EL PILON | SGS | EL PILON | SGS | EL PILON | |
Ag g/tonne | Pb % | Zn % | ||||
119 | 190 | 161 | 0.032 | 0.198 | 0.042 | 0.056 |
122 | 675 | 655 | 0.403 | 0.642 | 0.417 | 0.522 |
124 | 43 | 68 | 0.085 | 0.113 | 0.049 | 0.084 |
125 | 107 | 106 | 0.046 | 0.408 | 0.050 | 0.155 |
126 | 39 | 49 | 0.029 | 1.188 | 0.048 | 0.123 |
127 | 137 | 73 | 0.030 | 0.143 | 0.057 | 0.112 |
129 | 72 | 71 | 0.079 | 0.326 | 0.245 | 0.410 |
130 | 113 | 72 | 0.066 | 0.145 | 0.215 | 0.240 |
131 | 111 | 80 | 0.059 | 0.228 | 0.074 | 0.110 |
133 | 36 | 30 | 0.042 | 0.106 | 0.054 | 0.090 |
134 | 98 | 103 | 0.063 | 0.206 | 0.065 | 0.130 |
1161 | 77 | 8 | 1.000 | 0.052 | 1.000 | 0.001 |
1238 | 77 | 3 | 0.933 | 0.473 | 1.000 | 0.700 |
1239 | 43 | 9 | 0.366 | 0.126 | 0.891 | 0.329 |
1240 | 88 | 7 | 1.000 | 0.304 | 0.779 | 0.083 |
1314 | 229 | 160 | 0.188 | 0.287 | 0.195 | 0.200 |
1315 | 48 | 10 | 0.031 | 0.119 | 0.054 | 0.092 |
1317 | 35 | 7 | 0.033 | 0.074 | 0.064 | 0.143 |
1400 | 337 | 170 | 0.278 | 0.177 | 0.327 | 0.052 |
1401 | 181 | 268 | 0.181 | 0.230 | 0.184 | 0.041 |
1413 | 168 | 160 | 0.125 | 0.194 | 0.153 | 0.049 |
1414 | 47 | 9 | 0.154 | 0.213 | 0.205 | 0.023 |
4287 | 116 | 9 | 0.052 | 0.064 | 0.021 | 0.217 |
4288 | 68 | 71 | 0.026 | 0.001 | 0.081 | 0.089 |
4289 | 263 | 150 | 0.032 | 0.030 | 0.083 | 0.150 |
4290 | 93 | 40 | 0.020 | 0.035 | 0.124 | 0.283 |
4291 | 114 | 79 | 0.035 | 0.011 | 0.039 | 0.062 |
4327 | 1,470 | 1,363 | 0.151 | 0.334 | 0.680 | 1.050 |
4328 | 3,870 | 1,575 | 0.820 | 1.000 | 1.000 | 1.363 |
4336 | 44 | 47 | 0.047 | 0.074 | 0.063 | 0.001 |
4348 | 367 | 115 | 0.113 | 0.029 | 0.135 | 0.001 |
4349 | 81 | 116 | 0.022 | 0.024 | 0.051 | 0.001 |
4352 | 38 | 42 | 0.030 | 0.001 | 0.042 | 0.001 |
4365 | 187 | 7 | 0.001 | 0.040 | 0.000 | 0.069 |
4445 | 70 | 37 | 0.018 | 0.017 | 0.028 | 0.081 |
4457 | 73 | 49 | 0.044 | 0.003 | 0.111 | 0.137 |
4458 | 60 | 52 | 0.015 | 0.001 | 0.058 | 0.103 |
4463 | 37 | 10 | 0.130 | 0.086 | 0.105 | 0.166 |
4472 | 64 | 10 | 0.043 | 0.001 | 0.065 | 0.100 |
4474 | 58 | 10 | 0.046 | 0.008 | 0.137 | 0.095 |
4475 | 65 | 91 | 0.078 | 0.033 | 0.053 | 0.107 |
4476 | 102 | 107 | 0.034 | 0.015 | 0.043 | 0.076 |
4477 | 47 | 44 | 0.024 | 0.084 | 0.067 | 0.148 |
4478 | 161 | 137 | 0.044 | 0.044 | 0.137 | 0.177 |
4498 | 53 | 13 | 0.055 | 0.041 | 0.086 | 0.100 |
4500 | 54 | 11 | 1.000 | 1.280 | 1.000 | 2.444 |
5040 | 63 | 57 | 0.042 | 0.040 | 0.024 | 0.070 |
5162 | 50 | 29 | 0.189 | 0.108 | 0.274 | 0.213 |
5163 | 97 | 86 | 0.086 | 0.096 | 0.326 | 0.071 |
5164 | 38 | 10 | 0.114 | 0.018 | 0.363 | 0.073 |
5177 | 77 | 20 | 0.084 | 0.060 | 0.318 | 0.274 |
5178 | 140 | 59 | 0.159 | 0.080 | 0.217 | 0.187 |
5179 | 39 | 21 | 0.082 | 0.069 | 0.252 | 0.221 |
5183 | 185 | 110 | 0.034 | 0.059 | 0.133 | 0.215 |
Pincock, Allen & Holt | 15.3 |
90535 January 15, 2009 |
TABLE 15-2
First Majestic Silver
Corp.
Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Duplicate Pulp Samples, 2008
Sample Description | LABORATORY | |||||||||
CHEMEX | El PILON | CHEMEX | El PILON | CHEMEX | El PILON | CHEMEX | El PILON | CHEMEX | El PILON | |
Au g/tonne | Au g/tonne | Ag g/tonne | Ag g/tonne | Cu % | Cu % | Pb % | Pb% | Zn % | Zn % | |
Z-474 17.20-17.80 | 0.05 | 16 | 33 | 0.01 | 0.00 | 0.01 | 0.01 | 0.02 | 0.01 | |
Z-469 187.55-188.25 | 0.05 | 7 | 15 | 0.01 | 0.00 | 0.03 | 0.12 | 0.05 | 0.05 | |
FTE. E 0.0-0.7 | 0.17 | 134 | 147 | 0.02 | 0.00 | 0.64 | 0.38 | 0.97 | 0.48 | |
Z-472 9.00-9.35 | 0.07 | 34 | 11 | 0.01 | 0.00 | 0.29 | 3.10 | 0.84 | 0.15 | |
CONDEZA | 0.43 | 800 | 805 | 0.03 | 0.00 | 0.25 | 0.30 | 0.57 | 0.72 | |
R-6409 2.00-2.90 | 0.56 | 3,460 | 3,539 | 0.03 | 0.00 | 0.09 | 0.01 | 0.25 | 0.20 | |
SUPERFICIE Po19 | 0.42 | 521 | 502 | 0.04 | 0.00 | 0.65 | 0.10 | 0.16 | 0.02 | |
SUPERFICIE Po20 | 0.07 | 65 | 66 | 0.02 | 0.00 | 0.08 | 0.00 | 0.05 | 0.02 | |
ESCONDIDA F 5900 SECC 5904 1.2-1.9 TA | 0.06 | 0.00 | 176 | 181 | 0.01 | 0.01 | 0.05 | 0.20 | 0.12 | 0.12 |
S. CARLOS R 5526 SECC 5557 1.2-1.9 | 3.49 | 0.00 | 4,280 | 4,226 | 0.12 | 0.12 | 1.25 | 1.31 | 1.33 | 1.31 |
CONDEZA FTE ORIENTE 03 10.4 0-1.0 TOPE | 0.10 | 0.00 | 40 | 34 | 0.01 | 0.01 | 0.06 | 0.10 | 0.10 | 0.12 |
S. JUAN Xo ESTACION BARRENACION 3.4-4.0 | 2.44 | 0.00 | 102 | 116 | 0.37 | 0.33 | 10.85 | 8.83 | 0.51 | 0.45 |
BARRENO Z467 66.05-66.25 | 0.07 | 0.00 | 154 | 96 | 0.01 | 0.04 | 0.07 | 0.16 | 0.06 | 0.05 |
BARRENO Z467 71.40-72.05 | 0.05 | 0.03 | 6 | 12 | 0.01 | 0.03 | 0.04 | 0.16 | 0.04 | 0.02 |
BARRENO Z470 8.05-8.65 | 6.07 | 0.00 | 291 | 188 | 0.02 | 0.04 | 0.44 | 0.39 | 0.70 | 0.63 |
BARRENO Z470 9.05-9.50 | 0.66 | 0.00 | 105 | 113 | 0.01 | 0.04 | 0.43 | 0.62 | 0.67 | 0.65 |
BARRENO Z470 18.00-18.60 | 0.13 | 0.00 | 27 | 21 | 0.01 | 0.02 | 0.09 | 0.20 | 0.24 | 0.19 |
Z 479 (6.50-6.80) | 0.40 | 0.03 | 218 | 218 | 0.01 | 0.03 | 0.02 | 0.09 | 0.03 | 0.06 |
Z 480 (11.50-11.90) | 0.05 | 0.03 | 193 | 189 | 0.01 | 0.01 | 0.05 | 0.18 | 0.07 | 0.06 |
Z 481 | 0.60 | 0.03 | 727 | 680 | 0.03 | 0.01 | 0.17 | 0.24 | 0.77 | 0.12 |
Z 483 (9.80-10.20) | 0.05 | 0.00 | 25 | 11 | 0.01 | 0.01 | 0.01 | 0.10 | 0.02 | 0.74 |
Z 484 (4.75-5.15) | 0.05 | 0.00 | 5 | 5 | 0.01 | 0.01 | 0.01 | 0.07 | 0.01 | 0.03 |
Z 485 (8.35-8.75) | 0.05 | 0.00 | 43 | 50 | 0.01 | 0.01 | 0.02 | 0.10 | 0.04 | 0.03 |
Z 487 (51.75-52.35) | 0.05 | 0.03 | 2,720 | 2,593 | 0.16 | 0.23 | 0.43 | 0.69 | 0.55 | 0.46 |
Z 489 (59.30-59.75) | 0.05 | 0.00 | 305 | 322 | 0.02 | 0.02 | 0.12 | 1.00 | 0.27 | 0.09 |
Z 490 (25.00 25.40) | 0.05 | 0.03 | 955 | 967 | 0.01 | 0.01 | 0.53 | 0.48 | 0.78 | 0.59 |
PLOMOSA TOPE 2.30-310 | 4.71 | 0.00 | 268 | 363 | 0.45 | 0.45 | 11.15 | 10.50 | 0.68 | 0.50 |
PLOMOSA 0.40-1.0 | 0.86 | 0.00 | 45 | 57 | 0.49 | 0.49 | 2.83 | 0.93 | 4.07 | 2.06 |
RPA-6120 TOPE 0.60-1.20 | 0.05 | 0.03 | 1,935 | 1,871 | 0.12 | 0.22 | 2.39 | 4.64 | 5.57 | 5.62 |
R-5526 2.60-3.40 | 0.66 | 0.00 | 68 | 143 | 0.14 | 0.14 | 4.63 | 4.59 | 5.71 | 5.24 |
TOPE E 0-1.00 | 0.46 | 0.00 | 69 | 110 | 0.05 | 0.05 | 1.57 | 1.50 | 3.86 | 3.60 |
REPETICION R-008 | 0.05 | 0.05 | 440 | 444 | 0.07 | 0.05 | 0.24 | 0.33 | 0.70 | 0.60 |
CIRUELO POZO 0.20 | 0.05 | 0.00 | 147 | 204 | 0.01 | 0.02 | 0.20 | 0.23 | 0.26 | 0.16 |
CRO-7240 0-1.10 | 0.53 | 0.00 | 224 | 273 | 0.14 | 0.20 | 3.45 | 3.34 | 5.79 | 4.69 |
FTE 5705-W 1.0-1.50 | 1.17 | 0.00 | 256 | 294 | 0.15 | 0.22 | 6.51 | 5.01 | 3.95 | 6.34 |
BNO Z-493 15.7-16.4 | 0.05 | 0.03 | 835 | 807 | 0.02 | 0.01 | 0.05 | 0.10 | 0.30 | 0.47 |
BNO Z-493 23.8-24.2 | 0.05 | 0.00 | 166 | 142 | 0.01 | 0.31 | 0.02 | 0.72 | 0.06 | 0.69 |
BNO 495 - 42.15-42.65 | 0.05 | 0.03 | 290 | 277 | 0.01 | 0.01 | 0.03 | 0.04 | 0.06 | 0.01 |
BNO 497 - 33.90-34.1 | 0.05 | 0.00 | 93 | 134 | 0.01 | 0.02 | 0.01 | 0.18 | 0.04 | 0.03 |
BNO 498 - 20.10-21.10 | 0.05 | 0.00 | 339 | 349 | 0.01 | 0.02 | 0.04 | 0.07 | 0.08 | 0.02 |
M 100707-02 | 0.07 | 0.00 | 11 | 27 | 0.01 | 0.02 | 0.07 | 0.04 | 0.04 | 0.99 |
M 250707-06 | 0.17 | 0.00 | 63 | 76 | 0.03 | 0.02 | 0.21 | 0.24 | 0.89 | 0.22 |
M 250707-66 | 1.26 | 0.00 | 177 | 192 | 0.07 | 0.06 | 1.16 | 1.04 | 1.80 | 0.73 |
J 050707-01 | 0.14 | 0.00 | 129 | 150 | 0.03 | 0.03 | 0.29 | 0.34 | 0.75 | 0.64 |
S CARLOS R6405 (0-0.9) | 0.97 | 0.00 | 345 | 388 | 0.02 | 0.21 | 0.55 | 0.33 | 0.71 | 0.70 |
S CARLOS Rpa 6120 (2.80-3.20) | 0.05 | 0.00 | 7 | 21 | 0.01 | 0.03 | 0.05 | 0.10 | 0.08 | 0.63 |
S CARLOS X06166 (0-0.70) | 0.24 | 0.03 | 1,195 | 1,043 | 0.01 | 0.01 | 0.17 | 0.11 | 0.32 | 0.70 |
CONDESA RRCI 92.25-94.65 | 0.05 | 0.05 | 5 | 4 | 0.01 | 0.01 | 0.02 | 0.01 | 0.05 | 0.05 |
SANTA ELENA X O 59 43 | 0.05 | 0.00 | 89 | 97 | 0.01 | 0.01 | 0.01 | 0.01 | 0.04 | 0.04 |
SEÑORES M190607-08 | 0.07 | 0.00 | 258 | 276 | 0.04 | 0.06 | 0.33 | 0.28 | 0.25 | 0.16 |
SEÑORES V220607-14 | 0.18 | 0.03 | 410 | 394 | 0.10 | 0.11 | 0.26 | 0.07 | 0.22 | 0.32 |
LOS CIRUELOS L 280507-8 | 0.05 | 0.00 | 64 | 72 | 0.01 | 0.01 | 0.16 | 0.34 | 0.17 | 0.04 |
CANG REB 1140 | 0.63 | 0.50 | 2,410 | 2,350 | 0.04 | 0.04 | 4.95 | 4.50 | 0.67 | 0.50 |
Min. | 0.05 | 0.00 | 5 | 4 | 0.01 | 0.00 | 0.01 | 0.00 | 0.01 | 0.01 |
Max. | 6.07 | 0.50 | 4,280 | 4,226 | 0.49 | 0.49 | 11.15 | 10.50 | 5.79 | 6.34 |
Std | 1.15 | 0.07 | 884 | 869 | 0.10 | 0.11 | 2.40 | 2.16 | 1.50 | 1.48 |
Correlation | -0.05 | 1 | 0.88 | 0.96 | 0.93 | |||||
Average | 0.55 | 0.02 | 486 | 485 | 0.06 | 0.07 | 1.09 | 1.10 | 0.87 | 0.81 |
Pincock, Allen & Holt | 15.6 |
90535 January 15, 2009 |
PAH recommends that San Martin consider using larger sample pulp quantities in the assaying of silver and gold in order to reduce variability. The San Martin laboratory has been upgraded by replacing the diesel furnace with an electrical furnace, and the micro-balance has also been replaced by better instrument to weight the fire assay beads.
15.4 Conclusion
Overall, PAH found that the results from the check assaying are reasonable. PAH recommends the inclusion of standard samples to assess analytical precision. In addition, field duplicate samples and blank samples would allow for an assessment of sample preparation procedures.
It is PAHs opinion that the sample methods and analyses are representative of the deposits at the San Martín mine, and that most of the data was generated by San Martín by procedures that were carried out according to accepted industry standards using accepted practices.
PAH finds that the exploration, sampling, and laboratory analysis for the San Martín operation is being conducted by San Martin in a reasonable manner consistent with standard industry practices. PAH would expect the sampling results to be reasonably representative of the deposit mineralization and believes that they be used with acceptable confidence in the estimation of the mineable reserves.
Pincock, Allen & Holt | 15.7 |
90535 January 15, 2009 |
16.0 DATA VERIFICATION
PAH has not taken independent samples from the surface or underground exposures of the vein deposits at San Martín, as other Qualified Persons have previously sampled the mineralization as discussed in this report, and the production records are the most reliable data of mineralization contained in the ore deposits under development at the mine.
The San Martin mine has established a systematic procedure to verify data and quality control which has proven effective and accurate by many years of operation. Assay data and information generated by the operation is transmitted by manual procedures; however, all the paper trail is accessible and available for inspection.
Table 16-1 presents a summary of selected smelter payments data comparison for assays at Met Mex Peñoles Lab and at the San Martin laboratory.
PAH believes that an adequate amount of checking has been conducted and that the results are representative of the mineralization in the deposit. PAH recommends to continue the QA/QC program for field duplicate samples and pulp duplicate samples to check assay results as established at San Martin; however, PAH also recommends to add blank and standard samples to the chain of sampling for a better control of the QA/QC program. PAHs conclusion is that the results from check assaying were reasonable, including appropriate preparation procedures; that the sampling results appear to be reasonably representative of the deposit mineralization and should be usable with acceptable confidence in the estimation of the mineable reserves.
TABLE 16-1
First Majestic Silver
Corp.
Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Selected Smelter Payments Assay Comparison, 2007-2008
Shipment | Gold Assays, Grams | Silver Assays, Kilograms | ||
Date | Met Mex Peñoles | El Pilón | Met Mex Peñoles | El Pilón |
November 20, 2007 | 1,244 | 1,236 | 964.842 | 958.507 |
November 22, 2007 | 8,010 | 8,380 | 7.122 | 7.164 |
January 7, 2008 | 420 | 420 | 962.925 | 961.841 |
January 21, 2008 | 1,159 | 1,158 | 958.282 | 957.196 |
March 31,2008 | 1,159 | 1,153 | 954.024 | 948.969 |
July 14, 2008 | 1,226 | 1,224 | 847.653 | 846.176 |
Correlation | 1.000 | 1.000 | ||
SUM | 13,218 | 13,571 | 4,694.848 | 4,679.853 |
Average | 2,203 | 2,262 | 782.475 | 779.976 |
Pincock, Allen & Holt | 16.1 |
90535 January 15, 2009 |
17.0 ADJACENT PROPERTIES
The San Martín mining operation is located within the Bolaños Mining District. The Bolaños District comprises approximately 20 kilometers of NS extension, from the San Martín mine in the South to the old Bolaños mine in the northern part.
The Bolaños mine has been inactive since about 1998 and is the only other significant mineral deposit located near the San Martín area. Reportedly, the Bolaños mine has produced approximately 36 million ounces of silver throughout its historical operation.
No other mining property exists adjacent to San Martín. All surrounding areas to San Martín have been claimed, and are owned by FMS through its Mexican subsidiary El Pilón, excepting one concession located near the northwestern part of the area. Please refer to the claims map, Figure 6-3.
The San Martín mine is located within an isolated Mining District in the northwest trending Sierra Madre Occidental. Other operating mines and Mining Districts within the Sierra Madre Occidental range include multi-million ounce producers of precious metals, such as the Zacatecas and the Fresnillo Districts (currently the largest silver producer in the World), in operation by Grupo Peñoles and other operators to the North of San Martín. These other mining districts, however, are located hundreds of kilometers away from San Martín, within the State of Zacatecas, México.
Pincock, Allen & Holt | 17.1 |
90535 January 15, 2009 |
18.0 MINERAL PROCESSING AND METALLURGICAL TESTING
Since the San Martín processing plant has been in operation since 1983 at an increasing capacity that has exceeded 800 tonnes per day, although at the time of PAHs site visit it was not operating at about 750 tonnes per day, no testing is required to establish the viability of processing the ore or the processing parameters. The ore is processed by conventional cyanidation. It is evident from plant operating data that recoveries are related to grade, for both gold and silver. Ore grades have been lower for the past two years, in comparison with the past and in comparison with what is projected for the future, and the lower plant feed grades have resulted in lower recoveries.
An ore processing scheme for the sulfide mineralization has been established. Initial attempts at treating the sulfide ore within the previously existing plant were not successful. Subsequently, a new separate, independent plant was determined to be required to process the sulfide ores. Commissioning of a new 500 tpd flotation plant took place in the first and second quarters of 2008. Due to the low market prices of the metals, and the low lead and zinc grade of the feed material and the high smelter costs, the flotation circuit has been put in care and maintenance.
Pincock, Allen & Holt | 18.1 |
90535 January 15, 2009 |
19.0 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
The San Martin mine uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineable reserves. Reserves are calculated annually, at the end of each calendar year. For this report, PAH has reviewed the reserve dated September 30, 2008 (referred to subsequently as the September 30, 2008 Reserve).
19.1 Introduction
Reserve blocks have been defined at the various drift levels in the mine where sampling has found economically mineable mineralization within the Zuloaga, La Blanca and two NS newly-accessed veins. The reserve tonnage and grade are based largely on channel samples, locally with some influence from drill core samples. Reserve blocks range from 10 to 150 meters in length along the vein trend, with proven reserve blocks projected up to 25 meters from the drift in which the channel samples were taken, and probable blocks extending another 25 meters beyond the proven blocks.
To estimate the reserve block tonnages, San Martin has prepared north-south cross sections for the entire mine, perpendicular to the structural zone, at ten-meter intervals. From each section that crosses a reserve block, the cross sectional area of the mineralized zone is measured by AutoCAD methods and sample lengths. The reserve block volume for each 10-meter section is then calculated from the cross sectional area and the vertical projection of the block area measured by AutoCAD in longitudinal section.
The density factor used to convert reserve block volumes into tonnes has been determined as a weighted average from ore samples representative of the vein deposit, including oxides ore, sulfides ore and transition zone ore. The density tests were performed by Ing. Armando Gabriel Hernández a research metallurgist in a commercial lab in Guadalajara, by applying the Le Chatelier methodology to eight mine samples (December 2004). San Martins estimated average density is 2.80. During the period of 20072008, San Martin has taken additional density measurements from representative samples of the various working stopes and veins to confirm the density applied to resource/reserves estimates. These results are shown in Table 19-1.
PAH believes that on average the density for mineralization appears to be reasonable. PAH recommends that samples be periodically taken as checks for bulk density determination to ensure the application of an appropriate density factor.
To estimate the average grade and thickness for each 10-meter section that crosses a reserve block, San Martin composites all sample grades in the drift that occur within five meters on either side of the section. San Martin investigated three methods to filter the outlier samples greater than 1,000 g/t Ag, and determined that, based on statistical analysis performed on 3,040 samples the most appropriate filter was to assign a top grade of 800 g/t Ag to those samples. The total length of samples in the composite is then divided by the total number of composites, giving the average width of the mineralization in the drift
Pincock, Allen & Holt | 19.1 |
90535 January 15, 2009 |
19.0 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
The San Martin mine uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineable reserves. Reserves are calculated annually, at the end of each calendar year. For this report, PAH has reviewed the reserve dated September 30, 2008 (referred to subsequently as the September 30, 2008 Reserve).
19.1 Introduction
Reserve blocks have been defined at the various drift levels in the mine where sampling has found economically mineable mineralization within the Zuloaga, La Blanca and two NS newly-accessed veins. The reserve tonnage and grade are based largely on channel samples, locally with some influence from drill core samples. Reserve blocks range from 10 to 150 meters in length along the vein trend, with proven reserve blocks projected up to 25 meters from the drift in which the channel samples were taken, and probable blocks extending another 25 meters beyond the proven blocks.
To estimate the reserve block tonnages, San Martin has prepared north-south cross sections for the entire mine, perpendicular to the structural zone, at ten-meter intervals. From each section that crosses a reserve block, the cross sectional area of the mineralized zone is measured by AutoCAD methods and sample lengths. The reserve block volume for each 10-meter section is then calculated from the cross sectional area and the vertical projection of the block area measured by AutoCAD in longitudinal section.
The density factor used to convert reserve block volumes into tonnes has been determined as a weighted average from ore samples representative of the vein deposit, including oxides ore, sulfides ore and transition zone ore. The density tests were performed by Ing. Armando Gabriel Hernández a research metallurgist in a commercial lab in Guadalajara, by applying the Le Chatelier methodology to eight mine samples (December 2004). San Martins estimated average density is 2.80. During the period of 20072008, San Martin has taken additional density measurements from representative samples of the various working stopes and veins to confirm the density applied to resource/reserves estimates. These results are shown in Table 19-1.
PAH believes that on average the density for mineralization appears to be reasonable. PAH recommends that samples be periodically taken as checks for bulk density determination to ensure the application of an appropriate density factor.
To estimate the average grade and thickness for each 10-meter section that crosses a reserve block, San Martin composites all sample grades in the drift that occur within five meters on either side of the section. San Martin investigated three methods to filter the outlier samples greater than 1,000 g/t Ag, and determined that, based on statistical analysis performed on 3,040 samples the most appropriate filter was to assign a top grade of 800 g/t Ag to those samples. The total length of samples in the composite is then divided by the total number of composites, giving the average width of the mineralization in the drift
Pincock, Allen & Holt | 19.1 |
90535 January 15, 2009 |
TABLE 19-1
First Majestic Silver
Corp.
Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Density Determinations, 2008
Sample Location | Specific Gravity, t/m 3 | OXIDOS | ||||
Stope R - 7500 | 2.83 | Location | S. G. | Mineral Type | Average | Gral. Average |
Stope R - 6219 | 2.79 | R- 5794 | 2.74 | Oxides | ||
Stope R - 7386 | 2.80 | R- 1025 | 2.78 | Oxides | 2.77 | |
Stope FTE - 195 | 2.81 | R- 1500 SJ | 2.76 | Oxides | ||
Stope FTE - 5880 | 2.76 | R - 730 | 2.78 | Oxides | ||
Stope R - 6405 | 2.88 | R - 6010 | 2.79 | Oxides-Sulfides Mixed | 2.80 | |
Stope R - 5794 | 2.74 | R -1500 BA | 2.81 | Oxides-Sulfides Mixed | 2.80 | |
Stope R - 7000 | 2.79 | R 7500 | 2.83 | Oxides Unaltered | ||
Stope R - 6010 | 2.79 | R-7386 | 2.80 | Oxides Unaltered | ||
CONDESA VEIN 1 | 2.88 | FTE. 5880 | 2.76 | Oxides Unaltered | 2.82 | |
CONDESA VEIN 2 | 2.86 | R-7000 | 2.79 | Oxides Unaltered | ||
Stope R - 1025 | 2.78 | R-7240 | 2.89 | Oxides Unaltered | ||
Stope R - 1500 SJ | 2.76 | R -7424 | 2.84 | Oxides Unaltered | ||
Stope R - 1500 BA | 2.81 | SULFUROS | ||||
SAN JUAN VEIN | 2.79 | Location | S. G. | Mineral Type | Average | Gral. Average |
Stope R - 7424 | 2.84 | R- 4943 | 2.74 | Oxidied Sulfides | ||
Stope R - 4943 | 2.74 | R 5705 | 2.77 | Oxidied Sulfides | 2.77 | |
Stope R - 7190 | 2.87 | R- 5722 | 2.80 | Oxidied Sulfides | ||
Stope R - 5705 | 2.77 | R -6405 | 2.88 | Unaltered Sulfides | ||
Stope R - 730 | 2.78 | R- 6219 | 2.79 | Unaltered Sulfides | 2.82 | |
Stope R - 5722 | 2.80 | FTE. 195 | 2.81 | Unaltered Sulfides | ||
CONDESA VEIN 1 | 2.88 | Unaltered Sulfides | 2.84 | |||
CONDESA VEIN 2 | 2.86 | Unaltered Sulfides | ||||
SAN JUAN VEIN | 2.79 | Unaltered Sulfides | ||||
R-7190 | 2.87 | Unaltered Sulfides |
at that section. Similarly, the average silver grade of the samples, weighted by length, gives the average silver grade for the drift at that section.
The tonnes and grade for each reserve block are then determined by combining the tonnes and grade results obtained for each 10-meter section that crosses the block. The resource block tonnes and grade are tabulated by San Martin on a series of spreadsheet summaries.
PAH notes that the sampling conducted across the vein for use in the reserve estimate is done without regard to economic cutoff grade or mineable width considerations, resulting in maximum vein widths. This maximum width typically includes zones within the veins that are above the cutoff grade, as well as sub-ore grade mineralization below the cutoff grade. PAH recommends that both cutoff grade and mineable width be taken into consideration in the compositing of samples across the vein in order to help optimize ore production. Reserve blocks delineated on this basis would need to be mined accordingly by San Martin, using appropriate grade control practices to insure that the selective mining of the ore proceeds as envisioned by the reserve estimates and, where practical, leaving sub-ore grade parts.
PAH also notes that in a few local areas, the drift is wholly enclosed by the vein zone and unless there are some additional cross cuts or drilling, the vein width is taken as that measured across the confines of the drift opening. In these areas, the use of the less than actual vein width leads to underestimation of the block reserves. PAH recommends that the true vein widths, measured by cross cuts and/or the drill holes, be used as much as possible in the ore reserve estimation.
Pincock, Allen & Holt | 19.2 |
90535 January 15, 2009 |
The reserve blocks estimated are not included within the resource blocks.
19.2 Cutoff Grade Calculation
The estimation of the San Martín mineable reserve is very dependent on metal prices, especially in this current period of economic turmoil. PAH had customarily used the rolling averages for the prior three years, but these appear much too high in view of current trends. Therefore for the purposes of this report, PAH has taken some conservative price projections and used these in this 43-101 report. A summary of price comparisons is shown in Table 19-2.
TABLE
19-2
First Majestic Silver
Corp.
Cia. Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Comparison of Metal Prices for 43-101 (US$)
Commodity |
First Majestic
Average Prices |
3-Year Rolling
Average Prices |
Average
September 2008 |
PAH Prices |
Gold ($/oz.) | $699 | $699 | $830 | $708 |
Silver ($/oz.) | $12.70 | $13.15 | $12.37 | $12.00 |
Lead ($/lb.) | $0.90 | $0.89 | $0.85 | $0.75 |
Zinc ($/lb.) | $0.85 | $1.29 | $0.79 | $0.50 |
For the present (September 30, 2008) mineable reserve, PAH has calculated an economic breakeven cutoff grade, based on the parameters shown in Table 19-3.
TABLE 19-3
First Majestic Silver
Corp.
Cia. Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Mineable Reserve Cutoff Grade Parameters
Concepts |
Costs, Prices
(US $) & Other |
Average Total Operating Costs (per tonne U/G oxide ore) | $43.09 |
Average Total Operating Costs (per tonne dump oxide ore) | $25.63 |
Mill Recovery Oxides (%Ag only) | 77.50% |
Refinery Recovery and Payable Metal (% Ag only, doré & gravity) | 99.00% |
Silver Price ($/oz) | $12.00 |
Gold Price ($/oz) | $708.00 |
Lead Price ($/lb) | $0.75 |
Gold:Silver Price Ratio | $0.50 |
Monetary Exchange Rate (Pesos/US $) | 12.50:1.00 |
Cutoff Grade (U/G oxides only) | 146 g/t Ag |
Cutoff Grade (Mine dump oxides only) | 87 g/t Ag |
Equating these parameters, the breakeven cutoff grade for silver (G ag ) mined from underground oxide resources becomes:
Gag= $43.09/( $12.00 x 0.775 X 0.99) = 4.68 oz Ag/tonne or 146 g Ag/tonne
Pincock, Allen & Holt | 19.3 |
90535 January 15, 2009 |
Most of the January through September 2008 production has been derived from the mechanized cut and fill mining of oxide ores, however, a small amount was obtained from the recovery of old dumps at the mine site. Some preparation work of the deep sulfide zones was commenced during the year, but this was abandoned during the third quarter due to the low-grade of the sulfide material and severely depressed lead and zinc prices. No separate cutoff grades were calculated for the sulfide material due to the lack of separate operating cost data from these efforts. Possible resources of dump material remain, and PAH also calculated a cutoff grade for this material as follows:
C Ag = $25.63/( $12.00 X 0.775 X 0.99) = 2.78 oz Ag/tonne or 87 g Ag/tonne
Milled oxide ore production for the first 9 months of 2008 was 145,592 tonnes, at an average grade of 131 g Ag/t, and 0.25 g Au/t. Milling of oxide ore from the underground mine totaled 132,043 tonnes at an average grade of 133 g/t Ag, and that from the mine dump recovery totaled 13,549 tonnes at an average grade of 111 g/t Ag. Gold is present in payable quantities in many areas and lead in some. The actual gold head grade is not well known because of the problems in assaying as previously discussed in the laboratory analysis section. In the cutoff grade calculation the small gold and lead credits are already included as an operating cost deduction (see Table 25-6).
There was a significant tonnage of sulfide material (57,072 tonnes) extracted from the mine and transported to the mill patios during the first 9 months of 2008, however, only small amounts of this material were processed in the new flotation plant, as test material. The sulfide material remains stockpiled on the mill patios and will not be processed in the near future, nor will any sulfides be extracted from the mine. In view of the foregoing, PAH has not calculated a cutoff grade for San Martín sulfide material.
From the 145,592 tonnes of oxides ore production, the silver sold in Doré and concentrates during the first 9 months of 2008 was 22.5 million grams (724,240 ounces). The gold sold in Doré and concentrates during the 9-month period of 2008 was 19,875 grams (691 ounces). The estimated process recovery for gold was 55.4 percent. For each ounce of silver paid there were 0.001 ounces of gold paid. At a gold price of $708/oz, this represents a contribution of $0.62 per ounce of silver.
In addition to the Doré sales, a gravity concentrate is produced. During 2008, 43.6 tonnes of gravity concentrates were sold that contained silver, gold and lead values, and the payable lead content was approximately 4,400 kilos of lead. For each ounce of silver sold, approximately 0.01 kilograms (0.02 lbs) of lead were sold. At a price of $0.75/lb of lead, this contributes another $0.02 per ounce of silver.
Lead and zinc production during the first nine months of 2008, at San Martin, resulted in 164,393 lbs Pb and 401,297 lbs Zn. PAH was not provided with costs or recovery information.
This would indicate a total contribution of gold and lead of $0.64 per ounce of silver, which have been included a by-product credit to operating costs (see Table 25-6).
Pincock, Allen & Holt | 19.4 |
90535 January 15, 2009 |
This cutoff estimate was the basis that PAH used to calculate the September 2008 Reserves. PAH notes that that the reserve is in addition to the material considered as resources.
19.3 Reserve Estimate
PAH has reviewed the San Martin annual reserve update of January 1, 2007, along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
San Martin has estimated the mineable reserve for the main Zuloaga Vein, as well as for Rosario and Cinco Señores and the La Blanca veins. For the Zuloaga Vein, San Martin has tabulated an in-situ reserve, with only consideration for mining dilution to a minimum mining width of 2.00 meters but no mining extraction experienced by the cut and fill operations, and without contribution of zinc content.
The total in-situ undiluted reserve as tabulated by San Martin and reviewed by PAH, is shown in Table 19-4 at a 146 gram Ag only cutoff grade for the Zuloaga vein and for the NS veins at the San Carlos level. The total in-situ undiluted reserve and with Au/Pb credits added, as reviewed by PAH, is 0.770 million tonnes averaging 274 grams per tonne silver, for a total of 6.8 million contained ounces of silver. As discussed previously in the calculation methodology section, the proven ore category has been projected 25 meters from the drift sample data, while the probable ore category is projected another 25 meters beyond the proven ore. No material is currently classified beyond the probable category. Broken ore is material blasted in the stopes and awaiting extraction.
Figure 19-1 shows the longitudinal section of the Zuloaga vein; Figure 19-2 shows longitudinal section of the Zuloaga vein at the Cymoid Zone; Figure 19-3 shows the La Blanca Vein, and Figure 19-4 shows Condesa Vein with location of the reserve and resource blocks included in FMS estimates.
During 2007 and 2008, all of the production was derived from cut and fill stopes. In the cut and fill stopes, where the width is less than about 3 meters, the ore is blasted and removed (reused) before blasting the waste onto the stope floor for fill. A minimum mining width of 2 meters is required in the cut and fill stopes for the mechanized equipment in use at the mine.
With an average width in the cut and fill stopes of approximately 2.0 meters, the typical dilution from the walls of the Zuloaga Vein would be that estimated to mine the minimum width of extraction at the 2.00 m width. A mechanized cut and fill mining method will typically (using dry fill) result in an overall mining recovery of approximately 95 percent.
A review of the assays beyond the silver equivalent grade boundary on the walls of the Zuloaga Vein indicated an average diluting grade of approximately 10 to 200 g Ag/t. However, since there is about a one percent difference between the mine feed grades to the mill and the mill calculated feed grade, some additional dilution is being introduced in the stopes. The recognition and correction of the various excess dilution sources will help the mine reconcile the differences in grade between the mine and mill.
Pincock, Allen & Holt | 19.5 |
90535 January 15, 2009 |
TABLE 19-4
First Majestic Silver
Corp.
Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Mineral Reserves Prepared by FMS, Reviewed by PAH as of September 30, 2008
CATEGORY | Mineralization | Metric | Width | Ag | Pb | Zn | METAL CONTAINED | ||
Proven Reserves | Type | Tonnes | m | g/tonne | % | % | Silver (Only) oz. | Siver eq. oz. | |
La Blanca Vein | Oxides | 78,651 | 2.42 | 312 | 787,827 | 813,114 | |||
Veta Zuloaga | Oxides | 374,746 | 2.78 | 280 | 3,376,926 | 3,497,410 | |||
Lazo Cimoide Zone | Oxides | 54,624 | 2.88 | 207 | 364,123 | 381,685 | |||
Rosario Vein | Oxides | 9,944 | 2.23 | 173 | 55,309 | 58,506 | |||
Cinco Señores Vein | Oxides | 9,408 | 2.58 | 172 | 52,026 | 55,050 | |||
SUBTOTAL - 1 | Oxides | 527,373 | 2.72 | 273 | 4,636,211 | 4,805,765 | |||
4,636,211 | 4,805,765 | ||||||||
Probable Reserves | |||||||||
La Blanca Vein | Oxides | 24,634 | 2.05 | 339 | 268,716 | 276,636 | |||
Lazo Cimoide Zone | Oxides | 19,105 | 2.71 | 273 | 167,581 | 173,724 | |||
Veta Zuloaga | Oxides | 195,427 | 2.62 | 270 | 1,696,443 | 1,759,275 | |||
Rosario Vein | Oxides | 3,925 | 2.23 | 173 | 21,831 | 23,093 | |||
SUBTOTAL - 2 | Oxides | 243,091 | 2.56 | 276 | 2,154,571 | 2,232,727 | |||
2,154,571 | 2,232,727 | ||||||||
Proven and Probable Reserves | 6,790,782 | ||||||||
TOTAL | Oxides | 770,464 | 2.67 | 274 | 6,790,782 | 7,038,492 |
(1) Estimated Reserves are exclusive of Resources.
Estimates by FMS reviewed by PAH.
(2) Cut Off estimates
as 146 g/tonne Ag for mined oxides, and 87 g/tonne Ag for dump recovered oxides;
Ageq=Au/Pb credits = 10g/tonne Ag.
(3) Metal prices at
$708/oz-Au, $12.00/oz -Ag, $0.75/lb -Pb, $0.50/lb -Zn.
(4) Mine dilution is included at a minimum mining width of 2.00m.
Estimates do not include mining recovery
.
(5) Base metals, Lead and Zinc are not recovered due to low market
prices.
Mineral Resources | |||||||||
Measured Resources | |||||||||
Zuloaga Vein | Oxides | 120,620 | 4.96 | 234 | 907,457 | 946,238 | |||
Cinco Señores Vein | Oxides | 1,784 | 4.06 | 145 | 8,317 | 8,890 | |||
SUBTOTAL - 3 | Oxides | 122,404 | 4.95 | 233 | 915,774 | 955,128 | |||
Condesa Vein | Sulfides | 20,899 | 2.95 | 166 | 0.97 | 1.26 | 111,538 | 111,538 | |
Zuloaga Vein | Sulfides | 394,872 | 3.25 | 93 | 0.86 | 2.11 | 1,180,675 | 1,180,675 | |
SUBTOTAL - 4 | Sulfides | 415,771 | 3.23 | 97 | 0.87 | 2.07 | 1,292,213 | 1,292,213 | |
Indicated Resources | |||||||||
La Blanca Vein | Oxides | 18,805 | 1.37 | 351 | 212,331 | 218,377 | |||
Zuloaga Vein | Oxides | 161,802 | 4.41 | 344 | 1,789,507 | 1,841,527 | |||
Lazo Cimoide Zone | Oxides | 34,089 | 2.97 | 288 | 316,103 | 327,063 | |||
Rosario Vein | Oxides | 79,665 | 6.04 | 161 | 411,260 | 436,873 | |||
SUBTOTAL - 5 | Oxides | 294,361 | 4.49 | 288 | 2,729,201 | 2,823,840 | |||
La Huichola Vein | Sulfides | 68,441 | 1.87 | 389 | 0.48 | 0.53 | 855,967 | 855,967 | |
Condesa Vein | Sulfides | 22,774 | 1.64 | 235 | 0.42 | 0.73 | 171,988 | 171,988 | |
La Hedionda Vein | Sulfides | 29,375 | 1.52 | 134 | 0.34 | 0.63 | 126,553 | 126,553 | |
Zuloaga Vein | Sulfides | 550,094 | 5.65 | 76 | 1.05 | 1.87 | 1,344,131 | 1,344,131 | |
SUBTOTAL - 6 | Sulfides | 670,684 | 4.95 | 116 | 0.94 | 1.64 | 2,498,639 | 2,498,639 | |
416,765 | Oxides | ||||||||
Measured and Indicated Resources | 1,086,455 | Sulfides | |||||||
TOTAL | Oxides plus Sulfides | 1,503,220 | 4.38 | 154 | 0.91 | 1.80 | 7,435,827 | 7,569,820 | |
1,187,229 | Oxides | ||||||||
1,086,455 | Sulfides |
(1) Estimated Reserves are exclusive of
Resources.
(2) Cut Off estimates as 146 g/tonne Ag for
mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits =
10g/tonne Ag.
(3) Metal prices at $708/oz-Au, $12.00/oz
-Ag, $0.75/lb -Pb, $0.50/lb -Zn.
(4) Mine dilution is
included at a minimum mining width of 2.00m.
Estimates do not include mining
recovery
.
(5) Base metals, Lead and Zinc are not
recovered due to low market prices.
Proven and Probable Reserves plus Measured and Indicated Resources. | |||||||||
TOTAL RESERVES | |||||||||
AND RESOURCES | Oxides plus Sulfides | 2,273,684 | 3.80 | 195 | 0.91 | 1.80 | 14,226,609 | 14,608,312 |
(1) Estimated Reserves are exclusive of
Resources.
(2) Cut Off estimates as 146 g/tonne Ag for
mined oxides, and 87 g/tonne Ag for dump recovered oxides; Ageq=Au/Pb credits =
10g/tonne Ag.
(3) Metal prices at $708/oz-Au, $12.00/oz
-Ag, $0.75/lb -Pb, $0.50/lb -Zn.
(4) Mine dilution is
included at a minimum mining width of 2.00m.
Estimates do not include mining
recovery
.
(5) Base metals, Lead and Zinc are not
recovered due to low market prices.
Inferred Resources | |||||||||
La Blanca Vein | Oxides | 221,166 | 1.93 | 345 | 2,452,132 | 2,523,239 | |||
Lazo Cimoide Zone | Oxides | 497,337 | 2.75 | 292 | 4,669,008 | 4,828,906 | |||
Zuloaga Vein | Oxides | 2,277,399 | 2.33 | 289 | 21,160,600 | 21,892,801 | |||
Rosario Vein | Oxides | 557,838 | 6.24 | 153 | 2,735,614 | 2,914,964 | |||
Condesa Vein | Oxides | 87,376 | 6.00 | 63 | 176,980 | 205,072 | |||
SUBTOTAL - 8 | Oxides | 3,641,116 | 3.05 | 266 | 31,194,335 | 32,364,981 | |||
31,194,335 | 32,364,981 | ||||||||
La Huichola Vein | Sulfides | 236,065 | 1.87 | 389 | 0.48 | 0.53 | 2,952,380 | 2,952,380 | |
Condesa Vein | Sulfides | 61,193 | 1.19 | 293 | 0.26 | 0.53 | 576,345 | 576,345 | |
La Hedionda Vein | Sulfides | 118,057 | 1.52 | 134 | 0.34 | 0.63 | 508,615 | 508,615 | |
Zuloaga Vein | Sulfides | 4,157,817 | 7.70 | 102 | 1.52 | 1.73 | 13,635,045 | 13,635,045 | |
SUBTOTAL - 9 | Sulfides | 4,573,132 | 7.15 | 120 | 1.42 | 1.62 | 17,672,384 | 17,672,384 | |
17,672,384 | 50,037,365 | ||||||||
Inferred Resources | |||||||||
TOTAL (6) | Oxides plus Sulfides | 8,200,000 | 5.34 | 185 | 1.40 | 1.60 | 48,900,000 | 50,000,000 |
(1) Estimated Reserves are exclusive of Resources.
(2) Inferred Resources are especulative in nature and may not become
Reserves.
(3) Metal prices at $708/oz-Au, $12.00/oz -Ag, $0.75/lb -Pb, $0.50/lb
-Zn.
(4) Mine dilution is included at a minimum mining width of 2.00m.
Estimates do not include mining recovery
.
(5) Base metals, Lead and Zinc are not recovered due to low market
prices.
(6) Rounded figures.
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90535 January 15, 2009 |
PAH recommends that San Martin assign a geologist to spray paint the boundaries of the economic mineralization along the stopes to avoid higher dilution during the mining activities.
Table 19-4 summarizes the diluted, recovered with credits added for Au/Pb, proven and probable reserves at San Martin as reviewed by PAH. PAH notes that the reserve is in addition to the material considered as resources.
PAH notes that the current mining across the width of the Zuloaga Vein is often conducted with limited regard to economic cutoff grade or mineable width considerations, resulting in taking maximum vein widths. This maximum width typically includes zones within the veins that are above the cutoff grade, as well as sub-ore grade mineralization below the cutoff grade. PAH believes that San Martin can be more selective in mining across the veins to extract the ore above cutoff grade, without taking as much of the sub-ore grade mineralization. Reducing the amount of the lower grade material taken during mining will potentially reduce mining costs, haulage costs, and processing costs, and allow for a more efficient and economic operation. In PAH review San Martins blocks of the Cinco Señores vein were discounted from the probable reserves and added to resources due to lower average grade than the COG estimated for silver only.
19.3.1 Conclusion
PAH believes that these reserve estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves. PAH believes that the classification of the reserves meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
19.4 Resource Estimation
The Resource calculations by San Martin are based on projections of the mineralized zones of 50 meters beyond the areas of the reserves for the measured resources, and another 50 meters beyond the boundaries of the measured resources for the blocks of indicated resources. The grade for these blocks is determined from the grade estimated for the adjacent Reserve blocks, and sampling in mine workings and drill holes located within the block area.
San Martins estimated mineral resources are considered conservative, since only adjacent blocks are projected from the reserve blocks. Mineralization in the Zuloaga vein has shown an estimated 70/30 percent ore to waste ratio within the mineralized structure; therefore, based on mining records the resource projections above and below the reserve blocks may be extended to the length of the known structure.
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90535 January 15, 2009 |
In addition to the Reserves, San Martin has estimated Resources in blocks along the Zuloaga vein, La Blanca vein, the Plomosa-Rosario vein, the Rosario-Condesa vein, and in two other NS newly accessed veins that cross the main mineralized structure. These blocks were estimated in the same manner as that described previously for the reserve blocks, with the additional calculation of lead and zinc assays where they are available, however no additional contribution was considered for zinc.
The mineralized veins within the deeper parts of the mine, as well as in some other localized areas, contain variable amounts of base metals, particularly zinc, which is locally present in sufficient quantities to potentially be considered as an additional metal product for revenue generation. The Zuloaga Vein contains resource areas that are locally as high as 5 percent zinc. The La Blanca Vein also contains higher zinc values. Zinc grade distribution is not well defined as sample analysis for zinc has historically been limited, but is being conducted routinely for the exploration drilling in more recent sampling.
Metallurgical studies have been performed by experts at the Universidad Autónomade San Luis Potosí, México, and a vertical flotation cell has been installed on site for producing a lead/silver concentrate. The long-term plans are to make both a lead/silver and a zinc concentrate that would be shipped to the Peñoles smelter in Torreón, México or sold internationally. However, the final flow sheet design has not been completed, and to-date, only testwork has been developed in a column flotation cell that has been installed within the plant area, producing minor amounts of lead/silver and zinc concentrates, although it appears that zinc and lead concentrate production could potentially be feasible. FMS has determined to postpone further research on sulfides recoveries due to the current low lead and zinc prices.
PAH has reviewed the preliminary technical and economic information for the potential processing of the zinc and has found that although the potential processing of zinc is encouraging and should be pursued, the current degree of evaluation is not sufficiently high to add the zinc contribution to the resource grade. In current Resource grade estimates the zinc has been only indicated as part of the block's grade, but not included in value or silver equivalent.
San Martin's estimate of measured and indicated resource blocks is shown in Table 19-4. The measured and indicated silver resource consists of 1,503,000 tonnes averaging 154 grams per tonne silver only, for a total content of 7,570,000 ounces of silver equivalent. The resource grade has not been discounted by San Martin for a metallurgical recovery or mine dilution, and it is only estimated for silver only grade.
San Martin has also estimated Inferred resources that have resulted in silver equivalent of 50 million ounces contained in 8.2 million tonnes of inferred resources.
San Martin's estimated resource blocks do not include the estimated reserve blocks since these have been projected at distances that are adjacent and beyond the reserve blocks boundaries.
San Martin's mineral resources do not include development details for underground mine accessibility and mine planning, therefore, in PAH opinion these resources are appropriately reported as resources, with estimated tonnage and grade calculated from available data on an “in-situ” basis.
Pincock, Allen & Holt | 19.12 |
90535 January 15, 2009 |
Based on these assumptions, and in the mines silver COG, PAH reviewed the San Martin estimates. The resulting resources were not credited with the contribution for gold/lead to the silver grade, which at the current San Martín rate of production, may add over 20 years of life to the mine. These resources were not adjusted for mine dilution, mine or metallurgical recovery, or S&R charges.
The mineral resources estimated by San Martin and reviewed by PAH are presented in the lower part of Table 19-4. PAH notes that these resources are in addition to the previously reported reserves.
San Martin has estimated additional silver resources at a distance beyond the proven and probable reserves. These additional resources lack sufficient drifting, raising, sampling, drill holes or old workings with production data and are estimated at a lower degree of confidence than the other reserve or resource categories. PAH considers these additional resources to be of an inferred category and they are based on projections of presumed vein continuity ahead, above, and below current mining; and based on very widely-spaced drill holes, surface sampling or old surface workings. Exploration and development of these inferred resources is presented in the corresponding section of this report. Those inferred resources are presented in separate line at bottom of the Table 19-4.
The inferred resources need considerable grade and tonnage information before they can be proved up to mineable reserves. In addition, historically about 70 percent of the vein has been mined due to the normal low grade, narrow zones or waste areas contained within the vein. To date, the Zuloaga Vein has demonstrated a continuity along 3.0 kilometers of strike length and down dip to about 400 meters; so it is reasonable to assume that in the future resources will continue to be converted to ore as additional drifting, crosscutting and raising define vein configurations, sampling and assaying determine the grade, and diamond drilling confirms vein extensions and fills in data gaps.
19.5 Conclusion
PAH believes that these resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of resources. PAH believes that the classification of the resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The reserves and resources herein reported by FMS for the San Martín mine were reviewed by PAH and constitute part of an operation by FMS. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these reserves and resources may not be materially affected by issues that could prevent their extraction and processing.
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90535 January 15, 2009 |
21.0 INTERPRETATION AND CONCLUSIONS
In 1981, Mr. Héctor Dávila Santos founded the Mexican corporation Minera El Pilón, S.A. de C.V. and purchased the San Martín property, developed the mine, constructed the process plant, and then began production in 1983. In 1997 First Silver Reserve Inc. (FSR), by reverse takeover, acquired all the shares of the Mexican company Minera El Pilón, S.A. de C.V., owner and operator of the San Martín mine. In September 2006 First Majestic Resource Corp. acquired FSR, and consequently is now the owner and operator of the San Martin Silver Mine and other assets once owned by FSR. Subsequently to First Majestics acquisition of First Silver, the corporate name of the Company was changed to First Majestic Silver Corp.
The San Martín mine includes underground operations that have opened six main drifts with levels at an approximate 35-meter vertical separation. Each one of the drifts has been developed to a maximum extension of approximately 3,000 meters, with interconnecting ramps between levels, and all have surface access to the Cerro Colorado hillside. Since 1983 to September 30, 2008, over 4.3 million tonnes of silver ore have been extracted and processed, to produce sales of approximately 33.6 million ounces of silver, including some gold and lead. Most of the San Martín ore production has been mined from the Zuloaga vein, with only minor production extracted from the La Blanca vein, which branches out from the hanging wall of the main structure.
The processing plant consists of crushing, grinding and conventional cyanidation by agitation in tanks. Silver and gold values in solution are then precipitated by the Merrill-Crow method, by adding zinc dust and smelting the precipitates into doré bars for shipment to a smelter. A gravity separation circuit consisting of two Falcon concentrators and one vibrating Wilffley table have been added to the processing system to recover coarse grains and some sulfides that are not leached in the cyanidation circuit.
Other installations include laboratory facilities, offices, dining room and some housing for key employees.
In addition to the mineral rights covered by 31 mining concessions that include 7,841 hectares (19,375 acres), FMS also has purchased the surface rights for 1,300 hectares (3,212 acres) of land that include the mine installations, part of the access roads, and surrounding areas. Additionally, San Martin has acquired the surface rights of 107 hectares (264 acres) of land where the plant installations and camp are located.
San Martins corporate offices are located in the State of Durango capital city of Durango, where purchasing, legal and accounting administrative functions give support to the mining operation. FMS head offices for all its Mexican subsidiaries and operations are located at the same offices in the state of Durango capital city of Durango.
Mine and plant statistics for the first nine months of 2008 indicate that the Run-of-Mine (ROM) Ore averaged 169 g/t silver. The total 2008 silver and gold recovery from Doré 724,239 ounces and 635 ounces respectively. During this period, 43.6 tonnes of gravity concentrates were also produced containing about 4,400 kilograms of lead with some silver and gold values. Contribution of the lead and gold per ounce of silver was estimated at $0.64 as by-product credit to operating costs.
Pincock, Allen & Holt | 21.1 |
90535 January 15, 2009 |
Estimated reserves for September 30, 2008, as reviewed by PAH resulted in:
Proven and Probable Reserves:
Tonnes | Ag only(*) | Ag eq. Contained Ounces. |
770,000 | 274 g/t | 7,038,000 |
(*) - Ag includes added value for gold/lead credits.
These estimated reserves indicate about 3.0 years of operation from October 2008.
At the San Martín mine, the majority of its silver ore has been extracted from the Zuloaga vein. Numerous other veins occur within the San Martín area that appear to represent similar structural and mineral characteristics as those of the Zuloaga vein.
Exploration potential for finding and developing new resources/reserves in the San Martín district still appears to be promising. FMS has been developing an aggressive exploration program based on economics, direct exploration development and diamond drilling by in-house operators and with contractors for deep drilling.
Direct exploration development is integrated into the mine preparation programs and in vein deposits this has proven to be the most effective method of exploration. For the year 2009, a program of underground development includes about 450 meters for exploration and drill site access preparation has been planned including an aggressive drilling program for both, underground and surface drilling. This program includes 93 drill holes with a total programmed depth of 13,400 meters at an estimated cost of about $1.70 million. At the time of writing this report FMS has delayed the 2009 program due to market conditions.
To date, the drilling program has identified 5 target zones with 26 drill holes from surface along the Zuloaga vein in the San Martín mine. These 26 drill holes are directed to investigate areas of resources with the objective to increase reserves, and if it is successful, the program should result in additional resources/reserves for the mine, according to FMSs Geology Department projections. FMS has also programmed 67 drill holes with a total length of 6,500 meters from underground sites to investigate six targets in the Rosario, Escondida and the Zuloaga veins at the Cangrejos, Ballenas, San José and Cymoid zone.
Current estimated Resources for the San Martín mine include Measured and Indicated Resources calculated by FMS and reviewed by PAH, as follows:
Pincock, Allen & Holt | 21.2 |
90535 January 15, 2009 |
In-Situ Measure and Indicated Resources as of September 30, 2008.
Tonnes | Ag only (*) | Ag eq. Contained Ounces |
1,500,000 | 154 | 7.6 million |
(*) Ag grade includes added value for Au/PB credits.
Resources in-situ with no mine dilution or recovery considerations. These resources, estimated along the Zuloaga vein, if proven to reserve certainty may add about five more years to the mine life.
The reserves and resources herein reported by FMS for the San Martín mine and reviewed by PAH constitute part of a mineral deposit that is currently under operation, without technical, legal, environmental, political or of any other kind of restrictions, therefore, in PAHs opinion these reserves and resources may not be materially affected by relevant issues that may prevent their extraction and processing.
PAH is not aware of any environmental liabilities in the San Martín mining district. Most of the area covered by the concessions is mining and prospective land for mineral exploration and mine development in rough topography. San Martin workings are of limited extent with relatively small waste dumps that have been developed with minor surface disturbances. Most of the mine operations are located within land holdings owned by FMS or its subsidiaries. The San Martín underground operation has been developed on the Zuloaga vein, the strike of which intersects the western slope of the Cerro Colorado hill. Selected ores are extracted in the mining operation and only relatively small waste dumps have been formed during the long history of production. Currently San Martin operates mainly with Cut-and-Fill mining methods to avoid accumulation of large waste dumps on surface, and most waste generated from development is used for stope backfill.
San Martin has two regular annual contracts with the Smelter and Refinery of MET-MEX Peñoles located in the city of Torreón, Coahuila State, México. Peñoles is the largest silver refinery in México and the World, with a capacity of approximately 100 million ounces of silver per year. The contracts between San Martin and Peñoles for sales of Doré and concentrates are typical for those kinds of minerals.
During 2008 San Martin shipped Doré and gravimetric concentrates containing a total of 0.5 million ounces of silver, 600 ounces of gold and 4.5 tonnes (12,000 lbs) of lead to Peñoles.
San Martin ships Doré bars by armored truck to Torreon, where they are delivered to a purchasing representative for deliver to Peñoles. San Martin gravity concentrates, sold to Peñoles during 2008, contained about 10 percent lead, 2 percent zinc, 20 percent sulfur, 4 kg/t silver and 20 g/t of gold. Gravity concentrates are shipped by truck from the mine to Torreón, Coahuila, to MET-MEX Peñoles Smelter and Refinery.
Pincock, Allen & Holt | 21.3 |
90535 January 15, 2009 |
Production costs for the San Martín mine in 2008 for January to September, totaled $7.9 million to produce approximately 184,440 tonnes of ore, containing saleable silver amounting to 724,240 ounces and 691 ounces of gold. On a unit basis, cash production costs were $40.87/tonne of ore.
As expected the project exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally.
In all cases, however, the San Martin mine shows positive economics as measured by a cash flow exercise, and thus the postulated reserve position is acceptable.
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90535 January 15, 2009 |
22.0 RECOMMENDATIONS
The San Martín mine has been in operation since 1983, with a long history of mineral reserves development, until about the year 2000, when the precious metals prices forced reduction of the exploration budget; however, in recent years with improved metal prices personnel and budgets have increased to escalate the exploration programs.
PAH highly recommends a continued support for the exploration activities in San Martín to develop resources into reserves and extend the mine life. Care must be taken to prioritize the exploration targets since the area holds a broad potential for development and possible discovery of new ore bodies. Underground access to the areas of exploration must be a primary objective to investigate identified resource targets.
In the past, San Martín had expensed most mine development, exploration and used equipment purchases; however, FMS has instituted a new fiscal policy, and many previously expensed costs and equipment purchases are now capitalized. The anticipated year-end 2008 expenditures are consistent with the mine's plans to continue increasing ore reserves and improve the overall efficiency of the present operation. Most of the mine capital expenditures spent in the first three quarters of 2008 were for mine development and exploration, mine and mill equipment and other ancillary equipment and administrative expenditures. See projected capital expenditures in Table 25-9.
PAH recommends that San Martín proceed with the projected capital expenditures.
Subject to improving market conditions, FMS has authorized a $2.476 million exploration budget for 2009, which should result in a significant increment of reserves. This program includes approximately 450 meters of underground exploration development for drifting, crosscutting and drill sites preparation, in addition to 67 drill holes with a total programmed depth of over 6,500 meters. This program also includes 26 drill holes with total projected depth of 6,900 meters to be drilled from surface sites. Budget for this program is approximately $2.5 million, although part of the expenditures, are usually included into the operating costs. The capital expenditures in budget for 2009 include $96,000 for direct investments in geophysical studies, $52,000 for geochemical sampling, and $650,000 for access roads and rill sites construction on surface, to support the diamond drilling program.
The San Martín mine includes now a long underground development of about 3,000 meters in some of the levels, for over 25 km in workings along the main operating levels. Maintenance of the access roads for transportation of the ores from different stopes makes this task complicated and expensive; however, the San Martin mine has recently acquired additional special equipment to accomplish this task, including a small bulldozer and an underground grader. To maintain clean underground roads will help in equipment maintenance.
With the possibility of establishing sufficient resources of sulfide ore to warrant the use of the newly constructed of a sulfide-ore processing plant (flotation area), PAH considers it worthwhile conducting mineral processing testwork on samples from the mine as they become available, in preparation for future higher prices of the metals, particularly Lead and Zinc.
Pincock, Allen & Holt | 22.1 |
90535 January 15, 2009 |
In PAH opinion the programmed capital expenditures for the fourth quarter of 2008 and the year 2009, for a total of US$3.45 million are scheduled to improve the operation and through a successful exploration program, increase the mines reserves and therefore the mine life.
Details of recommended investments are presented in Table 22-1.
TABLE 22-1
First Majestic Silver Corp.
Cia. Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
Recommended Program of Exploration for 2009
Exploration Activities |
Objective |
Area |
Quantity |
Total Estimated
Cost US$ |
Geophysical Survey IP | Define areas | Rosario | 15 km | 24,000 |
for drilling | Condesa | 15 km | 24,000 | |
Los Bancos | 30 Km | 48,000 | ||
Total | 96,000 | |||
Geochemical Survey | Define areas | Rosario | 200 samples | 10,000 |
for drilling | Condesa | 250 samples | 10,000 | |
Los Bancos | 300 samples | 8,000 | ||
Providencia | 150 samples | 12,000 | ||
La Esperanza | 300 samples | 12,000 | ||
Total | 52,000 | |||
Surface Diamond Drilling | Develop resources | Ciruelo | 1,460 m (9 dh) | 146,000 |
Mina de Agua | 1260m (4 dh) | 126,000 | ||
Los Bancos (Zuloaga) | 1780 m (5 ddh ) | 178,000 | ||
Providencia | 1200 m (4 dh) | 120,000 | ||
Hedionda | 1200 m (4 dh) | 120,000 | ||
Total | 690,000 | |||
Underground Diamond Drilling | Develop resources | Rosario | 930 m (6 dh) | 93,000 |
at depth | Escondida | 1080 m (9 dh) | 108,000 | |
San Jose | 820 m (8 dh) | 82,000 | ||
Ballenas | 1470 m (7 dh) | 147,000 | ||
Cangrejos | 1500 m (9 dh) | 150,000 | ||
Lazo Cimoide | 700 m (28 dh) | 70,000 | ||
Total | 650,000 | |||
Zuloaga (cruceros / bdd) | ||||
Underground development | Develop reserves and Resources | 450 m | 337,500 | |
Road Surface Diamond Drilling | Develop reserves and resources | Los Bancos - Rosario | 1000 m | 650,000 |
Grand Total | 2,475,500 |
Pincock, Allen & Holt | 22.2 |
90535 January 15, 2009 |
23.0 REFERENCES
1. |
Albinson-F., T., 2002, Estudio de microtermometría y análisis de arcillas de muestras del barreno Z-211, Distrito San Martín de Bolaños, Jalisco, México. Unpublished, private report to Minera El Pilón, 10p. |
2. |
Ibarra Amaya Armando, Ing. 2,002, Operations costs memorando to Minera El Pilón dated December 5, 2002. |
3. |
Garcia Jiménez & Associados, June 2005, Legal opinion on Pilón mining concessions. |
4. |
Lyons, J.I., 1988, Geology and Ore Deposits of the Bolaños Silver District, Jalisco, México: Economic Geology, v.83, p. 1560-1582. |
5. |
Lyons, J. I., 2000, San Martín de Bolaños, Minera El Pilón, S.A. de C.V. Unpublished Exploration Report to Minera Pilón, dated April 25, 2000. |
6. |
Motilla, Luis, 1998, unpublished company report. |
7. |
Megaw, Peter K.M., May 2003, Technical Report for the Minera El Pilón S.A. de C.V. Properties San Martín de Bolaños District, San Martín de Bolaños, Jalisco, México, for Minera El Pilón, S.A. de C.V. and First Silver Reserve Inc. |
8. |
Pincock, Allen & Holt, Inc. (King, W.D., Milne, S., Stinnett, L.A. and Walter, K.) 1996, Minera El Pilón, San Martín Unit Valuation: Project 9161.00: Qualifying report for First Silver Reserve Inc., December 13, 1996. |
9. |
Scheubel, F. R., Clark, K.F., and Porter, E.W., 1988, geology, Tectonic Environment and Structural Controls in the San Martín de Bolaños District, Jalisco, México Economic Geology, v.83, p. 1703-1720. |
10. |
Pincock, Allen & Holt, Inc. (King, W.D., Milne, S., Stinnett, L.A.), 2001, Minera El Pilón, San Martín Unit Reserve Audit and Project Update: Project 9206.02: Technical Report for First Silver Reserve Inc., April 19, 2001. |
11. |
Gabriel Hernández, Ing. Armando, Metalurgista de Investigación, 25 Noviembre, 2004, Determinación de la Densidad de Sólidos. 8 muestras de mineral de la mina Zuloaga, San Martín de Bolaños, unpublished report on behalf of Minera El Pilón, S. A. De C. V. |
12. |
INEGI (Instituto Nacional de Estadística, Geografía e Informática), XII Censo General de Población y Vivienda 2,000. Estadísticas generales de población y climatología.. |
Pincock, Allen & Holt | 23.1 |
90535 January 15, 2009 |
13. |
Minera El Pilón, S.A. de C.V., May 2005, data supplied to PAH for this report preparation, including operating records, estimates, and projections, maps, etc. |
14. |
This Technical Report was based on Mr. Stevens, Mr. López, Mr. Milne, Mr. Stinnett, and Mr. Hyyppa opinions of the current conditions at the mine, on incorporation of the last operating and exploration results developed by technical representatives and contractors for Minera El Pilón, upon review and verification of the database and of the geologic interpretations to determine mineral reserves and resources; and on great part of the analysis for the San Martín Unit operation as presented on PAHs previous reports, data base and various site visits. |
15. |
Technical Report for the San Martín de Bolaños Silver Mine, State of Jalisco, México. June 23, 2005, prepared for First Silver Reserve Inc. by Pincock, Allen & Holt, Inc. as Project No. 9161.01. This Technical Report was published in SEDAR on July 5, 2005. |
16. |
Lic. Carlos Galván Pastoriza, September 30, 2008. Legal opinion on the mining concessions held by Minera El Pilón in the San Martín de Bolaños mining district, State of Jalisco, México. |
17. |
Permisos y Autorizaciones Ambientales, October 27, 2008, provided by Ing. José Luis Hernández Ibañez, Manager of Environmental and Permitting for First Majestic Silver Corp. at Corporate offices in Durango city, State of Durango, México. |
18. |
Technical Report for the San Martín de Bolaños Silver Mine Amended, State of Jalisco, México. July 24, 2007, prepared for First Majestic Silver Corp. by Pincock, Allen & Holt, Inc. as Project No. 70540. This Technical Report was published in SEDAR on July 24, 2007. |
19. |
Data and estimates prepared by Minera El Pilón at San Martín and at FMS Corporate offices in Durango city, State of Durango, México. |
20. |
Observations by PAH during site visit to the San Martín Silver Mine in Jalisco State, México during the period of November 24, 2008 and during other previous visits to the operation in 2006 and 2007. |
Pincock, Allen & Holt | 23.2 |
90535 January 15, 2009 |
24.0 DATE AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite
950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
leonel@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the San Martin Silver Mine, State of Jalisco, México dated January 15, 2009 (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, a Member (No. 1943910RM) as SME Founding Registered Member, a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, and other technical subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the San Martín de Bolaños mine, as an independent engineer in 1991 and in 2005. I have previously visited the operation during the periods of May 16-19, 2005 and January 23-26, 2007. As part of this study, I visited the project site from November 2 to 4, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, inspecting exploration drilling locations, reviewing sampling procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
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90535 January 15, 2009 |
7. |
I am the primary author of the Technical Report. I am responsible for all report sections including those report sections outside of my discipline of geology and resource modeling, which were prepared by other Pincock, Allen & Holt representatives that were qualified in those particular disciplines (mining, environmental and economics), which I believe to be reliable work. I have visited the project in January 2007 and November 2008, and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 15 th day of January 2009
Leonel López, C.P.G.
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | 24.2 |
90535 January 15, 2009 |
Richard Addison
165 So. Union Blvd., Suite
950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing. for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the San Martin Silver Mine, State of Jalisco, México dated January 15, 2009 (the Technical Report).
1. |
My residential address is: 857 S. Van Gordon Court, #G207, Lakewood, Colorado 80228. |
2. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
3. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EEC. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
4. |
I have worked as a metallurgical engineer for a total of 38 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
5. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
6. |
I am responsible for the preparation of Sections 3.6, Processing Facilities; Section 18, Mineral Processing and Metallurgical Testing; Section 25.3, Ore Processing; Section 25.4, Infrastructure; and Section 25.7.4, Product Marketing. I visited the San Martín project in November 2008. |
7. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
8. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
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90535 January 15, 2009 |
9. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
10. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 15 th day of January 2009
Richard Addison
_______________________________________
Richard Addison, P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | 24.4 |
90535 January 15, 2009 |
25.0 |
ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT PROPERTIES AND PRODUCTION PROPERTIES |
25.1 Introduction
The San Martín Silver Mine has been in operation since 1983 by the Mexican corporation, Minera El Pilón, S.A. de C.V. (El Pilón), once a wholly-owned subsidiary of First Silver Reserve Inc., which was purchased by First Majestic Silver Corp. (FMS) in 2006. Since that time, FMS has undergone a reorganization whereby all the operating assets of the Company are now owned by a 100 percent wholly owned subsidiary Corporación First Majestic, S.A. de C.V.
The San Martín mine has produced an aggregate amount of 33.6 million ounces of silver including gold and lead as by-products through September 30, 2008. It currently operates a conventional cyanidation plant at a nominal rate of 800 tonnes per day with slurry agitation in tanks, precipitation by the Merrill-Crow method, and generation of gravimetric concentrate in a gravity concentration circuit with a Falcon concentrator. Production is shipped primarily as Doré, together with a limited amount of gravimetric concentrate, to the smelter and refinery facility of Met-Mex Peñoles in Torreón, México.
The company has also recently constructed a 800 tpd flotation plant to process low-grade sulfide ore from resources on the deep-level Zuloaga vein. This plant was started up and some ore milled in the first quarter of 2008 as a test but due to the low metal prices, the operation was suspended. It was intended to produce both a silver-lead and a zinc concentrate. The current low prices of both lead and zinc, coupled with the very low grade of the sulfide feed material and high smelter costs will probably preclude operation of the flotation plant for the foreseeable future.
25.2 Mining Review
25.2.1 Mine Design and Production
The principal vein that is being exploited in the San Martín mine is the wide, continuous Zuloaga vein from which mainly oxide ore has been extracted. The operators, however, plan to soon have the ancillary La Blanca vein in production.
The San Martín mine is developed by a series of trackless levels from the surface, and most were commenced as adits from the mountainside. Levels from the lowest to the highest are the San Carlos, San Juan, San Pablo, Cangrejos, Ballenas, Santa María, San José, Santa Elena, La Escondida and Pinolea levels. The San Carlos and Pinolea levels are currently under exploration and development. The levels are spaced approximately 35 meters apart vertically, except that the spacing between the Pinolea and La Escondida levels is 70 meters. In the future, the engineers plan the spacing between all new levels at a minimum of 60 meters.
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90535 January 15, 2009 |
Underground development is normally performed by mine employees and a mining contractor. The total January through September 2008 development was 7,763 meters, including 3,458 meters of exploration, 597 meters of stope development and 3,708 meters of general mine development. A summary of the January through September 2008 mine development advances is shown in Table 25-1.
TABLE 25-1
First Majestic Silver Corp.
Minera El Pílon, S.A. de C.V.
San Martín Silver
Mine
Summary of Mine Exploration and Development, 9 months 2008 (meters)
Month | Exploration | Stope Preparation | General Mine Development | Totals | ||||||||
Real | Budget | Difference | Real | Budget | Difference | Real | Budget | Difference | Real | Budget | Difference | |
January | 470.1 | 534 | (63.9) | 26.0 | 195 | (169.0) | 149.9 | 1,072 | (922.1) | 646.0 | 1,801 | (1,155.0) |
February | 404.4 | 484 | (79.6) | 44.6 | 391 | (346.4) | 492.4 | 859 | (366.6) | 941.4 | 1,734 | (792.6) |
March | 440.2 | 540 | (99.8) | 217.6 | 351 | (133.4) | 318.9 | 931 | (612.1) | 976.7 | 1,822 | (845.3) |
April | 435.4 | 432 | 3.4 | 94.6 | 200 | (105.4) | 408.1 | 713 | (304.9) | 938.1 | 1,345 | (406.9) |
May | 274.1 | 369 | (94.9) | 23.6 | 72 | (48.4) | 571.0 | 482 | 89.0 | 868.7 | 923 | (54.3) |
June | 435.3 | 392 | 43.3 | 133.0 | 60 | 73.0 | 522.2 | 373 | 149.2 | 1,090.5 | 825 | 265.5 |
July | 264.8 | 607 | (342.2) | 57.5 | 219 | (161.5) | 403.1 | 1,153 | (749.9) | 725.4 | 1,979 | (1,253.6) |
August | 390.7 | 349 | 41.7 | 0.0 | 365 | (365.0) | 549.4 | 1,339 | (789.6) | 940.1 | 2,053 | (1,112.9) |
September | 343.3 | 392 | (48.7) | 0.0 | 116 | (116.0) | 292.8 | 745 | (452.2) | 636.1 | 1,253 | (616.9) |
Totals (9 mos.) | 3458.3 | 4099 | (640.7) | 596.9 | 1,969.00 | (1,372.1) | 3,707.8 | 7,667 | (3,959.2) | 7,763.0 | 13,735 | (5,972.0) |
Mine development in 2008 in all categories (exploration, general mine development and stope development) are below budget. 2007 exploration and development were also significantly under budget. A comparison of the mine exploration and development results for both years is shown in Table 25-2.
TABLE 25-2
First Majestic Silver
Corp.
Minera El Pílon, S.A. de C.V.
San Martín Silver
Mine
Comparison of 2007 and 2008 ( 9 months) Mine Exploration and Development
(meters)
Year | Exploration | Stope Preparation | General Mine Development | Totals | ||||||||
Real | Plan | Difference | Real | Plan | Difference | Real | Plan | Difference | Real | Plan | Difference | |
2007 | 4,245.6 | 4,624.0 | (378.4) | 842.0 | 1,995.0 | (1,153.0) | 2,925.4 | 6,597.0 | (3,671.6) | 8,013.0 | 13,216.0 | (5,203.0) |
2008 (9 mos.) | 3,458.3 | 4,099.0 | (640.7) | 596.8 | 1,969.0 | (1,372.2) | 3,707.8 | 7,667.0 | (3,959.2) | 7,762.9 | 13,735.0 | (5,972.1) |
Current mine production has been averaging about 490 tonnes per day (tpd) from stopes and development located on La Escondida, San José, Ballenas, Cangrejos, San Pablo, San Juan, and Sta. Elena levels. Underground drilling is performed using jackleg drills. Blasting is accomplished with ammonium nitrate/fuel oil (ANFO) explosives. Underground loading and haulage is performed with 2-yd 3 , 3-yd 3 and 5-yd 3 LHD's (scooptrams) and 10- to 22-tonne capacity trucks. Opening sizes are typically about 3.5 meters by 3.5 meters and ramp gradients are generally limited to about 12 percent. The average productivity in headings is about 0.74 meters per man shift, which is in the normal range for this type of development.
Mechanized, cut and fill stopes now account for most of the mine production, which are developed either directly on the vein, or by first driving a drift on the vein, and then driving a parallel drift about 8 meters away, leaving a pillar between the drifts. Crosscuts are then driven about every 10 meters from the parallel drift through the pillar to the vein for ore extraction. Raises are driven as needed to provide access, services and ventilation. Stopes are mined by breasting down, and drilling is with hand-held jackleg air drills. Blasting is with ANFO primed with a water gel primer which is initiated with a Non-El cap. Productivities in stopes have averaged about 40 tonnes per man-shift during 2008. A diagram of a typical cut and fill stope is shown in Figure 25-1.
Pincock, Allen & Holt | 25.2 |
90535 January 15, 2009 |
In the near future, the La Blanca vein will be placed in production. The principal method for extraction of La Blanca will be overhand shrinkage stoping, with drawhole extraction of the stopes using LHD equipment. Drilling in the stopes will be with hand-held drills and a manway and serviceway will be carried on one end of the stope. A diagram of one of the planned shrinkage stopes is shown in Figure 25-2.
During 2008, the operators were preparing a few sulfide blocks for sub-level stoping with long-hole drilling, utilizing a pneumatic single-boom Boart ® Stopemate drillrig for drilling both up and down 2½-inch-diameter holes from sub-levels spaced about 15 meters apart (Figure 25-3). However, the low grade of the material, coupled with the recent severe decline in the prices for lead and zinc has forced the cessation of this effort, and it is unlikely that the sulfide areas will be extracted in the foreseeable future or at least until metal prices improve. A longitudinal section of a typical San Martín long hole stope is shown in Figure 25-3.
Ore from the underground workings is hauled to stockpile areas near the main adits. This ore is loaded from the stockpiles with front-end loaders into 22-tonne trucks for transport to the mill, situated about 15 kilometers away via a gravel road. Ore haulage from the mine to the mill is performed by a contractor. To eliminate the rehandling and loading of ore from surface stockpiles, construction of a truck load-out with chutes on the San Juan level was underway, and all mine ore will pass through a raise system to an excavated holding bin above the truck-loading level. This project has involved the slashing out of about 300 meters of the San Juan level to about 5.0 X 5.0 meters to accommodate highway-type dump trucks in the mine as far as the truck loading chute.
The current mine ventilation system appears adequate for the production rate and the amount of diesel equipment in the mine. PAH did not observe any areas with excessive heat build-up or with stagnant air. Ventilation to the working areas flows through portals at the east end of the mine and into the mine's development and production areas. The ventilation flows are assisted by a series of booster fans installed in the circuit and also by a large (250,000 cfm) exhaust fan installed at the west portal of the Santa Maria level. The adit was rehabilitated in 2005 for use as the principal west-end exhaust for the mine. Smaller, axial-vane fans are available for local ventilation. Within the mine, ventilation is controlled with brattice doors. Recently, the mine operators have been drilling a series of rise bore holes (6-ft diameter) on the west-end and near the center of the mine, primarily to improve ventilation exhaust flows.
Dewatering has never been a major problem for the mine and the mine is basically dry. In most work areas the mine is dry and dewatering is minimal. There are four small, 30 hp, centrifugal pumps installed on sumps in the San Pablo, Ballenas, San Juan, and Escondida levels, for intermittent pumping. Most water drains to the San Juan level, where it flows in a ditch out the portal.
Since early summer, the operators have been recovering old dumps, which are located near the major mine portals. This operation is similar to FMS's La Encantada mine, where a similar dump recovery operation is underway. San Martin recovers the dump material by simply excavating it with a front-end loader (Komatsu WA 320), and passing it through a Locotrack W 348 portable screening plant, where the coarse, plus 2-inch material is screened out from the dump rock and the upgraded fines fraction sent to the mill. During nine months of 2008, the total screened dump production (oxides) was 13,549 tonnes, which averaged about 111 g/t Ag per tonne. A summary of the 2008 January through September mine and dump production is shown in Table 25-3.
Pincock, Allen & Holt | 25.4 |
90535 January 15, 2009 |
TABLE 25-3
First Majestic Silver
Corp.
Minera El Pilon, S.A. de C.V.
San Martín Silver
Mine
2008 Production By Area
Months | Mine Production 2008 (9 mos.) | TOTALS 2008 (9 mos.) | ||||||||||||||
Stopes | Development | Mine Dump Recovery | ||||||||||||||
Tonnes | Ag (g/t) | Pb (%) | Zn (%) | Tonnes | Ag (g/t) | Pb (%) | Zn (%) | Tonnes | Ag (g/t) | Pb (%) | Zn (%) | Tonnes | Ag (g/t) | Pb (%) | Zn (%) | |
January | 13,401 | 194 | 1160 | 208 | 14,561 | 195 | ||||||||||
February | 3,771 | 159 | 603 | 176 | 4,374 | 161 | ||||||||||
March | 10,717 | 175 | 460 | 193 | 11,177 | 176 | ||||||||||
April | 14,382 | 184 | 1766 | 180 | 16,148 | 184 | ||||||||||
May | 21,799 | 169 | 378 | 152 | 22,177 | 168 | ||||||||||
June | 12,080 | 191 | 100 | 170 | 3,758 | 108 | 15,937 | 172 | ||||||||
July | 11,807 | 183 | 306 | 147 | 6,528 | 113 | 18,641 | 158 | ||||||||
August | 18,314 | 152 | 96 | 135 | - | 18,410 | 151 | |||||||||
September | 8,682 | 169 | 318 | 173 | 3,263 | 110 | 12,263 | 153 | ||||||||
October | ||||||||||||||||
November | ||||||||||||||||
December | ||||||||||||||||
Totals 2008 | 114,952 | 175 | 5,187 | 182 | 13,549 | 111 | 133,688 | 169 |
As a check of the gold head assays at San Martin, PAH recalculated the gold contribution for the cutoff grade based on the total gold and silver produced in Doré during 2008. This provides an independent check that the empirically assigned gold grade is both justified and representative. PAHs methodology for completion of this independent check was as follows:
Based on the kilos of silver and gold contained in Doré and concentrates during the first three quarters of 2008, the silver:gold ratio would be 779:1.
Gold recovered grade = 0.128 g Au/t (18,636 g Au produced/145,592 t)
At 55.0 percent recovery for gold, the indicated feed grade to the mill would have been about 0.232 g/t.
The assayed silver head grade was 131 g/t, which checks with the process recoveries and kilos of silver produced.
25.2.2 Mine Equipment
Mine equipment includes several brands of used equipment that have been rehabilitated by the mine mechanics and some new mobile equipment, including two Toro 6 3.3 -m³ LHDs and two Sandvik EJC-522 22-t mine trucks. All of the equipment appears to be in fair operating condition and is being maintained in good mechanical condition. FMS management has established a policy of standardization of mobile equipment for its various operations, which has been the case for recent equipment purchases at all of its operations.
Pincock, Allen & Holt | 25.7 |
90535 January 15, 2009 |
All mechanical repairs are performed in a surface shop outside of the Ballenas level portal. There are no underground shops, and there is still no preventive maintenance program in effect. Underground roads are in fair condition (rough, with ponded water and muck spillage) which adversely impacts the mobile equipment traveling the roads. Although there are no records on the equipment availability or utilization, the availability is reported to be in the 60 to 70 percent range. The mine has acquired a small bulldozer (D-4) and a small underground road grader for maintaining the roads, but the roads still need better attention. The road grader, however, has not been operational since its arrival at the mine in 2005. A summary of all the major stationary and mobile mine equipment is found in Table 25-4.
TABLE 25-4
First Majestic Silver
Corp.
Minera El Pílon, S.A. de C.V.
San Martín Silver
Mine
Major Mine Equipment List 2008
Quantity | Description | Capacity | Notes |
9 | Wagner ST 3.5 B LHD | 3.5 c.y | |
2 | Wagner ST 5A, 5B & 5H LHD | 5.0 cy | |
1 | Wagner Mine Truck | 12 tonne | |
2 | TORO LH 203 | 2.0 cy | |
3 | TORO 6 LHD | 4.3 cy | New |
1 | DUX DT-12 Mine Truck | 12 tonne | |
4 | Jarvis Clark JDT-413 Mine Truck | 12 tonne | |
2 | Jarvis Clark JDT-413 Mine Truck | 12 tonne | |
1 | Jarvis Clark JDT-413 Mine Truck | 15 tonne | |
2 | Sandvik EJC-417 Mine Truck | 15 tonne | |
2 | Sandvik EJC-522 Mine Trucks | 22 tonne | New |
1 | Quasar Sandvik Jumbo model DD-210 | N.A | |
1 | Front-End Loader, Komatsu WA 370-5 | N.A | |
1 | CRIBA Lokotrack SW-348 | ||
N.A. | Pneumatic Jackleg drills | ||
N.A. | Pneumatic Stoper drills | ||
1 | Diamec 232 Diamond Drill | N.A | |
1 | Diamec 250 Diamond Drill | N.A | |
3 | Longyear 34 to 65 Diamond Drills | N.A | |
1 | Onram 1000 Diamond Drill | N.A | |
5 | New Holland NH 5610 Boss Buggy Tractors | N.A | |
3 | CASE 621 B Front end loaders (surface) | 3.5yd³ | |
1 | CAT 966C Front end loader (surface) | N.A | |
1 | Fortress SG-10 Motorgrader | N.A | |
1 | CAT 14G Motorgrader | N.A | |
1 | CAT D8K Bulldozer | N.A | |
2 | Komatsu Track Dozers | N.A | |
1 | John Deere 310D Backhoe | N.A | |
1 | Gardner-Denver ESRF-300 Air Compressor | 1400 cfm | |
1 | Ingersoll-Rand XLE Air Compressor | 1600 cfm | |
2 | Sullair S25-350 Air Compressor | 1500 cfm | |
1 | Atlas Copco Portable Air Compressor | 750 cfm | |
1 | Grimer Schmidt Portable Air Compressor | 335 cfm | |
1 | Allis Chalmers ACP-60C-2PS Fork Lift | N.A | |
3 | Aliva Lanz-01, 02 & 03 Shotcrete Machines | N.A | |
1 | Rosario Exhaust Fan (200 hp) | 150,000 cfm | |
1 | Escondida Exhaust Fan (100 hp) | 60,000 cfm | |
1 | San Jose Fan (40 hp) | 50,000 cfm | |
11 | Axial Ventilation Fans (7 ½ to 30 hp) | Variable | |
5 | Fairbanks-Morse 2-stage Water Pumps; model 5592 | 25 & 30 hp | |
1 | Tsurumi Submersible Water Pump; model KTV2_37H | N.A | |
1 | Tsurumi Submersible Water Pump; model LH-311W-60 | N.A | |
1 | Motor-Generator Sets | 250 kVA |
Pincock, Allen & Holt | 25.8 |
90535 January 15, 2009 |
25.3 Ore Processing
Ore is transported approximately 13 km to the processing plant located on the east side of the town of San Martín de Bolaños and the Bolaños River. Support facilities for the operations are also near the plant and include the main administrative offices, warehouse, assay laboratory, tailings facilities, maintenance buildings, cafeteria and some employee housing.
The general layout of the plant site, tailings containments, and the support facilities are shown in Figure 25-4 and the layout of the mill facilities are shown in Figure 4-2. The process plant flowsheet and listing of major process plant equipment are shown in Figure 25-5. Figure 25-5 also shows modifications and additions currently in progress to expand plant capacity.
The plant operates on a 24-hour day schedule, seven days per week at a nominal 800 tonne-per-day feed rate. As a consequence of the modifications and additions it projected that the production rate will rise to a nominal 900 tonnes per day. The ore receiving, crushing and screening and ore storage facilities operate on a schedule of two each 10-hour per day shifts, allowing four hours per day for scheduled maintenance.
The remaining plant facilities operate on three of each 8-hour shifts. Scheduled maintenance is conducted for four hours each Monday.
Plant statistics indicate that during the first three quarters of 2008 plant feed rock (a combination of mine ore and fines screened from waste dumps) averaged 131 g/t silver and about 0.23 g/t gold. Silver and gold recovery into Doré and gravity concentrates for the first three quarters of 2008 were 76.39 and 54.91 percent, respectively.
25.3.1 Ore Receiving
Ore, which consists of both run-of-mine ore and fines fraction screened from old waste dumps, is delivered by a contract trucker in 22-tonne-capacity end-dump trucks. The ore haul consists of two shifts per day on a six day per week schedule. Each truck is weighed on a scale upon entering the site. The ore is normally dumped directly onto the Coarse Ore Grizzly and into the 200-tonne bin. If the Coarse Ore Bin is full, the trucks dump into a stockpile near the bin. Run-of-mine ore appears to normally be 100 percent passing 24-inch although boulders as large as 36 inch can be seen in the oversize pile near the bin. Oversize is removed from the grizzly with a Front-End Loader, transferred to a hydraulic breaker where it is broken and then returned to the Coarse Ore Grizzly. The grizzly consists of parallel lengths of mine rail mounted upside down and spaced approximately 12 inches apart.
At the time of PAHs visit about 80 percent of the mill feed was screened minus 2-inch dump material and this had been the principal feed mix for the prior three weeks.
The ore contains variable quantities of clay and clay-like minerals which can cause material handling problems in the crushing plant and screening plant and in later operations. Major silver minerals are argentite, Ag 2 S, and stromeyerite, (Ag,Cu) 2 S. Both minerals are highly soluble in dilute Sodium Cyanide (NaCN) solution. Galena and sphalerite are also present and are partially recovered by gravity processing within the grinding circuit.
Pincock, Allen & Holt | 25.9 |
90535 January 15, 2009 |
25.3.2 Crushing
Material is withdrawn from the Coarse Ore Bin with a 42-inch x 18-foot Apron Feeder and fed across a stationary grizzly with 4-inch spacing. Rock smaller than 4-inch drops directly to No.1 Conveyor while the plus 4-inch rock drops into a 30 x 40-inch Primary Jaw Crusher. Crushed ore joins the fines on No.1 Conveyor. A stationary magnet is located at the head pulley of No. 1 Conveyor to remove tramp steel. No.1 Conveyor feeds ore over a 5 x 14-foot single-deck Vibrating Screen equipped with a 3/8-inch woven wire deck. Screen fines are finished product and report to No. 4 Conveyor while the screen oversize drops into a 4-1/4-foot Symons Standard Secondary Crusher. The crusher discharges onto No.2 Conveyor. The No.2 Conveyor transfers the crushed ore to a second 5 x 14-foot single-deck screen also equipped with a 3/8-inch woven wire deck. Screen fines are also finished product and drop to No. 4 Conveyor while screen oversize is transferred by No. 3 Conveyor over a third 5 x 14-foot vibrating screen also equipped with a 3/8-inch woven wire deck. Screen fines drop to No. 4 Conveyor and the oversize drops into the Tertiary Crusher, a 4-1/4-foot Symons Short-Head. This crusher discharges onto No.2 Conveyor and joins the discharge of the Secondary Crusher.
The crushed ore is 100 percent passing 13 mm and 80 percent passing 5.2 mm and is discharged from No.4 Conveyor into a 2,200-tonne capacity covered Fine Ore Stockpile. The Bond Ball Mill Work Index is reported to be 13.5 kwh/tonne.
New, larger crushing and screening equipment is currently on site but has yet to be installed. This includes a 36 by 42-inch jaw crusher, two cone crushers, and an 8 x 16-ft double-deck vibrating screen.
25.3.3 Grinding and Gravity Concentration
The Fine Ore Stockpile is fitted with two reclaim chutes. The chutes are fitted with manually-adjustable vertical gates through a rack-and-pinion drive. The chutes discharge onto the No.5 Conveyor, which feeds the 8-1/2-foot x 12 foot Primary Ball Mill equipped with a 450 Hp motor. A belt scale and an automatic sampler are located on No.5 Conveyor. The belt scale is used to feed approximately 33 tonnes per hour of feed to the Primary Ball Mill. The automatic sampler is fitted with a 1-inch wide cutter set on a 10-minute cycle. A sample is discharged into a bucket for a shift sample. Each shift sample weighs approximately 20 kg and this is reduced to approximately 1 kg with the use of a Jones-type splitter.
The Primary Mill operates in closed-circuit with one D20 hydrocyclone (Cyclone) (with one installed spare). In the past approximately 70 percent of the cyclone underflow reported directly back to the feed of the Primary Mill while approximately 30 percent was sent to a SB21 Falcon Gravity Separator.
Falcon tails are pumped back to the cyclone feed box of the Primary mill while the Falcon Concentrate flows to a rectangular concrete storage tank in the mill area.
Pincock, Allen & Holt | 25.12 |
90535 January 15, 2009 |
The Primary Mill cyclone overflow is feed to the Secondary Ball Mill, a 9-foot x 9-foot Ball Mill with a 450 Hp motor. The Secondary Mill discharges pulp to the Secondary Cyclone Feed Sump. This sump and pump feeds one D20 Cyclone (with one installed spare) which discharges cyclone underflow back to the feed of the Secondary Mill. Approximately 50 percent of the cyclone underflow goes directly into the mill feed while the remaining 50 percent is sent to a SB38 Falcon Gravity Separator. Falcon tailings are pumped to a separate D20 cyclone. Cyclone underflows return to the feed of the Secondary Ball Mill while cyclone overflows at 70 percent passing 200 mesh (74 microns), are pumped to the Pre-Leach Thickener. The gravity concentrate flows to a rectangular concrete storage tank.
The gravity concentrate from the SB38 Falcon Separators is periodically passed-over a table concentrator. Table tails are pumped to the Secondary Mill cyclone feed box. Table concentrates are air-dried and bagged and shipped to the Peñoles smelter in Torreón for treatment. For the first three quarters of 2008, approximately 1 percent of the silver and 3 percent of the gold in the ore was recovered into the gravity concentrates.
About 60 percent of the total NaCN consumed is added to the feed of the Primary Ball and the remaining 40 percent is added in the Leach Tanks. The entire lime requirement for the plant is added to the feed or the Primary Ball Mill. The Primary Ball Mill is charged with 3-inch grinding balls while 1 ½ inch balls are used in the Secondary Mill. Total cyanide and lime consumption for the first three quarters of 2008 were 1.2 and 4 kg/t of ore respectively. Total ball consumption averaged 0.8 kg/t of ore for the first three quarters of 2008.
Plans are to modify the existing grinding circuit to switch it to two parallel lines instead of two lines in series. Work has been partially completed on the installation of a 10- x 10-ft used, refurbished ball mill intended for processing sulfide ore, but this work is on hold at present.
25.3.4 Leaching
The Secondary Ball Mill cyclone overflow is pumped to a 50-foot diameter Pre-Leach Thickener. Approximately 40 percent of the precious metals are dissolved in the grinding and Pre-Leach thickener. The remainder must be dissolved in the Leach Circuit. The Pre-Leach Thickener overflow is stored in 3 each 240 m 3 tanks as feed to the Merrill-Crowe Circuit. Thickener Underflow at approximately 50 percent solids is leached in a series of 8 each 26-foot diameter x 30-foot agitated tanks. This provides approximately 78-hours of leach time at the nominal 750-tonne per day feed rate. Sodium cyanide solution is added in Tank No.1 and Tank No. 5 to maintain a NaCN concentration of approximately 1,100 ppm in No.1 Tank, 900 ppm in No.5 Tank, and 600 pp, in the tails.
The Leach Tanks are constructed and piped to allow the by-passing of any tank. Each tank is taken out of service twice each year for approximately one week for scheduled maintenance. Air for the plant is supplied by a 350-horsepower Sullair compressor. This compressor can deliver about 1,200 cubic-feet-per minute (cfm) of 50-60 pounds-per square inch (psig) air. This allows approximately 100 cfm per leach tank to assist in tank agitation and to supply air to oxidize the precious metals. The discharge from the No.8 Leach Tank flows by gravity to the feed of No.1 CCD Thickener.
Pincock, Allen & Holt | 25.13 |
90535 January 15, 2009 |
The feed to each leach tank is sampled once each shift and placed in a bucket for a 24-hour composite sample.
25.3.5 Counter-Current-Decantation (CCD)
The CCD Circuit consists of four each 50-foot diameter thickeners. The No. 1 Thickener overflow is referred to as Semi-Rich Solution and is pumped to a 450 m 3 tank. Semi-Rich Solution is used as dilution water in the Primary Ball Mill and the excess is recycled to the feed of the Pre-Leach Thickener, thus the tenor of the Rich Solution (Pre-Leach Thickener) is increased. The CCD Thickener underflow pulp densities range form 50 to 56 percent solids. Soluble recovery in the CCD Circuit is approximately 97 percent. Approximately 150 cubic meters per hour of Barren Solution and 15 cubic meters per hour of Fresh Water are added as Wash Water in the No.4 CCD Thickener. The Wash Ratio (tonnes of wash: tonnes of dry ore) is approximately 5 at the nominal 750-tonne per day feed rate. The underflow from No.4 CCD Thickener is pumped to one of two Tailings dams located near the plant. The underflow of each CCD Thickener is sampled once per day. Flocculant is added to the Pre-Leach Thickener and each of the four CCD Thickeners at a total rate of 20 gms/t of ore.
Work has been partially completed on the installation of an additional 50-ft diameter thickener for the CCD Circuit but further work has been put on hold for the present.
25.3.6 Merrill-Crowe
The Rich Solution containing approximately 25 ppm silver from the three 240 m 3 storage tanks is filtered in four Butters Filters. Anti-scalant is added to the feed of the Butters Filters. These open-top tanks are fitted with pre-coated filter bags to remove fine solids associated with the Rich Solution. The filtered solution contains less than 5 ppm of suspended solids. Twin De-aeration Towers are used to remove oxygen from this solution to approximately 0.5 ppm prior to zinc precipitation in one of four Plate & Frame Filters. Zinc consumption for 2006 averaged 0.20 kg/t of ore and 1 kg/kg of doré.
Barren solution from the precipitation filters is pumped to a 450 m 3 Barren Solution Tank. Approximately 150 m 3 per hour of Barren Solution is then pumped to No.4 CCD Thickener as wash water. Each Precipitate Filter is shut-down and precipitates removed about once per month. Precipitate averages about 75 percent silver.
Barren Solution is sampled once each shift and analyzed as a shift sample. A sample of Pregnant Solution is taken from the feed to the Butters Filters each shift.
25.3.7 Refinery
The Zinc Precipitate is dried in an open oven prior to being fluxed and smelted. A mixture of 5 to 6 percent Borax, 2 to 3 percent Na 2 CO 3 and 1 percent broken glass is used for the flux. Fume hoods are mounted over the Drying Oven and the Smelting Furnace for dust collection. The Doré averages about 94 percent silver. In August 2008, 8.5 tonnes of accumulated slag, crushed to minus ¾-inch, was shipped to the smelter at Torreon. Prior to this time slag was crushed and passed over a shaking table to recover metal prills and the table tails recycled to the mill.
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90535 January 15, 2009 |
25.3.8 Reagent Preparation
Plant reagents include sodium cyanide, lime, and flocculant. Lime is received in 2-tonne Super Sacks. A crane is used to transfer a Super Sack over an unloading hopper located above a mixing tank. Sodium cyanide is received in drums and manually scoped into a mixing tank. The operator wears a face mask, face shield and rubber gloves while mixing. The drums are stored in a fenced and locked area near the mixing facilities. Flocculant is received as dry powder in 25 kg bags, mixed and diluted to 0.5 percent for use in the thickeners.
25.3.9 Tailings
The plant tailings are pumped to one of two tailings facilities. The tailings normally report to the No.1 dam during wet months and No. 2 dam during dry periods. The No. 1 tailings dam is located to the east of the plant and was the first of the two facilities. The No. 2 tailings dam is located to the north of the plant. Both tailings dams are located close to and north of the plant as shown in Figure 6-2. The No. 1 dam was built first and the No. 2 dam later. There are about five years of additional capacity remaining in the existing tailings facilities and there is plenty of space available for future expansion. The perimeter walls of the dam are built using cycloned tailings. Water is reclaimed from the tailings dams and returned to the plant.
25.4 Infrastructure
The Infrastructure site includes the support facilities for the operations are located near the plant and include the main administrative offices, warehouse, assay laboratory, tailings facilities, maintenance buildings, cafeteria and other employee housing. The Maintenance Department operates from the extensive shops and warehouse located at the plant site. Maintenance personnel are supplied for mine and plant requirements from this department. A large fleet of mobile equipment consisting of track type tractors (bulldozers), wheel loaders and road graders are available for feeding ore to the crushing circuit and site and road maintenance.
Power is supplied by the grid at 33 kva and 60 cycle. Two 1,000-volt transformers supply power to the plant. Plant power consumption for the first three quarters of 2008 was 40 kWh/tonne; average load was 1.2 megawatts. Diesel generators are located at the plant for emergency and stand-by power in case of power interruptions.
Make-up water is pumped from the Bolaños River located about 1 km west of the plant. The water is purchased from the government; the cost is approximately $0.38/m 3 .
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90535 January 15, 2009 |
25.5 Personnel
A summary of the San Martín manpower, including company personnel, temporary company employees and contractors is shown in Table 25-5.
TABLE 25-5
First Majestic Silver
Corporation
Cia. Minera El Pilón, S.A. de C.V.
San Martín
Silver Mine
Manpower Summary, September 30, 2008
Department or Area |
Supervision | Laborers | Temporary Workers | Total | ||||||||
Company | Contractors | Total | Company | Contractors | Total | Company | Contractors | Total | Company | Contractors | Total | |
Mine | 12 | 9 | 21 | 95 | 88 | 183 | 0 | 0 | 0 | 107 | 97 | 204 |
Mill & Process Plant | 9 | 2 | 11 | 37 | 13 | 50 | 0 | 0 | 0 | 46 | 15 | 61 |
General Maintenance | 14 | 1 | 15 | 44 | 8 | 52 | 0 | 0 | 0 | 58 | 9 | 67 |
Construction | 1 | 0 | 1 | 4 | 0 | 4 | 0 | 0 | 0 | 5 | 0 | 5 |
Exploration | 0 | 2 | 2 | 4 | 11 | 15 | 0 | 0 | 0 | 4 | 13 | 17 |
Geology | 9 | 0 | 9 | 17 | 0 | 17 | 0 | 0 | 0 | 26 | 0 | 26 |
Engineering | 3 | 0 | 3 | 4 | 0 | 4 | 0 | 0 | 0 | 7 | 0 | 7 |
Safety | 1 | 0 | 1 | 2 | 0 | 2 | 0 | 0 | 0 | 3 | 0 | 3 |
Warehouse | 4 | 0 | 4 | 2 | 0 | 2 | 0 | 0 | 0 | 6 | 0 | 6 |
Security | 0 | 1 | 1 | 5 | 7 | 12 | 0 | 0 | 0 | 5 | 8 | 13 |
Assay Lab | 3 | 0 | 3 | 6 | 0 | 6 | 0 | 0 | 0 | 9 | 0 | 9 |
Accounting | 4 | 0 | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 4 | 0 | 4 |
Human Resources | 2 | 0 | 2 | 0 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 2 |
Janitorial & Cleanup | 3 | 0 | 3 | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 | 3 |
Dining Room Catering | 0 | 1 | 1 | 0 | 0 | 0 | 0 | 8 | 8 | 0 | 9 | 9 |
Lamphouse | 0 | 0 | 0 | 3 | 0 | 3 | 0 | 0 | 0 | 3 | 0 | 3 |
Drivers | 0 | 0 | 0 | 2 | 0 | 2 | 0 | 0 | 0 | 2 | 0 | 2 |
Truck Drivers | 0 | 1 | 1 | 0 | 10 | 10 | 0 | 0 | 0 | 0 | 11 | 11 |
General management | 2 | 0 | 2 | 0 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 2 |
TOTALS | 67 | 17 | 84 | 225 | 137 | 362 | 0 | 8 | 8 | 292 | 162 | 454 |
The mine operates three shifts per day, 6.3 days per week, 329 days per year. The current total company hourly mine employment is 225, and including 67 employees in mine management, supervision and technical services, the total is 292 employees. An additional 162 hourly and 17 salaried personnel are currently employed as contractors for development, mining and maintenance. This brings the current total personnel for the entire operation to 454. At this staffing level, the average productivity for a 700-tpd-production rate would be approximately 2.0 tonnes per manshift, which is low compared to other similar Mexican operations.
25.6 Environmental and Safety Review
The San Martín has been operating since 1983 with the necessary land-use and water extraction permits in effect for the operation. San Martin owns the land surface rights where the mine and plant installations are located to better manage the property. Through the years and changes in regulatory framework, San Martin has been required to update the necessary operation permits.
In October 1997, the San Martin received a tailings water discharge permit from the National Water Commission (C.N.A.); this permit is in-force for the mine life. San Martin samples water collected at the lowest seepage collection pond below the tailings impoundment. The seepage is collected and pumped back (recycled) to the process facility. Analyses are reported to the authorities and have indicated that the water contains less than 3-ppm free cyanide. According to FMS personnel, no discharge of this seepage has occurred. Site personnel also indicated that regulatory personnel have inspected the seepage collection installation and no water discharge permit violations have been issued to date.
Pincock, Allen & Holt | 25.16 |
90535 January 15, 2009 |
PAH's environmental and safety review consisted of discussions with site management and supervision Ing. Juan Francisco Díaz de León V., San Martin Manager of Security and Environmental, and the site visit to observe the current site safety and environmental conditions and to identify any potential liabilities having significant economic impacts. Our assessment is not intended as an environmental and safety compliance audit, although prudent practices were considered in our review. In PAH's opinion, San Martin is in compliance with the required permits and authorizations.
Periodic regulatory inspections of the site by SEMARNAP and the Mines Department are being performed to observe compliance. PAH has reviewed permits and authorizations for the San Martín operation and believes that the mine is in compliance with applicable regulations and obtains permits as required.
In general, surface disturbance related to mining is limited to the access road to the mining levels, waste rock dumps at each portal, and auxiliary support areas. Development waste rock is used for fill inside the mine and limits the size of waste rock dumps at the surface. Most of these activities are carried out on land owned by San Martin. Acid rock drainage (ARD) that may be associated with adit water discharges and waste rock dumps is not visibly evident. We noticed no iron precipitates or oxide stains that indicate ARD. Adit drainage is small and quickly seeps into the waste rock dump and dry arroyo. The arid nature of the area indicates that native soils could have appreciable carbonate content and probably have capacity to neutralize limited amounts of acid rock drainage.
San Martin has constructed several concrete pads with berms for spill containment for recycle, oil, and fuel storage areas and for vehicle washing near the portal area. A new diesel-fuel storage facility is under construction which will incorporate a containment berm. Regular trips by 22-tonne-capacity haul trucks raises dust on the gravel road from the mine to the mill that passes through the southern edge of the town of San Martín de Bolaños. San Martin has the haulage contractor perform periodic watering of haul roads to control dust and the mine has paid for the concrete pavement of the portion of the road that crosses the town of San Martín de Bolanos. A further ½-kilometer of concrete paving will be done.
PAH noted no visible evidence of ARD on the active and historic tailings deposition areas or spent heap leach pile. The surface of the active tailings impoundment is wetted, which controls fugitive dust emissions.
The grinding area, agitated leach tanks, wash thickeners, cyanide mix tank, and several other process vessels in the mill area have little or no spill containment. There are minimal stormwater control measures to route uncontaminated runoff away from the mill or to collect and contain stormwater runoff from around the mill site. Below the mill facilities (west) there are three small unlined and bermed ponds that were constructed to collect surface runoff or major spills from the mill area. These ponds are periodically cleaned and the materials recycled. San Martin purchased a scrubber system for the smelting area to control particulate and gas emissions and installed it in 2008. San Martin has good control of the storage of hazardous chemicals and lubricants at the mill site and has installed concrete pads and fenced areas for drums.
Pincock, Allen & Holt | 25.17 |
90535 January 15, 2009 |
The San Martin mine received a permit from the Comisión Nacional de Agua (CONAGUA) May 21, 2008 to draw 300 to 1,400 m 3 per day from the Bolaños river.
In place of several septic waste water systems at present, San Martin is in the process of connecting all the waste water into a single system that connects with the municipal waste water treatment plant.
Although Mexican environmental legislation is not explicit in the requirements for remediation, reclamation, and closure, the SEMARNAP expresses concern for the preservation and restoration of the environment and natural ecosystems in its environmental management guidance for industry. In fact, SEMARNAP recommends that facilities establish and implement a program for remediation of spills and releases to the environment and San Martin has now established such procedures. Annual testing is now done of water discharge, sound, dust, ventilation systems, and heat sources.
San Martin has generated plans and estimated costs for reclamation and mine closure of the mine, mill and tailings containment areas. PAH considers the estimated costs low, despite the fact that El Pilón owns most of the surface rights where the installations and mine are located; therefore, based on local conditions, PAH increased the projected costs to a more reasonable amount.
PAHs estimate for the range of costs required to comply with and remediate the environmental issues for the project is approximately $150,000 in addition to the salvage value of plant and mine equipment. These costs are general ranges based on PAHs experience in mining projects in México, and are not the result of detailed analysis. Actual costs will depend on site conditions and impacts from the operation, regulatory requirements at the time of compliance, and corporate environmental management standards. Salvage of plant equipment is forecast to just equal dismantling.
25.7 Economic Analysis
25.7.1 Production
Past and projected production and cost values for San Martín prepared by FMS are presented in Table 25-6. Production rate projections for the future years, the 5-Year Mine Plan, bear little relation to past operation. For the last several years the plant has been processing about 250,000 tonnes per year. FMS are projecting that the production rate for 2009 onwards will be 323,950 tonnes per year, a 30 percent increase.
In addition to the ore mining and processing rate increase, projected ore grades for future production are significantly higher than the past two years, and in particular, that of the last year. Whether these can be achieved is uncertain. There is also considerable uncertainty regarding the 100,000 tonnes per year of material extracted from mine dumps and old stope backfill. Perhaps a case could be made for the existence of 50,000 to 100,000 tonnes of dump material, but the silver grades of the material is not well defined. Stope backfill material could be possible to extract, but both tonnages and average silver grades are largely unknown.
Pincock, Allen & Holt | 25.18 |
90535 January 15, 2009 |
TABLE 25-6
First Majestic Silver Corp.
Minera El Pílon, S.A. de C.V.
San Martín Silver
Mine
Production and Costs, Past and Projected
|
Units |
<- PAST | PROJECTED -> | |||||||
2005 |
2006 |
2007 |
Jan-Sep
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
||
PRODUCTION | ||||||||||
Mineral Processed | ||||||||||
Mine | tonnes | 223,950 | 223,950 | 223,950 | 223,950 | 223,950 | ||||
Dumps | tonnes | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 | ||||
Total | tonnes | 249,239 | 261,839 | 239,796 | 184,440 | 323,950 | 323,950 | 323,950 | 323,950 | 323,950 |
Mineral Grade | ||||||||||
Silver | grams/tonne | 243 | 209 | 171 | 131 | 200 | 200 | 200 | 200 | 200 |
Gold | grams/tonne | 0.32 | 0.23 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | ||
Recovery | ||||||||||
Silver | percent | 89.58 | 89.07 | 84 | 77.39 | 80 | 80 | 80 | 80 | 80 |
Gold | percent | 87.09 | 54.91 | 85 | 85 | 85 | 85 | 85 | ||
Metal Produced | ||||||||||
Silver | ounces | 1,129,220 | 724,240 | 1,658,291 | 1,658,291 | 1,658,291 | 1,658,291 | 1,658,291 | ||
Gold | ounces | 1,622 | 691 | 1,321 | 1,321 | 1,321 | 1,321 | 1,321 | ||
OPERATING COSTS | ||||||||||
Annual | ||||||||||
Mine | $/year | 6,777,634 | 3,626,864 | 4,956,435 | 4,956,435 | 4,956,435 | 4,956,435 | 4,956,435 | ||
Mine Exploration | $/year | 837,177 | ||||||||
Mill | $/year | 3,243,600 | 2,320,273 | 5,183,200 | 5,183,200 | 5,183,200 | 5,183,200 | 5,183,200 | ||
G&A (Indirects) | $/year | 2,792,565 | 1,947,860 | 3,239,500 | 3,239,500 | 3,239,500 | 3,239,500 | 3,239,500 | ||
Total | $/year | 13,650,976 | 12,083,595 | 7,894,997 | 13,379,135 | 13,379,135 | 13,379,135 | 13,379,135 | 13,379,135 | |
Unit | ||||||||||
Mine | $/tonne milled | 24.32 | 19.66 | 15.30 | 15.30 | 15.30 | 15.30 | 15.30 | ||
Mine Exploration | $/tonne milled | 3.20 | ||||||||
Mill | $/tonne milled | 13.99 | 12.58 | 16.00 | 16.00 | 16.00 | 16.00 | 16.00 | ||
G&A (Indirects) | $/tonne milled | 13.03 | 10.56 | 10.00 | 10.00 | 10.00 | 10.00 | 10.00 | ||
Total | $/tonne milled | 52.13 | 51.34 | 42.86 | 41.30 | 41.30 | 41.30 | 41.30 | 41.30 | |
CAPITAL COSTS | ||||||||||
Mine Development | $/year | 900,000 | 900,000 | 900,000 | 900,000 | 900,000 | ||||
Exploration (DD & Geoph) | $/year | 600,000 | 600,000 | 600,000 | 600,000 | 600,000 | ||||
Mine/Mill Equipment | $/year | 534,660 | 534,660 | 534,660 | 534,660 | 534,660 | ||||
Mining Rights | $/year | 70,000 | 70,000 | 70,000 | 70,000 | 70,000 | ||||
Total | $/year | 2,746,556 | 8,720,647 | 2,104,660 | 2,104,660 | 2,104,660 | 2,104,660 | 2,104,660 |
Only 153,146 produced by FMS after acquisition.
25.7.2 Operating Costs
Production costs for the Unit in 2008 (9 months) and those projected for 2009 through 2013 are found in Table 25-6. A total of $7.9 million was expended during the first 9 months of 2008 which included the mining and processing of 184,440 tonnes from which 145,592 tonnes were of oxide ore and 38,848 tonnes of sulfide ore and extracting 742,240 ounces of silver in addition to 691 ounces of gold. On a unit basis, considering oxide ore alone, 2008 cash production costs were $42.86/tonne of ore and $10.40/oz of silver produced. The 2008 operating costs for the oxide ore are $45.60/tonne of ore.
San Martin direct mine operating cost (w/o depreciation or capitalized development and exploration) for the first nine months of 2008 was $27.47 per tonne milled, based on 132,043 metric tonnes of oxide ore milled. In addition, unit operating costs for the mine dump recovery of 13,549 tonnes was $28.15 per tonne of ore mined, milled and processed. Operating costs continued to be negatively impacted by price increases in major consumables such as diesel fuel, steel, electric power, and repair parts through the first nine months of the year. The 2008 underground mine unit costs by major cost centers are presented in Table 25-7.
Pincock, Allen & Holt | 25.19 |
90535 January 15, 2009 |
TABLE 25-7
First Majestic Silver
Corp.
Minera El Pílon, S.A. de C.V.
San Martín Silver
Mine
2008 Direct Unit Mine Operating Costs (US $/t)
Cost Center | *2008 Unit Costs (9 mos.) |
All Mine | |
Stoping & backfilling | $5.24 |
Exploration & development | 0.01 |
Diamond drilling | 0.00 |
Mucking & haulage | 4.65 |
Ventilation | 0.67 |
Dewatering | 0.27 |
Mine compressed air | 1.45 |
Ground Control | 1.49 |
Mechanical equipment maintenance | 4.87 |
Electrical equipment maintenance | 0.59 |
Surface ore loading & hauling | 4.13 |
Mine General | 4.09 |
Total Mine | $27.47 |
*Based on 132,043 tonnes mined & milled, Jan.- Sept. 2008
Unit site operating costs for 2009 are projected at $46.00 per tonne, based on milling and processing 223,950 tonnes from underground oxides and 100,000 tonnes from old mine dumps and stope backfill PAH believes that the forecast 2009 unit costs of $40.70 per tonne are reasonably estimated and are in line with present trends. A summary of the 2008 (Jan.Sept.) and 2009 Budgeted unit operating costs shown in Table 25-8.
TABLE 25-8
First Majestic Silver
Corp.
Cia Minera El Pilón, S.A. de C.V.
San Martín Silver
Mine
2008 (9 mos.) & 2009 (budget) Unit Operating Costs for San Martín
Unit
Cost Center |
*2008 Unit Costs (9 mos.) | ***2009 Unit Costs (budget) |
(US $/tonne) | (US $/tonne) | |
Mine | $19.25 | $15.30 |
Mill & Process Plant | 15.78 | 16.00 |
Site G&A | 10.57 | 10.00 |
SubTotal | $45.60 | $41.30 |
Marketing | 0.55 | 0.00 |
**Smelting & Refining | 3.17 | 1.36 |
*****By-Product Credits | (6.23) | (2.73) |
Sub-Total | ($2.51) | ($1.37) |
TOTAL | $43.09 | $39.93 |
*Based on 145,592 tonnes mined & milled, Jan.
- Sept. 2008
**Doré and gravity concentrates only.
***Based on milling and processing 323,950 tonnes oxide ores, mine,
old fills & dumps
****Based on production of 1,328 ozs. Au in 2009.
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25.7.3 Capital Costs
Details of past and projected capital costs are presented in Table 25-9. The table shows actual capital costs for the first three quarters of 2008 and those projected for the last quarter of 2008 and for 2009 through 2013.
In the past, San Martín had expensed most mine development, exploration and used equipment purchases; however, FMS has instituted a new fiscal policy, and many previously expensed costs and equipment purchases are now capitalized. The anticipated year-end 2008 expenditures are consistent with the mine's plans to continue increasing ore reserves and improve the overall efficiency of the present operation. Most of the mine capital expenditures spent in the first three quarters of 2008 were for mine development and exploration, mine and mill equipment and other ancillary equipment and administrative expenditures.
FMSs estimated annual capital expenditures for 2009 through 2013 are substantially less than in the recent past and are constant for every year.
TABLE 25-9
First Majestic Silver
Corp.
Minera El Pílon, S.A. de C.V.
San Martín Silver
Mine
Capital Expenditures, Past and Projected
Category |
<-PAST | PROJECTED-> | |||||
Jan-Sep
2008 |
Oct-Dec
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
|
Mining Rights | 70,000 | 70,000 | 70,000 | 70,000 | 70,000 | ||
Mine Development | 6,097,158 | 275,000 | 900,000 | 900,000 | 900,000 | 900,000 | 900,000 |
Exploration Diamond Drilling & Geophysics | 200,000 | 600,000 | 600,000 | 600,000 | 600,000 | 600,000 | |
Mine Equipment (Sandvik) | 642,292 | 617,699 | 534,660 | ||||
Plant Construction (Flotation) | 1,113,195 | ||||||
Plant Equipment | 250,000 | ||||||
Fixed Assets & Other | 868,002 | ||||||
Sustaining Capital | 534,660 | 534,660 | 534,660 | 534,660 | |||
TOTAL | 8,720,647 | 1,342,699 | 2,104,660 | 2,104,660 | 2,104,660 | 2,104,660 | 2,104,660 |
All capital cost estimates are presented in fourth quarter 2008 U.S. dollars, with no allowance for inflation, or peso devaluation. The peso to dollar exchange rate used for the 2009 through 2013 operating and capital cost estimates and budgets is 12.50:1.00.
25.7.4 Product Marketing
FMSs Mexican head office in Durango negotiates for all FMS operations including the San Martin. Regular annual contracts with the Smelter and Refinery of MET-MEX Peñoles located in the city of Torreón, Coahuila State, México are normally entered into. Peñoles is the largest silver refinery in México and the world, with a capacity of approximately 100 million ounces of silver per year. The contracts negotiated between FMS Durango and Peñoles for sales of Doré and gravity concentrates are typical for these products.
Pincock, Allen & Holt | 25.21 |
90535 January 15, 2009 |
FMS has most recently begun discussions with other metals purchasers outside of Mexico that appear to offer more competitive terms. Approximately 140 tonnes of zinc concentrates were sold to a dealer who shipped this product to China in August 2008. Further discussions are underway and at the time of writing this report no agreement for the sale of Doré and gravity concentrates from San Martin or any operation of FMS had been entered into for 2009.
During the first three quarters of 2008 San Martin produced Doré and gravimetric concentrates containing a total of 0.5 million ounces of silver, 600 ounces of gold and 4.5 tonnes (12,000 lbs) of lead.
San Martin ships Doré bars overland to Torreón where they are delivered to a purchasing representative for deliver to Peñoles. San Martin sales agreement of Doré with Peñoles include typical conditions and related charges as follows:
Each lot is weighed upon receipt, melted, sampled for metal content and then reweighed.
FMS is paid for 99.5 percent of the contained gold and 99.5 percent of the contained silver in U.S. dollars.
Treatment and refining charges were US$0.33 per troy ounce of Doré bullion shipped from the mine.
Freight charges, insurance and other fees equal about US$0.50 per troy ounce Doré bullion shipped from the mine.
San Martin gravity concentrates sold to Peñoles during 2008, typically contain about 10 percent lead, 2 percent zinc, 20 percent sulfur, 4 kg/t silver and 20 g/t of gold. Gravity concentrates are shipped by truck from the mine to Torreón, Coahuila, to MET-MEX Peñoles Smelter and Refinery. San Martin sales agreement with Peñoles include the following typical conditions and related charges:
25.7.5 Cash Flow Model
A simplified cash flow forecast has been prepared by FMS and is presented as Table 25-10. The Cash Flow Model is theoretical in that it does not represent what is planned; it merely validates that were nothing but Proven and Probable Ore mined and processed until exhausted, this mineral can be mined and processed at a profit. A major premise of the model is that the mine will increase production rates over 2008 levels and remain at the increased rate throughout the 2-1/3 years presented in the model.
Pincock, Allen & Holt | 25.22 |
90535 January 15, 2009 |
TABLE 25-10
First Majestic Silver
Corp.
Minera El Pílon, S.A. de C.V.
San Martín Silver
Mine
Cash Flow Model, Excluding Income Tax and Profit
REVENUE | 2008 | 2009 | 2010 | 2011 | ||
Ore Milled | tonnes | 323,950 | 323,950 | 122,564 | ||
Ore Grade | ||||||
Silver | grams/tonne | 274 | 274 | 274 | ||
Gold | grams/tonne | 0.15 | 0.15 | 0.15 | ||
Doré Grade | ||||||
Silver | grams/kilogram | 908.56 | 908.56 | 908.56 | ||
Gold | grams/tonne | 528.47 | 528.47 | 528.47 | ||
Doré Produced | tonnes | 78.16 | 78.16 | 29.57 | ||
Metal Produced | ||||||
Silver | ounces/year | 2,283,018 | 2,283,018 | 863,762 | ||
Gold | ounces/year | 1,328 | 1,328 | 502 | ||
Payable Metal | ||||||
Silver (99.5%) | ounces/year | 2,271,603 | 2,271,603 | 859,443 | ||
Gold (99.5%) | ounces/year | 1,321 | 1,321 | 500 | ||
Metal Prices | ||||||
Silver | $/ounce | 12 | 12 | 13 | ||
Gold | $/ounce | 708 | 708 | 708 | ||
Metal Value | ||||||
Silver | $/year | 27,259,231 | 27,259,231 | 11,172,765 | ||
Gold | $/year | 935,475 | 935,475 | 353,930 | ||
Total | $/year | 28,194,706 | 28,194,706 | 11,526,694 | ||
FSR Charges | ||||||
Frt. & rep. ($0.14/oz doré) | $/year | 351,790 | 351,790 | 133,097 | ||
Refining ($0.33/oz doré) | $/year | 829,220 | 829,220 | 313,729 | ||
Total | $/year | 1,181,010 | 1,181,010 | 446,826 | ||
Net Smelter Return | $/year | 27,013,696 | 27,013,696 | 11,079,868 | ||
COSTS | ||||||
Operating | $/year | 13,379,135 | 13,379,135 | 5,061,893 | ||
Environmental/Reclamation | $/year | 120,000 | 120,000 | 120,000 | ||
Royalty Expense | 0% | - | - | - | ||
Property Tax & Insurance | $/year | 120,000 | 120,000 | 120,000 | ||
Total | $/year | 13,619,135 | 13,619,135 | 5,301,893 | ||
Net Profit | 13,394,561 | 13,394,561 | 5,777,975 | |||
Depreciation | 447,566 | 447,566 | 447,566 | |||
Net taxable income | 12,946,995 | 12,946,995 | 5,330,409 | |||
Profit Sharing | 10% | 1,294,700 | 1,294,700 | 533,041 | ||
Net Profit after profit sharing | 11,652,296 | 11,652,296 | 4,797,368 | |||
Tax | 28% | 3,262,643 | 3,262,643 | 1,343,263 | ||
Net Profit | 8,389,653 | 8,389,653 | 3,454,105 | |||
Depreciation | 447,566 | 447,566 | 447,566 | |||
Cash Flow Before Principal | ||||||
& Sustaining Capital | 8,837,219 | 8,837,219 | 3,901,671 | |||
CAPEX EQUITY | 1,342,699 | |||||
Sust. Capital | 534,660 | 534,660 | 534,660 | |||
Excess Cash Flow | 0 | -1,342,699 | 8,302,559 | 8,302,559 | 3,367,011 | |
Cumulative | 0 | -1,342,699 | 6,959,860 | 15,262,419 | 18,629,431 | |
NPV | 0% | 18,629,431 | ||||
12% | 15,085,622 | |||||
15% | 14,368,710 | |||||
20% | 13,290,268 | |||||
25% | 12,336,896 |
Pincock, Allen & Holt | 25.23 |
90535 January 15, 2009 |
It is expected that underground development and exploration will be advanced through both diamond drilling and drifting, and that reserves will be added over time. The production rate increase is discussed more fully in Section 25.7.1.
The Cash Flow Model is based on silver prices assumed at $12/ounce for 2009 and 2010, and $13/ounce in 2011.
It can be seen from the table that a net present value for the project at a 12-percent discount rate is $15 million. Sensitivity analyses were performed at the same discount and show the following NPV:
As expected, the project exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally. In all cases the San Martín mine shows positive economics as measured by a cash flow exercise. Accordingly, the postulated reserve position is accepted.
The San Martín mine is an existing operation, so a discussion of payback period does not have meaning here. It can be seen from Table 25-10 that there is sufficient after-tax operational cash flow in any year to adequately cover projected capital expenditures.
Pincock, Allen & Holt | 25.24 |
90535 January 15, 2009 |
26.0
ILLUSTRATIONS
All corresponding illustrations for this report have been included within each section.
Pincock, Allen & Holt | 26.1 |
90535 January 15, 2009 |
Richard Addison
165 So. Union Blvd., Suite 950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing., for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Encantada Silver Mine, Coahuila State, Mexico dated January 12, 2009 (the Technical Report).
1. |
My residential address is: 857 S. Van Gordon Court, #G207, Lakewood, Colorado 80228. |
2. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
3. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EU. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
4. |
I have worked as a metallurgical engineer for a total of 44 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
5. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
6. |
I am responsible for the preparation of the paragraph summarizing ore processing in Section 3.0, Executive Summary; Section 18 Metallurgical Testing and Mineral Processing; those paragraphs covering ore processing in Section 21, Interpretations and Conclusions; Section 25.4, Mineral Processing Plant; and Section 25.7, Product Marketing. |
7. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
Pincock, Allen & Holt | AMENDED AND RESTATED | 24.3 |
90533 January 12, 2009 |
8. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
9. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
10. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 12 th day of January 2009
Richard Addison
_______________________________________
Richard Addison,
P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | AMENDED AND RESTATED | 24.4 |
90533 January 12, 2009 |
24.0 DATE AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite 950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
leonel.lopez@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Encantada Silver Mine, Coahuila State, Mexico dated January 12, 2009 (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, a Member (No. 1943910RM) as SME Founding Registered Member, a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, and other technical subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the La Encantada Deposit North, as Division Manager of Exploration for Peñoles until 1985. As part of this study, I visited the project site from May 1523, November 11-18, 2007 and October 2931, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, reviewing sampling procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
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90533 January 12, 2009 |
7. |
I am the primary author of the Technical Report. I am responsible for all report sections including those report sections outside of my discipline of geology and resource estimates, which were prepared by other Pincock, Allen & Holt representatives that were qualified in those particular disciplines (mining, metallurgy and processing and economics), and FMS Legal Advisors for current status of mining concessions (Durango-based Legal Firm of Lic. Carlos Galván Pastoriza prepared on October 31, 2008), which I believe to be reliable work. I have visited the project in May and November 2007, and in October, 2008 and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 12 th day of January 2009
Leonel López
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | AMENDED AND RESTATED | 24.2 |
90533 January 12, 2009 |
Technical Report for the | |
La Encantada Silver Mine, | |
Coahuila State, México |
Prepared for | |
First Majestic Silver Corp. | |
January 12, 2009 | |
90533 | |
AMENDED AND RESTATED |
Technical Report for the
La
Encantada Silver Mine
Coahuila State, México
Prepared for
First Majestic Silver Corp.
January 12, 2009
90533
AMENDED AND RESTATED
Prepared by
Pincock, Allen & Holt
Richard Addison, P.E.
Jack
Haptonstall
Leonel López, C.P.G.
1.0 TITLE PAGE
This technical report has been prepared in accordance with the National Instrument 43-101 standards of disclosure for mineral projects (NI 43-101) and the contents herein are organized and in compliance with form 43-101F1 contents of the technical report (43-101F1). This technical report is an update of Technical Report Amended for the La Encantada Silver Mine, Coahuila State, México; which was prepared for First Majestic Silver Corp. dated March 19, 2008 and published in SEDAR in March 28, 2008. The first two items are the title page and table of contents that are presented previously in this report and are simply mentioned herein to maintain the specific report outline numbering contained in form 43-101F1 contents of the technical report.
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90533 January 12, 2009 |
2.0 TABLE OF CONTENTS
See discussion in Section 1.
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90533 January 12, 2009 |
3.0 EXECUTIVE SUMMARY
First Majestic Silver Corp. (FMS) retained Pincock, Allen and Holt (PAH), a division of Australia-based Runge, Inc. to prepare a Technical Report for the silver/lead/zinc deposit of La Encantada Silver Mine located in the Municipality of Ocampo, Coahuila State, and México. This report is an update of Technical Report Amended of March 19, 2008, which was prepared by PAH and published in SEDAR in March 28, 2008. This report is presented to document material change in La Encantada Silver Mine due to an increment of reserves (+183 percent) and resources (measured and indicated -17 percent and inferred +51 percent). This report meets the requirements and is compliant with NI 43-101 and conforms to Form 43-101F1 for technical reports.
La Encantada Silver Mine is owned and operated by Minera La Encantada, S.A. de C.V., wholly-owned Mexican subsidiary of FMS. La Encantada Silver Mine consists of an industrial complex that includes underground silver/lead/zinc mining, a flotation ore processing plant, water wells and pipeline, airport, housing, camp facilities and a new cyanidation plant under construction to process silver tailings. The La Encantada mine was operated by Peñoles for a period of about 25 years, until June 2002. Desmín leased the property from Peñoles and operated the mine and processing plant from July 1, 2004 until November 1, 2006 when Desmín was acquired by FMS. During January to September, 2008 FMS has mined out 178,480 tonnes at an average grade of 297 g/tonne Ag and 2.29 percent Pb.
FMS owns mining rights that cover 2,237 hectares (5,227 acres) within 18 titled concessions and 3 approved claim applications, in addition to 2 other applications under review by the Mines Department. Minera La Encantada has acquired, from the Ejido Tenochtitlán, Municipality of Ocampo, under expropriation regulations, surface land ownership of 1,343 hectares (3,319 acres) where mine, plant, housing, camp and associated facilities are installed. It also owns the surface rights, installations and water rights for two water wells at El Granizo, which supply La Encantada water needs.
Estimated proven and probable reserves and measured and indicated resources for La Encantada, as of September 30, 2008, are presented in Table 3-1. These include proven and probable reserves of 5.2 million tonnes at 208 g/tonne (6.7 oz) Ag, and 2.42 percent (53 lb/tonne) Pb, for a total contained silver equivalent, inclusive of Pb credit, of 35.5 million ounces. These reserves include 4 million tonnes of tailings at an average grade of 168 g/tonne silver, estimated at a Cut-off Grade of 111 g/tonne silver.
La Encantada reserves have been estimated at a Cutoff Grade of 250 g/tonne Ag only and 228 g/tonne Ag equivalent net of Pb credit. The La Encantada proven and probable reserves in hard rock include 1.2 million tones at an average grade of 343 g/tonne silver and 2.39 percent lead.
During the period of January through September, 2008 FMS mined 178,480 tonnes of ore, which included 70,000 tonnes from reserves, in addition of other minerals extracted from different areas of the mine for a total of 108,480 tonnes. To September 30, 2008, the La Encantada exploration programs and underground development increased reserves by approximately 183 percent over the 2007 estimates.
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90533 January 12, 2009 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 3.2 |
90533 January 12, 2009 |
These were estimated from the following areas: Breccia Milagros, Azul y Oro, Breccia Keylor, Cuerpo 660 E, Cola de Gallo, Bonanza, La Piedra, Breccia San Javier, Dique San Francisco, San Francisco, Jorobada, Rebaje 141, Rebaje and Ojuela Ampliación zones in addition to the Tailings Dam No. 1. Most of these deposit areas remain opened for exploration and development; for instance, Breccia Milagros appears to represent a significant deposit, the full extent of which is still unknown to FMS.
Measured and indicated resources to September 30, 2008 at La Encantada amount to 5.4 million tonnes at 176 g/tonne (5.7 oz) Ag and 1.40 percent (31 lb/tonne) Pb, for a total contained silver equivalent, inclusive of Pb credit, of about 33.1 million ounces. These resources include 1.6 million tonnes of tailings at an average grade of 76 g/tonne (2.4 oz/tonne). Preliminary testwork appears to indicate amenability and probable economic recovery of silver values from the tailings by cyanide leaching processing. Additional bulk testing is recommended to validate and confirm the resource. These resources represent a decrease of about 17 percent over the resources estimated for 2007 in silver equivalent ounces to 33.1 million, due to upgrade of tailings dam No. 2 to probable reserves.
Additional inferred resources have been estimated by FMS at La Encantada. The inferred resources require additional grade and tonnage information before they may be upgraded to indicated or measured resources. They represent geologic potential to be further investigated. La Encantada has estimated inferred resources that amount to about 2.6 million tonnes at an average grade of 220 g/tonne (7.0 oz/tonne) Ag and 1.0 percent (22 lb/tonne) Pb, for a total estimated content of silver equivalent, inclusive of Pb credit, of about 20.0 million ounces. This estimate represents an increment of 51 percent over the reported resources for 2007.
During the La Encantada 2008 exploration drilling program a new mineralized zone was discovered at the 1790 mine level. This zone has been denominated the Buenos Aires zone and delineated with 15 drill holes resulting in about 850,000 tonnes of resources at an average grade of 339 g/tonne Ag and 0.6 percent Pb, containing approximately 13.4 million ounces of silver equivalent contained within indicated and inferred resources.
Processing flotation plant facilities have an installed capacity of 800 tonnes per day. It includes all supporting facilities, including laboratory, maintenance, etc. The metallurgical current plant average operating rate is about 800 tonnes per day. About three quarters of the ore comes from the mine and the other quarter from upgraded waste dump rock that has been screened to reject the coarser lower-grade fraction.
FMS is presently building, on a site about 1-1/2 kilometers from the existing flotation plant, a cyandiation plant with a capacity of 3,500 tonnes per day. The plant will process the ore and waste dump rock that is currently processed through the flotation plant in conjunction with reclaimed tailings. The plant is scheduled to commence operation in April 2009. PAH considers the FMS production and cost projections for this operation optimistic, but these parameters will only be clearly established when it has been in operation for six month or more.
Pincock, Allen & Holt | AMENDED AND RESTATED | 3.3 |
90533 January 12, 2009 |
The surface rights to La Encantada Silver Mine are mostly owned by Minera La Encantada (a wholly owned subsidiary of FMS). According to La Encantada, there is a good working relationship with people of the Ejido Tenochtitlán from which the surface rights were purchased by La Encantada, and with the town of Múzquiz, since many of the inhabitants are employed in the exploration or mining operations. No labor or access problems have been reported by La Encantada within the area.
La Encantada was declared in suspension of activities by Peñoles in 2003. In April 24, 2007 La Encantada presented a notification of reactivation of operations at the mine to the National Water Commission (C.N.A.), to SEMARNAT, to Secretaría del Trabajo y Previsión Social, and to PROFEPA. In accordance with legal opinion of October 31, 2008 by Mr. Carlos Galván Pastoriza, La Encantada mining operations are currently and have always been conducted in compliance with all applicable laws and regulations.
PAH is not aware of any environmental liabilities in La Encantada mining district; most of the area covered by La Encantada concessions is mining and prospective land for mineral exploration and mine development. Mr. José Luis Hernández Santibañez, Corporate Manager of Environmental and Permitting for FMS provided PAH with a document dated October 31, 2008 showing the list of Environmental and Operating Permits for La Encantada in current good standing.
PAH believes that La Encantada reserve and resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves and resources. PAH believes that the classification of the reserves and resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The reserves and resources herein reported by La Encantada were reviewed by PAH and constitute part of an operation by Minera La Encantada, a Mexican subsidiary of FMS. There is no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion, these reserves and resources are exclusive of each category and may not be materially affected by issues that could prevent their extraction and processing.
TABLE 3-2 | |
First Majestic Silver Corp. | |
Minera La Encantada, S.A. de C.V. | |
La Encantada Silver Mine | |
Economic Analysis Results as of September 30, 2008 | |
DCFRR, Discount, % | Net Present Value, US $ |
0 | 114 |
10 | 67 |
15 | 53 |
20 | 42 |
25 | 34 |
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90533 January 12, 2009 |
An economic analysis of La Encantada operation shows positive economics as measured by a cash flow model, and thus the postulated reserve position is accepted. La Encantada Silver Mine shows a net present value of $67 million at a 10 percent discounted rate of return. Table 3-2 presents a summary of La Encantada cash flow based on current reserves/resources estimates. Figure 3-1 shows the installations general layout, Figure 3-2 shows the underground mine, and Figure 3-3 shows the mines airstrip.
Pincock, Allen & Holt | AMENDED AND RESTATED | 3.5 |
90533 January 12, 2009 |
4.0 INTRODUCTION
First Majestic Silver Corp. (FMS) retained Pincock, Allen and Holt (PAH) to prepare a Technical Report of exploration activities and results obtained to this date, which represent a material change in the resources and reserves for the silver/lead/zinc deposit of La Encantada Silver Mine located in the Municipality of Ocampo, Coahuila State, México. This report is an update of Technical Report for the La Encantada Silver Mine, Coahuila State, México, prepared for First Majestic Silver Corp. dated March 19, 2008, Amended by Pincock, Allen & Holt, Inc., and was published in SEDAR on March 28, 2008, and it is referred to as Technical Report Amended herein.
The objective of this Technical Report is to provide FMS with a report that will follow existing regulations in Canada. This report presents a material change of the property due a significant increment of reserves including some tailings (+183 percent) and resources (M+I=-17 percent and Inferred=+51 percent) over the estimates reported for 2007. This report meets the requirements and is compliant with NI 43-101 and conforms to Form 43-101F1 for technical reports.
4.1 Qualified Person and Participating Personnel
The principal author of this report is Leonel López, a Certified Professional Geologist (AIPG-CPG-08359), Registered Professional Geologist in the State of Wyoming (PG-2407), a Registered Professional Member of The Society of Mining Engineers (No.1943910) and a PAH Principal Geologist. Mr. López has visited the site during the periods of May 1823, November 1318, 2007 and October 28-31, 2008, to review current status of the property. Mr. López also carried out exploration activities for the La Encantada mine as Peñoles Exploration North Division Manager in the 1980s. Mr. López reviewed available information on the La Encantada mine to update the reported areas where material changes have occurred during the period from July 2007 to September 30, 2008 regarding the mining rights, land tenure, history, environmental concerns, and all aspects of the geology, and reviewed drilling core and results, sampling, data verification and projected resources. Mr. López also reviewed drilling, sampling, volume estimates and location of the two tailings deposits that FMS is preparing for re-processing by cyanidation. Dick Addison reviewed methods and processing plant for La Encantada silver/lead/zinc deposit including research results for cyanidation of the silver tailings and plans for on going construction of a cyanidation plant. Other PAH members collaborated in the review of FMSs tailings deposits modeling to confirm volumes and grade estimates, as well as the reserve estimates, mine planning and safety aspects of the operation.
4.2 Term and Definitions
La Encantada Silver Mine consists of silver/lead/zinc oxidized mineral deposits located in the State of Coahuila, México. La Encantada mine comprises numerous mineral concentrations within the underground development area, including some exhausted deposits and additional geologic potential in other areas. Some of the known deposits within the La Encantada area are the following:
Pincock, Allen & Holt | AMENDED AND RESTATED | 4.1 |
90533 January 12, 2009 |
|
La Prieta, mostly exhausted breccia pipe deposit |
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La Escondida, exhausted breccia pipe deposit |
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Buenos Aires, a recently drill-discovered mineralizad zone |
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El Plomo |
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Bonanza |
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Breccia Milagros |
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Estructuras Irregulares Bonanza |
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Estructuras Irregulares San Javier |
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Brecha San Javier |
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Ojuelas |
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San Francisco |
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Azul y Oro |
|
660 W |
|
660 |
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660 E |
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La Morena, and |
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Numerous other bedded and vein deposits. |
In this report:
|
FMS refers to First Majestic Silver Corp. |
|
Desmín refers to Desmín, S.A. de C.V., a wholly-owned subsidiary of FMS. |
|
PAH refers to Pincock, Allen & Holt, Inc., a Division of Runge, Inc., and its representatives. |
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Peñoles refers to Industrias Peñoles, S.A. de C.V., MET-MEX Peñoles and Grupo Peñoles. |
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|
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La Encantada Silver Mine refers to the operating underground mine, processing plant and infrastructure facilities that constitute this industrial complex (also referred to as La Encantada mine or La Encantada). |
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|
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Technical Report for the La Encantada Silver Mine, Coahuila State, México, prepared for First Majestic Silver Corp. dated March 19, 2008, Amended by Pincock, Allen & Holt, Inc., and was published in SEDAR on March 28, 2008, is referred to as Technical Report Amended herein. |
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Minera La Encantada refers to the operating company and wholly owned subsidiary of First Majestic Silver Corp. |
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Resource and Reserve definitions are as set forth in the CIM Definitions Standards dated December 15, 2005. |
Pincock, Allen & Holt | AMENDED AND RESTATED | 4.2 |
90533 January 12, 2009 |
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Resource definitions are as set forth in an appendix to Companion Policy 43-101CP, Canadian Institute of Mining, Metallurgy and Petroleum Definitions Adopted by CIM Council, August 20, 2000. |
4.3 Units
All units are carried in metric units, unless otherwise noted. Grades are described in terms of percent (%) or grams per metric tonne (gptonne, g/tonne), with tonnages stated in metric tonnes. Salable metals are described in terms of tonnes, or troy ounces (precious metals) and percent weight.
Unless otherwise stated, Dollars are US Dollars. The following abbreviations are used in this report:
Pincock, Allen & Holt | AMENDED AND RESTATED | 4.3 |
90533 January 12, 2009 |
% | Percent by weight |
Patio | Yard, court or stocking ground |
Se | Selenium |
SiO | Silica |
Sn | Tin |
T or t | Metric Tonne (2,204 lbs), tonne |
Te | Tellurium |
Ti | Titanium |
tpa | Tonnes per annum |
tpy | Tonnes per year |
tpd | Tonnes per day |
ug | Underground |
Wo | Tungsten Oxide |
Zn | Zinc |
$ | United States Dollars |
C$ | Canadian Dollars |
4.4 Source Documents
The source documents for this report are summarized in Section 23.
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90533 January 12, 2009 |
5.0 RELIANCE ON OTHER EXPERTS
This report was prepared for First Majestic Silver Corp. (FMS) by the independent consulting firm Pincock, Allen & Holt, Inc. (PAH) and is based in part on information prepared by other parties. PAH has relied primarily on information provided as part of the following reports, investigations and operating results:
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Technical Report for the La Encantada Silver Mine Amended, Coahuila State, México (Technical Report Amended). Prepared for First Majestic Silver Corp. Prepared by Pincock, Allen & Holt, Inc., March 18, 2008, and published in SEDAR on March 28, 2008. |
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Technical Report for the La Encantada Silver Mine Amended, Coahuila State, México (Technical Report Amended). Prepared for First Majestic Silver Corp. Prepared by Pincock, Allen & Holt, Inc., July 24, 2007, and published in SEDAR on July 25, 2007. |
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Resource and Reserve Estimates by FMS for La Encantada Silver Mine. Prepared by FMS staff and reviewed by PAH, October 31, 2007 and September 30, 2008. |
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Resource/Reserve Estimates of the La Encantada Tailings dams No. 1 and 2 based on manual estimations and checked by GEMCOM Geologic modeling. It includes surveying, drilling, cross sections, volumes, tonnage and grade estimates. Prepared by FMS and PAH staff. October and November, 2007 respectively. |
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Peñoles (Largest Silver producer in the World) information as owner and operator of La Encantada mine for a period of 25 years, including public records, operating reports, geological studies, surveying, sampling data, drilling, geologic modeling and resource estimates, production records and historical reserve estimates as of January 2003. It includes the following reports: |
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Plan y Programa de Exploración 20012002. Prepared by Ing. Pantaleón Trejo, Manager of Explorations for Mining Operations, Peñoles. June 2002. | |
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Desglose de Mineral Probado y Probable por Cuerpos para 2003. Prepared by: Minera La Encantada, S.A. de C.V., Ing. Pantaleón Trejo, Manager of Explorations for Mining Operations, Peñoles. | |
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Relación de Fundos Mineros Minera La Encantada, S.A. de C.V., Unidad David Contreras. Prepared by Minera La Encantada, Peñoles. Febrero 2007. This report was updated by FMS including additional claims in May 2007. | |
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Database and modeling files for the La Encantada deposits by Peñoles. Provided to FMS in April 2007. |
Pincock, Allen & Holt | AMENDED AND RESTATED | 5.1 |
90533 January 12, 2009 |
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Legal OpinionMinera La Encantada, S.A. de C.V., a wholly owned subsidiary of First Majestic Silver Corp. Legal Opinion by Durango-based office of legal advisers, by Mr. Carlos Galván Pastoriza, Abogado, prepared on October 31, 2008. |
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Geochemical and Isotopic Study of Calcite Stockworks at La Encantada Mining District; Relationships with Orebodies and Implications for Exploration. A Thesis submitted to the Faculty of the Department of Mining and Geological Engineering , at the University of Arizona at Tucson, in partial fulfillment of the requirements for the degree of Master of Science with a Major in Geological Engineering. By: Raúl Díaz-Unzueta, 1987. |
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Evaluación Geológica Unidad Minera La Encantada, Municipio de Ocampo, Coahuila, México. Prepared by: Exploraciones Geológico-Mineras de Occidente, S.A. de C.V. Septiembre 2006. |
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Geologic Evaluation of the La Encantada Property, State of Coahuila de Zaragoza, México. Prepared by: J.N. Helsen, Ph.D., P. Geo. December 2006. |
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Data provided by Desmín, S.A. de C.V. as operator of La Encantada under lease from Peñoles, July 1, 2004 to November 1, 2006. |
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Information provided by FMS as owner and operator of La Encantada Silver Mine, including the period from November 2006 to May 2007. |
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Information provided by FMSs Corporate Manager of Environmental and Permitting, Ing. José Luis Hernández Santibañez, on notifications of mining activities resumption at La Encantada mine and current status of operating permits to: |
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Delegado Federal de la SEMARNAT, Estado de Coahuila. April 24, 2007. | |
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Delegado Federal de la STPS (Secretaría de Trabajo y Previsión Social) in the State of Coahuila. April 24, 2007. | |
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Director Local de CNA (Comisión Nacional del Agua), Estado de Coahuila. April 24, 2007. | |
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Delegado Federal de la PROFEPA (Procuraduría Federal de Protección al Ambiente), Estado de Coahuila. April 24, 2007. |
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PAH observations on site visit during the periods of May 18-23, November 11 18, 2007 and October 28-31, 2008. |
PAH believes that this information is reliable for use in this report. PAH has reviewed ownership documents for the purchase of Minera La Encantada shares from Peñoles; acquisition of Desmín shares; purchase land rights under expropriation procedure where La Encantada mine, plant, camp and ancillary installations are located; and documents for sampling and applications for renewal of the Permiso Ambiental Unico (environmental permit for operating); as well as copies of the titled concessions for La Encantada mining rights.
Pincock, Allen & Holt | AMENDED AND RESTATED | 5.2 |
90533 January 12, 2009 |
This information was also reviewed by FMS legal advisers and a legal opinion was provided to PAH by the Durango City-based legal firm of Mr. Carlos Galván Pastoriza in a document issued on October 31, 2008. Therefore, PAH believes all above described documents and information regarding the property current status, legal title and environmental compliance for La Encantada miningmetallurgical operation to be accurate and current in legal standing.
Pincock, Allen & Holt | AMENDED AND RESTATED | 5.3 |
90533 January 12, 2009 |
6.0 PROPERTY DESCRIPTION AND LOCATION
Additional details are presented in Technical Report Amended for La Encantada Silver Mine of March 18, and published in SEDAR on March 28, 2008. Figure 6-1 is a General Location Map and Figure 6-2 is a Mining Concessions Map.
6.1 Property Description
This Technical Report presents an update of La Encantadas current operating conditions and projections as planned by FMS.
La Encantada Silver Mine property modifications for the period of October, 2007 to September, 30 2008 include the following:
Successful exploration programs have delineated a significant increment of reserves, including some tailings (+183 percent) and resources (M+I -17 percent and Inf. +51 percent) for 2008 over 2007, at the La Encantada Silver Mine.
The La Encantada mining rights cover 2,237 hectares (5,227 acres) within 21 Mining Concessions including 3 approved Applications which have been accepted by the Dirección General de Minas and are now under the process of registration at the Mines Department (1,250 hectares or 3,089 acres). Two other Concession Applications have presented at the Mines Department and are under review for approval. These Concession Applications cover additional lands within the surrounding area of La Encantada for further protection and exploration potential. No other changes have occurred in total land coverage at La Encantada Silver Mine.
All the Mining Concessions legal status was provided by legal opinion, dated October 31, 2008 from the Durango City-based firm of Mr. Carlos Galván Pastoriza, legal advisers for FMS in México. PAH also requested and received an updated review by legal advisers of the mining concessions current status showing that all mining claims owned by Minera La Encantada, S.A. de C.V. are current in meeting the legal obligations and requirements by Mexican Mining and Environmental Laws and Regulations including assessment works, property taxes and operating permits for the period that covers to December 31, 2008. Table 6-1 shows the List of Mining Concessions at La Encantada.
Pincock, Allen & Holt | AMENDED AND RESTATED | 6.1 |
90533 January 12, 2009 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 6.2 |
90533 January 12, 2009 |
7.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
La Encantada Silver Mine is located within an isolated mining district in northern México. It is located in the northern part of the physiographic province of the Sierra Madre Oriental in the NW portion of the State of Coahuila. It is located in the municipality of Ocampo, at about 120km to the N60ºW from the city of Múzquiz, and 120km to the N7ºW from the city of Ocampo, Coahuila.
UTM coordinates for La Encantada area are as follows: N3,139,550; E739,660.
La Encantada mining district consists of two main silver/lead underground mines, the La Encantada and the El Plomo mines. Both of these mine areas have been consolidated into one operation, which is now owned and operated by FMS. Figure 7-1 shows the El Plomo inactive camp.
Additional details on Accessibility, Infrastructure, Climate, Vegetation, Physiography, Hydrology and Local Resources are presented in Technical Report Amended.
Pincock, Allen & Holt | AMENDED AND RESTATED | 7.1 |
90533 January 12, 2009 |
8.0 HISTORY
In 2003 Peñoles reported proven and probable reserves at the closing of La Encantada mine including 485,000 tonnes at an average grade of 570 g/t Ag and 3.98 percent Pb. FMSs exploration efforts are directed to explore other areas of interest within the extensive underground workings, validate these historical figures and advance development of additional exploration targets. By June 2007, FMS reported NI 43-101 proven and probable reserves of 633,000 tonnes at an average grade of 315 g/tonne Ag, in addition to measured and indicated resources of 1.4 million tonnes at an average grade of 276 g/tonne Ag, and about 1.5 Million tonnes of inferred resources at an average grade of 200 g/tonne Ag, in Technical Report Amended of July 24, 2007 published in SEDAR.
The La Encantada aggressive exploration and development investments during 2007 resulted in additional proven and probable reserves estimated at 1.2 million tonnes for 2008 at an average grade of 343 g/tonne (11.03 oz/t) and measured and indicated resources estimated at 9.4 million tonnes at an average grade of 173 g/tonne (5.6 oz/t), in addition to inferred resources estimated at 2.6 million tonnes at a grade of about 220 g/tonne (7.0 oz/t). The 2008 reserves and resources represent a significant increment over the 2007 reported reserves (+183 percent) and resources of (M+I -17 and inferred +51 percent). Proven and probable reserves plus measured and indicated resources contain approximately 68.7 million ounces of silver equivalent, while inferred resources may contain about 20.0 million ounces of silver equivalent.
From the period of October, 2007 to September, 2008, FMS has mined and processed 178,480 tonnes of ore from La Encantada Silver mine at an average recovered grade of 297 g/tonne (9.5 oz/tonne) Ag, for a total of 1,704,300 contained ounces. FMSs 2008 production consisted of about 70,000 tonnes of ore from the proven and probable reserves, in addition to ore extracted from different newly discovered areas during mine preparation and development activities, for a total of 108,480 tonnes. Currently the plant is operating at an average rate of about 800 tonnes per day, while the mine continues to access, prepare new working phases and develop additional reserves and resources.
Pincock, Allen & Holt | AMENDED AND RESTATED | 8.1 |
90533 January 12, 2009 |
9.0 GEOLOGICAL SETTING
Please refer to Technical Reports Amended dated July 24, 2007 and March 19, 2008 which were published respectively on July 25, 2007 and in March 28, 2008 in SEDAR.
To this date, there are no changes to report regarding the La Encantada Silver Mine geology.
National Instrument 43-101 Standards of Disclosure for Mineral Projects. Form 43-101F1 Technical ReportInstructions (5), December 23, 2005.
Figure 9-1 shows the La Encantada Regional Geologic Map.
Figure 9-2 shows La Encantada Silver Mine Geologic Cross Section.
Pincock, Allen & Holt | AMENDED AND RESTATED | 9.1 |
90533 January 12, 2009 |
10.0 DEPOSIT TYPES
There are no changes to report regarding geologic and mineral deposit concepts for the La Encantada Silver Mine.
Please refer to Technical Report Amended dated July 24, and published in SEDAR on July 25, 2007.
Figure 10-1 shows Types of Mineral Deposits at La Encantada.
Pincock, Allen & Holt | AMENDED AND RESTATED | 10.1 |
90533 January 12, 2009 |
11.0 MINERALIZATION
For details on mineralization at La Encantada Silver Mine please refer to Technical Report Amended of July 24 and published in SEDAR on July 25, 2007.
No changes regarding mineralization characteristics of the La Encantada Silver Mine have occurred since last publication in Technical Report Amended. However, the mineralized zones of the La Encantada mine have been further increased by discovery of a new mineralized zone denominated Buenos Aires.
FMS exploration drilling program to investigate the Azul y Oro deposit resulted in interception of an unknown mineralized zone which comprises a series of NW-SE oriented veins and mineralized breccia zones containing high grade silver mineralization with lead and zinc. These structures show variable widths of up to eight meters. The Buenos Aires zone is located between the Azul y Oro and La Escalera breccia zones within the northeastern portion of the mine.
Currently known projections of the Buenos Aires zone have been drilled from the mine levels 1870, 1790 and 1635. Preliminary drilling has determined some blocks of indicated and inferred resources which enclose approximately 850,000 tonnes containing some estimated 13 million ounces of silver equivalent in oxides.
FMS is preparing underground access to the zone and additional drilling to upgrade the Buenos Aires resource base.
Figure 11-1 shows Duplicate Channel Sample at Breccia San Javier.
Figure 11-2 shows stope 274 High Grade Silver at Breccia San Javier.
Figure 11-3 shows the Stope 141 El Chamaco High Grade zone at the Bonanza Dike.
Figure 11-4 shows Breccia Milagros mineralization.
Pincock, Allen & Holt | AMENDED AND RESTATED | 11.1 |
90533 January 12, 2009 |
12.0 EXPLORATION
12.1 Introduction
La Encantada Silver Mine has been subjected to exploration programs from its discovery in the 1950s, by prospectors in the early stages and by Peñoles since the late 1960s to 2003. FMS has developed an aggressive program of explorations including mine development and preparations for drilling from underground sites. Additional diamond drilling is planned from surface locations, as well as geophysical surveying to investigate areas of interest and confirm other previously identified exploration areas.
Exploration efforts carried out during the second half of 2007 through 2008 were primarily focused in proving and developing additional reserves and resources for La Encantada mine. These resulted in a significant increment of both resources and reserves. Major efforts were developed in the areas of Breccia Milagros, Bonanza, San Francisco, Intrusivo Milagros, Azul y Oro, and Cuerpo de Zinc at mine level N-1535 and in the sampling of the old dumps. A long term exploration program was initiated to investigate the promising target at the La Escalera breccia zone. A new exploration target was identified during the course of explorations to define the Azul y Oro mineralized zone. The newly discovered zone, denominated Buenos Aires, is located between the Azul y Oro and the La Escalera breccia zones. FMS exploration efforts have resulted in a material change of the La Encantada reserve/resource base. These results, in addition to some tailings, show an increment of about 183 percent in proven and probable Reserves and a decrement of about 17 percent in measured and indicated resources over previously reported reserves and resources of October 31, 2007. Additional inferred resources have resulted in an increment of about 51 percent. These results have increased the ounces of silver equivalent contained for the La Encantada mine to about 69 million in proven and probable reserves plus measured and indicated resources. Additional exploration may upgrade the inferred resources, currently estimated at about 20 million ounces of silver equivalent.
Sampling of old dumps was also advanced and about 150,000 tonnes of screened material was measured, sampled and indicated during the period, in addition to screening and processing about 42,000 tonnes. Screening recovery of the dumps is about 40 percent in tonnage and grade enrichment from about 120 g/tonne Ag to about 160 g/tonne Ag. Figure 12-1 shows the La Encantada Exploration Program.
12.2 Exploration Programs
FMSs program of underground exploration was designed to investigate the Milagros and San Javier breccia zones, as well as the San Francisco bedded deposits and the Bonanza area where numerous veins occur associated with the Bonanza dike. The La Escalera breccia zone appears to be a significant target for exploration.
Pincock, Allen & Holt | AMENDED AND RESTATED | 12.1 |
90533 January 12, 2009 |
During the period of September 2007, to September 30, 2008, a total of about 6,660 meters of core drilling was completed. During the period of January to June, 2008 underground workings for exploration purposes were developed at the La Encantada mine, including about 1,490 meters of access ramps, drifts, and crosscuts, and about 850 meters of exploration tunneling for drill sites access. This development resulted in a significant increment of resources and reserves at the various mine levels of the La Encantada Silver Mine, within the Stope 141, Stope 325, Breccia Milagros, Bonanza, Dique San Francisco, San Francisco, Jorobada, San Javier Extensión and Alto del Dique La Escondida areas.
12.2.1 Geophysical Exploration
FMS has designed an extensive 2008 program of exploration based on geophysical surveying to investigate the various identified anomaly areas, and to confirm other indicated potential zones. This program was completed during the period of January to October, 2008, and includes about 50 km of lines to be measured by Natural Source Audio-frequency Magnetotelluric methods (NSAMT). Readings were carried out along lines at 100m and 50m spacing according to geologic conditions, at 25m and 50m stations along the lines. This geophysical method takes reading of resistivity and conductivity parameters. The survey was conducted by Zonge Engineering and Research Organization from Tucson, Arizona. The Report is in progress. Some exploration targets have been identified and confirmed from previous research, including the most outstanding targets for investigation, such as the El Plomo, La Escalera Breccia zone and the Anomalous areas A, B, C and D. Figure 12-2 shows Geophysical Anomaly A Line 3. Figure 12-3 shows Geophysical Anomaly El Plomo Line 4.
12.2.2 Geochemical Exploration
No geochemical sampling has taken place at La Encantada during 2008; however, FMS has designed a 2009 exploration program that includes sampling for geochemical investigations in the areas of the geophysical anomalies. This program is estimated to include about 500 samples.
12.3 Drilling
Drilling programs at La Encantada have been limited since the best exploration results may have been obtained through underground development. Additionally, topographic conditions at the mine and irregular morphology of mineral concentrations make it difficult to plan for drilling. Therefore, drilling from underground sites and mine workings has proven to be the most effective combination for exploration at La Encantada.
During the period from September, 2007 to September 30, 2008, the La Encantada exploration team completed drilling from underground sites totaling 6,660 meters to investigate continuity and depth of the Azul y Oro, Breccia San Javier, and La Escalera mineralized structures. These drill holes resulted in discovery of the Buenos Aires mineralized zone, extension and confirmation of some of San Francisco and Azul y Oro mineralized zones.
Pincock, Allen & Holt | AMENDED AND RESTATED | 12.3 |
90533 January 12, 2009 |
Additional drilling was developed at the old Peñoles tailings dams to determine volume and grade of the two tailings dams. Metallurgical testwork was carried out in some of the drilled tailings. Grade, tonnage and metallurgical recovery estimates have resulted in additional resources for the La Encantada Silver Mine, since some of the silver contained by the tailings appears to be amenable for economic recovery by Cyanide Leaching processing methods. The tailings drilling program included 15 drill holes totaling 168 meters at the Tailings Dam No. 1, and 34 drill holes for a total drilled depth of 576 meters in Tailings Dam No. 2. Trenches and surveying delimited additional tailings volume at the Presa No. 3. Figure 12-4 shows tailing samples.
12.3.1 Exploration Drilling
FMS exploration activities for La Encantada mine include three drill rigs for drilling from underground sites. The program completed during 2008, consisted of a total underground development of 2,340m including drifts, crosscuts, raises, ramps and stopes development in addition to 5,000m of development carried out during the second semester of 2007. Numerous drill sites have been prepared during 2008.
Details of the exploration program developed and completed during 2008 are included in Table 12-1. This program resulted in a material change with significant additional Resources for the La Encantada mine. Table 12-1 shows the exploration program completed during 2008.
TABLE 12-1 | |||
First Majestic Silver Corp. | |||
Minera La Encantada, S.A. de C.V. | |||
La Encantada Silver Mine | |||
Completed Exploration Program for the Period November, 2007 to September, 2008 | |||
Exploration Activities | Objective | Area | Total Development |
Underground Development | Access ramps, drifts, crosscuts, raises, drill sites, etc | Access to La Escalera, Brccia Milagros, Azul y Oro, Bonanza, Jsan Javier, etc | 6,144 meters |
Underground
Drilling
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Exploration, Resource Blocks upgrade, investigate extension zones, etc |
Azaul y Oro, La Escalera, Bonanza, San Javier, etc
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6,660 meters |
Geophysics
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Confirm previously defined anomalies |
La Encantada
coverage
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Approximately 50km of geophysical lines |
The FMS exploration program for La Encantada includes an aggressive underground and drilling plan that has a high probability of success given the geological conditions of the mineralization at the mine. In PAHs opinion the combination of direct exploration methods, drilling and underground development represents a good balance for exploration at La Encantada. The program is directed to access projected known areas of mineralization as well as to investigate other adjacent and new promising areas that may result in an increment of the resource base and a higher level of reserves for the mine. This has been proven positive during the period of 2008 since the new Buenos Aires zone was discovered and resulted in additional resources containing approximately 13 million ounces of silver equivalent.
Pincock, Allen & Holt | AMENDED AND RESTATED | 12.6 |
90533 January 12, 2009 |
The exploration program suggested by FMS for the La Encantada Silver Mine for implementation during the period of calendar year 2009 is presented in Table 22-1 including estimated costs. This program consists of 7,195 meters of drilling, including 23 drill holes from underground sites, and 10,807 meters of underground drifting. Table 12-2 shows the La Encantada exploration program for 2009.
TABLE 12-2 | |||
First Majestic Silver Corp. | |||
Minera La Encantada, S.A. de C.V. | |||
La Encantada Silver Mine | |||
Exploration Program for the Period October-December, 2008, January-September, 2009 | |||
Exploration Activities | Objective | Area | Total Development |
Underground Drilling | Explore extensions, confirm and delineate Resource blocks | Azul y Oro, Buenos Aires, La Escalera, Cedrito, Bonanza, Falla María Isabel | 23 DH - 7,195 meters |
Underground Development | Crosscuts, drifts, ramps and drill sites | 1790 Mine Level, Buenos Aires zone, San Francisco, Bonanza and Azul y Oro | 11,807 meters |
In PAHs opinion, FMSs exploration program at La Encantada represents an aggressive exploration program with a high probability of success to upgrade the mines reserve and resource base, and with high probability for discovery of additional mineralized zones, which would lengthen the mines life. PAH recommends implementation of the suggested program at an estimated cost of about $2.5 million.
Pincock, Allen & Holt | AMENDED AND RESTATED | 12.8 |
90533 January 12, 2009 |
13.0 DRILLING
FMS continued with an aggressive drilling program at La Encantada during the period from September, 2007 to September, 2008. FMS has three drilling rigs to carry out the exploration drilling from underground sites. FMSs program for 2009 includes 7,195 meters of core drilling from underground sites to investigate the La Escalera breccia, Buenos Aires and Azul y Oro targets from the 1870, 1970 and 1535 mine levels. Exploration drilling requires access and drill site preparation, which for the underground exploration is estimated to be approximately 10,800 meters of ramps, drifts, crosscuts and drill site construction.
During the period of January through September 2008, drilling at La Encantada completed 29 drill holes for a total depth of 6,660 meters from underground locations. This program resulted in additional total estimated tonnage of 850,000 tonnes of indicated and inferred resources at an average grade of about 340 g/tonne (about 11 oz/tonne) Ag in oxides mineralization with lead and zinc.
Fifteen drill holes were completed from underground access to investigate the Azul y Oro mineralized structure. These drill holes also intercepted a new mineralized zone denominated Buenos Aires. Some of these drill holes intersected some of the mineralized structures of the Azul y Oro zone confirming geologic continuity of the mineralization. Additional resource and some reserve blocks were confirmed by the program. Figure 13-1 shows the Buenos Aires Drilling and Figure 13-2 shows Underground Drilling for Azul y Oro and Buenos Aires zones.
Details of FMSs 2008 and 2009 drilling program are presented in Tables 12-1 and Table 12-2. Estimated costs for the 2009 program are presented in Table 22-1.
FMS has defined future targets of exploration for drilling from surface. These include confirmation of geophysical and structural anomalies, such as:
Exploration drilling from underground drill sites includes:
Pincock, Allen & Holt | AMENDED AND RESTATED | 13.1 |
90533 January 12, 2009 |
PAH believes that this drilling program from surface and underground workings, in combination with underground development, is appropriate and well designed to explore promising targets. Geologic potential exists to discover additional mineralized zones along the development workings. Estimated budget for this program is included in Section 22 of this Report - Recommendations. PAH recommends implementation of this program. Figure 13-3 shows Buenos Aires Drill Core Intercept. Figure 13-4 shows Buenos Aires High Grade Core.
Pincock, Allen & Holt | AMENDED AND RESTATED | 13.4 |
90533 January 12, 2009 |
14.0 SAMPLING METHOD AND APPROACH
PAH reviewed La Encantadas sampling program for the preparation of the Technical Report Amended dated July 24, 2007. Full description of sampling method and approach by La Encantadas geologic crews is presented in the Technical Report Amended July 24, 2007. Additionally, PAH also reviewed the La Encantada sampling procedures for this Technical Report and did not notice changes in protocols that may affect the results, other than improving in some areas, such as QA/QC with increasing number of filed duplicates for drilling and reserve blocks samples.
The samples are brought into the La Encantada laboratory for preparation and assaying. Duplicate samples are sent to Inspectorate Lab for assay checks. Additional representative samples are sent to the La Encantada laboratory for density determinations. For the period of 2008 FMS has assayed 38 duplicate samples and 26 pulp samples at Inspectorate Lab in Reno, Nevada for comparison with assay results from the La Encantada lab. A total of 28 representative samples for density were sent to the La Encantada Lab from the El Plomo, Bonanza, Breccia Milagros, San Javier and San Francisco zones.
In PAHs opinion, the channel and core sampling and methods applied by La Encantada exploration and mining crews is done carefully and responsibility by well trained samplers. The sampling appears to reconcile with silver/lead head assays for the processing plant, as well as with production and sales by Minera La Encantada. The channel and core samples appear to properly represent the mineralization of La Encantada various deposits; therefore, they are acceptable for resource and reserve estimates. Figure 14-1 shows channel sampling. Figure 14-2 shows a channel sample of Azul y Oro Veinlet. Figure 14-3 shows a channel Sample of Azul y Oro at Level 1790.
Pincock, Allen & Holt | AMENDED AND RESTATED | 14.1 |
90533 January 12, 2009 |
15.0 SAMPLE PREPARATION, ANALYSIS AND SECURITY
15.1 Sample Preparation
PAH reviewed the La Encantada sample preparation for the Technical Report Amended dated March 18, 2008. FMS has not modified the sample preparation methods and procedures. Details are presented in the Technical Report Amended.
15.2 Laboratory Facilities
PAH notes that the La Encantada laboratories generally appear to be adequate, with reasonable cleaning and organization. The laboratory currently conducts about 800 samples by fire assay and AA per month, including exploration samples, development samples, and mill samples.
More details on laboratory facilities are presented in Technical Report Amended of July 24, 2007.
FMSs procedure for quality controls is by sending drill core, mine samples and/or pulps to an outside laboratory, usually Inspectorate Labs in Reno, Nevada. Samples of concentrates are regularly sent to Peñoles for check assays. The laboratory duplicates pulp assays at about 1 sample for every 20 and it includes field duplicates, standard samples and introduction of blank samples.
15.3 Check Assaying
To evaluate sample quality control, the La Encantada personnel perform periodic check analyses on samples. For the period from November, 2007 to September, 2008, La Encantada has sent 64 samples to Inspectorate Laboratories, an independent commercial laboratory in Reno, Nevada for duplicate analysis. These include 38 channel samples from reserve blocks in addition to 26 core duplicates of pulps from the reserve blocks. Results of the assays and graphs are presented in the following tables and graphs. La Encantada Silver Mine is mining and processing mineralization contained in oxides, which presents highly variable metal concentrations due to its inherent genetic characteristics. In this type of mineral occurrence, the comparison of assays may present high variations, depending on the mineral content of each sample. High grade silver assays may present differences of up to 80 percent due probably to some nugget effect, while the middle range grade samples usually result in close assays. In overall comparison, however, within a range of assays that represent very low to very high grades, the correlation is acceptable at an average of 74 percent for silver, and 100 percent for lead. While the duplicates of pulp samples show a better correlation of 99 percent for silver and 98 percent for lead.
Tables 15-1, 15-2 and Figures 15-1 and 15-2 show the assay results and graphs for samples of the La Encantada reserve blocks as duplicate samples and as duplicate pulp samples. The comparison is between assays by the La Encantada mines lab and Inspectorate Laboratories. Figure 15-3 shows the Buenos Aires drill core.
Pincock, Allen & Holt | AMENDED AND RESTATED | 15.1 |
90533 January 12, 2009 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 15.2 |
90533 January 12, 2009 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 15.3 |
90533 January 12, 2009 |
The reserve duplicate samples mineral content range includes assays that vary from 0.2 to 1,409 g/tonne Ag. The average correlation coefficient of the silver grades is acceptable for the set of samples, at 74 percent, with slightly lower assays by the La Encantada lab. The reserve pulp duplicate samples, for the set of duplicate samples, range in silver values from 0.7 to 781 g/tonne Ag with an average correlation of 99 percent and slightly lower silver assays for the La Encantada Lab and average correlation of 98 and 99 percent respectively for lead and zinc. Therefore, pulp duplicate samples assays show good sample preparation procedures at La Encantada. PAH believes that the reproducibility of silver grades is acceptable, and it represents acceptable procedures and practices in the sampling preparation processes.
La Encantada Silver Mine has implemented a strict program of Quality Control by introduction of blank and standard samples, as well as the insertion of field duplicate samples and pulp duplicates to keep a close control of the assay results. PAH recommends continuing with current sample preparation and shipping processes, which show acceptable differences in assay checks.
15.4 Conclusion
Overall, PAH found that the results from the check assaying are excellent and acceptable for pulp duplicates, the mineralization in oxides may cause larger differences in assays due to its nature. It is PAHs opinion that the sample methods and analyses are representative of the deposits at La Encantada mine, and that most of La Encantadas data was generated by procedures that were carried out according to accepted industry standards using accepted practices.
PAH finds that the exploration, sampling, and laboratory analysis for La Encantada operation is being conducted by FMS in a reasonable manner consistent with standard industry practices. In PAHs opinion the sampling results appear to be reasonably representative of the deposits mineralization and believes that they may be used with acceptable confidence in the estimation of the mineable reserves.
Pincock, Allen & Holt | AMENDED AND RESTATED | 15.7 |
90533 January 12, 2009 |
16.0 DATA VERIFICATION
PAH has not taken independent samples from the surface or underground exposures of the mineral concentrations at La Encantada mine, as other Qualified Persons have previously sampled the mineralization as discussed in this report, and the production records are the most reliable data of mineralization contained in the ore deposits under development at the mine. Peñoles developed and operated La Encantada mine for over 25 years producing over 80 million ounces of silver. Peñoles is one of the leading Mexican mining companies and the worlds largest silver producer.
FMS has established in a short operating period a systematic procedure to verify data and quality control which is proving effective and accurate. Assay data and information generated by the operation is transmitted manually; however, the entire paper trail is accessible and available for inspection.
FMS initiated effective control of La Encantada operations since November 2006 when it took control of the mining operation. La Encantada has established an active program of assay checks for samples and pulps of exploration, production and concentrates at the mines lab in comparison to assays performed by Inspectorate Laboratories of Durango city and Reno, Nevada, and concentrate sampling and assaying program by a sales representative in the city of Torreón, Coahuila to check the assays reported by the MET-MEX Peñoles smelter.
Table 16-1 presents a summary of concentrate assays for July, 2008 of shipments to MET-MEX Peñoles. This summary presents a comparison of assays by La Encantada lab and MetMex Peñoles.
TABLE 16-1 | |||||||||||
First Majestic Silver Corp. | |||||||||||
Minera la Encantada, S.A. de C.V. | |||||||||||
La Encantada Silver Mine | |||||||||||
Concentrate Checks for July, 2008 Shipments | |||||||||||
Concentrates | First Majestic Silver Corp. | Met Mex Peñoles SA de CV | |||||||||
Shipment | Date | Weight | Assays | Content | Weight | Assays | Content | ||||
No. | (Tonnes) | Silver | lead | Silver | Lead | Tonnes | Silver | Lead | Silver | Lead | |
Kg/tonne | % | Kg | Tonnes | Kg/tonne | % | Kg | Tonnes | ||||
DES- 2008 - 101 | 7/1/2008 | 31.80 | 10.57 | 39.37 | 336.12 | 12.52 | 32.71 | 11.438 | 37.42 | 374.15 | 12.24 |
DES- 2008 - 102 | 7/4/2008 | 30.57 | 9.87 | 39.94 | 301.71 | 12.21 | 30.98 | 10.318 | 34.08 | 319.66 | 10.56 |
DES- 2008 - 103 | 7/7/2008 | 32.82 | 9.50 | 31.16 | 311.80 | 10.23 | 33.53 | 9.582 | 29.65 | 321.25 | 9.94 |
DES- 2008 - 104 | 7/9/2008 | 22.81 | 7.90 | 28.63 | 180.20 | 6.53 | 23.42 | 8.453 | 24.69 | 197.97 | 5.78 |
DES- 2008 - 105 | 7/10/2008 | 32.88 | 6.95 | 27.08 | 228.50 | 8.90 | 33.37 | 7.29 | 23.65 | 243.38 | 7.89 |
DES- 2008 - 106 | 7/13/2008 | 31.83 | 7.32 | 27.44 | 233.01 | 8.73 | 32.89 | 7.53 | 25.71 | 247.68 | 8.46 |
DES- 2008 - 107 | 7/15/2008 | 32.54 | 6.95 | 24.31 | 226.16 | 7.91 | 32.52 | 6.85 | 22.28 | 222.62 | 7.25 |
DES- 2008 - 108 | 7/17/2008 | 31.39 | 6.00 | 13.73 | 188.19 | 4.31 | 31.96 | 5.99 | 20.58 | 191.38 | 6.58 |
DES- 2008 - 109 | 7/18/2008 | 32.73 | 5.39 | 24.41 | 176.43 | 7.99 | 32.59 | 5.30 | 17.72 | 172.81 | 5.77 |
DES- 2008 - 110 | 7/21/2008 | 30.15 | 7.35 | 16.84 | 221.57 | 5.08 | 30.80 | 7.74 | 16.75 | 238.21 | 5.16 |
DES- 2008 - 111 | 7/23/2008 | 30.66 | 5.15 | 18.63 | 157.89 | 5.71 | 31.35 | 5.34 | 18.14 | 167.48 | 5.69 |
DES- 2008 - 112 | 7/27/2008 | 30.19 | 4.88 | 11.82 | 147.32 | 3.57 | 30.70 | 5.09 | 11.50 | 156.16 | 3.53 |
DES- 2008 - 113 | 7/29/2008 | 31.28 | 4.95 | 11.69 | 154.83 | 3.66 | 31.84 | 4.96 | 11.48 | 157.85 | 3.66 |
DES- 2008 - 114 | 7/29/2008 | 30.30 | 5.79 | 16.19 | 175.44 | 4.91 | 30.93 | 5.91 | 16.31 | 182.64 | 5.04 |
|
Total | 432 | 7.036 | 331 | 3,039 | 102 | 440 | 101.779 | 310 | 3,193 | 98 |
Average | 31 | 0.503 | 24 | 31 | 7.270 | 22 | |||||
Max | 33 | 10.570 | 40 | 34 | 11.438 | 37 | |||||
Min | 23 | 4.880 | 12 | 23 | 4.957 | 11 | |||||
Correlation | 0.99 | 1.00 | 0.95 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 16.1 |
90533 January 12, 2009 |
The coefficient of correlation is excellent for all determinations, including weight (99 percent), silver (100 percent) and lead (95 percent).
Figure 16-1 shows correlation between silver assays of both laboratories.
PAH believes that an adequate amount of checking has been conducted and that the results are representative of the mineralization and concentrates produced at La Encantada and shipped to the smelter.
PAHs conclusion is that the results from check assaying are reasonable, including appropriate preparation procedures that the sampling results appear to be reasonably representative of the deposit mineralization and concentrates, and should be usable with acceptable confidence in the estimation of the mineable reserves.
Pincock, Allen & Holt | AMENDED AND RESTATED | 16.2 |
90533 January 12, 2009 |
17.0 ADJACENT PROPERTIES
No adjacent properties exist within the surrounding area of La Encantada. The El Plomo mine was operated as an independent mine for a period of time during the early stages of La Encantada development; however, in 1983 it was purchased by Minera La Encantada and it has been part of La Encantada mine since then. Underground developments of La Encantada and El Plomo were connected and established as one underground system. No other mine exists nearby the La Encantada area.
La Encantada mine is located at about 100km from the cities of Ocampo and Muzquiz, in Coahuila, México.
La Encantada mine housing facilities include 180 single family houses, events center, hotel and three restaurants, elementary school facilities, secondary school by teleconferences, sport facilities for soccer, squash and bowling, apart from the administration offices and warehouses, etc. Refurbishing of required facilities is in progress.
FMS has consolidated ownership of the La Encantada mine area by acquiring all mining claims and additional concessions around the property. Surface rights have also been acquired by La Encantada from the local Ejido (land community) under expropriation proceedings in accordance with the Mining Laws.
Pincock, Allen & Holt | AMENDED AND RESTATED | 17.1 |
90533 January 12, 2009 |
18.0 METALLURGICAL TESTING AND MINERAL PROCESSING
The ore processed at La Encantada is a complex mixture of oxide and sulfide minerals and is consequently difficult to process efficiently. The principal economic minerals are as follows:
|
Argentite (Ag 2 S) |
|
Acanthite (Ag 2 S) |
|
Cerussite (PbCO 3 ) |
The gangue is principally limestone and hematite with minor amounts of quartz, manganese, and zinc.
The ore is relatively soft and friable making for easy crushing and grinding. The ore processing method consists of crushing and grinding followed by two sequential flotation steps, the first consists of sulfide mineral flotation and the second is oxide mineral flotation. The reason for floating the ore in two stages is because the reagents used for oxide flotation are detrimental to sulfide flotation. Recoveries are poor, a reflection of the difficult mineralogy of the rock.
A cyanide leach plant is currently under construction at La Encantada and plans are to place it in operation in April 2009. The plant will process ore from the mine and waste dumps and from the three existing tailings containments: No. 1, No. 2 and No. 3.
Metallurgical testwork has been conducted on cyanide leaching of old tailings and of flotation concentrate. Results of the testwork are presented in Table 18-1 and 18-2, respectively.
Table 18-1 shows that cyanide leaching achieves relatively good recovery, averaging 59 percent, from the lower-grade, lower-tonnage No. 1 Tailings, and relatively poor recovery, averaging 40 percent, from the higher-grade, higher-tonnage No. 2 Tailings. Recovery from the composite sample, a mixture of fresh ore and Tailings No. 1 and No. 2, was good at 67 percent, though the sample is not particularly representative of what will be fed to the plant.
Table 18-2 shows that cyanide leaching of one sample of flotation concentrate gave very good recovery, at 98 percent. When the cyanide leach plant becomes operational, one option for the future plans is to eliminate flotation and instead, cyanide leach the ore and waste dump rock in the new plant following crushing and grinding in the existing mill. Direct cyanide leaching the ore and waste dump rock is projected to be 78 percent in the FMS Cash Flow Model, which appears reasonable based on the results of leaching concentrate and old tailings; however, the testwork is limited but the results were comfirmed with historic testworks made by Penoles.
One area of concern in the cyanide leaching plant is that the process water used at La Encantada is slightly saline and testwork conducted thus far has been with standard potable water. It may well be that the use of plant process water will be of no consequence but, until this is tested, this uncertainty remains.
Pincock, Allen & Holt | AMENDED AND RESTATED | 18.1 |
90533 January 12, 2009 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 18.2 |
90533 January 12, 2009 |
19.0 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
La Encantada uses conventional, manual methods, assisted by computer databases, to calculate the tonnage and average grades of the mineral resources and reserves. FMS has initiated the compilation of all data to incorporate it into a database and create a geologic model in SURPAC software which has been acquired by the company. FMS has reviewed and calculated resources and reserves for La Encantada to assess the current status of the property and to use it as a basis for future updated estimates. FMS assumed control of La Encantada Silver Mine operation from November 2006. FMS estimated the first resource/reserve base for the La Encantada mine as of May 31, 2007. This estimate is an update of October 31, 2007, resource/reserve base and it incorporates exploration and underground development results for the mine. During the current period, November, 2007 to September 2008, La Encantada mined a total of about 205,000 tonnes of ore, from which only 90,000 tonnes were mined out of the previously reported reserves and also increased the reserves during the period to about 5.2 million tones, including 4.0 million tones of tailings to be processed by cyanidation. This resource/reserve update calculation has been estimated as of September 30, 2008.
19.1 Introduction
FMS estimated proven and probable reserves, as of October 31, 2007, amounted to 1.2 million tonnes at an average grade of 312 g/tonne Ag and 1.77 percent Pb. Cutoff grade was estimated as 256 g/tonne Ag only, and 241 g/tonne Ag equivalent net of Pb credit. The estimated reserves were included in the deposits of: Breccia Milagros, Azul y Oro, Breccia Keylor, Cuerpo 660, Mantos 314, Chicotón Stope, San Francisco, La Piedra, Cola Gallo deposits and some dumps.
FMS has implemented exploration programs based on drifting, drilling and channel sampling. During this reported period, October, 2007 through September 2008, FMS has increased the silver contained in the resource/reserve base for the La Encantada mine by about 31 percent including proven and probable reserves and measured and indicated resources. Additional inferred resources have been delineated and other exploration targets are under further investigations. Additional resources and reserves were developed within the La Encantada mine in the Breccia Milagros, Bonanza, San Francisco, Azul y Oro and Jorobada deposits. A new discovery was made during the drilling program of the Azul y Oro deposit, the Buenos Aires deposit, which has been currently estimated in additional resources for La Encantada in excess of 850,000 tonnes containing about 13.4 million ounces of silver equivalent. Dump materials and tailings dams have been sampled and measured resulting in additional reserves and resources for the La Encantada mine.
19.2 Methodology
Under the La Encantada mines diverse geologic environment, the resource and reserve blocks have been defined at the various drift levels where sampling has found mineable ore within the mineralized zones. The reserve tonnage and grade are based largely on channel samples along drifts, crosscuts and other mine workings. Drilling from underground sites was initiated to explore the San Francisco, Breccia Milagros, San Javier and Azul y Oro mineralized structures to depth. This program was completed with 29 drill holes and a total depth of 6,660 meters. FMSs surface drilling program has been on hold due to delay in delivery of geophysical exploration program report.
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.1 |
90533 January 12, 2009 |
Reserve and resource blocks range in length according to variable extensions of breccia or mineralized zones, and are from 50 to 150 meters in length along the mineralized structures. The resource and reserve blocks are developed by drifting across breccia zones and structures. Proven reserve blocks are projected up to 15 meters from the drift in which the channel samples were taken, and Probable blocks extending another 25 meters beyond the proven blocks where the geology and mine developments may allow.
All adits, drifts ramps and access development headings are regularly surveyed by La Encantada staff. The mineralized zones are subdivided into vertical sections through the multiple horizontal levels, such that each vertical section has 10 meter horizontal separation from the immediately adjacent sections. For reserve estimation, the cross sectional area of mineralization is drawn on each of these 10 meter spaced sections using Auto CAD software and the assayed sample lengths. The volume of mineralization on each section is calculated for the mineralized zone extending 5 meters on either side of the section. The density factor (specific gravity) is then input into the calculation, and tonnage is calculated based on the formula; Length (in meters) X Width (in meters) X Height (in meters) X Specific Gravity = tonnes of material.
The density factor used to convert reserve block volumes into tonnes has been determined as a weighted average from ore samples representative of the various deposit areas. The density tests were performed by Peñoles and by FMS. Numerous samples have been sent to an external lab (Inspectorate Lab) for determination. Currently FMS has carried out density tests of representative samples of the different deposits within the mine. Breccia Milagros samples density determinations have reported an average of 2.98, El Plomo area (3.07), Bonanza (3.14), San Javier (2.75) and Dique San Francisco (2.96) . La Encantada continues to follow a conservative approach by taking an average density of 2.70.
PAH believes that, on average, the density for mineralization is reasonable. PAH recommends that additional representative samples be taken periodically, as checks for bulk density determination, to ensure and properly adjust the application of an appropriate density factor as required.
To estimate the average grade and thickness for each 10 meter section that crosses a reserve block, La Encantada composites all the sample grades in the drift that occur within 5 meters on either side of the section. La Encantada has determined that the most appropriate filter for grade outliers is to assign a top grade of 1,000 g/tonne Ag to those samples. The total length of samples in the composite is then divided by the total number of composites, giving the average width of the mineralization in the drift at that section. Similarly, the average silver grade of the samples, weighted by length, gives the average silver grade for the drift at that section.
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.2 |
90533 January 12, 2009 |
The tonnes and grade for each reserve block are then determined by combining the tonnes and grade results obtained for each 10 meter section that crosses the block. The resource block tonnes and grade are tabulated by La Encantada personnel on a series of spreadsheet summaries.
PAH notes that the sampling conducted across the mineralized zones for use in the reserve estimates is done with cutoff grade and width considerations, at a minimum mining width of 2.00m. This minimum width typically includes zones within the structures that are above the cutoff grade, as well as sub-ore grade mineralization below the cutoff grade, in which case La Encantada eliminates these areas when possible.
PAH also notes that in a few local areas, the drift is wholly enclosed by the mineralized structures and, unless there are some additional crosscuts or drilling, the vein width is taken as that measured across the confines of the drift opening. PAH recommends that the true structure widths, measured by cross cuts and/or the drill holes, be used as much as possible in the blocks of reserve and resource estimation.
The reserve blocks estimated by La Encantada are exclusive of the resource blocks.
In PAHs opinion the reserve and resource block estimates carried out by La Encantada have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves.
19.3 Cutoff Grade Calculations
PAH has used more conservative metal prices than those used by First Majestic, mainly because most pricing used by the company is much higher than current international pricing levels, and PAH has chosen more conservative pricing in view of the current international economic trends. PAHs prices are about 13.4 percent lower than First Majestics prices. A comparison of metals prices is shown in Table 19-1.
19.3.1 Underground Mine Cut-Off Grade
For the current reserve, PAH has calculated breakeven cutoff grades for both the underground mine operations and also the dump recovery program. The basic parameters applicable to the cutoff grade calculations for the underground mine are shown in the following Table 19-2 and Tables 25-13 and 25-14 in Section 25.8.2 of this report.
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.3 |
90533 January 12, 2009 |
Equating the parameters in the above table (U/G mine only), the breakeven cutoff grade for silver (C Ag ), based solely on silver for total operating costs (Table 25-13) and process recoveries anticipated is as follows:
CM Ag =Total operating costs/ (silver price X mill recovery X smelter payable metal)
CMAg= $55.01/( $12.00 X 0.60 X 0.95) = 8.04 oz Ag per tonne or 250 g Ag/t.
However, there is a lead contribution for La Encantada ores. Production of lead in the concentrates from the mine only throughSeptember 2008 is about 777.5 tonnes. The calculation for lead contribution is as follows:
Revenues for Mine from lead (R m ) = Lbs lead in concentrates X payable from smelter X lead price:
R m =777.5 t X 2204.6 lbs/t X 0.90 X $0.75
R m = $1,157,002
Rm/ tonnes mined & milled = $1,157,002/ 136,326 t = $8.49/t
The silver equivalent of lead contribution = $8.49 /$12.00 = 0.71 oz Ag/t or 22 g Ag/t.
The adjusted mine cutoff grade (CM Ag ) is then: 250 g Ag/t -22 g Ag/t = Ag = 228 g Ag/t.
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.4 |
90533 January 12, 2009 |
19.3.2 Mine Dump Recovery Cutoff Grade
The basic parameters used for the cutoff grade calculations for the recovery of dump material are shown in Table 19-3 as follows:
Equating these parameters (dumps only), the breakeven cutoff grade for mining and processing of the in-situ dumps, based solely on silver for the total operating costs (Table 25-14) and process recoveries anticipated, is as follows:
CD Ag = Total Operating Costs/ (silver price X mill recovery X smelter payable metal).
CD Ag = $40.98/ ($12.00 X 0.55 X 0.95) = 6.54 oz Ag/t or 203 g Ag/t.
A lead contribution is also applicable for recovery of dump material. About
183 tonnes of lead in concentrates have been produced through September2008. The calculation for the lead contribution is as follows:
Revenues for lead from Dumps (R d )= Lbs in concentrates X payable from smelter X lead price:
R d = 183 tonnes X 2204.6 lbs/t X 0.90 X $0.75
R d = $272,323
R d per tonne of dumps processed = $272,323/42,155 = $6.46/t.
Ag Equivalent per tonne = R d / Ag price = $6.46/ $12.00 = 0.54 oz Ag/t or 17 g Ag/t.
Adjusted Cut-off Grade (CD Ag ) for dumps = 203 g Ag/t 17Ag/t = 186 g Ag/t.
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.5 |
90533 January 12, 2009 |
19.3.3 Tailings Recovery Cutoff Grade
First Majestic is constructing a new 3,500-tpd processing plant, principally for the recovery of silver values from the flotation tailings. This plant will employ a grinding circuit with thickeners, counter-current decantation and a Merrill-Crowe metals recovery system. PAH has calculated a breakeven cutoff grade for the recovery of silver from the tailings, based on the parameters such as plant recoveries and operating costs set forth in First Majestics metallurgical test-work reports, and that First Majestic will send silver-gold precipitates to La Parrilla unit, where bullion bars will be produced. The basic parameters used for the Tailings Recovery cutoff grade estimation are shown in Table 19-4.
The cutoff grade for the tailings is calculated with the formula:
CT Agt = Total Operating Costs/(Plant recovery X silver price X payable metal)
CT Ag = $17.00/(0.40 X $12.00 X 0.995)
Ct Ag = 3.56 oz Ag/t or 111 g Ag/t
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.6 |
90533 January 12, 2009 |
19.4 Reserve Estimates
PAH has reviewed La Encantada reserve update of September 30, 2008 along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
La Encantada has estimated mineable Reserves for the following deposits:
|
Breccia Milagros |
|
Azul y Oro |
|
Breccia Keylor |
|
Cuerpo 660 |
|
Mantos 314 |
|
Breccia Chicotón |
|
Cedritos |
|
Cola Gallo |
|
Bonanza |
|
San Francisco |
|
La Piedra, and |
|
Stockpiles at the mine and at the plant patios. |
The total in-situ diluted hard rock Reserve at a minimum mining width of 2.00m, as reviewed by PAH, is 1.209 million tonnes averaging 343 grams (11 oz) per tonne silver and 2.39 percent (53 lb/tonne) lead, for a total of 13.9 million contained ounces of silver net of lead credit. Additional reserves were estimated from Tailings Dam No. 1, which contains about 4.0 million tones at an average grade of 168 g/tonne (5.4 oz/tonne) silver at estimated at a Cutoff Grade of 111 g/tonne silver, to be reprocessed by cyanidation. As discussed previously in the calculation methodology section, the proven ore category has been projected up to 15 meters from the drift sample data, while the probable ore category is projected another 15 meters beyond the proven ore.
La Encantada has been processing pre-screened dump materials. Results for the month of September 2008 indicate that screened dumps yield about 40 percent of tonnage with increased silver grade from about 67 g/tonne to about 131 g/tonne; therefore, the dump materials have been included as an indicated resource due to silver content of an average grade below the cutoff grade. Estimated recovered screened tonnage from the measured dumps is about 225,000 tonnes. Table 19-5 presents a summary of La Encantada proven and probable reserves. Figure 19-1 shows Buenos Aires resource blocks. Figure 19-2 shows Breccia Milagros reserves. Figure 19-3 shows Azul y Oro resource blocks. Figure 19-4 shows San Francisco Dike reserve blocks.
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.7 |
90533 January 12, 2009 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.12 |
90533 January 12, 2009 |
La Encantada deposits occur in breccia zones and faults or fracturing intersections that make wide and irregular deposits. These generally present widths greater than 2.00m which is estimated to be the minimum mining width due to the mining equipment in use at the mine. Therefore, mining dilution is only significant when the mining is developed along narrow structures. Provisions have been taken to include the mining dilution for those areas.
19.5 Resource Estimation
Resource calculations by FMS at La Encantada are based on projections of the mineralized zones in the underground mine workings; 10m to 15m beyond the areas of reserves for the measured resources; and another 15m beyond the boundaries of the measured resources for the blocks of indicated resources. inferred resources are estimated by projecting up to 50m beyond the indicated resource block boundaries along mineralized structures, and another 15m beyond the blocks width. The estimated resource blocks may be limited by underground levels and previous mining extraction. Longitudinal projections depend on the drift development along the mineralized zones and it may vary from about 50m up to 150m in length.
La Encantada mineral resource estimates were applied only to adjacent blocks from the estimated reserves. Resource estimates were made for blocks that include only oxidized mineralization, such as the Breccia Keylor, Azul y Oro, Breccia Milagros, Cuerpo 660, Cuerpo 660 W and San Francisco deposits. Sulfides mineralization is only estimated in the La Morena deposit. Sulfides are only considered as resources because the processing facilities for the zinc circuit at the plant are not currently operating.
The grade for these blocks is determined from the grade estimated for the adjacent reserve blocks, and sampling in mine workings and drill holes located within the block area.
Geologic potential still exists within the mines area to investigate targets that may result in additional resource development for La Encantada. Exploration and full development of breccia zones, such as: Milagros, San Javier, Keylor, San Francisco and Azul y Oro may result in high-tonnage resource development. The Breccia Milagros appears to be a significant deposit. Other areas that appear to represent important targets for exploration are breccia La Escalera and the area west of the La Prieta deposit beyond the María Isabel fault. This area appears to be downthrown to the west of La Prieta deposit, which represents the largest known deposit within La Encantada area.
In addition to the reserves, La Encantada has estimated resources in blocks within the following areas:
|
Buenos Aires |
|
Breccia Milagros |
|
Azul y Oro area |
|
Breccia Keylor |
|
Cuerpo 660 E and W |
|
Bonanza |
|
Ojuelas Ampliación |
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.13 |
90533 January 12, 2009 |
|
Intrusivo Milagros |
|
San Francisco |
|
Dique San Francisco |
|
La Piedra |
|
Mine dumps |
|
Jorobada |
Additional inferred resources have been projected in the Azul y Oro, Buenos Aires, Breccia San Javier, Bonanza, Intrusivo Milagros and San Francisco zones.
La Encantadas estimate of measured and indicated resource blocks as reviewed by PAH, is shown in Table 19-6. The measured and indicated silver resources consist of 5.4 million tonnes averaging 176 grams (5.6 oz) per tonne silver, for a total content of 33.4 million ounces of silver equivalent. This resources grade has been estimated in situ, and the silver equivalent content is net of lead credit, at 22 g/tonne Ag. The tailings dams No.1 and No.2 and dumps material have been included as indicated resources. This estimate is based on the following prices: Ag - $12.00/oz and Pb - $0.75 / lb.
Table 19-6 is the measured and indicated resource estimate for La Encantada. PAH notes that these resources are in addition to the previously reported reserves.
La Encantada has estimated additional silver resources at a distance beyond the proven and probable reserves. These additional resources lack sufficient drifting, raising, sampling, drill holes or old workings with production data, and are estimated at a lower degree of confidence than other reserve or resource categories. PAH considers these additional resources to be of an inferred category and they are based on projections of presumed vein continuity ahead, above, and below current mining; and are based on very widely-spaced drill holes, surface sampling or old surface workings. These resources are presented by La Encantada as inferred resources.
Each reserve and resource category presented in this Report are exclusive of each other.
The inferred resources need considerable grade and tonnage information before they can be proved up to Mineable Reserves. To date, La Encantada has demonstrated a continuity along about 4.0 kilometers of strike length and down dip to about 700 meters; so it is reasonable to assume that in the future resources will continue to be converted to ore as additional drifting, crosscutting and raising define vein configurations, sampling and assaying determine the grade, and diamond drilling confirms vein extensions and fills in data gaps. Inferred resources for La Encantada are presented in the lower portion of Table 19-6. Inferred resources are exclusive of reserves and measured and indicated resources.
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.14 |
90533 January 12, 2009 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.15 |
90533 January 12, 2009 |
19.6 Conclusion
PAH believes that these reserve and resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of resources. PAH believes that the classification of the reserves and resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
The reserves and resources herein reported by La Encantada Silver Mine were reviewed by PAH and constitute part of an operation by Minera La Encantada, a Mexican subsidiary of FMS. There are no significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these reserves and resources may not be materially affected by issues that could prevent their extraction and processing.
Pincock, Allen & Holt | AMENDED AND RESTATED | 19.16 |
90533 January 12, 2009 |
20.0 OTHER RELEVANT DATA AND INFORMATION
La Encantada mine has been in operation for over 25 years. Reported silver production for that period by Peñoles is about 80 million ounces of silver, in addition to significant lead content and minor gold. This production was extracted from about 6 Million tonnes of ore.
Historical mineral concentrations at La Encantada consist of mineralized breccia pipes (chimneys) and metasomatic zones, which typically contain up to 2.0 million tonnes; breccia zones that range up to 1.0 million tonnes; vein deposits that may contain up to 0.5 million tonnes, and mantos or bedded deposits that may hold up to 50,000 tonnes of usually high grade concentrations.
Major underground workings were developed by Peñoles at La Encantada, to connect the various parts of the mine, as well as to explore and mine mineralized zones within the Aurora limestone/dolomite formation. These workings extend along a 4km-long mineralized structural zone, with access to mine levels at elevations of 1,535m to about 2,300m. These connections are accessible by shafts and ramps.
Through the underground development, numerous exploration targets have been projected, identified or discovered.
At the closure of La Encantada mine by Peñoles in June 2002, several exploration targets remained to be investigated. Some of these areas require significant development as well as drilling from underground locations, such as Breccia Milagros, Breccia San Javier, Bonanza zone, Mantos San Francisco, etc. Other longer-term exploration targets may result in discoveries which may be as significant as those previously mined such as La Prieta and La Escondida, these areas are La Escalera, Ojuela and Cuerpo 660.
Other important areas for future development by FMS are represented by primary sulfide mineralization located at depth, in proximity to the granodiorite intrusive stocks, such as Cuerpo La Morena, Cuerpos 660 E and W, and Ojuela, which may enhance and extend La Encantada mine life.
La Encantada exploration investigations have resulted in validation and a significant increment of previous reserve and resource estimates. Proven and probable reserve estimates as of September 30, 2007 are about 70 percent higher than the reserves estimated for May 31, 2007, while measured and indicated resources were augmented nearly 500 percent, including tailings from previous Peñoles operations, which have been tested for processing by cyanidation. Inferred resources are also increased by about 30 percent. Numerous additional exploration targets have been identified by La Encantada staff.
During the exploration program for 2008, La Encantada exploration team discovered additional resources while drilling another target. The new area has been denominated Buenos Aires and partially investigated with about 15 drill holes resulting in indicated and inferred resources containing about 850,000 tonnes of silver mineralization at an average grade of 340 g/tonne. Additional drilling and underground development are in progress to further define the mineral deposit and upgrade the resources.
Pincock, Allen & Holt | AMENDED AND RESTATED | 20.1 |
90533 January 12, 2009 |
In PAHs opinion, La Encantada has developed a highly successful exploration program based on underground development and drilling which has resulted in increasing resources and reserves and identifying other exploration targets; therefore, La Encantada investments in exploration and development have been well justified.
Pincock, Allen & Holt | AMENDED AND RESTATED | 20.2 |
90533 January 12, 2009 |
21.0 INTERPRETATION AND CONCLUSIONS
Recorded production in about 25 years by Minera La Encantada, S.A. de C.V. is approximately 6.0 million tonnes of ore at an average grade of Ag-418 g/t (13.44 oz/t) and Pb-9.83 percent (over 80 million ounces of silver and about 1.3 billion lbs of lead) until June 2002 when Peñoles shut the operation down. Mining and processing by FMS through its wholly-owned subsidiaries, Desmín and Minera La Encantada, was approximately 175,000 tonnes of ore to October 31, 2007.
Mineralization at La Encantada is a typical assemblage of metasomatic deposits with a high content of silver and lead. This mineral assemblage has been affected by a long process of oxidation and secondary enrichment. The most important mineralization consists of unconsolidated massive concentrations of oxides including hematite, limonite and other iron oxides as well as carbonates and sulphates, including the minor presence of zinc oxides. Silver and lead represent the main economic minerals within the oxidized deposits at La Encantada. Silver mineralization occurs as argentite and native silver. Lead mineralization is present as carbonates (cerussite) and sulfates (anglesite) and other oxides.
La Encantada mineral assemblage occurs within a range of about 435m in vertical extension (2035m to 1600m asl). Below the 1600m elevation, at the La Morena deposit in the SW portion of La Encantada area, primary sulfide mineralization has been identified. This mineralization includes primarily sphalerite, galena and pyrite. FMS has identified other regional areas of geologic interest. These areas appear to represent potential exploration targets that may extend the mineralized system.
FMS initiated preliminary drilling, during the period of June through October, 2007 while expecting new drill rigs to carry out a more comprehensive drilling program to investigate several targets. Exploration investigations during this period by La Encantada staff have resulted in about 6.2 million tonnes of additional reserve and resource blocks within the mining areas. These include dumps materials and tailings being investigated by FMS as resources. A new mineralized zone located within the Azul y Oro and La Escalera breccia zones was recently discovered by diamond drilling. Currently it is estimated to contain about 850,000 tonnes of silver mineralization containing about 13 million ounces of silver equivalent. This area requires of additional drilling for upgrading the currently delineated resources.
The mine was initially developed from the shafts as a conventional operation with rail haulage levels, and utilizing standard rail-bound loading and hauling equipment. Subsequently, La Encantada mine has been converted to a mainly trackless operation, although rail haulage is still used on a few of the deeper levels of the mine.
The main access to the current mine operations is a trackless adit at the 1,870 elevation. This working has been enlarged to accommodate 20-t capacity highway-type dump trucks for ore and waste haulage from the mine. Drifts and ramps are driven with cross-sectional area of about 3- X 3- meters, and the enlarged drifts and ramps to accommodate the larger dump trucks are about 4.5 - X 5.0 - meters in cross-section. Most areas of the mine are unsupported, but in a few places, rock bolts and wire mesh has been installed, and in other heavy ground areas, it has been necessary to install steel arches with timber lagging.
Pincock, Allen & Holt | AMENDED AND RESTATED | 21.1 |
90533 January 12, 2009 |
A ramp system in the interior of the mine provides access for low-profile diesel mobile equipment up to the 2035 level and down to the 1710 level. The portion of the ramp above the 1870 level is being enlarged to accommodate the highway-type dump trucks. Mining operations at La Encantada mine are partially mechanized. Drilling of headings for both development and stoping is accomplished using pneumatic hand-held jackleg machines. Loading and tramming is done with diesel-powered, low profile front-end loaders (load-haul-dumps, or LHDs), and haulage is usually with highway-type diesel rear-dump trucks, or battery powered rail haulage trains.
The ore processed at La Encantada is a complex mixture of oxide and sulfide minerals and is consequently difficult to process efficiently. The principal economic minerals are as follows:
|
Argentite (Ag 2 S) |
|
Acanthite (Ag 2 S) |
|
Cerussite (PbCO 3 ) |
The ore is relatively soft and friable, which is easily crushed and milled. The ore processing method consists of crushing and grinding followed by two sequential flotation steps. The first consists of sulfide mineral flotation and the second is oxide mineral flotation. Installed capacity at La Encantada is 800 tpd; however, it is currently operated at about 800 tpd. Recoveries are modest, a reflection of the difficult mineralogy of the rock; operating costs are modest, a consequence of the softness of the rock.
FMS are currently building a 3,500 tpd cyanide leach plant and plans are to switch from flotation processing to cyanidation of the mined ore and to process it in conjunction with reclaimed tailings that have accumulated on the site over the prior decades of operation. There is some uncertainty as to the outcome of this plan since it is based on limited testwork. The plant will go into operation in the second quarter of 2009 and actual results established by yearend.
Peñoles estimated proven and probable reserves as of December 2002 amounted to 484,857 tonnes at an average grade of 570 g/t Ag and 3.98 percent Pb. No cutoff grade was reported. The estimated reserves were included in the deposits of: Bonanza, El Milagro, Estructuras Irregulares Bonanza, Estructuras Irregulares San Javier, Breccia San Javier, Ojuelas, San Francisco, and Azul y Oro deposits.
FMS has initiated exploration programs based on drifting, channel sampling, drilling, geophysical investigations and some geochemical studies. Peñoles reported (2002) reserve or resource blocks are a primary target for confirmation, validation and further exploration by FMS, as well as other promising areas of reserves.
PAH has reviewed La Encantada Reserve update of October 31, 2007, along with factors for mining dilution and recovery. In addition, the sampling methods, assaying procedures, compositing methods, data handling, cutoff grade application and grade calculations were reviewed. Several reserve blocks were cross-checked to track data handling from the initial assays to the final tonnage and grade calculation to ensure that the stated methods and practices were observed.
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90533 January 12, 2009 |
La Encantada has estimated mineable reserves for the following deposits:
|
Breccia Milagros |
|
Azul y Oro |
|
Breccia Keylor |
|
Cuerpo 660 |
|
Mantos 314 |
|
Breccia Chicotón |
|
Cedritos |
|
Cola Gallo |
|
Ojuelas |
|
San Javier |
|
La Morena, and |
|
San Francisco |
The total in-situ diluted Reserve as of September 30, 2008, at a minimum mining width of 2.00m, as reviewed by PAH, is 5.2 million tonnes including 4.0 million tones of tailings, averaging 208 grams (6.7 oz) per tonne silver and 2.42 percent (53 lb/tonne) lead, for a total of 35.5 million contained ounces of silver net of lead credit. The tailings appear to be amenable for reprocessing by cyanidation; therefore, they have been included as probable reserves.
In addition to reserves, the La Encantada holds measured and indicated mineral resources that include estimates for the following areas: Azul y Oro, Buenos Aires, Breccia Milagros, Cuerpo 660, Cuerpo 660 W and Breccia Keylor deposits. Sulfide mineralization is only estimated in the La Morena deposit. Sulfides are only considered as Resources because the processing facilities for the zinc circuit at the plant are currently out of order. Dump materials have been screened, concentrated, and processed in the flotation plant to fill operating capacity, and have been included as resources after screening. Estimated resources for La Encantada Silver Mine total 5.4 million tonnes at an average grade of 176 g/tonne (5.7 oz/tonne) Ag and 1.40 percent (31 lb/tonne) Pb. Measured and indicated resources to September 30, 2008, are estimated to contain about 33.1 million ounces of silver equivalent net of lead credit.
In addition to measured and indicated resources, La Encantada has estimated about 2.6 million tonnes of inferred resources at an average grade of 220 g/tonne (7 oz/tonne) Ag and 1.0 percent (22 lb/tonne) Pb, for a total silver equivalent of 20.0 million ounces.
To date, La Encantada has demonstrated a continuity along approximately 4.0 kilometers of strike length and down dip for about 700 meters; so it is reasonable to assume that in the future resources will continue to be converted to ore as additional drifting, crosscutting and raising define vein configurations, sampling and assaying determine the grade, and diamond drilling confirms vein extensions and fills in data gaps. Geophysical investigations carried out during the period have confirmed previously delineated anomalous zones which require of a drilling program from surface sites.
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90533 January 12, 2009 |
During the period of January to September 2008 the La Encantada mine operation totaled 178,480 tonnes of silver mineralization which was extracted from previously estimated reserves (70,000 tonnes) and from other areas (108,480 tonnes) that were discovered during the development for extraction of the reserves.
All reserve and resource blocks at La Encantada are exclusive of each category.
PAH believes that these reserve and resource estimates have been reasonably prepared and conform to acceptable engineering standards for reporting of reserves and resources. PAH believes that La Encantada Silver Mine classification of reserves and resources meets the standards of Canadian National Instrument NI 43-101 and the definitions of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM).
An economic analysis of FMSs La Encantada Silver Mine indicates that the mines reserve/resources may be extracted at a profit, and PAH did not identify any significant technical, legal, environmental, political or other kind of restrictions; therefore, in PAHs opinion these reserves and resources may not be materially affected by issues that could prevent their extraction and processing.
Pincock, Allen & Holt | AMENDED AND RESTATED | 21.4 |
90533 January 12, 2009 |
22.0 RECOMMENDATIONS
La Encantada Silver Mine has been in operation since the 1950s, with intense extraction and processing operations from the early 1970s. Its production, by Peñoles records, amounts to over 80 million ounces of silver and over 1.3 billion pounds of lead. La Encantada is by no means exhausted; its geologic potential remains to be fully explored. Several zones within the mine area have been identified that may contain significant mineralization, such as Breccia La Escalera, Breccia Milagros, Breccia San Javier and others that enable the operators to increase La Encantadas production. Aside from the oxidized mineralization, there are sulfide deposits identified within the skarn areas at Cuerpo 660, La Morena and deeper areas under the La Prieta and La Escondida chimneys. These areas require intense exploration direct methods, such as diamond drilling and drifting.
FMS has initiated an aggressive program of exploration based on drifting and diamond drilling. Preliminary results of this program have resulted in a significant increment of resources and reserves for the La Encantada Silver Mine for the period between June and October, 2007. For instance, the Breccia Milagros and the San Francisco areas have produced high grade ores through exploration development and appear to be developing into significant ore deposits. Exploration drilling for the Azul y Oro zone has intersected other mineralized zone located between the Azul y Oro and the La Escalera breccia zones denominated as Buenos Aires. This zone consists of a series of mineralized structures containing high grade silver mineralization which full extension is being investigated.
PAH agrees with the continued implementation of the exploration program and recommends additional support for exploration activities at La Encantada. Positive results would develop resources into reserves and extend the mines life.
Care must be taken to prioritize the exploration targets since the area holds a broad potential for development and possible discovery of new ore bodies. Potential high volume areas should have priority in the exploration program, since these large volume deposits could potentially help to lower mine operating costs.
FMS has suggested an exploration budget of US$2.50 Million for 2009 at La Encantada. If successful, this program may result in a significant increment of resources and additional reserves. The program includes approximately 7,850 meters of drilling from underground sites and 5,000 meters from surface locations. Underground exploration development in drifting, access ramps, crosscutting and drill sites preparation amounts to about 850 meters for the year. The budget for this program also includes geochemical sampling of about 500 samples to validate geophysical exploration targets. PAH believes that this exploration program, budget and exploration targets are reasonable for continued investigation the La Encantada geologic potential. Table 22-1 shows the La Encantada exploration budget for 2009.
PAH recommends that La Encantada follow budgeted capital-expenditure plans for the ore processing facilities. With the exception of the funds budgeted to complete the cyanidation plant, the plan is generic with a fixed annual amount for ongoing capital expenditures. The estimated 2009 cost for completing the cyanidation plant is $8.2 million of the 21.5 million original budget and the ongoing annual ore-processing-related capital expenditure estimate is $135,000.
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90533 January 12, 2009 |
TABLE 22-1 | ||||
First Majestic Silver Corp. | ||||
Minera La Encantada, S.A. de C.V. | ||||
La Encantada Silver Mine | ||||
PAH Recommendations Estimated Budget | ||||
Exploration Activities | Objective | Area | Total Develop, m | Est. Cost US$ |
Underground Drilling | Explore extensions, confirm and delineate Resource blocks. | Azul y Oro, Buenos Aires, La Escalera, Cedrito, Bonanza, Falla María Isabel. | 25 DH - 7,850 | 750,000 |
Underground Development | Crosscuts, drifts, ramps and drill sites. | 1790 Mine Level, Buenos Aires zone, San Francisco, Bonanza and Azul y Oro. | 850 | 340,000 |
Surface Drilling | Geophysical anomalies | El Plomo, Anomalies "A", "B", "C", "D". | 5,000 | 750,000 |
Geochemical Surveying | Evaluate Geophysical Anomalies | El Plomo, La Escalera, etc. | 500 | 25,000 |
Geotechnical Studies | Investigate La Prieta and Escondida area. | San Francisco and María Isabel Shafts | - | 250,000 |
UG Mine Ventilation System | Study on ventilation system | Entire Mine | - | 250,000 |
Other | Improve Ore Processing | Flotation and Cyanide Plants | - | 135,000 |
TOTAL | 2,500,000 |
Much of the mines mobile equipment at La Encantada is very old and requires replacement. FMS has a plan in place to replace some of the older mine equipment in the near future and has purchased some new units in 2008 and plans additional purchases in 2009.
PAH has noted the possibility of significant ground movements that may affect the integrity of either or both the San Francisco and Maria Isabel Shafts, which are the major ore hoisting and service facilities for the mine. In addition, the geotechnical studies should also include ground control methods at the mine and recommendations for improvement. The estimated cost of the initial geotechnical study will range from $150,000 to $250,000.
PAH also notes that the ventilation system in the mine is inadequate and much improvement is needed. A comprehensive survey and study of the ventilation system and corresponding recommendations by an outside expert is recommended. The estimated cost of the initial survey will be in the range of $100,000 to $250,000.
The Capital expenditures suggested for the plant and mine are scheduled to improve the operation and, through a successful exploration program, increase the mines reserves and resources and therefore the mine life. A summary of the PAH recommendation is found in Table 22-1.
Pincock, Allen & Holt | AMENDED AND RESTATED | 22.2 |
90533 January 12, 2009 |
23.0 REFERENCES
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Resource and Reserve Estimates by First Majestic Silver Corp. for La Encantada Silver Mine. Prepared by FMS staff and reviewed by PAH. September 30, 2008. |
|
Exploration data including drilling, core sampling, underground development, mapping, channel sampling, and operating results carried out and provided to PAH by La Encantada Staff. September 30, 2008. |
|
Monthly Operating Reports of La Encantada Silver Mine, including exploration, mine, processing plant all supporting operating aspects of the mine operation for the months of January through September 30, 2008. Prepared by La Encantada General Manager and Staff. |
|
Technical Report for the La Encantada Silver Mine, Coahuila State, México, prepared for First Majestic Silver Corp. dated July 24, 2007, Amended by Pincock, Allen & Holt, Inc., and was published in SEDAR on July 25, 2007, is referred to as Technical Report Amended herein. |
|
Pruebas Metalúrgicas para Determinar la Disolucion de Plata y Oro for Cianuracion, de Cinco Muestras de Mineral. Preparado para Minera La Encantada, S.A. de C.V., por SGS de Mexico, S.A. de C.V. Durango, Durango, 22 de Junio de 2007. |
|
Pruebas Metalúrgicas para Determinar la Disolución de Plata y Oro por Cianuaración, de dos Muestras de Mineral. Preparada para Minera La Encantada, S.A. de C.V., por SGS de México, S.A. de C.V. Durango, Durango, 12 de Julio de 2007. |
|
Pruebas Metalúrgicas para Determinar Las Extracciones de Plata y Oro por Cianuración y Concentración Gravimétrica de Dos Muestras de Jales de La Encantada, Además del índice de Bond de Una de Ellas. Preparada para First Majestic, S.A. de C.V., por SGS de México, S.A. de C.V., Durango, Durango, Marzo 14, 2008. |
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Peñoles (Largest Silver producer in the World) information as owner and operator of La Encantada Mine for a period of 25 years, including public records, operating reports, geological studies, surveying, sampling data, drilling, geologic modeling and resource estimates, production records and historical reserve estimates as of January 2003. It includes the following reports: |
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Plan y Programa de Exploración 2001 2002. Prepared by Ing. Pantaleón Trejo, Manager of Explorations for Mining Operations, Peñoles. June 2002. | |
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Desglose de Mineral Probado y Probable por Cuerpos para 2003. Prepared by: Minera La Encantada, S.A. de C.V., Ing. Pantaleón Trejo, Manager of Explorations for Mining Operations, Peñoles. |
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90533 January 12, 2009 |
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Relación de Fundos Mineros Minera La Encantada, S.A. de C.V., Unidad David Contreras. Prepared by Minera La Encantada, Peñoles. Febrero 2007. This report was updated by FMS including additional claims in May 2007. | |
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Database and modeling files for the La Encantada deposits by Peñoles. Provided to FMS in April 2007. |
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Legal Opinions Minera La Encantada, S.A. de C.V., a wholly owned subsidiary of First Majestic Silver Corp. Legal Opinions by Durango-based office of legal advisers, by Mr. Carlos Galván Pastoriza, Abogado, prepared on October 31, 2008. |
|
Environmental and Permitting Opinions Minera La Encantada, S.A. de C.V., a wholly owned subsidiary of First Majestic Silver Corp. Opinion and List of Permits by Corporate Environmental and Permitting Adviser, by Mr. José Luis Hernández Santibañez, prepared on October 31, 2008. |
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Geochemical and Isotopic Study of Calcite Stockworks at La Encantada Mining District; Relationships with Orebodies and Implications for Exploration. A Thesis submitted to the Faculty of the DEPARTMENT OF MINING AND GEOLOGICAL ENGINEERING, in partial fulfillment of the requirements for the degree of Master of Science with a Major in Geological Engineering. By: Raúl Díaz-Unzueta, 1987. |
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Evaluación Geológica Unidad Minera La Encantada, Municipio de Ocampo, Coahuila, México. Prepared by: Exploraciones Geológico-Mineras de Occidente, S.A. de C.V. Septiembre 2006. |
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Geologic Evaluation of the La Encantada Property, State of Coahuila de Zaragoza, México. Prepared by: J.N. Helsen, Ph.D., P. Geo. December 2006. |
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Data provided by Desmín, S.A. de C.V. as operator of La Encantada under lease from Peñoles, July 1, 2004 to November 1, 2006. |
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Information provided by FMS as owner and operator of La Encantada mine. |
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PAH observations on site visit during the periods of May 18 23 and November 13 18, 2007 and October 28 31, 2008. |
Pincock, Allen & Holt | AMENDED AND RESTATED | 23.2 |
90533 January 12, 2009 |
24.0 DATE AND SIGNATURE PAGE
Leonel López, C.P.G.
165 S. Union Blvd. Suite 950
Lakewood, Colorado 80228
Phone (303)986-6950
Fax (303)987-8907
leonel.lopez@pincock.com
I, Leonel López, C.P.G., am a professional geologist and Principal Geologist for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Encantada Silver Mine, Coahuila State, Mexico dated January 12, 2009 (the Technical Report).
1. |
I am a Professional Geologist (PG-2407) in the state of Wyoming, USA, a Certified Professional Geologist (CPG-08359) in the American Institute of Professional Geologists, a Member (No. 1943910RM) as SME Founding Registered Member, a registered Geological Engineer (Cédula Profesional #1191), in the Universidad Nacional Autónoma de México, a member of the International Association on the Genesis of Ore Deposits, a member of the Society of Economic Geologists, and a member of the Association of Exploration Geochemists. |
2. |
I graduated from the Universidad Nacional Autónoma de México with the title of Ingeniero Geólogo in 1966 and subsequently have taken numerous short courses in Economic Evaluation and Investment Decision Methods at Colorado School of Mines, and other technical subjects in related professional seminars. I have practiced my profession continuously since 1963. |
3. |
Since 1963, I have been involved in mineral exploration and evaluation of mineral properties for gold, silver, lead, zinc, copper, antimony, and non-metallic deposits as fluorite, barite, dolomite and coal deposits in Canada, United States of America, México, Guatemala, Costa Rica, Nicaragua, Ecuador, Venezuela, Perú, Bolivia, Chile, Brazil and Argentina. |
4. |
As a result of my experience and qualification I am a Qualified Person as defined in NI 43-101. |
5. |
I am presently a Principal Geologist with the international resource and mining consulting company of Pincock, Allen & Holt, Inc. and have been employed since December 2003, and was formerly employed by the same firm from 1988 to 1993. |
6. |
I have previously worked on the La Encantada Deposit North, as Division Manager of Exploration for Peñoles until 1985. As part of this study, I visited the project site from May 1523, November 11-18, 2007 and October 2931, 2008 for the purposes of observing site layout and infrastructure, examining the deposit geology, inspecting the underground mine, reviewing sampling procedures, reviewing available exploration and reserve and resource estimates and data, and discussing the project with site personnel. |
Pincock, Allen & Holt | AMENDED AND RESTATED | 24.1 |
90533 January 12, 2009 |
7. |
I am the primary author of the Technical Report. I am responsible for all report sections including those report sections outside of my discipline of geology and resource estimates, which were prepared by other Pincock, Allen & Holt representatives that were qualified in those particular disciplines (mining, metallurgy and processing and economics), and FMS Legal Advisors for current status of mining concessions (Durango-based Legal Firm of Lic. Carlos Galván Pastoriza prepared on October 31, 2008), which I believe to be reliable work. I have visited the project in May and November 2007, and in October, 2008 and I have acted as Project Manager for the preparation of this Technical Report. |
8. |
As of the date of this certificate, to the best of my knowledge, information and belief, the Technical Report contains all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. |
9. |
I am independent of First Majestic Silver Corp. in accordance with the application of Section 1.4 of National Instrument 43-101. |
10. |
I have read National Instrument 43-101, Form 43-101F1 and this report has been prepared in compliance with NI 43-101 and Form 43-101F1. |
11. |
I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them, including electronic publications in the public company files, on their websites accessible by the public. |
Dated in Lakewood, Colorado, this 12 th day of January 2009
Leonel López
______________________________
Leonel López, C.P.G.
Pincock, Allen & Holt | AMENDED AND RESTATED | 24.2 |
90533 January 12, 2009 |
Richard Addison
165 So. Union Blvd., Suite 950
Lakewood, CO 80228
Phone (303) 986-6950
Fax (303) 987-8907
dick.addison@pincock.com
I, Richard Addison, P.E., C. Eng., Eur. Ing., for Pincock, Allen & Holt, Inc. of 165 S. Union Boulevard, Suite 950, Lakewood, Colorado, USA. This certificate applies to the Technical Report for the La Encantada Silver Mine, Coahuila State, Mexico dated January 12, 2009 (the Technical Report).
1. |
My residential address is: 857 S. Van Gordon Court, #G207, Lakewood, Colorado 80228. |
2. |
I graduated from the Camborne School of Mines in England as an Honors Associate in 1964 and subsequently obtained a Master of Science degree in metallurgical engineering from the Colorado School of Mines in 1968. I have practiced my profession continuously since 1964. |
3. |
I am a Registered Professional Engineer (#3198) in the state of Nevada, USA, a Chartered Engineer in the U.K., and a registered European Engineer in the EU. I am a member of the American Institute of Mining, Metallurgical, and Petroleum Engineers and a member of The Institute of Materials, Minerals and Mining in the U.K. |
4. |
I have worked as a metallurgical engineer for a total of 44 years since my graduation from university and have been involved in the evaluation and operation of mineral properties for gold, silver, copper, lead, zinc, tin, aluminum, iron, potash, gypsum, limestone, barite, clay, sulfur, pyrite, oil shale, coal, and diamonds in the United States, Canada, Mexico, Dominican Republic, Honduras, Nicaragua, Costa Rica, Panama, Venezuela, Guyana, Peru, Ecuador, Bolivia, Argentina, Chile, Spain, Portugal, Britain, Bulgaria, Indonesia, Papua New Guinea, the Philippines, Japan, Tunisia, Ghana, Zambia, South Africa, Russia, Kyrghyzstan, Brazil, and Australia. |
5. |
I have read the definition of qualified person set out in National Instrument 43-101 (NI 43- 101) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfill the requirements to be a qualified person for the purposes of NI 43-101. |
6. |
I am responsible for the preparation of the paragraph summarizing ore processing in Section 3.0, Executive Summary; Section 18 Metallurgical Testing and Mineral Processing; those paragraphs covering ore processing in Section 21, Interpretations and Conclusions; Section 25.4, Mineral Processing Plant; and Section 25.7, Product Marketing. |
7. |
As of the date of the certificate, to the best of my knowledge, information and belief, the technical report contains all scientific and technical information that is required to disclose to make the technical report not misleading. |
Pincock, Allen & Holt | AMENDED AND RESTATED | 24.3 |
90533 January 12, 2009 |
8. |
I am independent of the Issuer in accordance with Section 1.4 of NI 43-101. |
9. |
I have read NI 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. |
10. |
I consent to the filing of the Technical Report with any securities regulatory authority, stock exchange or other regulatory authority and any publication by them, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report. |
Dated in Lakewood, Colorado, this 12 th day of January 2009
Richard Addison
_______________________________________
Richard Addison,
P.E., C. Eng., Eur. Ing.
Pincock, Allen & Holt | AMENDED AND RESTATED | 24.4 |
90533 January 12, 2009 |
25.0 ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT PROPERTIES AND PRODUCTION PROPERTIES
25.1 Introduction
La Encantada Silver Mine is located in the municipality of Ocampo in the northwestern part of the state of Coahuila, Mexico. The mining district in which La Encantada is located is the David Contreras (La Encantada) district. Mining has been carried out in La Encantada area since the early 1940s with some limited extraction of high-grade lead-silver oxides from the skarn deposits of the area. Historically ore extraction in the district was done by underground methods, and this has been continued at La Encantada.
In the early 1970s a 60/40 joint venture was formed between Lacana Mining of Canada and Industrias Peñoles to develop and exploit the silver-lead orebodies discovered at La Encantada. The joint venture, operating under the name of Compañia Minera La Encantada, S.A. de C.V., sank two main production shafts for La Encantada project, the San Francisco and the Maria Isabel, and started exploitation of La Prieta high-grade silver chimney. The operator constructed a magnetic separation plant to process the ore at project inception, but two years later, replaced the plant with a 1,000 tonnes per day differential flotation plant. All products from this plant are concentrates, which were, and continue to be, marketed to the Peñoles Met-Mex smelter, located in the city of Torreón, Coahuila. Peñoles, as the operator, worked the mine steadily from 1974 until 1986, when it was stopped due to poor profitability. Peñoles restarted operations in 1990 after discovery of significant high-grade reserves.
During the 35 years Peñoles operated the property, about 6.0 million tonnes of mainly oxidized silver-lead ores, which averaged about 418 grams Ag and 9.9 percent Pb per tonne, were mined and processed. In 2003, Peñoles leased the mine to a small company, Desmín, S.A. de C.V., who operated it from 2003 until November 2006, when Desmín was acquired by First Majestic Silver Corporation (FMS) giving FMS control over the mine. FMS then acquired Minera La Encantada S.A. de C.V. (a wholly owned subsidiary of Peñoles) in March 2007 giving FMS complete ownership of the mine. There was no hiatus in the mine production program through the acquisition period, and Desmín continued the operations until First Majestic took over in late November 2006. First Majestic continued with Desmíns development and production programs after the acquisition. FMS made several changes in early 2007, and current production is about 20,000 tonnes per month of oxidized silver-lead ores. Mill feed is not only derived from the underground mine, but also from old dump material left by both Peñoles and Desmín; the split for the first nine months of FMS operations in 2008 is about 15,000 tonnes per month from the mine and 6,000 tonnes per month from dump material. Ore is campaign-milled at the site in the differential flotation plant, which was originally constructed by Peñoles in the 1970s. The mine produces a silver-lead concentrate, and paid metal production is currently in average for the period of January to September about 112,800 ounces of silver and 235,300 pounds of lead per month.
The historic production from La Encantada has resulted in storage of about 5.0 million tonnes of mainly flotation tailings, which still contain significant silver values. The company is currently constructing a 3,500-tpd process plant in which the tailings will be reprocessed together with mine and dump ore, and silver and small amounts of gold will be recovered in a cyanide circuit with a Merrill-Crowe precious metals recovery system. FMS projects that 3.6 million ounces of silver will be produced per annum, of which 1.8 million ounces will be obtained from the old tailings and 1.8 million ounces will be obtained from processing mine ore and dump recovery ore. The new plant is scheduled for startup in the second quarter of 2009.
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90533 January 12, 2009 |
25.2 Mine Design and Production
La Encantada mine has largely been developed below ore zones indicated from surface exploration work within a block about four kilometers long, 700 meters wide and 500 meters in height. The mine was initially developed from shafts as a conventional operation with rail haulage levels, and utilizing standard rail-bound loading and hauling equipment. Subsequently, La Encantada was converted to a mainly trackless operation, although rail haulage is still used on a few levels of the mine. The mine has been developed to the northeast of the shafts over a vertical range of about 400 meters from the surface (2,035 meters asl) to about the 1525 level (1,525 meters asl), where the water table has been encountered. The mine has not been developed into the large prospective area to the southwest of the shafts, which is situated at the southwest boundary of the developed mine area.
The San Francisco and María Isabel shafts were sunk by the Peñoles-Lacana joint venture, mainly for the development and extraction of the Escondida and La Prieta chimneys and these shafts continue to be used by the current operators. The collar elevations of both shafts, which are situated only about 100 meters apart, is 1,800 meters asl for the María Isabel, and 1805 meters asl for the San Francisco, and the depths of both are about 300 meters. Both the San Francisco and María Isabel Shafts provide access to the deeper levels of La Prieta and Escondida areas of the mine.
The southern-most María Isabel Shaft is L-shaped with a manway cut-out and it is equipped with two in-balance 3.7 -t capacity skips, and a man cage. The man cage capacity is about 15 people. The furnishings in the shaft are all constructed of steel, including dividers. The guides for the ore skips are cables, and the guides for the man cage are steel H-beams. The main air lines and electric power cables into the mine are installed in the manway compartment of the María Isabel Shaft. The María Isabel ore hoist is a 500-hp Canadian Ingersoll-Rand 2-drum hoist, and the man-hoist is a Vulcan 125-hp 1-drum hoist.
The rectangular San Francisco Shaft is set up for ore hoisting only, with only a small emergency manway located in a corner of the shaft. The Shaft is fitted with two in-balance 4.8 -t capacity skips, but has no man cage. The main pumping station for the mine is located on the San Francisco Shaft, and the mine pump lines are located in the shaft near the emergency manway. The San Francisco ore hoist is a 2-drum 400-hp Canadian Ingersoll-Rand unit.
The main access to the current mine operations the trackless Los Angeles adit at the 1,870 elevation. This working has been enlarged to accommodate 20-t capacity highway-type dump trucks for ore and waste haulage from the mine. Drifts and ramps are driven at a cross-section of about 3 X 3 meters, and then enlarged to accommodate the larger dump trucks to about 4.5 X 5.0 meters in section. Most ramps are driven at a maximum gradient of 15 percent. Many areas of the mine are unsupported, but in a few places, shotcrete and/or rock bolts and wire mesh or combinations of the same have been installed. In heavy ground areas, it has been necessary to install steel arches with timber lagging. FMS develops most of its short raises (<60 meters) by conventional methods, and most raises are driven at a cross-section area of about 1.5 X 1.5 meters. Historically long ore and waste pass raises, ventilation raises, etc. have been developed by raise boring contractors, and FMS will continue this policy as the need arises.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.2 |
90533 January 12, 2009 |
A ramp system in the interior of the mine provides access for low-profile diesel mobile equipment up to the 2035 level and down to the 1635 level. The portion of the main ramp above the 1870 level is being enlarged to accommodate the highway-type dump trucks. Peñoles established the 1790 main rail haulage level (from the María Isabel Shaft) to the stoping and exploration areas northeast of the shaft. In addition a rail level was also developed at the 1635 level. Both the rail levels are still in use. A longitudinal section of the mine with major shafts, and levels are included in Figure 9-2 of this report.
Mining operations at La Encantada mine are partially mechanized. Drilling of headings for both development and stoping is accomplished using pneumatic hand-held jackleg machines. Loading and tramming is done with diesel-powered, low profile front-end loaders (load-haul-dumps, or LHDs), and haulage is usually with highway-type diesel rear-dump trucks, or battery powered rail haulage trains.
Before FMS acquired La Encantada from the previous operator, Desmín, little exploration and development work had been done in the mine. Since taking over the operation in November 2006, FMS has undertaken an intensive exploration and development effort. As stated above, some mine workings are being slashed out to accommodate highway-type dump trucks, but the advance for these is not included in the development totals.
A diagram of typical drilling patterns for the different sizes of drifts and ramps driven in La Encantada Mine are shown in Figure 25-1.
During the first 9 months of 2008, the average development advance is about 570 meters per month. About 146 meters per month are classified as exploration, and the remaining 424 meters per month are for stope preparation and other development. The development totals for 2008 are shown in Table 25-1.
The principal mining method employed at La Encantada is overhand mechanized cut-and-fill (Figure 25-2), utilizing development waste for fill. Ramps are driven in the orebodies and stopes are developed from sill drifts driven in the ore zones and slashed out the full width of the ore. Stopes are drilled with jacklegs, and the main blasting agent is a commercial ammonium nitrate product, which is initiated with sausages of water-gel explosive primed with cap and fuse. Rounds are fired with Ignitacord (B-cord) as the fuse initiator. Stopes are mucked with rubber-tired 1.0 - to 3.5 yd 3 Load-Haul-Dump (LHDs) machines, which also tram the broken ore to ore passes or remuck stations. Completed stope cuts are backfilled with development waste, which is passed through raises into the stope or trammed into the stope with the LHD units.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.3 |
90533 January 12, 2009 |
TABLE 25-1 | |||
First Majestic Silver Corp. | |||
Minera La Encantada, S.A. de C.V. | |||
La Encantada Silver Mine | |||
2008 Exploration and Mine Preparation Advances (Lineal Meters) | |||
Month | Exploration | Mine Preparation | Total Advance |
January | 417 | 137 | 553 |
February | 208 | 139 | 347 |
March | 121 | 324 | 445 |
April | 63 | 264 | 327 |
May | 92 | 448 | 540 |
June | 170 | 521 | 691 |
July | 123 | 644 | 767 |
August | 57 | 675 | 733 |
September | 61 | 665 | 725 |
Totals | 1,312 | 3,817 | 5,128 |
A modification of overhand cut and fill stoping that has been adopted for extraction of some breccia pipes and chimney orebodies is post pillar stoping, which is essentially a room and pillar method, but on multiple horizons. Post-pillar stopes in La Encantada mine are backfilled with waste, and are mined overhand progressing from the sill level to the next level above. Most development ramps for post pillar stoping are developed in waste outside the orebody. All other parameters for stoping the post pillar areas are the same as for a standard mechanized overhand cut and fill stope. A diagram of a typical La Encantada post pillar stope is shown in Figure 25-3.
Stope production is about 11,200 tonnes per month, and there are currently about 15 stopes in production. The monthly mine production for 2008 is shown in Table 25-2.
Much of La Encantada mine development and stoping work is done by outside contractors, using company equipment. Mucking and haulage operations are done with company crews, and maintenance and other mine services are also done with company personnel. If the company does not have sufficient personnel to operate the mobile mucking and haulage equipment, the contractors will operate the equipment for extra fees. Ore haulage to the mine patios is done with contractor dump trucks, and ore transfers from the patios to the mill crusher bins are also done with outside contractors using their own trucks.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.6 |
90533 January 12, 2009 |
FMS plans to eventually reinitiate extraction of La Prieta and La Escondida abandoned chimneys, which were first mined by caving methods by Peñoles in the early years of the mine operation. The workings for the extraction of both chimneys caved in and were lost, with much waste rock material dumped into the glory-holes which had holed through to the surface. The purpose of the waste rock was to stabilize the areas proximal to the chimneys. Some ground movements have occurred in the form of concentric cracks around the ore boundaries of the chimneys, and since the chimneys are situated very near to both the main production shafts, ground movements could affect the stability of these installations. In fact some cracks in the walls of hoist room of the San Francisco shaft have been noted, apparently as a result of caving of the chimneys. Extraction of remnants left in these chimneys is technically possible, but should be delayed until the two shafts are no longer required for production or service. PAH recommends that FMS commission an updated geotechnical study and evaluation of the old mining areas near the shafts, so that any potential problem will be revealed and mitigation steps taken.
Mine ventilation is through natural air flows into and out of the mine. The maximum intake airflow is about 40,000 ft³/min. (25 m³/sec.), which is actually air flowing into the upper part of the mine through old mine workings. The maximum exhaust air flow is about 88,000 ft³/min. (54 m³/sec.) through the Los Angeles Adit level (1865 level), which is above most of the current active mining levels. From Figure 25-4 it can be appreciated that the air flows in most of the mine are very small. Although aided by using auxiliary axial fans, there is much heat buildup and stagnant air in many of the active mine workings. This problem is compounded by the use of diesel mobile equipment in the mine. The ventilation system requires a substantial up grade, and First Majestic should commission a ventilation study with independent experts, and then proceed to install major fan(s), booster fans and air-flow regulators to conduct much greater volumes of fresh air into the mine. PAH recommends that FMS commission an in-depth study of the ventilation system as a first step toward upgrading it.
A separate mine dump recovery effort continues at the mine site. This operation consists of the excavation and screening of old dump material from the previous operations, and transporting the screened product to the mill ore bins as supplemental mill feed material. The company uses a portable screening plant for the operation and the recovery operation is conducted by a combination of company operators and contractors. This material has been viable if screened to remove coarse waste material, and screened material recovered and processed totaled 42,154 tonnes at an average grade of about 119 gpt Ag during the first nine months of 2008. A summary of the month by month screened dump material recovered and processed during the first nine months of the year is shown in Table 25-3.
The mine currently operates on two 12-hour shifts per day, 7 days per week. Crews currently work two weeks at site with one week off. Both contractor crews and company personnel work the same shift schedule. Most company and contractor personnel live in the town of Muzquiz, Coahuila, which is situated about 210 km on paved highways to the northwest of the La Encantada Mine.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.8 |
90533 January 12, 2009 |
TABLE 25-3 | ||
First Majestic Silver Corp. | ||
Minera La Encantada, S.A. de C.V. | ||
La Encantada Silver Mine | ||
Mine Dump Production for 2008 (dry metric tonnes) | ||
Month
|
Ore Mined & Milled | Average Grade |
(tonnes) | (gpt Ag) | |
January | - | - |
February | - | - |
March | 3,280 | 155 |
April | 8,229 | 118 |
May | 6,859 | 108 |
June | 3,799 | 159 |
July | 6,270 | 119 |
August | 7,558 | 107 |
September | 6,158 | 101 |
Totals | 42,153 | 119 |
The company is currently transporting many personnel to and from Muzquiz to the mine site in a company bus. Peñoles constructed and maintained about 180 houses, as well as a primary school, stores and recreational facilities in the proximity of the mine site, and FMS has refurbished some of the housing and ancillary facilities to accommodate the workforce in company-controlled living quarters: presently much of the housing is occupied by contractor personnel, who are working on construction of the new 3,500-tpd cyanide plant.
The current mine workforce as of September 30, 2008 totals 490 people including contractors. There are currently 123 contractors on site, who are engaged in the new cyanide plant construction. A summary of personnel at La Encantada as of the end of September is shown in Table 25-4.
The operations budget for the first 9 months of 2008 is for milling of 136,816 tonnes from the mine and 53,734 tonnes from the old mine dumps. The average grades to the mill are budgeted at 345 gpt Ag for the mine and 104 gpt Ag for the dumps. The actual mine tonnes milled through the nine-month period total 136,327 tonnes and actual grades through the first 9 months of 2008 have averaged 352 gpt Ag. The actual mine dump tonnes removed and processed for the first 9 months of 2008 total 42,154 tonnes at an average grade of 119 gpt Ag. A summary of the 2008 mining and milling budgets for both the underground mine and the surface mine dump recovery is found in Table 25-5.
25.3 Mine Equipment
Most of the mine equipment used at La Encantada was inherited from the previous operator; Desmín and Desmín acquired most it from Peñoles. As can be appreciated from the table below, much of the mine mobile equipment fleet is very old, and FMS management has started a program of replacing much of the older equipment in the fleet. In fact the company has a purchase agreement with a major supplier, Sandvik, to acquire new modern mobile mine equipment. In addition to supplying the equipment, Sandvik contractually agrees to maintain it. The 2008 mine capital expenditures program included purchase of mobile equipment units in several sizes, ranging from 1.0 -yd 3 to 3.5 -yd 3 capacity, of primarily diesel-powered LHDs. A summary of La Encantada mine equipment is shown in Table 25-6.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.10 |
90533 January 12, 2009 |
TABLE 25-4 | ||||
First Majestic Silver Corp. | ||||
Minera La Encantada, S.A. de C.V. | ||||
La Encantada Silver Mine | ||||
La Encantada Mine Manpower, Including Contractors (September 30, 2008) | ||||
Department & Category |
Company |
Mine
Contractors |
Totals |
|
Hourly | Staff | |||
SITE ADMINISTRATION | ||||
Manager & General Office | 7 | 13 | 20 | |
Safety & Environment | 2 | 2 | 4 | |
Sub-Total | 9 | 15 | 24 | |
MINE | ||||
Miners, helpers, etc. | 148 | 148 | ||
Equipment operators, etc. | 36 | 36 | ||
Supervision, admin. | 6 | 5 | 11 | |
Sub-Totals | 36 | 6 | 153 | 195 |
MINE TECHNICAL SUPPORT | ||||
Engineering & Planning | 5 | 1 | 6 | |
Geology | 2 | 7 | 9 | |
Sub-Total | 7 | 8 | 15 | |
MINE DUMP RECOVERY | ||||
Dump recovery | 5 | 5 | ||
Supv. & Admin. | 1 | 1 | ||
Sub-Total | 5 | 1 | 0 | 6 |
MILL & PROCESS PLANT | ||||
Mill & Plant | 36 | 5 | 41 | |
Assay Laboratory | 6 | 2 | 8 | |
New mill plant construction | 4 | 123 | 127 | |
Sub-Total | 42 | 11 | 123 | 176 |
MAINTENANCE | ||||
Mine & plant maintenance | 38 | 38 | ||
Supv. & Administration | 7 | 2 | 9 | |
House keeping & construction | 27 | 27 | ||
Sub-Total | 38 | 7 | 29 | 74 |
TOTALS | 137 | 48 | 305 | 490 |
25.4 Mineral Processing Plants
25.4.1 Flotation Plant
Principal parameters of the flotation ore processing plant, including concentrate freight, smelting and refining values, are presented in Table 25-7 and a listing of the principal equipment is shown in Table 25-8. A general flow diagram of the plant is provided in Figure 25-5 and a more detailed flow diagram of the flotation section is provided in Figure 25-6. The plant was constructed in 1973 and at that time incorporated magnetic separation. In 1977 the plant was modified to convert it to flotation separation.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.11 |
90533 January 12, 2009 |
TABLE 25-5 | ||||||||||||||||||
First Majestic Silver Corp. | ||||||||||||||||||
Minera La Encantada, S.A. de C.V. | ||||||||||||||||||
La Encantada Silver Mine | ||||||||||||||||||
2008 Production versus 2008 Operating Budget | ||||||||||||||||||
MONTHS |
Ore
Milled
from Mine |
Budgeted
Ore
Milled from Mine |
Mine Ore
Variance |
Silver Head
Grade
from Mine |
Budgeted Silver Mine Head Grade |
Head
Grade
Variance |
Ore
Milled
from Dumps |
Budgeted Ore
Milled
from Dumps |
Dump Ore
Variance |
Dump Ore
Silver Head |
Dump Ore
Budgeted
Silver Head Grade |
Head
Grade
Variance |
Total
Tonnes
Milled |
Total
Tonnes
Budgeted for Milling |
Variance
Total
Milled Ore |
Average
Silver
Head Grade |
Budgeted
Average
Silver Head Grade |
Variance
Average
Silver Head Grade |
(tonnes) | (tonnes) | (tonnes) | (gpt Ag) | (gpt Ag) | (gpt Ag) | (tonnes) | (tonnes) | (tonnes) | (gpt Ag) | (gpt Ag) | (gpt Ag) | (tonnes) | (tonnes) | (tonnes) | (gpt Ag) | (gpt Ag) | (gpt Ag) | |
January | 13,068 | 13,875 | (807) | 350 | 370 | (20) | 0 | 7,125 | (7,125) | 0 | 100 | (100) | 13,068 | 21,000 | (7,932) | 350 | 278 | 72 |
February | 17,805 | 13,875 | 3,930 | 332 | 380 | (48) | 0 | 7,125 | (7,125) | 0 | 100 | (100) | 17,805 | 21,000 | (3,195) | 332 | 285 | 47 |
March | 18,728 | 13,875 | 4,853 | 392 | 353 | 39 | 3,280 | 7,125 | (3,845) | 155 | 100 | 55 | 22,008 | 21,000 | 1,008 | 357 | 267 | 90 |
April | 12,722 | 13,875 | (1,153) | 525 | 353 | 172 | 8,229 | 7,125 | 1,104 | 118 | 100 | 18 | 20,951 | 21,000 | (49) | 365 | 267 | 98 |
May | 15,283 | 13,875 | 1,408 | 419 | 353 | 66 | 6,859 | 7,125 | (266) | 108 | 100 | 8 | 22,142 | 21,000 | 1,142 | 323 | 267 | 55 |
June | 16,301 | 13,875 | 2,426 | 251 | 353 | (102) | 3,799 | 7,125 | (3,326) | 160 | 100 | 60 | 20,100 | 21,000 | (900) | 234 | 267 | (33) |
July | 15,653 | 16,944 | (1,291) | 298 | 323 | (25) | 6,271 | 3,906 | 2,365 | 119 | 120 | (1) | 21,924 | 20,850 | 1,074 | 247 | 285 | (38) |
August | 13,109 | 17,311 | (4,202) | 320 | 319 | 1 | 7,558 | 3,539 | 4,019 | 107 | 120 | (13) | 20,667 | 20,850 | (183) | 242 | 285 | (43) |
September | 13,658 | 17,311 | (3,653) | 304 | 319 | (15) | 6,158 | 3,539 | 2,619 | 101 | 120 | (19) | 19,816 | 20,850 | (1,034) | 241 | 285 | (44) |
Totals 2008 | 136,327 | 134,816 | 1,511 | 352 | 345 | 7 | 42,154 | 53,734 | (11,580) | 119 | 104 | 15 | 178,481 | 188,550 | (10,069) | 297 | 276 | 21 |
TABLE 25-6 | ||||
First Majestic Silver Corp. | ||||
Minera La Encantada, S.A. de C.V. | ||||
La Encantada Silver Mine | ||||
Summary of Major Mine Equipment for Encantada Mine | ||||
MOBILE EQUIPMENT | ||||
No.of Units | Description of Unit | Make & Model | Size or Other | Date(s) Acquired |
1 | LHD (load-haul-dump) | Wagner Micro-Scoop (Atlas Copco) | ½ yd 3 | 2007 |
2 | LHD (load-haul-dump) | Wagner ST-1A (Atlas Copco) | 1 yd 3 | 1995 |
2 | LHD (load-haul-dump) | Wagner ST-2D (Atlas Copco) | 2yd 3 | Unknown |
2 | LHD (load-haul-dump) | Wagner ST-2D (Atlas Copco) | 2yd 3 | 1989 |
2 | LHD (load-haul-dump) | Wagner ST-2D (Atlas Copco) | 2yd 3 | 1995 & 1996 |
2 | LHD (load-haul-dump) | Wagner ST-2D (Atlas Copco) | 2yd 3 | 1998 |
1 | LHD (load-haul-dump) | Tamrock Toro (Sandvik) | 1yd 3 | 2007 |
1 | LHD (load-haul-dump) | Tamrock Toro (Sandvik) | 1½ yd 3 | 2007 |
1 | LHD (load-haul-dump) | Tamrock Toro (Sandvik) | 2yd 3 | 2007 |
1 | LHD (load-haul-dump) | Tamrock Toro (Sandvik) | 4yd 3 | 2007 |
1 | Mine Truck-Teletram | EJC (Sandvik) | 10 tonnes | 2000 |
1 | Mine Truck-Teletram | EJC (Sandvik) | 13-tonnes | 2007 |
1 | Electro-Hydraulic Drill Jumbo | Tamrock (Sandvik) | Single boom | Unknown |
2 | Diesel Locomotives | Plymouth | 8 tonnes | 1997 |
1 | Front-End Loader | Caterpillar 938-G | 3.0 yd 3 | 2005 |
1 | Front-End Loader | Michigan M-75 | 2½yd 3 | Unknown |
1 | Front-End Loader | Caterpillar 928-G | 2.5yd 3 | 1998 |
1 | Mine Tractor | Ford-New Holland 5610 | NA | 1995 |
1 | Mine Tractor | Ford New Holland 6600 | NA | Unknown |
1 | U/G Road Grader | Huber F-1700 | ? | 1979 |
15 | Rail Mine Cars | Granby-Type | 2.8 M 3 Each | Unknown |
MINE HOISTS | ||||
1 |
Two-Drum Ore Hoist
MARIA ISABEL SHAFT |
Canadian Ingersoll-Rand
Motor - 500 hp, 2200 v, 705 rpm |
72- X 54-in Drums
450 Meters, 11/8-in CABLES |
Unknown
|
1 |
One-Drum Man Hoist
MARIA ISABEL SHAFT |
Vulcan Ironworks
Motor - 125 hp, 440v, 705 rpm |
Drum Size - N.A.
450 Meters, 1¼-in.Cable |
Unknown
|
1 |
Two-Drum Ore Hoist
SAN FRANCISCO SHAFT |
Canadian IngersollL-Rand
Motor - 400 hp, 2300v, 505 rpm |
72-X54-in Drums
450 Meters, 11/8-in Cables |
Unknown
|
MINE STATIONARY AIR COMPRESSORS | ||||
1 |
Air Compressor
|
Ingersoll-Rand
440 hp, Reciprocating, XLE |
2,400 cfm
|
Unknown
|
1 |
Air Compressor
|
Sullair
350 hp, Screw, 25-300L |
1,600 cfm
|
Unknown
|
PNEUMATIC DRILLING EQUIPMENT | ||||
10 | Stoper Rock Drills | Mid-Western Machinery | N.A. | Unknown |
2 | Jackleg Rock Drills | Gardner-Denver, 58F | N.A. | Unknown |
16
|
Jackleg Rock Drills
|
Refacciones Pneumaticas
De San Luis Potosi, S.A. |
N.A.
|
Unknown
|
DIAMOND DRILLING EQUIPMENT | ||||
1 | U/G Diamond-Drill Rig | Diamec Model 250 (Atlas-Copco) | Wireline | Unknown |
OTHER MINE EQUIPMENT | ||||
1 | Mine Ventilation Fan | Spendrup | 350 hp, 3,500 m 3 permin. | Unknown |
2 | Mine Dewatering | Gardner-Denver | Duplex, 30 hp electric motor | Unknown |
2 | Mine Dewatering | Sulzer | 300hp, 23.6 l/sec. | Unknown |
1 | Mine Dewatering | Unknown | 40 hp electric motor | Unknown |
1 | Mine Pickup | GMC, Series 1 GTC C | Diesel pickup | 1995 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.13 |
90533 January 12, 2009 |
TABLE 25-7 | ||||
First Majestic Silver Corp. | ||||
Minera La Encantada, S.A. de C.V. | ||||
La Encantada Silver Mine | ||||
Flotation Plant, Principal Parameters | ||||
Parameter | Units | Mine | Dumps | Combined |
Plant Capacity | ||||
Annual | thousand tonnes/year | 300 | ||
Daily | tonnes/day | 800 | ||
Actual Throughput Rate | ||||
Annual | thousand tonnes/year | 180 | 55 | 235 |
Daily | tonnes/day | 500 | 150 | 650 |
Ore Grade | ||||
Silver | grams/tonne | 350 | 120 | 300 |
Lead | percent | 2.5 | 1.5 | 2.3 |
Recovery | ||||
Silver | 60 | 55 | 60 | |
Lead | 25 | 25 | 25 | |
Concentrate Grade | ||||
Silver | grams/tonne | 8,000 | 4,500 | 7,500 |
Lead | percent | 25 | 25 | 25 |
Concentrate Quantity | dry tonnes/year | 5,500 | ||
Primary Grind | percent minus 200 mesh | 55-60 | ||
Plant Operating Cost | $/tonne ore | 6.32 | ||
FSR Values | ||||
Freight cost | $/dry tonne concentrate | 109 | ||
Smelting cost | $/dry tonne concentrate | 505 | ||
Refining cost | $/payable kg silver | 48 | ||
Payables | ||||
Silver | percent | 95 | ||
Lead | percent | 90 |
TABLE 25-8 | |||
First Majestic Silver Corp. | |||
Minera La Encantada, S.A. de C.V. | |||
La Encantada Silver Mine | |||
Flotation Plant, Principal Equipment List | |||
Qty. | Qty. | ||
Item | Type/Size | Oper. | Instal. |
Coarse ore bin | 100-tonne capacity, stationary grizzly | ||
on top with 12-inch openings | 1 | 1 | |
Primary crusher | Jaw, 24- x 36-inch | 1 | 1 |
Vibrating screens | 6- x 14-ft, 3/8-inch openings | 2 | 2 |
Secondary crusher | Cone, 4-1/4-ft | 1 | 1 |
Crushed ore silos | 500-tonne capacity | 2 | 2 |
Ball mill | 9.5-ft dia. x 11-ft long, overflow | 1 | 1 |
Cyclone feed pumps | 1 | 2 | |
Cyclones | 20-inch dia. | 1 | 2 |
Sulfide flotation cells | Galigher, 100-ft 3 | 12 | 12 |
Oxide flotation cells | Galigher, 100-ft 3 | 10 | 10 |
Tailings thickener | 125-ft dia. | 1 | 1 |
Concentrate thickener | 50-ft dia. | 1 | 1 |
Concentrate filter | Larox pressure filter | 1 | 1 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.14 |
90533 January 12, 2009 |
Ore is from two sources: from the underground mine and from old mine dumps with the mine contributing about 71 percent of the feed while the processing of dump material accounts for the rest. The dump rock is screened ahead of the plant which results in upgrading the rock to about twice the grade of unscreened material. Mine and dump ore are not mixed; they are campaign processed through the plant.
The plant is a simple flotation plant in a single-line arrangement. Crushing is accomplished using two stages of crushing closed on the second stage, and the ore is milled in a single ball mill closed with a cyclone. The mill is rubber lined and is charged with 2-1/2-inch diameter grinding balls. Sulfide minerals and oxide minerals are floated sequentially and both circuits incorporate just one stage of cleaning.
Concentrates from both the sulfide and oxide circuits are combined in a concentrate thickener. Thickened concentrates are filtered on a pressure filter press and the filtered concentrate, which contains about 20 percent moisture, is sun dried on a concrete patio to about 10 percent moisture, then trucked to the Peñoles smelter at Torreón.
Tailings are thickened and then pumped to a nearby tailings containment. Tailings thickener overflow and the decant water from the tailings containment are pumped to a recycle-water tank and reused in the process.
25.4.2 Cyanidation Plant
La Encantada is currently building a 3,500 tonne per day cyanidation plant. The plant is expected to commence operations in the April 2009. Feed to the plant will be reclaimed tailings and the mined ore and waste dump rock currently processed in the existing flotation plant. The crushing and grinding of the mined ore and waste dump rock will continue to be done in existing crushing and grinding equipment. The cyanidation plant will incorporate a mill for mild regrinding of reprocessed tailings.
Principal parameters of the cyanidation plant are presented in Table 25-9 and a listing of the principal equipment is shown in Table 25-10. A general flow diagram of the plant is provided in Figure 25-7 and the layout of the plant is shown in Figure 25-8.
Tailings from the new plant will be pumped to new lined tailings containment in a small valley below the plant. Decant water from the tailings will be pumped back to the plant and reused in the process.
25.5 Infrastructure
The infrastructure for La Encantada was very well developed by the previous operators, especially Peñoles. The operations support facilities, located near the plant, include administrative offices, a medical clinic, warehouse, airstrip, assay laboratory, power generation plant, fuel storage facilities, maintenance shops, mine compressor building, surface maintenance shop, mine dry, water storage tanks, employee hotel and dining hall, contractor offices and security guard shack. The Maintenance Department operates from the surface shops, and also from an underground shop (840 level), located near the center of the mine. Road maintenance is done with a fleet of company tractors, road grader and wheel loaders. Dump trucks for ore haulage and road maintenance are largely vehicles contracted locally. The company has a passenger bus for transporting operations personnel to and from the town of Muzquiz, where most employees have homes.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.16 |
90533 January 12, 2009 |
TABLE 25-9 | |||||
First Majestic Silver Corp. | |||||
Minera La Encantada, S.A. de C.V. | |||||
La Encantada Silver Mine | |||||
Cyanidation Plant, Principal Parameters (FMS Cash Flow Model) | |||||
Parameter |
Units |
Mine &
Dumps |
Tailings
No. 1 |
Tailings
No. 2 |
Combined |
Plant Throughput | |||||
Annual | thousand tonnes/year | 200 | 180 | 620 | 1,000 |
Daily | tonnes/day | 700 | 628 | 2,172 | 3,500 |
Ore Grade, Silver | grams/tonne | 350 | 72 | 168 | 187 |
Silver Recovery | percent | 78 | 52 | 48 | 59 |
Silver Production | |||||
Annual | tonnes/year | 110 | |||
Annual | thousand ounces/year | 3,600 | |||
Particle Size | |||||
Feed | percent minus 200 mesh | ~70 | |||
Product | percent minus 200 mesh | ~85 | |||
Power Consumption | kilowatt-hours/tonne | 4.0-4.5 | |||
Plant Operating Cost | $/tonne ore | 6.60 |
TABLE 25-10 | ||||
First Majestic Silver Corp. | ||||
Minera La Encantada, S.A. de C.V. | ||||
La Encantada Silver Mine | ||||
Cyanidation Plant, Principal Equipment List | ||||
Item |
Size |
hp
each |
Qty.
Oper. |
Qty.
Instal. |
Semi-rich solution tank | 11.5-m dia. x 12.6-m high | 1 | 1 | |
Water monitor pumps | 75 | 2 | 3 | |
Water monitors | 2 | 2 | ||
Repulping bins | 2 | 2 | ||
Vibrating screens | 10 | 2 | 2 | |
Slurry mix tanks | 9-m dia. x 10-m high | 60 | 2 | 2 |
Attritioning tanks | 5-m dia. x 2-m high | 100 | 2 | 2 |
Ball mill | 10.5-ft dia. x 14-ft long | 900 | 1 | 1 |
Cyclone feed pumps | 200 | 2 | 2 | |
Cyclones | 20-inch dia. | 4 | 4 | |
Primary thickener | 125-ft dia. x 10-ft high | 13 | 1 | 1 |
Leach tanks | 30-ft dia. x 43-ft high | 60 | 17 | 17 |
Intermediate thickener | 125-ft dia. x 10-ft high | 13 | 1 | 1 |
CCD thickeners | 125-ft dia. x 10-ft high | 13 | 4 | 4 |
Semi-rich solution tank | 12-m dia. x 13-m high | 1 | 1 | |
Dirty pregnant solution tank | 12-m dia. x 13-m high | 1 | 1 | |
Clarifying filters | 2 | 3 | ||
Clean pregnant solution tank | 12-m dia. x 13-m high | 1 | 1 | |
Deoxygenation towers | 2 | 2 | ||
Vacuum pumps | 2 | 2 | ||
Zinc dust feeders | 2 | 2 | ||
Press feed pumps | 2 | 3 | ||
Precipitate filter presses | 4 | 4 | ||
Precipitate dryer | 1 | 1 | ||
Barren solution cistern | 1 | 1 | ||
Emergency pond | 1 | 1 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.18 |
90533 January 12, 2009 |
The company also has a town constructed by Peñoles, and which is partially occupied at this time. The town site has 180 housing units of which 80 percent are occupied. There is also a kitchen/dining room for salaried staff and some contractor managers and visitors, a primary school, a church, a store, recreational facilities, etc.
The electric power for the operation and supporting infrastructure is generated on-site. The power generation plant consists of three General Motors 3,250 KVA diesel-powered motor generators. In addition there are two 1,000 KVA CAT D399 motor-generator sets for site power, when the mill and process plant are idle. Power consumption is presently about 800,000 kilowatt-hours per month. The new cyanide leach plant will have its own generating plant.
Potable water for the offices and employee housing is derived from a well in the mine, which penetrates below the water table. The industrial water for the mine and plant is obtained from a series of wells located about 25 kilometers from the site. A system diagram for the industrial water is shown in Figure 25-9. This water is pumped to and stored in a number of storage tanks located throughout the plant and mine site.
Communications to and from La Encantada is via satellites, both for wireless internet information systems, and also for the telephone system. Currently the telephone system has two lines. La Encantada has a site radio system for instant communications between all Supervisors and Managers, and all surface vehicle operators also have radio communication capabilities.
There is a FMS owned airstrip located in the broad valley to the northwest of the mine site. This strip is suitable for light planes, and is used for flying in supplies, or for transporting mine personnel, visitors and others into and out of La Encantada, and other nearby locations. The airstrip is 1,200 meters long, 17 meters wide, and has a gravel surface.
The site is connected with the national highway system and, although in a remote location, La Encantada is reasonably accessible. The access to the mine from the town of Muzquiz, Coahuila, which lies to the northeast of La Encantada, accessible via a 45 kilometers of gravel road, and then another 170 kilometers on a paved highway to Muzquiz.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.21 |
90533 January 12, 2009 |
25.6 Product Marketing
FMS has a purchase agreement with MET-MEX Peñoles located in the city of Torreón, State of Coahuila, México. The purchase agreement establishes the obligation to sell all mineral production from La Encantada mine to the Peñoles smelter assuming other more competitive rates are not available to FMS. This, however, is the natural market for concentrates since the MET-MEX Peñoles smelter is the closest such facility for shipping La Encantada concentrates. The contract between La Encantada and Peñoles for sales of bulk flotation concentrate is typical for this product.
La Encantada purchase contract of concentrates with Peñoles includes typical conditions and related charges as follows:
|
Each lot is weighed upon receipt and sampled. La Encantada also weighs and samples the shipments |
at the mine site. | |
|
Smelting charge per dry tonne of concentrate is $505.00. |
|
Freight cost per tonne of concentrate is $29.00. |
|
Refining cost per payable kilogram of silver is $48.23. |
|
Payables by Peñoles are: 90 percent for contained silver, and all of the contained lead in excess of 3 |
percent. |
25.7 Environmental Safety Review
Minera La Encantada has been operating the La Encantada mine since the early 1970s with the necessary land-use and water extraction permits in effect for the operation. FMS has purchase the land surface rights, under expropriation procedures from Ejido Tenochtitlán, where the camp, water wells, mine and plant installations are located to better manage the property. Through the years and changes in the regulatory framework, La Encantada has been required to update the necessary operation permits.
In April 24, 2007 La Encantada presented a notification of reactivation of operations at the mine to the National Water Commission (C.N.A.), to SEMARNAT, to Secretaría del Trabajo y Previsión Social, and to PROFEPA. La Encantada mine was declared in suspension of activities by Peñoles in 2003.
PAHs environmental and safety review consisted of discussions with FMS COO Ing. Ramón Dávila Flores, and mine manager and supervisors, Ing. Salvador Hernández, Manager of Operations and other personnel. PAH visited the site to observe the current site safety and environmental conditions and to identify any potential liabilities having significant economic impacts, and a briefly reviewed file records provided to PAH during the site visit. PAHs assessment was not intended as an environmental and safety compliance audit, although prudent practices were considered in the review. In PAHs opinion, La Encantada is in compliance with regulatory requirements, which are current accoprding to Legal Opinion issued by Durango-based Legal Firm of Lic. Carlos Galván Pastoriza issued on October 31, 2008, and document on Environmental and Operating Permits issued by Mr. José Luis Hernández Santibañez, Corporate Manager on Environmental and Permitting for FMS, in a document issued on October 31, 2008 showing current status and confirmation of the required permits and authorizations.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.23 |
90533 January 12, 2009 |
In general, surface disturbance related to mining is limited to the access road to the mining levels, waste rock dumps at each portal, and auxiliary support areas. Development waste rock is used for fill inside the mine and limits the size of waste rock dumps at the surface. Most of these activities are carried out on land owned by La Encantada. No acid rock drainage (ARD) is produced from the mine workings.
PAH noted no visible evidence of ARD on the active and historic tailings deposition areas or spent heap leach pile. The surface of the active tailings impoundment is wetted, which controls fugitive dust emissions.
The grinding area, agitated leach tanks, wash thickeners, cyanide mix tank, and several other process vessels in the mill area have spill containment. There are minimal stormwater control measures to route uncontaminated runoff away from the mill or to collect and contain stormwater runoff from around the mill site.
La Encantada has good control of the storage of hazardous chemicals and lubricants at the mill site and has installed concrete pads and fenced areas for drums.
Although Mexican environmental legislation is not explicit in the requirements for remediation, reclamation, and closure, the SEMARNAP expresses concern for the preservation and restoration of the environment and natural ecosystems in its environmental management guidance for industry. In fact, SEMARNAP recommends that facilities establish and implement a program for remediation of spills and releases to the environment.
La Encantada has not supplied to PAH the estimated costs for reclamation and mine closure of the mine or mill and tailings containment areas; however, PAH considers the costs will be low because La Encantada owns most of the surface rights where the installations and mine are located.
PAHs estimate for the costs required to comply with and remediate the environmental issues for the project is approximately $150,000 in addition to the salvage value of plant and mine equipment. These costs are based on PAHs experience in mining projects in México, and are not the result of detailed analysis. Actual costs will depend on site conditions and impacts from the operation, regulatory requirements at the time of compliance, and corporate environmental management standards.
25.8 Economic Analysis
25.8.1 Capital Costs
The FMS capital expenditures for January to September 2008 total $11.82 million. The 5-year capital budget (2009 thru 2013) is $26.1 million including costs for construction of a new 3,500-tpd cyanide plant, existing mill and flotation plant upgrades, power plant upgrades, mine equipment additions and replacements, exploration and mine development programs and infrastructure upgrades and additions. Major capital expenditures in the program registered for the first nine months of 2008 includes expenditures for exploration programs, expenditures for certain mine development, some mine equipment purchases, improvements to the existing process plant and construction of the new 3,500-tpd cyanide process plant. The 2008 actual capital expenditures for the first nine months of 2008 versus the Budget are shown in Table 25-11, and the capital investment schedule for la Encantada five-year plan is shown in the Table 25-12.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.24 |
90533 January 12, 2009 |
TABLE 25-11 | |||
First Majestic Silver Corp. | |||
Minera La Encantada, S.A. de C.V. | |||
La Encantada Silver Mine | |||
2008 Capital Expenditures | |||
Category | Actual | Plan | Difference |
Mine Development | 3,759,840 | 3,711,875 | (47,965) |
Sandvik (Mining Equipment) | 838,692 | 3,667,092 | 2,828,400 |
3,500-tpd Cyanide Plant Project | 6,998,376 | 13,300,000 | 6,301,624 |
Fixed Assets and Other | 419,279 | 346,560 | (72,719) |
Total | $12,016,187 | $21,025,527 | $9,009,340 |
TABLE 25-12 | ||||||
First Majestic Silver Corp. | ||||||
Minera La Encantada, S.A. de C.V. | ||||||
La Encantada Silver Mine | ||||||
Estimated Capital Expenditures Summary (5 years) | ||||||
2009 | 2010 | 2011 | 2012 | 2013 | TOTALS | |
New 3,500-TPD Cyanide Plant | 8,212,059 | 8,212,059 | ||||
Sub-Total | 8,212,059 | 8,212,059 | ||||
Exploration & Development | ||||||
Diamond Drilling | 600,000 | 600,000 | 600,000 | 600,000 | 600,000 | 3,000,000 |
Development & Exploration | 2,400,000 | 2,400,000 | 2,400,000 | 2,400,000 | 2,400,000 | 12,000,000 |
Sub-Total | 3,000,000 | 3,000,000 | 3,000,000 | 3,000,000 | 3,000,000 | 15,000,000 |
Mine Equipment | ||||||
Scooptrams | 200,000 | 200,000 | 200,000 | 200,000 | 200,000 | 1,000,000 |
Trucks | ||||||
Auxilliary Equipment | 75,000 | 75,000 | 75,000 | 75,000 | 75,000 | 375,000 |
Compressors | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 | 500,000 |
Safety Equipment & Mine Rescue | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 125,000 |
Sub-Total | 400,000 | 400,000 | 400,000 | 400,000 | 400,000 | 2,000,000 |
Construction & Plant Improvements | ||||||
Upgrade Flotation Plant | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 | 500,000 |
Upgrade Power Plant | ||||||
Buildings and Offices | 34,660 | 34,660 | 34,660 | 34,660 | 34,660 | 173,300 |
Sub-total | 134,660 | 134,660 | 134,660 | 134,660 | 134,660 | 673,300 |
Mining Rights | ||||||
Annual Payments | 40,000 | 40,000 | 40,000 | 40,000 | 40,000 | 200,000 |
Sub-Total | 40,000 | 40,000 | 40,000 | 40,000 | 40,000 | 200,000 |
TOTALS | 11,786,719 | 3,574,660 | 3,574,660 | 3,574,660 | 3,574,660 | 26,085,359 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.25 |
90533 January 12, 2009 |
25.8.2 Operating Costs
La Encantada operating costs for the first nine months of 2008 have averaged $51.69 per tonne of ore processed, inclusive of dump material, which equates to a cost per ounce of silver of $9.09. The costs include downstream concentrate freight and processing costs of about $21.54 per tonne milled or $3.35 per ounce of silver recovered. The average combined operating cost for 2008 has averaged about $51.69 per tonne milled. A summary of the combined mine and dump recovery operating costs for the first nine months of 2008 is found in Table 25-13.
The average mine-only operating cost is $55.01 per tonne, and also includes costs for concentrate freight to the Peñoles smelter and the downstream processing of the silver-lead concentrates. The site-only operating cost for the mine generated ore has averaged about $33.47 per tonne, and the total cost per ounce of silver obtained from mine ore has averaged $4.43 per oz Ag for 2008. The downstream concentrate freight and smelting and refining costs are $21.54 per tonne or $2.85 per oz Ag for the first nine months of 2008. A summary of the mine-only operating costs is shown in Table 25-14.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.26 |
90533 January 12, 2009 |
The average costs for extraction and processing of the old dump material for the first nine months of 2008 are $40.98 per tonne, or $14.88 per oz Ag produced. The site-only cost for extraction, screening, milling and processing of the old mine dumps is $19.45 per tonne, or $7.06 per ounce. Concentrate freight and downstream smelting and refining for the dump material have averaged an additional $21.54 per tonne of ore extracted.
Table 25-15 is a summary of the operating costs for the first nine months of 2008 for the dump recovery effort.
The company is currently constructing a 3,500-tpd mill and cyanide processing plant, mainly for reprocessing at least 5.0 million tonnes of old tailings, stored below the mine site. The company developed a cost per tonne, and metallurgical recoveries for recovery of silver-and small amounts of gold from the old tailings material. FMS plan to produce silver/gold precipitates in the plant, and are still evaluating shipping the precipitate to La Parrilla for smelting into bullion bars, or producing their own bullion bars at La Encantada.
First Majestic has estimated the all-in direct operating costs for tailings recovery, reprocessing, ancillary services and downstream costs at about $17.00 per tonne processed. A breakdown of this cost estimate is shown in Table 25-16.
25.8.3 Economic Analysis
A simplified production plan has been prepared by First Majestic, and is presented as Table 25-17 and a Life of Mine cash-flow is shown in Table 25-18. First Majestic has predicated this cash flow on bringing the new 3,500-tpd mill and cyanide plant on stream during April 2009, after which the shipment of flotation concentrates to outside smelters will cease, and mine ore and old tailings will be processed in the new plant. Bullion precipitates will be produced in the new plant and these will be shipped to La Parrilla Mine for processing into bullion bars. The First Majestic Life of Mine production plan, included in the cash flow, covers the period from January 2009 through December 2015. However, the Proven and Probable ore reserves for the underground mine will be exhausted by 2013 at which time the production for the subsequent years will be extracted from the measured and indicated resources. In the interim, it is expected that underground exploration will be advanced through both diamond drilling and drifting, and those reserves will continually be added over time. Likewise at planned production rates, the proven and probable reserve for the tailings recovery will be exhausted by 2014, and subsequently all production will be obtained from the underground mine.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.27 |
90533 January 12, 2009 |
The basic parameters for the FMS cash flow involve the long-term silver price, which is projected as $12/ounce. The average projected long-term gold price is about $708 per oz Au, while the lead price is projected at $0.75/lb. No escalation was considered for operating costs and expenses. Reclamation expenditures are considered spent in the last three years of the period. It can be seen from the table that a net present value for the project at a 15 percent discount rate is approximately $53.0 million, and the internal rate of return (IRR) is 120.6 percent
PAH neither approves or disapproves the FMS cash flows for the project. The parameters for the plant recoveries in the 3,500-tpd mill and cyanidation plant are not yet established. In addition, plant operating costs used in the cash flow are calculated costs, and will not be confirmed until several months of actual operation have taken place. Therefore; PAH has predicated cut-off grades for the mine and mine dump recoveries on the basis of the current operation; i.e., continuance of milling and processing operations (Milling and Flotation) as per current practice.
Once the new plant is started up metallurgical parameters and operating and ancillary costs are well defined, First Majestic can revaluate the cut-off grades for the mine, mine dump recovery and tailing recovery based on actual operating data, and issue a new reserve/resources statement. PAH would then proceed with an updated audit, based on the material change in the operation.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.28 |
90533 January 12, 2009 |
TABLE 25-17 | ||||||||||||||||||||
First Majestic Silver Corp. | ||||||||||||||||||||
Minera La Encantada, S.A. de C.V. | ||||||||||||||||||||
La Encantada Silver Mine | ||||||||||||||||||||
Production and Cash Flows, 2009 through 2013 | ||||||||||||||||||||
Oct-08 | Nov-08 | Dec-08 | Jan-09 | Feb-09 | Mar-09 | Apr-09 | May-09 | Jun-09 | Jul-09 | Aug-09 | Sep-09 | Oct-09 | Nov-09 | Dec-09 | 2009 | 2010 | 2011 | 2012 | 2013 | |
FLOTATION | ||||||||||||||||||||
Tonnes Milled | 27,550 | 26,600 | 27,550 | 27,550 | 24,700 | 27,550 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 79,800 | 0 | 0 | 0 | 0 |
Au grade | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.00 | 0.00 | 0.00 | 0.00 |
Ag grade | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 285 | 292 | 0 | 0 | 0 | 0 |
Zn% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.80% | 2.87% | 0.00% | 0.00% | 0.00% | 0.00% |
Zinc Con Tonnes | ||||||||||||||||||||
Lead Con Tonnes | ||||||||||||||||||||
Lead Con Tonnes | 486 | 469 | 486 | 486 | 436 | 486 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1,408 | 0 | 0 | 0 | 0 |
Silver Ounces | 164,104 | 158,445 | 164,104 | 164,104 | 147,128 | 164,104 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 475,336 | 0 | 0 | 0 | 0 |
Eq Ounces of Silver from Lead | 19,636.91 | 18,959.78 | 19,636.91 | 19,636.91 | 17,605.51 | 19,636.91 | - | - | - | - | - | - | - | - | - | 56,879 | - | - | - | - |
Net Smelter Return | ||||||||||||||||||||
Lead Concentrate | 1,258,424 | 1,290,029 | 1,408,424 | 1,408,424 | 1,278,242 | 1,408,424 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4,095,090 | 0 | 0 | 0 | 0 |
Subtotal NSR | 1,258,424 | 1,290,029 | 1,408,424 | 1,408,424 | 1,278,242 | 1,408,424 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4,095,090 | 0 | 0 | 0 | 0 |
Freight & Insurance | 20,196 | 19,500 | 20,196 | 20,196 | 18,107 | 20,196 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 58,500 | 0 | 0 | 0 | 0 |
NSR less Freight & Ins | 1,238,227 | 1,270,529 | 1,388,227 | 1,388,227 | 1,260,135 | 1,388,227 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4,036,590 | 0 | 0 | 0 | 0 |
Oct-08 | Nov-08 | Dec-08 | Jan-09 | Feb-09 | Mar-09 | Apr-09 | May-09 | Jun-09 | Jul-09 | Aug-09 | Sep-09 | Oct-09 | Nov-09 | Dec-09 | 2009 | 2010 | 2011 | 2012 | 2013 | |
OXIDES | ||||||||||||||||||||
Tonnes Milled | 0 | 0 | 0 | 0 | 0 | 0 | 26,600 | 55,100 | 79,800 | 96,425 | 96,425 | 93,100 | 96,425 | 93,100 | 96,425 | 733,400 | 1,012,700 | 1,012,700 | 1,012,700 | 1,012,700 |
Au grade | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Ag grade | 250 | 250 | 250 | 250 | 250 | 250 | 187 | 187 | 187 | 187 | 187 | 187 | 187 | 187 | 187 | 73 | 187 | 187 | 187 | 187 |
DORE | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 3.26 | 6.75 | 9.78 | 11.81 | 11.81 | 11.41 | 11.81 | 11.41 | 11.81 | 90 | 124.07 | 124.07 | 124.07 | 124.07 |
Silver Ounces | - | - | - | - | - | - | 95,257 | 197,318 | 285,771 | 345,307 | 345,307 | 333,400 | 345,307 | 333,400 | 345,307 | 2,626,376 | 3,626,576 | 3,626,576 | 3,626,576 | 3,626,576 |
Eq Ounces of silver from Gold | - | - | - | - | - | - | 64 | 132 | 191 | 231 | 231 | 223 | 231 | 223 | 231 | 1,760 | 2,430 | 1,760 | 1,760 | 1,760 |
Net Smelter Return | ||||||||||||||||||||
DORE | - | - | - | - | - | - | 914,920 | 1,895,191 | 2,744,759 | 3,316,585 | 3,316,585 | 3,202,219 | 3,316,585 | 3,202,219 | 3,316,585 | 25,225,647 | 38,440,747 | 42,403,334 | 46,769,551 | 51,572,389 |
Subtotal NSR | 0 | 0 | 0 | 0 | 0 | 0 | 914,920 | 1,895,191 | 2,744,759 | 3,316,585 | 3,316,585 | 3,202,219 | 3,316,585 | 3,202,219 | 3,316,585 | 25,225,647 | 38,440,747 | 42,403,334 | 46,769,551 | 51,572,389 |
Freight & Insurance | 0 | 0 | 0 | 0 | 0 | 0 | 15,743 | 20,398 | 24,432 | 27,147 | 27,147 | 26,604 | 27,147 | 26,604 | 27,147 | 222,369 | 176,803 | 176,803 | 176,803 | 176,803 |
NSR less Freight & Ins | 0 | 0 | 0 | 0 | 0 | 0 | 899,177 | 1,874,794 | 2,720,328 | 3,289,437 | 3,289,437 | 3,175,615 | 3,289,437 | 3,175,615 | 3,289,437 | 25,003,278 | 38,263,944 | 42,226,531 | 46,592,747 | 51,395,586 |
Silver Ounces | 164,104 | 158,445 | 164,104 | 164,104 | 147,128 | 164,104 | 95,257 | 197,318 | 285,771 | 345,307 | 345,307 | 333,400 | 345,307 | 333,400 | 345,307 | 3,101,712 | 3,626,576 | 3,626,576 | 3,626,576 | 3,626,576 |
Eq Ounces of silver from Gold | 0 | 0 | 0 | 0 | 0 | 0 | 64 | 132 | 191 | 231 | 231 | 223 | 231 | 223 | 231 | 1,760 | 2,430 | 1,760 | 1,760 | 1,760 |
Eq Ounces of Silver from Lead | 19,637 | 18,960 | 19,637 | 19,637 | 17,606 | 19,637 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 56,879 | 0 | 0 | 0 | 0 |
Total Eq Ounce of Silver | 183,741 | 177,405 | 183,741 | 183,741 | 164,733 | 183,741 | 95,321 | 197,451 | 285,963 | 345,539 | 345,539 | 333,623 | 345,539 | 333,623 | 345,539 | 3,160,352 | 3,629,006 | 3,628,336 | 3,628,336 | 3,628,336 |
Oct-08 | Nov-08 | Dec-08 | Jan-09 | Feb-09 | Mar-09 | Apr-09 | May-09 | Jun-09 | Jul-09 | Aug-09 | Sep-09 | Oct-09 | Nov-09 | Dec-09 | 2009 | 2010 | 2011 | 2012 | 2013 | |
Mine | 202,630 | 195,643 | 202,630 | 202,630 | 181,668 | 202,630 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 586,928 | 0 | 0 | 0 | 0 |
Mill Flotation | 242,090 | 233,743 | 242,090 | 242,090 | 217,047 | 242,090 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 701,228 | 0 | 0 | 0 | 0 |
Fixed Cost | 169,463 | 163,620 | 169,463 | 169,463 | 151,933 | 169,463 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 490,859 | 0 | 0 | 0 | 0 |
Mine +haulage | 0 | 0 | 0 | 0 | 0 | 0 | 167,126 | 346,189 | 501,378 | 605,831 | 605,831 | 584,941 | 605,831 | 584,941 | 605,831 | 4,607,900 | 6,362,722 | 6,362,722 | 6,362,722 | 6,362,722 |
Mill Cyanidation | 0 | 0 | 0 | 0 | 0 | 0 | 175,307 | 363,136 | 525,921 | 635,488 | 635,488 | 613,574 | 635,488 | 613,574 | 635,488 | 4,833,462 | 6,674,184 | 6,674,184 | 6,674,184 | 6,674,184 |
Fix Cost | 0 | 0 | 0 | 0 | 0 | 0 | 81,810 | 169,463 | 245,430 | 296,561 | 296,561 | 286,335 | 296,561 | 286,335 | 296,561 | 2,255,615 | 3,114,619 | 3,114,619 | 3,114,619 | 3,114,619 |
Subtotal: Production Costs | 614,184 | 593,005 | 614,184 | 614,184 | 550,647 | 614,184 | 424,243 | 878,788 | 1,272,728 | 1,537,880 | 1,537,880 | 1,484,849 | 1,537,880 | 1,484,849 | 1,537,880 | 13,475,992 | 16,151,526 | 16,151,526 | 16,151,526 | 16,151,526 |
Financing Costs | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Mining Concesions | ||||||||||||||||||||
Insurance | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Environmental Reclamation | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | 120,000 | 120,000 | 120,000 | 120,000 | 120,000 |
Subtotal | 624,184 | 603,005 | 624,184 | 624,184 | 560,647 | 624,184 | 434,243 | 888,788 | 1,282,728 | 1,547,880 | 1,547,880 | 1,494,849 | 1,547,880 | 1,494,849 | 1,547,880 | 13,595,992 | 16,271,526 | 16,271,526 | 16,271,526 | 16,271,526 |
La Encantada Costs | 624,184 | 603,005 | 624,184 | 624,184 | 560,647 | 624,184 | 434,243 | 888,788 | 1,282,728 | 1,547,880 | 1,547,880 | 1,494,849 | 1,547,880 | 1,494,849 | 1,547,880 | 13,595,992 | 16,271,526 | 16,271,526 | 16,271,526 | 16,271,526 |
La Encantada Profit(Loss) | 614,044 | 667,524 | 764,044 | 764,044 | 699,488 | 764,044 | 464,934 | 986,005 | 1,437,600 | 1,741,558 | 1,741,558 | 1,680,765 | 1,741,558 | 1,680,765 | 1,741,558 | 15,443,876 | 21,992,418 | 25,955,005 | 30,321,222 | 35,124,060 |
NSR per tonne | 44.94 | 47.76 | 50.39 | 50.39 | 51.02 | 50.39 | 33.80 | 34.03 | 34.09 | 34.11 | 34.11 | 34.11 | 34.11 | 34.11 | 34.11 | 35.71 | 37.78 | 41.70 | 46.01 | 50.75 |
Costs / tonne | 22.66 | 22.67 | 22.66 | 22.66 | 22.70 | 22.66 | 16.32 | 16.13 | 16.07 | 16.05 | 16.05 | 16.06 | 16.05 | 16.06 | 16.05 | 16.72 | 16.07 | 16.07 | 16.07 | 16.07 |
Margin Per tonne | 22.29 | 25.09 | 27.73 | 27.73 | 28.32 | 27.73 | 17.48 | 17.89 | 18.02 | 18.06 | 18.06 | 18.05 | 18.06 | 18.05 | 18.06 | 18.99 | 21.72 | 25.63 | 29.94 | 34.68 |
Cost per Ounce of Silver | 3.74 | 3.74 | 3.74 | 3.74 | 3.74 | 3.74 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.34 | 4.45 | 4.45 | 4.45 | 4.45 |
OZ Ag Eq | 183,741 | 177,405 | 183,741 | 183,741 | 164,733 | 183,741 | 95,321 | 197,451 | 285,963 | 345,539 | 345,539 | 333,623 | 345,539 | 333,623 | 345,539 | 3,160,352 | 3,629,006 | 3,628,336 | 3,628,336 | 3,628,336 |
Cost/Ounce Ag Eq | 3.34 | 3.34 | 3.34 | 3.34 | 3.34 | 3.34 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.45 | 4.26 | 4.45 | 4.45 | 4.45 | 4.45 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.29 |
90533 January 12, 2009 |
TABLE 25-18 | |||||||||
First Majestic Silver Corp. | |||||||||
Minera La Encantada, S.A. de C.V. | |||||||||
La Encantada Silver Mine | |||||||||
After Tax Life of Mine Cash Flow | |||||||||
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | ||
Mine Plan | TPD | ||||||||
TONNES TREATED - SULPHIDE ORE | 242 | 0 | 79,800 | 0 | 0 | 0 | 0 | 0 | 0 |
TONNES TREATED - OXIDE ORE | 2,222 | 733,400 | 1,012,700 | 1,012,701 | 1,012,702 | 1,012,703 | 1,012,704 | 1,012,705 | |
Total Tonnes | 2,464 | 0 | 813,200 | 1,012,700 | 1,012,701 | 1,012,702 | 1,012,703 | 1,012,704 | 1,012,705 |
Metals Payments | |||||||||
NSR OXIDES | 35,216,563 | 41,872,388 | 41,872,389 | 41,872,390 | 41,872,391 | 41,872,392 | 41,872,393 | ||
NSR Sulphides | |||||||||
Net Revenues | 0 | 35,216,563 | 41,872,388 | 41,872,389 | 41,872,390 | 41,872,391 | 41,872,392 | 41,872,393 | |
OPERATING COSTS SULPHIDES:
OPERATING COSTS OXIDES: |
|
0
0 |
0
13,475,992 |
0
16,151,526 |
0
16,151,526 |
0
16,151,526 |
0
16,151,526 |
0
16,151,526 |
0
16,151,526 |
TOTAL OP. COSTS | 0 | 13,475,992 | 16,151,526 | 16,151,526 | 16,151,526 | 16,151,526 | 16,151,526 | 16,151,526 | |
Royalty Expense | 0% | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Property Tax & Insurance | 0 | 140,000 | 140,000 | 140,000 | 140,000 | 140,000 | 140,000 | 140,000 | |
Environmental and reclamation expenses | 120,000 | 120,000 | 120,000 | 120,000 | 120,000 | 120,000 | 120,000 | ||
Net after costs | 0 | 21,480,571 | 25,460,862 | 25,460,863 | 25,460,864 | 25,460,865 | 25,460,866 | 25,460,867 | |
Interest Expenses | 0% | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Net Profit | 0 | 21,480,571 | 25,460,862 | 25,460,863 | 25,460,864 | 25,460,865 | 25,460,866 | 25,460,867 | |
Depreciation | 0 | 3,078,571 | 3,495,238 | 3,895,238 | 4,145,238 | 4,478,571 | 4,978,571 | 4,978,571 | |
net taxable income | 0 | 18,402,000 | 21,965,624 | 21,565,625 | 21,315,626 | 20,982,294 | 20,482,295 | 20,482,296 | |
Profit Sharing | 0.1 | 0 | 1,840,200 | 2,196,562 | 2,156,562 | 2,131,563 | 2,098,229 | 2,048,229 | 2,048,230 |
net profit after profit sharing | 0 | 16,561,800 | 19,769,062 | 19,409,062 | 19,184,063 | 18,884,064 | 18,434,065 | 18,434,066 | |
Tax @ 28% | 20% | 0 | 3,312,360 | 3,953,812 | 3,881,812 | 3,836,813 | 3,776,813 | 3,686,813 | 3,686,813 |
Net Profit
Depreciation |
|
0
0 |
13,249,440
3,078,571 |
15,815,249
3,495,238 |
15,527,250
3,895,238 |
15,347,251
4,145,238 |
15,107,251
4,478,571 |
14,747,252
4,978,571 |
14,747,253
4,978,571 |
Cash Flow Before Principal & Sustaining Capital | 0 | 16,328,011 | 19,310,487 | 19,422,488 | 19,492,489 | 19,585,823 | 19,725,824 | 19,725,824 | |
CAPEX EQUITY
Sust. Capital |
|
13,337,941
|
8,212,059
|
2,500,000
|
2,000,000 |
1,000,000 |
1,000,000 |
1,000,000 |
500,000 |
Excess Cash Flow | (13,337,941) | 13,828,011 | 19,310,487 | 18,422,488 | 18,492,489 | 18,585,823 | 19,225,824 | 19,725,824 | |
Cumulative | (13,337,941) | 490,070 | 19,800,557 | 38,223,045 | 56,715,534 | 75,301,357 | 94,527,181 | 114,253,005 |
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.30 |
90533 January 12, 2009 |
Sensitivity analyses were performed at different discount rates and the analysis shows robust economics for La Encantada, as follows:
|
Base Case @ 0 % discount | $114 million |
|
Base Case @ 10 % discount | $67 million |
|
Base Case @ 15 % discount | $53 million |
|
Base Case @ 20 % discount | $42 million |
|
Base Case @ 25 % discount | $34 million |
As expected, the project exhibits the greatest sensitivity to metal prices, followed by operating costs, and finally by capital costs. Any variances in grade or metallurgical recovery will be equivalent to similar changes in metal prices, since all three factors impact the revenue stream equally. In all cases, however, the La Encantada mine shows positive economics as measured by a cash flow exercise, except when the price of silver falls by 20 percent. Therefore, the postulated reserve position is accepted.
It can be seen from Tables 25-17 and 25-18 that there is sufficient after-tax operational cash flow in any year to adequately cover projected capital expenditures.
The mine life, including tailings recovery, based on the proven/probable reserve position, is over 4.0 years and covers production through 2013.
Pincock, Allen & Holt | AMENDED AND RESTATED | 25.31 |
90533 January 12, 2009 |
26.0 ILLUSTRATIONS
The illustrations supporting the various sections of this report are located within the relevant sections immediately following the references to the illustrations, for ease of reference. An index of tables and illustrations is provided at the beginning of this report.
Pincock, Allen & Holt | AMENDED AND RESTATED | 26.1 |
90533 January 12, 2009 |
CONSENT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
We consent to the use in this Registration Statement on Form 40-F of First Majestic Silver Corp. (First Majestic) of (1) our report dated March 19, 2010 relating to the consolidated financial statements of First Majestic for the years ended December 31, 2009 and 2008; (2) our report dated March 31, 2009 related to the consolidated financial statements of First Majestic for the years ended December 31, 2008 and 2007; and (3) our report dated November 22, 2010 relating to the reconciliation to United Stated Generally Accepted Accounting Principles of First Majestics consolidated financial statements, appearing in Exhibits 99.4, 99.7, and 99.9, respectively, to this Registration Statement on Form 40-F dated November 22, 2010.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Vancouver,
Canada
November 22, 2010
Letter of Consent
Pincock, Allen & Holt ( PAH ) refers to the Registration Statement on Form 40-F of First Majestic Silver Corp. ( First Majestic ) filed with the Securities and Exchange Commission (including all exhibits, the Registration Statement ).
We hereby consent to the use the following technical reports of PAH:
1. |
Technical Report for the La Parrilla Silver Mine, State of Durango, México, February 26, 2009 (Amended and Restated); |
2. |
Technical Report for the San Martín Silver Mine, State of Jalisco, México, February 26, 2009 (Amended and Restated); |
3. |
Technical Report for the La Encantada Silver Mine, Coahuila State, México, February 26, 2009 (Amended and Restated); |
4. |
Technical Report for the La Parrilla Silver Mine, State of Durango, México, February 16, 2009; |
5. |
Technical Report for the San Martín Silver Mine, State of Jalisco, México, January 15, 2009; and |
6. |
Technical Report for the La Encantada Silver Mine, Coahuila State, México, January 12, 2009 (Amended and Restated), |
(the Technical Reports ),
and the extract from, or the summary of, the Technical Reports contained in First Majestics press releases dated January 20, 2009, February 17, 2009 and February 26, 2009 and to the appearance of our name in the Registration Statement.
Yours very truly,
Per: | ||
Ernest L. Bohnet, P.E., P.Eng. | ||
V.P. Mining & Geological Services |
Dated: November 23, 2010
NOTICE
Change in Corporate Structure
Pursuant to Section 4.9 of National Instrument 51-102
1. |
Names of parties to the transaction: |
First Majestic Silver Corp. ( First Majestic ), Normabec Mining Resources Limited ( Normabec ) and Brionor Resources Inc. ( Brionor ). |
|
2. |
Description of the transaction: |
The parties completed a business combination by way of court approved statutory plan of arrangement (the Arrangement ) under the Canada Business Corporations Act , pursuant to which each issued and outstanding common share of Normabec was exchanged for (a) 0.060425 common shares of First Majestic and (b) 0.25 common shares of Brionor. As a result of the transaction, Normabec became a wholly owned subsidiary of First Majestic. |
|
The shares of Normabec were delisted from the TSX Venture Exchange on November 18, 2009. Normabec will make an application to cease to be a reporting issuer in the provinces of British Columbia, Alberta and Quebec. |
|
As a result of the Arrangement, First Majestic became a reporting issuer in Quebec. |
|
3. |
Effective date of the transaction: |
November 13, 2009 |
|
4. |
Names of each party, if any that ceased to be a reporting issuer subsequent to the transaction and of each continuing entity: |
See above. |
|
5. |
Date of the reporting issuers first financial year-end subsequent to the transaction: |
Not applicable. |
|
6. |
The periods, including the comparative periods, if any, of the interim and annual financial statements required to be filed for the reporting issuers first financial year subsequent to the transaction: |
Not applicable. |
- 2 -
7. |
The documents that were filed under National Instrument 51-102 that described the transaction and where those documents can be found in electronic format: |
Material change reports filed pursuant to Section 7.1 of National Instrument 51-102 describing the transaction can be found under First Majestics and Normabecs respective SEDAR profiles. A management information circular was mailed to the Normabec shareholders and can be found under Normabecs SEDAR profile. |
|
Dated: November 18, 2009. |
NOTICE
Change in Corporate Structure
Pursuant to Section 4.9 of National Instrument 51-102
1. |
Names of parties to the transaction: |
First Majestic Silver Corp. ( First Majestic ), Normabec Mining Resources Limited ( Normabec ) and Brionor Resources Inc. ( Brionor ). |
|
2. |
Description of the transaction: |
The parties completed a business combination by way of court approved statutory plan of arrangement (the Arrangement ) under the Canada Business Corporations Act , pursuant to which each issued and outstanding common share of Normabec was exchanged for (a) 0.060425 common shares of First Majestic and (b) 0.25 common shares of Brionor. As a result of the transaction, Normabec became a wholly owned subsidiary of First Majestic. |
|
The shares of Normabec were delisted from the TSX Venture Exchange on November 18, 2009. Normabec will make an application to cease to be a reporting issuer in the provinces of British Columbia, Alberta and Quebec. |
|
As a result of the Arrangement, First Majestic became a reporting issuer in Quebec and Brionor became a reporting issuer in each of Alberta, British Columbia and Quebec. |
|
3. |
Effective date of the transaction: |
November 13, 2009 |
|
4. |
Names of each party, if any, that ceased to be a reporting issuer subsequent to the transaction and of each continuing entity: |
See above. |
|
5. |
Date of the reporting issuers first financial year-end subsequent to the transaction: |
First Majestics first financial year end subsequent to the transaction will be December 31, 2009. Brionors first financial year end subsequent to the transaction will be August 31, 2010. |
|
6. |
The periods, including the comparative periods, if any, of the interim and annual financial statements required to be filed for the reporting issuers first financial year subsequent to the transaction: |
First Majestic |
Period | Comparative Period | |
Annual December 31, 2009 | December 31, 2008 | |
First Quarter- March 31, 2010 | March 31, 20009 | |
Second Quarter- June 30, 2010 | June 30, 2009 |
- 2 -
Third Quarter- September 30, 2010 | September 30, 2009 | |
Annual December 31, 2010 | December 31, 2009 |
Brionor
Period | Comparative Period | |
First Quarter November 30, 2009 | Not applicable | |
Second Quarter February 28, 2010 | Not applicable | |
Third Quarter May 30, 2010 | Not applicable | |
Annual August 31, 2010 | Not applicable |
7. |
The documents that were filed under National Instrument 51-102 that described the transaction and where those documents can be found in electronic format: |
Material change reports filed pursuant to Section 7.1 of National Instrument 51-102 describing the transaction can be found under First Majestics and Normabecs respective SEDAR profiles. A management information circular was mailed to the Normabec shareholders and can be found under Normabecs SEDAR profile. |
|
Dated: January 9, 2010. |
ARRANGEMENT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 11th day of September, 2009. | |
AMONG: | |
FIRST MAJESTIC SILVER CORP. , a company existing under the laws of the Province of British Columbia | |
(hereinafter referred to as First Majestic ) | |
AND: | |
NORMABEC MINING RESOURCES LIMITED , a company existing under the federal laws of Canada | |
(hereinafter referred to as Normabec ) | |
AND: | |
4528255 CANADA INC. , a company existing under the federal laws of Canada | |
(hereinafter referred to as Newco ) |
THIS AGREEMENT WITNESSETH THAT in consideration of the respective covenants and agreements herein contained and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by each party), the parties hereby covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions . In this Agreement, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the following meanings respectively:
2008 Financial Statements means the audited consolidated financial statements of Normabec as at August 31, 2008, consisting of (a) the balance sheet stating the assets, liabilities and shareholders equity as of August 31, 2008; (b) the income statement stating the revenues and expenses for the year ended August 31, 2008; (c) the statement of cash flows for the year ended August 31, 2008; and (d) the notes thereto;
2009 Financial Statements means the audited consolidated financial statements of Normabec as at August 31, 2009, consisting of (a) the balance sheet stating the assets, liabilities and shareholders equity as of August 31, 2009; (b) the income statement stating the revenues and expenses for the year ended August 31, 2009; (c) the statement of cash flows for the year ended August 31, 2009; and (d) the notes thereto;
2
Acquisition Proposal means any bona fide written or publicly announced proposal made by any Person other than First Majestic (or any affiliate of First Majestic or any Person acting in concert with First Majestic or any affiliate of First Majestic) with respect to a merger, amalgamation, share exchange, take-over bid, private purchase, sale of material assets (or any lease, licence, joint venture or other arrangement having the same economic effect as a sale), but excluding the sale of any interest in one or more of the Transferred Assets, any material sale of shares or rights or interests therein or thereto or similar transactions involving Normabec or the Normabec Subsidiaries, or a proposal to do so, excluding the Arrangement;
Applicable Regulatory Approvals means all approvals, consents and authorizations of all Governmental Entities and other regulators (including stock exchanges) reasonably necessary or desirable in connection with the Arrangement and the other transactions contemplated hereby;
Arrangement means an arrangement under Section 192 of the CBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with Section 6.1 hereof or Article 5 of the Plan of Arrangement or made at the direction of the Court in the Final Order;
Arrangement Resolution means the special resolution approving the arrangement , to be substantially in the form and content of Exhibit A, to be considered, and if deemed advisable, passed with or without variations, by the Normabec Shareholders at the Normabec Meeting;
Articles of Arrangement means the articles of arrangement of Normabec in respect to the Arrangement that are required by the CBCA to be issued by the Director after the Final Order is made;
Ayotte Settlement has the meaning set out in Section 5.2(k);
Business means the business of Normabec and the Normabec Subsidiaries as it is currently conducted, including the exploration for and exploitation of minerals in Canada and Mexico;
Business Day means any day on which commercial banks are open for business in Vancouver, British Columbia and Montreal, Québec other than a Saturday, a Sunday or a day observed as a holiday in Vancouver, British Columbia under the laws of the Province of British Columbia or the federal laws of Canada or a day observed as a holiday in Montreal, Québec under the laws of the Province of Québec or the federal laws of Canada;
CBCA means the Canada Business Corporations Act ;
Circular means the notice of the Normabec Meeting and accompanying management proxy circular, including all schedules, appendices and exhibits thereto, to be sent to the Normabec Securityholders in connection with the Normabec Meeting;
Confidentiality Agreement means the provisions of Section 3 of the letter of intent dated as of July 24, 2009 between First Majestic and Normabec;
Court means the Superior Court of Québec;
3
Debt Instrument means any bond, debenture, mortgage, promissory note or other instrument evidencing indebtedness for borrowed money;
Director means the Director appointed pursuant to Section 260 of the CBCA;
Dissent Rights means the rights of dissent in respect of the Arrangement described in Section 3.1 of the Plan of Arrangement;
Drop Dead Date means December 15, 2009, or such later date as may be agreed upon by the parties hereto;
Effective Date means the date shown on the certificate of arrangement to be issued by the Director giving effect to the Arrangement;
Effective Time means the time when the transactions contemplated herein will be deemed to have been completed, which shall be 12:01 a.m. on the Effective Date;
Employee Benefits means:
(a) |
salaries, wages, bonuses, vacation entitlements, commissions, fees, stock option plans, stock purchase plans, incentive plans, deferred compensation plans, profit-sharing plans and other similar benefits, plans or arrangements; |
|
(b) |
insurance, health, welfare, drug, disability, pension, retirement, travel, hospitalization, medical, dental, legal counseling, eye care and other similar benefits, plans or arrangements; and |
|
(c) |
agreements or arrangements with any labour union or employee association, written or oral employment agreements or arrangements and agreements or arrangements for the retention of the services of independent contractors, consultants or advisors; |
Encumbrance means any mortgage, charge, easement, encroachment, lien, adverse claim, assignment by way of security, security interest, servitude, pledge, hypothecation, conditional sale agreement, security agreement, title retention agreement, financing statement, option, right of pre-emption, privilege, obligation to assign, licence, sublicence trust, royalty, carried, working, participation or net profits interest or other third party interest or other encumbrance or any agreement, option, right or privilege capable of becoming any of the foregoing;
Environmental Laws means all applicable Laws relating to pollution or the protection and preservation of the environment, occupational health and safety, product safety, product liability or Hazardous Substances, including, without limitation, Laws relating to Releases or threatened Releases of Hazardous Substances into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport or handling of Hazardous Substances and all laws and regulations with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Substances, and all laws relating to endangered or threatened species of fish, wildlife and plants and the management or use of natural resources;
4
Environmental Permits includes all orders, permits, certificates, approvals, consents, registrations and licences issued by any Governmental Entity under Environmental Laws;
Fairness Opinion has the meaning set out in Section 4.2(b)(xiii);
Final Order means the final order of the Court granted pursuant to Section 192 of the CBCA approving the Arrangement as such order may be amended at any time prior to the Effective Date or, if appealed, then, unless such appeal is abandoned or denied, as affirmed;
First Majestic Exchange Ratio means 0.060425;
First Majestic Information Record means any annual information form, press release, material change report, information circular, financial statement, management's discussion and analysis or other document of First Majestic which has been publicly filed by it on SEDAR;
First Majestic Shares means the common shares in the authorized share structure of First Majestic;
First Majestic Subsidiaries means the subsidiaries (as such term is defined in the Business Corporations Act (British Columbia)) of First Majestic;
Governmental Entity means any
(a) |
multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, central bank or Tribunal; |
|
(b) |
any subdivision, agent, commission, board, or authority of any of the foregoing; or |
|
(c) |
any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing; |
Guarantee means any agreement, contract or commitment providing for the guarantee, indemnification, assumption or endorsement or any like commitment with respect to the obligations, liabilities (contingent or otherwise) or indebtedness of any Person;
Hazardous Substance means, collectively, any contaminant, toxic substance, dangerous goods, or pollutant or any other substance that when Released to the natural environment is likely to cause, at some immediate or future time, material harm or degradation to the natural environment or material risk to human health, including without limitation, (i) any petroleum substances, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contains dielectric fluid containing polychlorinated biphenyls, and radon gas; (ii) any chemicals, materials or substances defined under Environmental Laws as or included in the definition of hazardous substances, hazardous wastes, hazardous materials, restricted hazardous materials, extremely hazardous substances, toxic substances, contaminants or pollutants or words of similar meaning and regulatory effect; or (iii) any other chemical, material or substance, exposure to which is prohibited, limited, or regulated by any Environmental Law;
5
Interested Person means any present or former officer, director, shareholder, employee, consultant or advisor, excluding attorneys, accountants and other third party professional advisors of Normabec or any Normabec Subsidiary in connection with this Agreement and the transactions contemplated herein, of or to Normabec, any Normabec Subsidiary or any Person with which Normabec, any Normabec Subsidiary or any of the foregoing does not deal at arms length within the meaning of the ITA (including a spouse, parent, child or sibling of any such Person);
Interim Financial Statements means the unaudited consolidated financial statements of Normabec as at May 31, 2009, consisting of (a) the balance sheet stating the assets, liabilities and shareholders equity as of May 31, 2009; (b) the income statement stating the revenues and expenses, for the period from September 1, 2008 to May 31, 2009; (c) the statement of cash flows for the period from September 1, 2008 to May 31, 2009; and (d) the notes thereto;
Interim Order means the interim order of the Court pursuant to Section 192 of the CBCA made in connection with the process for obtaining shareholder approval of the Arrangement and related matters, as such order may be amended, supplemented or varied by the Court;
ITA means the Income Tax Act (Canada);
Laws means all statutes, regulations, statutory rules, principles of law, orders, published policies and guidelines, and terms and conditions of any grant of approval, permission, authority or licence of any court, Governmental Entity, statutory body or self-regulatory authority, and the term applicable with respect to such Laws and in the context that refers to one or more Persons means that such Laws apply to such Person or Persons or its or their business, undertaking, property or securities and emanate from a Person having jurisdiction over the Person or Persons or its or their business, undertaking, property or securities;
Leased Property means all the right, title and interest of Normabec and the Normabec Subsidiaries in and to the subject matter (whether realty or personally) of the Leases;
Leases means the real or personal property leases or subleases, or other rights of occupancy relating to real property, which Normabec or any Normabec Subsidiary is a party to or bound by or subject to, including those set forth and described in Section 3.1.19 of the Normabec Disclosure Schedule;
Licences has the meaning set out in Section 3.1.28;
Lock-up Agreements means the lock-up agreements between First Majestic and certain holders of Normabec Shares entered into in connection with the Arrangement;
Material Adverse Change , when used in connection with First Majestic or Normabec, means any change, effect, event or occurrence with respect to its condition (financial or otherwise), properties, assets, ownership, capital, liabilities, obligations (whether absolute, accrued, conditional or otherwise), businesses, operations or results of operations or those of its subsidiaries, if any, that is, or would reasonably be expected to be, material and adverse to the business, properties, assets, operations, condition (financial or otherwise) or prospects of such party and its subsidiaries taken as a whole, other than any change, effect, event or occurrence:
6
(a) |
relating to the Canadian or international economy or securities markets in general; |
|
(b) |
generally affecting the industry in which such party operates; or |
|
(c) |
affecting the worldwide silver mining industry in general and which does not have a materially disproportionate effect on First Majestic and its subsidiaries, on a consolidated basis, or on Normabec and the Mexican Assets, respectively; |
Material Adverse Effect , when used in connection with First Majestic or Normabec, means any matter or action that has an effect that is, or would reasonably be expected to be, material and adverse to the business, properties, assets, operations, condition (financial or otherwise) or prospects of such party and its subsidiaries taken as a whole, and Materially Adversely Affected shall have a corresponding meaning;
Material Agreements means, in the case of Normabec the Leases and the agreements, indentures, contracts, leases, licences, options, instruments and other commitments set forth in Section 3.1.21 of the Normabec Disclosure Schedule, and in the case of First Majestic, the material agreements, indentures, contracts, leases, licences, options, instruments and other commitments to which it is a party, referred to in the First Majestic Information Record;
Mexican Assets means all shares of Minera Real Bonanza S.A. de C.V. owned by Normabec, any and all records, data, rights, interests, and assets owned or controlled by Normabec in Mexico or pertaining to the Mexican Property and any and all agreements to which Normabec is a party relating to any of the foregoing;
Mexican Property means the property know as the Real de Catorce Property located in San Luis Potosi State, Mexico;
Mineral Rights means all rights, whether contractual or otherwise, for the exploration for or exploitation or extraction of mineral resources and reserves together with surface rights, water rights, royalty interests, fee interests, joint venture interests and other leases, rights of way and enurements related to any such rights;
Newco Exchange Ratio means 0.25;
Newco Share means a common share in the capital of Newco;
Newco Warrant has the meaning set out in Section 2.3(g);
Normabec Disclosure Schedule means Exhibit C hereto;
Normabec Information Record means any annual information form, press release, material change report, information circular, financial statement, management's discussion and analysis or other document of Normabec which has been publicly filed by it on SEDAR;
Normabec Meeting means the special meeting of Normabec Securityholders including any adjournment or adjournments thereof, to be called to consider the Arrangement;
Normabec Option means an option to purchase Normabec Shares;
7
Normabec Share means a common share in the capital of Normabec;
Normabec Shareholders means the holders of Normabec Shares;
Normabec Subsidiaries means Newco, Minera Real Bonanza S.A. de C.V. and Servicios Minero-Metalurgicos e Industriales S.A. de C.V.;
Normabec Warrant means a common share purchase warrant of Normabec;
Person includes any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporation, company, unincorporated association or organization, Governmental Entity, syndicate or other entity, whether or not having legal status;
Plan of Arrangement means the plan of arrangement substantially in the form and content of Exhibit B hereto and any amendments or variations thereto made in accordance with Section 6.1 hereof or Article 5 of the Plan of Arrangement or made at the direction of the Court in the Final Order;
Pre-Effective Date Period means the period from and including the date hereof to and including the earlier of the Effective Time and the date of termination of this Agreement pursuant to Article 6;
Release means any release, spill, emission, discharge, leaking, pumping, dumping, escape, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment (including, without limitation, ambient air, surface water, ground water, and surface or subsurface strata) or into or out of any property, including the movement of Hazardous Substances through or in the air, soil, surface water, ground water or property;
Replacement Warrant has the meaning set out in Section 2.3(g);
Representatives has the meaning set out in Section 4.6;
Section 3(a)(10) Exemption has the meaning set out in Section 2.4;
Shareholder Rights Plan means the shareholder rights plan set out in the Shareholder Rights Plan Agreement dated as of December 19, 2007 between Normabec and Computershare Investor Services Inc., as rights agent;
Superior Proposal means any written Acquisition Proposal which did not result from a breach of Section 4.4 or 4.5 and that in the good faith determination of the board of directors of Normabec, after consultation with financial advisors and outside legal counsel:
(a) |
is reasonably capable of being completed without undue delay, taking into account all legal, financial, regulatory and other aspects of such proposal and the Person making such proposal; and |
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(b) |
would, if consummated in accordance with its terms, result in a transaction more favourable to the Normabec Securityholders, from a financial point of view, than the transaction contemplated by this Agreement; |
8
Tax Returns means all returns, declarations, reports, information returns and statements required to be filed with any taxing authority relating to Taxes;
Taxes means, with respect to any entity, all income taxes (including any tax on or based upon net income, gross income, income as specially defined, earnings, profits or selected items of income, earnings or profits) and all capital taxes, gross receipts taxes, environmental taxes, sales taxes, use taxes, ad valorem taxes, value added taxes, transfer taxes, franchise taxes, licence taxes, withholding taxes, payroll taxes, employment taxes, Canada Pension Plan premiums, excise, severance, social security premiums, workers compensation premiums, employment insurance or compensation premiums, stamp taxes, occupation taxes, premium taxes, property taxes, production taxes, severance taxes, windfall profits taxes, alternative or add-on minimum taxes, goods and services tax, customs duties or other taxes, fees, imports, assessments or charges of any kind whatsoever, together with any interest and any penalties or additional amounts imposed by any taxing authority (domestic or foreign) on such entity, and any interest, penalties, additional taxes and additions to tax imposed with respect to the foregoing;
Technical Report means the report entitled Updated NI43-101 Technical Report and Mineral Resources Estimate for the Real de Catorce Property, San Luis Potosi State, Mexico, dated July 15, 2008 and prepared by Micon International Limited, Inc. for Normabec;
Third Party Expenses means all legal, accounting, financial advisory, investment banking, consulting and all other fees and expenses of third parties incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby;
Transferred Assets means all assets and liabilities of Normabec at the Effective Time other than (i) the Mexican Assets; (ii) all amounts owed to Normabec by its direct and indirect subsidiaries; (iii) all cash, cash equivalents or other securities owned by Normabec (including shares of First Gold Exploration Inc. owned by Normabec); (iv) any liabilities of Normabec relating to: (A) the Mexican Assets; (B) any severance or change of control payments which may be payable in connection with the Arrangement; and (C) all fees and expenses of Normabec relating to the completion of the Arrangement, including, but not limited to, legal, accounting and financial advisory fees, but not including any fees or expenses relating to the listing of the Newco Shares on the TSXV; and (v) any and all intellectual property, data and information of any nature or kind relating directly or indirectly to the Mexican Assets owned, held, used or controlled by Normabec or its agents or representatives, including any and all geological, geochemical, geophysical, hydrological and title data, records, reports, drill cores, drill hole logs, drill hole orientation surveys, core samples, geochemical assays, resource calculations, opinions, maps, plans, drawings, charts, documents and other information, in whatever form and however maintained, whether electronically or documentary, computer storage or otherwise;
Tribunal means:
(a) |
any court (including a court of equity); |
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(b) |
any federal, provincial, state, county, municipal or other government or governmental department, ministry, commission, board, bureau, agency or instrumentality; |
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(c) |
any securities commission, stock exchange or other regulatory or self-regulatory body; |
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(d) |
any board of trade, chamber of commerce or other business or professional organization or association; |
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(e) |
any arbitrator or arbitration tribunal; and |
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(f) |
any other tribunal; |
TSX means the Toronto Stock Exchange;
TSXV means the TSX Venture Exchange; and
U.S. Securities Act means the United States Securities Act of 1933 , as amended.
1.2 Interpretation Not Affected by Headings, etc . The division of this Agreement into sections and other portions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. Unless otherwise indicated, all references in this Agreement to a Section followed by a number and/or a letter refer to the specified section of this Agreement, and all references in this Agreement to an Exhibit followed by a letter refer to the specified Exhibit to this Agreement. Unless otherwise indicated, the terms this Agreement, hereof, herein, hereunder and hereby and similar expressions refer to this Agreement (including the Exhibits hereto), as amended or supplemented from time to time pursuant to the applicable provisions hereof, and not to any particular section or other portion hereof.
1.3 Currency . Unless otherwise indicated, all sums of money referred to in this Agreement are expressed in lawful money of Canada.
1.4 Number, etc. Unless the context otherwise requires, words importing the singular shall include the plural and vice versa and words importing any gender shall include all genders.
1.5 Date For Any Action . In the event that any date on which any action is required to be taken hereunder by any of the parties hereto is not a Business Day, such action shall be required to be taken on the next succeeding day which is a Business Day.
1.6 Entire Agreement . This Agreement and the agreements and other documents referred to herein constitute the entire agreement between the parties with respect to the Arrangement and other transactions contemplated hereby and supersede all other prior agreements, understandings, negotiations and discussions, whether oral or written, between the parties with respect thereto, other than the Confidentiality Agreement.
1.7 Accounting Matters . Unless otherwise indicated, all accounting terms used in this Agreement shall have the meanings attributable thereto under Canadian generally accepted accounting principles and all determinations of an accounting nature required to be made shall be made in a manner consistent with Canadian generally accepted accounting principles and past practice.
1.8 Construction . In this Agreement, unless otherwise indicated:
(a) |
the words include, including or in particular, when following any general term or statement, shall not be construed as limiting the general term or statement to the specific items or matters set forth or to similar items or matters, but rather as permitting the general term or statement to refer to all other items or matters that could reasonably fall within the broadest possible scope of the general term or statement; |
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(b) |
a reference to a statute means that statute, as amended and in effect as of the date of this Agreement, and includes each and every regulation and rule made thereunder and in effect as of the date hereof; |
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(c) |
the phrase ordinary course of business, or any variation thereof, of any Person refers to the business of such Person, carried on in the regular and ordinary course including commercially reasonable and businesslike actions that are in the regular and ordinary course of business for a company operating in the industry in which such business is conducted; |
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(d) |
where a word, term or phrase is defined, its derivatives or other grammatical forms have a corresponding meaning; |
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(e) |
time is of the essence; and |
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(f) |
references to a party or parties are references to a party or parties to this Agreement. |
1.9 Knowledge . In this Agreement, the phrase to the knowledge of any Person, to the best knowledge of any Person, known to any Person, of which it is aware or any similar phrase means, unless otherwise indicated, (i) with respect to any Person who is an individual, the actual knowledge of such Person, and (ii) with respect to any Person who is not an individual, the actual knowledge of the senior officers and directors of such Person after reasonable enquiry, and to the extent that such reasonable enquiry was not conducted, includes the knowledge that a reasonable Person would have had if such reasonable enquiry had been conducted.
1.10 Exhibits . The following Exhibits are annexed to this Agreement and are hereby incorporated by reference into this Agreement and form an integral part hereof:
Exhibit A | | Arrangement Resolution |
Exhibit B | | Plan of Arrangement |
Exhibit C | | Normabec Disclosure Matters |
ARTICLE 2
THE ARRANGEMENT
2.1 Implementation Steps .
(a) |
Normabec shall as soon as reasonably practicable, apply in a manner acceptable to First Majestic, acting reasonably, under Section 192 of the CBCA for the Interim Order, and thereafter proceed with and diligently pursue the obtaining of the Interim Order; |
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(b) |
Normabec covenants in favour of First Majestic that Normabec shall, subject to the terms of this Agreement and the Interim Order, use its best efforts to convene and hold the Normabec Meeting as promptly as practicable, but in any event not later than November 12, 2009 without the written approval of First Majestic which shall not be unreasonably withheld, for the purpose of considering and, if deemed advisable, approving the Arrangement and the transactions contemplated thereby by way of the Arrangement Resolution (and for any other proper purpose as may be set out in the notice for such meeting); |
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(c) |
Normabec shall, subject to obtaining the approval(s) as are required by the Interim Order, proceed with and diligently pursue the application to the Court for the Final Order; and |
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(d) |
Normabec covenants in favour of First Majestic that it shall, subject to obtaining the Final Order and satisfaction or waiver of the conditions herein contained in favour of each party, send to the Director for endorsement and filing by the Director the Articles of Arrangement together with such other documents as may be required in connection therewith under the CBCA to give effect to the Arrangement. |
2.2 Interim Order . The notice of motion for the application referred to in Section 2.1(a) shall include a request that the Interim Order provide:
(a) |
for the class of Persons to whom notice is to be provided in respect of the Arrangement and the Normabec Meeting and for the manner in which such notice is to be provided; |
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(b) |
that the requisite approval for the Arrangement Resolutions shall be two-thirds of the votes cast on the Arrangement Resolution by the Normabec Shareholders present in person or by proxy at the Normabec Meeting, such that each Normabec Shareholder is entitled to one vote for each Normabec Share held; |
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(c) |
that, in all other respects, the terms, restrictions and conditions of the articles and by-laws of Normabec, including quorum requirements and all other matters, shall apply in respect of the Normabec Meeting; |
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(d) |
for the grant of the Dissent Rights; and |
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(e) |
for the notice requirements with respect to the presentation of the application to the Court for the Final Order. |
2.3 Articles of Arrangement . The Articles of Arrangement shall, with such other matters as are necessary to effect the Arrangement, and all as subject to the Plan of Arrangement, substantially provide that, commencing at the Effective Time, the following shall occur and shall be deemed to occur in the following order without any further act or formality:
(a) |
the Shareholder Rights Plan shall terminate and cease to have any further force or effect and all rights issued and outstanding thereunder shall immediately be cancelled without need for any further act or formality; |
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(b) |
Normabec shall, and shall be deemed to, transfer all of the Transferred Assets at their fair market value to Newco in consideration for the issuance by Newco to Normabec of such number of Newco Shares as is equal to the total number of Normabec Shares issued and outstanding at the Effective Time (other than Normabec Shares held by a holder who has validly exercised its Dissent Rights) multiplied by the Newco Exchange Ratio; |
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(c) |
Normabecs share capital and its Articles will be altered by: |
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(i) |
creating an unlimited number of Class A common shares (the Normabec Class A Common Shares ) with the rights, privileges and restrictions as set forth in Schedule I to the Plan of Arrangement; and |
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(ii) |
amending the rights, privileges and restrictions attaching to the Normabec Shares so as to match those set forth in Schedule II to the Plan of Arrangement; |
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(d) |
each of the issued Normabec Shares (except Normabec Shares held by a holder who has validly exercised its Dissent Rights) will be deemed to be exchanged with Normabec for one Normabec Class A Common Share and such number of Newco Shares received by Normabec in accordance with paragraph (b), above, as is equal to the Newco Exchange Ratio and the Normabec Shares will be cancelled and will form part of the authorized but unissued share capital of Normabec and no Normabec Shares will remain outstanding; |
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(e) |
Normabecs share capital and its Articles will be altered by: |
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(i) |
reducing the authorized capital by eliminating the authorized and unissued Normabec Shares; and |
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(ii) |
altering the indentifying name of all of the Normabec Class A Common Shares to be Common Shares. |
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(f) |
each outstanding Normabec Class A Common Share will be exchanged by the holder thereof, without any further act or formality and free and clear of all liens, claims and encumbrances, for that number of fully paid and non-assessable First Majestic Shares equal to the First Majestic Exchange Ratio, and the name of each such holder of Normabec Class A Common Shares will be removed from the register of holders of Normabec Class A Common Shares and added to the register of holders of First Majestic Shares; |
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(g) |
each Normabec Warrant, to the extent it has not been exercised as of the Effective Date, will be exchanged by the holder thereof, without any further act or formality and free and clear of all liens, claims and encumbrances, for (i) a warrant (a Replacement Warrant ) to purchase a number of First Majestic Shares equal to the product of the First Majestic Exchange Ratio multiplied by the number of Normabec Shares issuable on exercise of such Normabec Warrant for an exercise price per First Majestic Share equal to the exercise price per share of such Normabec Warrant immediately prior to the Effective Time divided by the First Majestic Exchange Ratio and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a Replacement Warrant being exercisable for a fraction of an First Majestic Share, then the number of First Majestic Shares subject to such Replacement Warrant shall be rounded down to the next whole number of First Majestic Shares); and (ii) a warrant (a Newco Warrant ) to purchase a number of Newco Shares equal to the Newco Exchange Ratio multiplied by the number of Normabec Shares issuable on exercise of such Normabec Warrant for an exercise price per Newco Share equal to the exercise price per share of such Normabec Warrant immediately prior to the Effective Time divided by the Newco Exchange Ratio and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a Newco Warrant being exercisable for a fraction of a Newco Share, then the number of Newco Shares subject to such Newco Warrant shall be rounded down to the next whole number of Newco Shares); and the Normabec Warrants shall thereupon be cancelled. The term to expiry, conditions to and manner of exercise and other terms and conditions of each of the Replacement Warrants and Newco Warrants shall be the same as the terms and conditions of the Normabec Warrant for which they are exchanged and First Majestic and Newco shall, as soon as practicable following the Effective Date, issue to such holder certificates representing such Replacement Warrants or Newco Warrants, as the case may be, and the original certificates representing such Normabec Warrants shall thereupon be void; and |
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(h) |
each Normabec Option that has not been duly exercised prior to the Effective Time shall be terminated without any further act or formality. |
2.4 Section 3(a)(10) Exemption . The parties agree that the Arrangement will be carried out with the intention that all First Majestic Shares and Newco Shares issued under the Arrangement to the United States holders of Normabec Shares will be issued in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) of the U.S. Securities Act (the " Section 3(a)(10) Exemption "). In order to ensure the availability of the Section 3(a)(10) Exemption, the parties agree that the Arrangement will be carried out on the following basis:
(a) |
the Arrangement will be subject to the approval of the Court; |
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(b) |
the Court will be advised as to the intention of the parties to rely on the Section 3(a)(10) Exemption prior to the hearing required to approve the Arrangement; |
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(c) |
the Court will be required to satisfy itself as to the fairness of the Arrangement to the Normabec Shareholders subject to the Arrangement; |
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(d) |
the Court will have determined, prior to approving the Arrangement, that the terms and conditions of the exchanges of securities under the Arrangement are fair to the Normabec Shareholders pursuant to the Arrangement; |
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(e) |
the order approving the Arrangement that is obtained from the Court will expressly state that the Arrangement is approved by the Court as being fair to the Normabec Shareholders pursuant to the Arrangement; |
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(f) |
Normabec will ensure that each Normabec Shareholder entitled to First Majestic Shares and Newco Shares pursuant to the Arrangement will be given adequate notice advising them of their right to attend the hearing of the Court to give approval of the Arrangement and providing them with sufficient information necessary for them to exercise that right; and |
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(g) |
the Interim Order will specify that each Normabec Shareholder entitled to First Majestic Shares pursuant to the Arrangement will have the right to appear before the Court so long as they enter an appearance within a reasonable time. |
2.5 Normabec Circular . As promptly as practicable after the execution and delivery of this Agreement, Normabec, in consultation with First Majestic, shall prepare the Circular, together with any and all other documents required by the CBCA or other applicable Laws in connection with the Arrangement. As promptly as practicable after the completion of the Circular, but in any event not later than October 11, 2009 without the written approval of First Majestic, which shall not be unreasonably withheld, Normabec shall cause the Circular, the Fairness Opinion and all other documentation required in connection with the Normabec Meeting to be sent to each holder of Normabec Shares or Normabec Warrants and to be filed as required by the Interim Order and applicable Laws.
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2.6 Preparation of Filings
(a) |
First Majestic and Normabec shall cooperate in the taking of all such action as may be required under the CBCA in connection with the transactions contemplated by this Agreement and the Plan of Arrangement. |
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(b) |
Each of First Majestic and Normabec shall, on a timely basis, furnish to the other all such information concerning it and its shareholders as may be required (and, in the case of its shareholders, available to it) to effect the actions described in Section 2.5 and the foregoing provisions of this Section 2.6, and each covenants that no information furnished by it (to its knowledge in the case of information concerning its shareholders) in connection with such actions or otherwise in connection with the consummation of the Arrangement and the other transactions contemplated by this Agreement will contain any untrue statement of a material fact or omit to state a material fact required to be stated in any such document or necessary in order to make any information so furnished for use in any such document not misleading in light of the circumstances in which it is furnished or to be used. |
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(c) |
Each of First Majestic and Normabec shall promptly notify the other if at any time before or after the Effective Time it becomes aware that the Circular contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they are made, or that otherwise requires an amendment or supplement to the Circular. In any such event, First Majestic and Normabec shall cooperate in the preparation of a supplement or amendment to the Circular, as required, and, if required, Normabec shall cause the same to be distributed to the Normabec Securityholders. |
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(d) |
Normabec shall ensure that the Circular complies with all applicable Laws and, without limiting the generality of the foregoing, shall ensure that the Circular does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they are made (other than with respect to any information relating to and provided by First Majestic) and shall ensure that the Circular provides Normabec Securityholders with information in sufficient detail to permit them to form a reasoned judgment concerning the matters to be placed before them at the Normabec Meeting. |
2.7 United States Tax Matters. The Arrangement is intended to qualify as a reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code and this Agreement is intended to be a "plan of reorganization" within the meaning of the Treasury Regulations promulgated under Section 368 of the U.S. Internal Revenue Code. Each party hereto agrees to treat the Arrangement as a reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code for all U.S. federal income tax purposes, and agrees to treat this Agreement as a "plan of reorganization" within the meaning of the Treasury Regulations promulgated under Section 368 of the U.S. Internal Revenue Code, and to not take any position on any Tax Return or otherwise take any Tax reporting position inconsistent with such treatment, unless otherwise required by a "determination" within the meaning of Section 1313 of the U.S. Internal Revenue Code that such treatment is not correct. Each party hereto agrees to act in a manner that is consistent with the parties intention that the Arrangement be treated as a reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code for all U.S. federal income tax purposes.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Normabec . Normabec hereby represents and warrants to and in favour of First Majestic as follows and acknowledges that First Majestic is relying on such representations and warranties in connection with the transactions herein contemplated:
3.1.1 Incorporation and Organization. Normabec and each of the Normabec Subsidiaries is a corporation duly incorporated under the laws of its respective jurisdiction of incorporation (as more particularly set forth in Section 3.1.1 of the Normabec Disclosure Schedule), is validly subsisting, has full corporate and legal power and authority to own, lease and operate the properties currently owned, leased and operated by it and to conduct its business as currently conducted and is in good standing. Normabec and each of the Normabec Subsidiaries is duly qualified or licenced to do business and is in good standing as a foreign corporation or organization authorized to do business in all jurisdictions in which the character of the properties owned, leased or operated or the nature of the business conducted by it would make such qualification or licencing necessary. No proceedings have been instituted or are pending for the dissolution or liquidation of Normabec or any Normabec Subsidiary. True and complete copies of the constating documents of Normabec and each Normabec Subsidiary have been provided to First Majestic and no amendments to such constating documents have been authorized.
3.1.2 Capitalization.
(a) |
The authorized capital of Normabec consists of an unlimited number of Normabec Shares of which, as of the date hereof, 75,093,675 Normabec Shares are issued and outstanding. Except as set forth in Section 3.1.2 of the Normabec Disclosure Schedule, no Normabec Shares are held in treasury or authorized or reserved for issuance, other than upon the exercise of the Normabec Warrants and the Normabec Options. Parties to the Lock-up Agreements are the registered holders of, in the aggregate, 11,349,366 Normabec Shares (representing not less than 15.11% of the aggregate number of Normabec Shares outstanding as of the date of this Agreement). All outstanding Normabec Shares have been duly authorized and are validly issued, are fully paid and non-assessable and were issued in compliance with the articles of Normabec and all applicable Laws. Other than as set forth in Section 3.1.2 of the Normabec Disclosure Schedule, there are, and have been, no preemptive rights relating to the allotment or issuance of any of the issued and outstanding Normabec Shares. As of the date hereof, Normabec Options for the purchase of an aggregate of 3,910,000 Normabec Shares and Normabec Warrants for the purchase of an aggregate of 4,318,857 Normabec Shares are outstanding and, except as disclosed in this Section 3.1.2(a) no Person other than First Majestic under this Agreement has any other agreement, option, commitment, arrangement, or any other right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, option or commitment (including any such right or privilege under convertible securities, warrants or convertible obligations of any nature) for the purchase, subscription, allotment or issuance of, or conversion into, any of the unissued shares or any other securities of Normabec or the purchase or other acquisition from Normabec of any of its undertakings, business or assets. |
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(b) |
There are no outstanding bonds, debentures or other evidences of indebtedness of Normabec having the right to vote (or that are convertible for or exercisable into securities having the right to vote) with the holders of the Normabec Shares on any matter. |
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(c) |
Normabec has not, since the date of its incorporation, declared or paid any dividends or made any other distributions (in either case, in stock or property) on any of its shares. |
3.1.3 Authority and No Violation.
(a) |
Each of Normabec and Newco has all requisite corporate power and authority to enter into this Agreement and the documents required to be executed by them in connection with the transactions contemplated herein, to perform their respective obligations hereunder and, subject to obtaining the approval of the holders of Normabec Shares and the Court as contemplated by Article 2, to consummate the Arrangement and the other transactions contemplated by this Agreement. The execution and delivery of this Agreement and such other documents by Normabec and Newco and the consummation by Normabec and Newco of the transactions contemplated by this Agreement (including the Arrangement) and such other documents have been duly authorized by the board of directors of Normabec and Newco and no other corporate proceedings on their part are necessary to authorize this Agreement or the transactions contemplated hereby, other than: |
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(i) |
with respect to the Circular and other matters relating solely thereto, including the implementation of the Arrangement, the approval of the board of directors of Normabec; and |
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(ii) |
with respect to the completion of the Arrangement, the approval of the holders of Normabec Shares and such other corporate proceedings of Normabec as may be required by the Interim Order. |
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(b) |
This Agreement has been duly executed and delivered by Normabec and Newco and constitutes a legal, valid and binding obligation, enforceable against them in accordance with its terms, subject to bankruptcy, insolvency and other similar Laws affecting creditors rights generally, and to general principles of equity. All documents required to be executed by Normabec or Newco in connection with the transactions contemplated herein will be duly executed and delivered by Normabec or Newco, as applicable, and, when so executed and delivered, will constitute a legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and other similar Laws affecting creditors rights generally, and to general principles of equity. |
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(c) |
The approval of this Agreement and the other documents required to be executed by Normabec and Newco in connection with the transactions contemplated herein, the execution and delivery by Normabec and Newco of this Agreement and such other documents, and the performance by Normabec and Newco of their respective obligations hereunder and the completion of the Arrangement and the transactions contemplated thereby, will not: |
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(i) |
conflict with, result in a violation or breach of, constitute a default or require any consent (other than such as has already been obtained), to be obtained under, or give rise to any termination rights or payment obligation under, any provision of: |
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(A) |
their respective articles or by-laws or any other agreement or understanding with any party holding an ownership interest in Normabec or Newco; |
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(B) |
any resolutions of their respective board of directors (or any committee thereof) or shareholders; |
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(C) |
any applicable Laws, subject to obtaining the consent of the TSXV to the transactions contemplated herein; or |
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(D) |
subject to obtaining any consent, approval, permit or acknowledgement which may be required thereunder in connection with the completion of the transactions herein contemplated, details of which are set forth in Section 3.1.3 of the Normabec Disclosure Schedule, any licence or registration or any agreement, contract or commitment, written or oral, which Normabec or any Normabec Subsidiary is a party to or bound by or subject to; |
(ii) |
give rise to any right of termination or acceleration of indebtedness of Normabec or any Normabec Subsidiary, or cause any third party indebtedness of Normabec or any Normabec Subsidiary to come due before its stated maturity; |
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(iii) |
result in the imposition of any Encumbrance upon any of Normabecs assets or the assets of any of the Normabec Subsidiaries, or restrict, hinder, impair or limit its or any of the Normabec Subsidiaries ability to carry on their respective business as and where it is now being carried on or as and where it may be carried on in the future; or |
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(iv) |
except as set forth in Section 3.1.3 of the Normabec Disclosure Schedule, result in any payment (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any Person, or any increase in any Employee Benefits otherwise payable, or the acceleration of the time of payment, vesting or exercise of any Employee Benefits. |
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(d) |
No consent, approval, order or authorization of, or registration, notice, declaration or filing with, any Governmental Entity or other Person is required to be obtained by Normabec or any Normabec Subsidiary in connection with the execution and delivery of this Agreement or any of the other documents contemplated hereby, or the consummation by Normabec of the transactions contemplated hereby or thereby, other than: |
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(i) |
any approvals required by the Interim Order; |
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(ii) |
the Final Order; |
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(iii) |
filing of the Articles of Arrangement with the Director and the issuance by the Director of a certificate of arrangement in respect of the Arrangement; |
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(iv) |
the consent of the TSXV to the transactions contemplated herein; and |
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(v) |
any other consents, approvals, orders, authorizations, declarations or filings of or with a Governmental Entity which, if not obtained, would not in the aggregate have a Material Adverse Effect on Normabec. |
3.1.4 No Defaults . Except as disclosed in Section 3.1.4 of the Normabec Disclosure Schedule, neither Normabec nor any Normabec Subsidiary is in default under, and there exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute such a default under, any contract, agreement, licence or franchise to which it is a party which would, if terminated due to such default, cause a Material Adverse Effect on Normabec.
3.1.5 Ownership of Normabec Subsidiaries . Other than one share in the capital of each of the Normabec Subsidiaries which is held by Robert Ayotte as nominee, either Normabec or one of the Normabec Subsidiaries is the sole beneficial and registered owner of all of the outstanding shares in the capital of each of the Normabec Subsidiaries with good and marketable title thereto, free and clear of all Encumbrances. No person has any other agreement, option, commitment, arrangement, or any other right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, option or commitment (including any such right or privilege under convertible securities, warrants or convertible obligations of any nature) for the purchase, subscription, allotment or issuance of, or conversion into, any of the unissued shares or any other securities of any Normabec Subsidiary or the purchase or other acquisition from any Normabec Subsidiary of any of its respective undertakings, business or assets.
3.1.6 No Other Shares . Other than the shares which Normabec owns in the Normabec Subsidiaries or which the Normabec Subsidiaries own in each other and as otherwise set forth in Section 3.1.6 of the Normabec Disclosure Schedule, neither Normabec nor any of the Normabec Subsidiaries owns, beneficially, any shares in the capital of any corporation, and neither Normabec nor any of the Normabec Subsidiaries holds any securities or obligations of any kind convertible into or exchangeable for shares in the capital of any corporation. Neither Normabec nor any of the Normabec Subsidiaries is a party to any agreement to acquire any shares in the capital of any corporation.
3.1.7 Reporting Issuer; Public Documents.
(a) |
Normabec is a reporting issuer in Alberta, British Columbia and Québec and is not in default of any of its filing obligations under applicable securities laws and the Normabec Shares are listed and posted for trading on the TSXV. |
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(b) |
No order ceasing, halting or suspending trading in securities of Normabec or prohibiting the distribution of such securities has been issued to and is outstanding against Normabec and no investigations or proceedings for such purposes are, to the knowledge of Normabec, pending or threatened. |
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(c) |
The documents contained in Normabecs Information Record were, at their respective dates, true and correct in all material respects and did not omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. |
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(d) |
Normabec has publicly disclosed in Normabecs Information Record all information regarding any event, circumstance or action taken or failed to be taken which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Normabec. |
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(e) |
Except as qualified by the disclosure in Normabec's Information Record, and except as otherwise disclosed in writing to First Majestic, Normabec beneficially owns or leases the properties, business and assets or the interests in the properties, business or assets referred to in Normabec's Information Record, no party is challenging or disputing Normabec's title to any such properties, business or assets and all agreements by which Normabec holds an interest in a property, business or assets are in good standing according to their terms and the properties are in good standing under the applicable laws of the jurisdictions in which they are situated. |
3.1.8 Absence of Certain Changes or Events . Except as disclosed in the Normabec Information Record, since August 31, 2008 Normabec has conducted its business only in the ordinary course of business and there has not occurred:
(a) |
any Material Adverse Change in respect of Normabec; or |
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(b) |
any agreement or arrangement to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Agreement materially untrue or incorrect as of the date when made. |
3.1.9 Financial Statements .
(a) |
Except as set forth in Section 3.1.9 of the Normabec Disclosure Schedule, the 2008 Financial Statements and the Interim Financial Statements comply as to form, content and substance in all material respects with applicable Laws with respect thereto, have been prepared in accordance with generally accepted accounting principles, applied on a basis consistent with pervious years, are correct and complete and present fairly, in all material respects: |
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(i) |
all the assets, liabilities (whether accrued, absolute, contingent or otherwise) and the financial condition of Normabec and the Normabec Subsidiaries, on a consolidated basis as at August 31, 2008, in the case of the 2008 Financial Statements, and May 31, 2009 in the case of the Interim Financial Statements; and |
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(ii) |
the revenues, earnings, results of operations and cash flows of Normabec and the Normabec Subsidiaries, on a consolidated basis for the year ended on August 31, 2008, in the case of the 2008 Financial Statements, and the nine month period ended May 31, 2009 in the case of the Interim Financial Statements, |
20
provided, however, that | ||
(i) |
the Interim Financial Statements do not contain all footnotes required under generally accepted accounting principles; and |
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(ii) |
the Interim Financial Statements are subject to adjustments for mineral property impairments, taxes (including investment tax credits), accruals for bonuses, revenue cut-off, payables cut-off and review of accounts receivable, the net effect of which would not be material to First Majestic in contemplating the acquisition of all of the outstanding Normabec Shares. |
(b) |
Since August 31, 2008 neither Normabec nor any of the Normabec Subsidiaries has incurred any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or otherwise (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), and Normabec has no knowledge of any material adjustments, potential liabilities or obligations, which individually or in the aggregate have not been reflected in the 2008 Financial Statements, other than liabilities, indebtedness and obligations incurred by Normabec and/or the Normabec Subsidiaries in the ordinary course of business, or as contemplated in this Agreement or as disclosed in Section 3.1.9 of the Normabec Disclosure Schedule. |
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(c) |
Section 3.1.9 of the Normabec Disclosure Schedule sets forth a complete and accurate list of all intercompany indebtedness between and among Normabec and the Normabec Subsidiaries. |
3.1.10 Business Carried on in Ordinary Course . The Business has been carried on in the ordinary course since August 31, 2008 and since such date:
(a) |
except as disclosed in Section 3.1.10 of the Normabec Disclosure Schedule, there has been no Material Adverse Change with respect to Normabec; |
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(b) |
there has been no damage, destruction or loss of any material tangible assets, whether covered by insurance or not, that could reasonably be expected to have a Material Adverse Effect on Normabec; |
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(c) |
except as disclosed in Section 3.1.10 of the Normabec Disclosure Schedule, there has been no increase in the salary, other cash compensation or other Employee Benefits payable or to become payable by Normabec or any Normabec Subsidiary to any of its respective officers, directors, employees or advisors, other than in the ordinary course of business, and there has been no declaration, payment or commitment or obligation of any kind for the payment or granting by Normabec or any Normabec Subsidiary of a bonus, stock option or other additional salary or compensation to any such Person, or any grant to any such Person of any increase in severance or termination pay, nor has Normabec or any Normabec Subsidiary agreed to do any of the foregoing; |
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(d) |
neither Normabec nor any Normabec Subsidiary has acquired or sold, pledged, leased, encumbered or otherwise disposed of any material property or assets or incurred or committed to incur capital expenditures in excess of $10,000, in the aggregate, as of the date hereof, nor has Normabec or any Normabec Subsidiary agreed to do any of the foregoing; |
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(e) |
neither Normabec nor any Normabec Subsidiary has entered into any material contract, agreement, licence, franchise, lease transaction, commitment or other right or obligation and has not amended, modified, relinquished, terminated or failed to renew any Material Agreement, other than in the ordinary course of business; |
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(f) |
neither Normabec nor any Normabec Subsidiary has made any change in accounting policies, principles, methods, practices or procedures (including for bad debts, contingent liabilities or otherwise); and |
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(g) |
there has been no waiver by Normabec or any Normabec Subsidiary or agreement to waive, any right of substantial value and, except as set forth in Section 3.1.10 of the Normabec Disclosure Schedule, neither Normabec nor any Normabec Subsidiary has entered into any commitment or transaction not in the ordinary course of business where such right, commitment or transaction is or would be material in relation to Normabec or the Business. |
3.1.11 Partnerships or Joint Ventures . Neither Normabec nor any Normabec Subsidiary is a partner or participant in any partnership, joint venture, profit-sharing arrangement or other business combination of any kind, excluding any partnership, joint venture, profit sharing agreement or other business combination of any kind relating solely to the Transferred Assets, and is not party to any agreement under which it agrees to carry on any part of its business or any other activity in such manner or by which it agrees to share any revenue or profit with any other Person (excluding any agreements related solely to the Transferred Assets).
3.1.12 Minute Books and Corporate Records . The minute and record books of Normabec and each of the Normabec Subsidiaries contain complete and accurate minutes of all meetings of, and copies of all resolutions passed by, or consented to in writing by, its directors (and any committees thereof) and shareholders since its incorporation, all such meetings were duly called and held and all such resolutions were duly passed or enacted. The share certificate books, registers of shareholders, registers of transfers, registers of directors, registers of holders of Debt Instruments and other corporate registers of Normabec and each Normabec Subsidiary are complete and accurate in all material respects. Other than the Shareholder Rights Plan, neither Normabec nor any Normabec Subsidiary is a party to or bound by or subject to any shareholder agreement or unanimous shareholder agreement governing its affairs or the relationships, rights and duties of shareholders and is not subject to a shareholder rights plan or poison pill or similar plan.
3.1.13 Accuracy of Books and Records . The books and records, accounting, financial and otherwise, of Normabec and each of the Normabec Subsidiaries fairly and correctly set out and disclose in all material respects, in accordance with generally accepted accounting principles, its financial position as at the date hereof and all material financial transactions have been accurately recorded in such books and records on a consistent basis and in conformity with generally accepted accounting principles. All records, systems, controls, data or information (including any digital, electronic, mechanical, photographic or other technological process or device whether computerized or not) required to operate the Business are in the full possession and control of and are owned exclusively by Normabec or the Normabec Subsidiaries.
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3.1.14 Guarantees . Neither Normabec nor any Normabec Subsidiary is a party to or bound by or subject to any Guarantee of the indebtedness of any other Person.
3.1.15 Interested Persons.
(a) |
No payment has been made or authorized by Normabec or any Normabec Subsidiary to or for the benefit of any Interested Person, except in the ordinary course of business and at the regular rates, payable as Employee Benefits, rents, management and other fees, the reimbursement of expenses incurred on behalf of Normabec or any Normabec Subsidiary or otherwise. |
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(b) |
Except as set forth and described in Section 3.1.15 of the Normabec Disclosure Schedule: |
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(i) |
neither Normabec nor any Normabec Subsidiary is a party to or bound by or subject to any agreement, contract or commitment with any Interested Person, except for contracts of employment or contracts of service with independent contractors; |
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(ii) |
neither Normabec nor any Normabec Subsidiary has any loan or indebtedness outstanding (except for obligations incurred in the ordinary course of business with respect to Employee Benefits, management or other fees and the reimbursement of expenses incurred on behalf of Normabec or such Normabec Subsidiary) to any Interested Person; |
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(iii) |
no Interested Person owns, directly or indirectly, in whole or in part, any property used in the operation of the Business as heretofore carried on; and |
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(iv) |
no Interested Person has any cause of action or other claim whatsoever against, or owes any amount to, Normabec or any Normabec Subsidiary in connection with the Business as heretofore carried on, except for any claims in the ordinary course of business such as, without limitation, for accrued vacation pay and accrued benefits under the Employee Benefits. |
3.1.16 Employment and Employee Benefit Matters.
(a) |
As at the date hereof, Normabec and the Normabec Subsidiaries had an aggregate of three full time and three part time employees, and an aggregate of four independent contractors or other non-employees who supply their services under personal services contracts (whether written or oral). The names and positions of such Persons are set forth and described in Section 3.1.16 of the Normabec Disclosure Schedule. |
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(b) |
Except as set forth and described in Section 3.1.16 of the Normabec Disclosure Schedule: |
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(i) |
Neither Normabec nor any Normabec Subsidiary is a party to or bound by or subject to any agreement or arrangement with respect to Employee Benefits and no such agreement or arrangement contains any specific provision as to notice of termination of employment or severance pay in lieu thereof. |
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(ii) |
Neither Normabec nor any Normabec Subsidiary has any obligations to amend any Employee Benefit and no amendments will be made or promised prior to the Effective Date, except with the prior written consent of First Majestic. |
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(iii) |
All obligations of Normabec and the Normabec Subsidiaries as of August 31, 2008 with respect to Employee Benefits are reflected in and have been fully accrued in the 2008 Financial Statements. |
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(iv) |
Except as set forth and described in Section 3.1.16 of the Normabec Disclosure Schedule, neither Normabec nor any Normabec Subsidiary is a party to or bound by or subject to any collective bargaining agreement or other similar arrangement with any labour union or employee association nor has it made any commitment to or conducted any negotiation or discussion with any labour union or employee association with respect to any future agreement or arrangement and, to the knowledge of Normabec, there is no current application for certification or other attempt to organize or establish any labour union or employee association with respect to employees of Normabec or any Normabec Subsidiary. |
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(v) |
Normabec and each of the Normabec Subsidiaries has, in all material respects, complied with, and operated its business in accordance with, all applicable Laws relating to employment and labour matters, including employment and labour standards, occupational health and safety, employment equity, pay equity, workers compensation, human rights and labour relations matters. |
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(vi) |
Except as set forth and described in Section 3.1.16 of the Normabec Disclosure Schedule, no Person will, as a result of the transactions contemplated hereby, become entitled to (A) any retirement, severance, bonus or other such payment, (B) the acceleration of the vesting or time to exercise of any outstanding stock options or other Employee Benefits (including the Normabec Options), (C) the forgiveness or postponement of payment of any indebtedness owing to Normabec or any Normabec Subsidiary, or (D) receive any additional payments or compensation under or in respect of any Employee Benefits. |
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(vii) |
All accruals for unpaid vacation pay, premiums for employment insurance, health premiums, Canada Pension Plan and Québec Pension Plan premiums, accrued wages, salaries and commissions and other Employee Benefits have been reflected in the books and records of Normabec and the Normabec Subsidiaries. |
3.1.17 Pension and Retirement Plans . Neither Normabec nor any Normabec Subsidiary sponsors or participates in any pension and/or retirement plan, whether a money purchase plan or a defined benefit plan or otherwise.
3.1.18 Debt Instruments . Except as set forth and described in Section 3.1.18 of the Normabec Disclosure Schedule, neither Normabec nor any Normabec Subsidiary is bound by or subject to:
(a) |
any Debt Instrument; or |
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(b) |
any agreement, contract or commitment to create, assume or issue any Debt Instrument; |
and no Debt Instrument or Encumbrance which Normabec or any Normabec Subsidiary is bound by or subject to is dependent upon the Guarantee of or any security provided by any other Person.
3.1.19 Real Property . Neither Normabec nor any Normabec Subsidiary owns or, except for the Leases of real property set forth and described in Section 3.1.19 of the Normabec Disclosure Schedule, has any interest in, nor is Normabec or any Normabec Subsidiary a party to or bound by or subject to any agreement, contract or commitment, or any option to purchase, any real or immovable property.
3.1.20 Leases and Leased Property.
(a) |
Neither Normabec nor any Normabec Subsidiary is a party to or bound by or subject to nor has Normabec or any Normabec Subsidiary agreed or become bound to enter into, any real or personal property lease, sublease or other right of occupancy relating to real property, whether as lessor or lessee, except for the Leases set forth and described in Section 3.1.19 of the Normabec Disclosure Schedule, copies of which have been provided to First Majestic prior to the date hereof. Normabec or the Normabec Subsidiaries, as applicable, occupies and has the exclusive right to occupy and use all immovable Leased Property and has the exclusive right to use all movable Leased Property. |
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(b) |
Except as set forth in Section 3.1.19 of the Normabec Disclosure Schedule, each of the Leases is valid and subsisting and in good standing, all rental and other payments required to be paid by Normabec or any Normabec Subsidiary as lessee or sublessee and due and payable pursuant to the Leases have been duly paid to date and neither Normabec nor any Normabec Subsidiary is otherwise in default in meeting its obligations under any of the Leases and is entitled to all rights and benefits thereunder. No event exists which, but for the passing of time or the giving of notice, or both, would constitute a default by Normabec or any Normabec Subsidiary or, to the knowledge of Normabec, any other party to any Lease and no party to any Lease is claiming any such default or taking any action purportedly based upon any such default. |
3.1.21 Insurance. Other than directors and officers liability insurance, neither Normabec nor any of the Normabec Subsidiaries maintains any insurance coverage.
3.1.22 Material Agreements . Except for the Material Agreements listed and described in Section 3.1.22 of the Normabec Disclosure Schedule, as of the date of this Agreement neither Normabec nor any Normabec Subsidiary is a party to or bound by or subject to any of the following:
(a) |
any continuing contract for the purchase of materials, supplies, equipment or services involving, in the case of any such contract, more than $10,000 over the life of the contract; |
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(b) |
any contract that expires, or may be renewed at the option of any Person other than Normabec or any Normabec Subsidiary so as to expire, more than one year after the date of this Agreement; |
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(c) |
any Debt Instrument; |
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(d) |
any contract for capital expenditures in excess of $10,000 in the aggregate; |
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(e) |
any contract limiting the right of Normabec or any Normabec Subsidiary to engage in any line of business or to compete with any other Person; |
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(f) |
any confidentiality, secrecy or non-disclosure contract other than [REDACTED INFORMATION] |
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(g) |
any agreement or contract by virtue of which any of the Mineral Rights of Normabec or any Normabec Subsidiary were acquired or constructed or are held by Normabec or the Normabec Subsidiaries or pursuant to which the construction, ownership, operation, exploration, exploitation, extraction, development, production, transportation, refining or marketing of such Mineral Rights are subject or which grant rights which are or may be used in connection therewith; |
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(h) |
any contract pursuant to which Normabec or any Normabec Subsidiary leases any real or personal property; |
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(i) |
any contract with any Interested person; |
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(j) |
any Guarantee; |
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(k) |
any employment contracts with employees and service contracts with independent contractors; |
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(l) |
any agreement to indemnify, hold harmless or defend any other Person with respect to any assertion of personal injury, damage to property, misappropriation or violation or warranting the lack thereof; and |
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(m) |
any other agreement, indenture, contract, lease, deed of trust, licence, option, instrument or other commitment which is or would reasonably be expected to be material to the business, properties, assets, operations, condition (financial or otherwise) or prospects of Normabec; |
whether written or oral, and of any nature or kind whatsoever.
3.1.23 No Breach of Material Contracts . Normabec and each of the Normabec Subsidiaries has performed all of the material obligations required to be performed by it, and is entitled to all benefits under, and is not in default in respect of, any Material Agreement to which it is a party. Each of the Material Agreements is enforceable, is in full force and effect, unamended, and there exists no breach thereof or default or event of default or event, occurrence, condition or act with respect to Normabec or any Normabec Subsidiary or, to Normabecs knowledge, with respect to the other contracting party or otherwise that, with or without the giving of notice, the lapse of time or the happening of any other event or conditions, would (A) become a default or event of default under any Material Agreement, or (B) result in the loss or expiration of any right or option by Normabec or any Normabec Subsidiary (or the gain thereof by any third party) under any Material Agreement. Normabec has delivered a true, correct and complete copy of each of the Material Agreements to First Majestic.
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3.1.24 Third Party Consents . None of the Material Agreements requires a consent or approval of the other party thereto to the Arrangement or other transactions contemplated hereby.
3.1.25 Legal Proceedings . There are no claims, actions, suits, complaints, investigations or proceedings (whether private, governmental or otherwise, and whether or not purportedly on behalf of Normabec or any Normabec Subsidiary) in progress, pending, or to the knowledge of Normabec, threatened, against or affecting Normabec or any Normabec Subsidiary (including actions, suits, investigations or proceedings against any directors, officers or employees of Normabec or any Normabec Subsidiary which relate to the business, affairs, assets or operations of Normabec ) , at law or in equity, or before or by any Tribunal. There is no judgment, decree, injunction, ruling, order or award of any Tribunal outstanding against or affecting Normabec or any Normabec Subsidiary. Normabec is not aware of any grounds on which any such action, suit, investigation or proceeding might be commenced with any reasonable likelihood of success, and does not have any present plans or intentions to initiate any litigation, arbitration or other proceedings against any third party.
3.1.26 Banking Information . Section 3.1.26 of the Normabec Disclosure Schedule sets forth and describes:
(a) |
the name and location (including municipal address) of each bank, trust company or other institution in which Normabec or any Normabec Subsidiary has an account, money on deposit or a safety deposit box and the name of each Person authorized to draw thereon or to have access thereto; and |
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(b) |
the name of each Person holding a general or special power of attorney from Normabec or the applicable Normabec Subsidiary and a summary of the terms thereof. |
3.1.27 Tax Matters.
(a) |
Save for the requirement to file Tax Returns in respect of income taxes for the current taxation year (which return is not yet due), and any income Tax Return which is required to be filed as a result of or in connection with the transactions contemplated herein, Normabec and each of the Normabec Subsidiaries has duly filed in the prescribed manner and within the prescribed time all Tax Returns required to be filed by it on or before the date hereof with any taxing or regulatory authority to which it is subject and each such Tax Return was complete and accurate at the time filed. |
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(b) |
Normabec and each of the Normabec Subsidiaries has paid all Taxes that are due and payable by it, and any interest, penalties and fines in connection therewith, properly due and payable, and has paid all of same in connection with all known assessments, reassessments and adjustments. |
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(c) |
Except as set forth in the 2008 Financial Statements there are no Taxes or fines in respect of Taxes claimed by any Governmental Entity against Normabec or any Normabec Subsidiary or which are known to Normabec to be due and owing by Normabec or any Normabec Subsidiary and, to the knowledge of Normabec, there are no pending or threatened reassessments by any Governmental Entity in respect of Taxes owing by Normabec or any Normabec Subsidiary, and there are no matters of dispute or under discussion with any Governmental Entity relating to Taxes or fines in respect of Taxes asserted by such Governmental Entity against Normabec or any Normabec Subsidiary. |
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(d) |
The 2008 Financial Statements fully reflect accrued liabilities as at August 31, 2008 for all Taxes which were not yet then due and payable and for which Tax Returns were not yet then required to be filed. There are no actions, suits, investigations or proceedings and no assessment, reassessment or request for information in progress, pending or, to the knowledge of Normabec, threatened against or affecting Normabec in respect of Taxes nor are any issues under discussion with any taxing authority relating to any matters which could result in claims for additional Taxes. |
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(e) |
There are no agreements, waivers or other arrangements made by Normabec or any Normabec Subsidiary providing for an extension of time with respect to any assessment or reassessment of Tax, the filing of any Tax Return or the payment of any Tax by Normabec or any Normabec Subsidiary. |
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(f) |
Normabec and each of the Normabec Subsidiaries has withheld the amount of all Taxes and other deductions required under any applicable Laws to be withheld from each payment made by it and has paid all amounts withheld which are due and payable before the date hereof and all installments of Taxes which are due and payable before the date hereof to the relevant taxing or other authority within the time prescribed under any applicable Laws. |
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(g) |
Normabec has complied with and substantially satisfied all obligations to incur expenses, make required disbursements and renounce to any third party any Canadian exploration expense or Canadian development expense with respect to any flow-through shares . |
3.1.28 Compliance with Applicable Laws . Normabec and each of the Normabec Subsidiaries has conducted and is conducting its business in compliance in all material respects with all applicable Laws, in each jurisdiction in which its business is carried on, is not in material breach of any of such Laws and is duly licenced or registered in each jurisdiction in which it owns or leases its property and assets or carries on its business, so as to enable its business to be carried on as now conducted and its property and assets to be so owned or leased. Section 3.1.28 of the Normabec Disclosure Schedule sets out a complete and accurate list of all licences, permits, approvals, consents, certificates, registrations and authorizations (whether governmental, regulatory or similar type) relating to the Mexican Assets (the Licences ), and there are no other licences, permits, approvals, consents, certificates, registrations, or authorizations, necessary to carry on its business as presently carried on or to own or lease any of the property or the assets utilized by Normabec or any Normabec Subsidiary except where the lack of grant of such would not have a Material Adverse Effect on Normabec. Each Licence is valid and subsisting and in good standing and there is no default or breach of any Licence and, to the best of the knowledge of Normabec, no proceeding is pending or threatened to revoke or limit any Licence. No Licence contains any burdensome term, provision, condition or limitation which has or could have a Material Adverse Effect on Normabec or the Business, and except the Applicable Regulatory Approvals, requires the consent, approval, permit or acknowledgement of any Person in connection with the completion of the transactions herein contemplated.
3.1.29 Consents and Approvals. Except for the Applicable Regulatory Approvals, there is no requirement to make any filing with, give any notice to or to obtain any licence, permit, certificate, registration, authorization, consent or approval of, any Governmental Entity as a condition to the lawful consummation of the transactions contemplated by this Agreement or the Plan of Arrangement, except for the filings, notifications, licences, permits, certificates, registrations, consents and approvals which are of a purely administrative nature and could be completed or obtained without adverse effect on Normabec or its business immediately after the Effective Date.
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3.1.30 No Business Restrictions . There is no agreement (non-compete or otherwise), commitment, judgment, injunction, order or decree to which Normabec or any Normabec Subsidiary is party or which is otherwise binding upon Normabec or any Normabec Subsidiary which has or reasonably could be expected to have the effect of prohibiting or impairing any business practice of Normabec or such Normabec Subsidiary, any acquisition of property (tangible or intangible) by Normabec or such Normabec Subsidiary or the conduct of business by Normabec or such Normabec Subsidiary, as currently conducted or proposed to be conducted.
3.1.31 Liabilities . There are no material liabilities of Normabec or any Normabec Subsidiary of any kind (whether accrued, absolute, contingent or otherwise) existing on the date hereof except for:
(a) |
liabilities (including liabilities for unpaid Taxes) disclosed on, reflected in or provided for in the 2008 Financial Statements or the Interim Financial Statements; |
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(b) |
liabilities disclosed or referred to in this Agreement; |
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(c) |
liabilities incurred in the ordinary course of business and attributable to the period since May 31, 2009, none of which has a Material Adverse Effect on Normabec; and |
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(d) |
liabilities incurred in connection with this Agreement or the transactions contemplated in this Agreement. |
3.1.32 Condition and Sufficiency of Assets . All facilities, machinery and equipment owned or used by Normabec and each of the Normabec Subsidiaries in connection with the Mexican Property are in good operating condition and in a state of good repair and maintenance, reasonable wear and tear excepted. Normabec or the Normabec Subsidiaries own or lease all of the property and assets used in or necessary for the conduct of the Business as it is currently being conducted in connection with the Mexican Property with good and marketable title to all property and assets which are owned by Normabec or any Normabec Subsidiary in connection with the Mexican Property, free and clear of any and all Encumbrances other than as set forth in Section 3.1.19 of the Normabec Disclosure Schedule. There has not been any significant interruption of operations, supplies, access or services by contractors of the Business due to inadequate maintenance of any of the property or assets owned and used by Normabec or any Normabec Subsidiary in connection with the Mexican Property.
3.1.33 Environmental
(a) |
The operation of the Business by Normabec and each of the Normabec Subsidiaries, the property and assets owned or used by Normabec and the Normabec Subsidiaries and the use, maintenance and operation thereof have been and are in compliance with all Environmental Laws (except where non- compliance would not have a Material Adverse Effect in respect of Normabec). Each of Normabec and the Normabec Subsidiaries have complied with all reporting and monitoring requirements under all Environmental Laws (except where non-compliance would not have a Material Adverse Effect in respect of Normabec). Neither Normabec nor any of the Normabec Subsidiaries has received any notice of any non-compliance with any Environmental Laws or Environmental Permits, and none of Normabec or any of the Normabec Subsidiaries have been convicted of an offence of non-compliance with any Environmental Laws or Environmental Permits or been fined or otherwise sentenced or settled such prosecution short of conviction. There is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation investigation, proceeding, notice or demand letter existing or pending, or to the best knowledge of Normabec, threatened, relating to the property or assets owned or used by Normabec or any of the Normabec Subsidiaries, relating in any way to the Environmental Laws. |
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(b) |
Normabec and each of the Normabec Subsidiaries has obtained all Environmental Permits necessary to conduct its business and to own, use and operate its properties and assets, all such Environmental Permits are in effect, no appeal and no other action is pending to revoke any such Environmental Permit and the operation of the business of Normabec and each of the Normabec Subsidiaries, the property and assets owned by Normabec and each of the Normabec Subsidiaries and the use, maintenance and operation thereof have been and are in compliance with all Environmental Permits. To the extent required by applicable Environmental Laws, Normabec and each of the Normabec Subsidiaries has filed all applications necessary to renew or obtain any necessary permits, licences, or authorizations in a timely fashion so as to allow it to continue to operate its business in compliance with applicable Environmental Laws, and Normabec does not expect such new or renewed licences, permits or other authorizations to include any terms or conditions that will have a Material Adverse Effect in respect of Normabec. |
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(c) |
Normabec and each of the Normabec Subsidiaries has, at all times, used, generated, treated, stored, transported, disposed of or otherwise handled its Hazardous Substances in compliance with all Environmental Laws and Environmental Permits. |
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(d) |
Neither Normabec nor any of the Normabec Subsidiaries is, and, to the knowledge of Normabec, there is no reasonable basis upon which Normabec or any of the Normabec Subsidiaries could become, responsible for any material clean up or corrective action under any Environmental Laws. All audits, assessments and studies with respect to environmental matters relating to Normabec or any of the Normabec Subsidiaries have been referenced in Section 3.1.33 of the Normabec Disclosure Schedule. |
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(e) |
There are no past or present (or, to the best of Normabecs knowledge, future) events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance by Normabec and each of the Normabec Subsidiaries with the Environmental Laws as in effect on the date hereof or which may give rise to any common law or legal liability under the Environmental Laws, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, notice of violation, study or investigation, based on or related to the manufacture, generation, processing, distribution, use, treatment, storage, disposal, transport or handling, or the Release or threatened Release into the indoor or outdoor environment by Normabec or any of the Normabec Subsidiaries of any Hazardous Substances. |
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3.1.34 Mineral Rights
(a) |
Section 3.1.34 of the Normabec Disclosure Schedule provides a complete list and description of all of the Mineral Rights of Normabec or any Normabec Subsidiary. |
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(b) |
Normabec and each of the Normabec Subsidiaries has conducted and is conducting its respective business in accordance with good mining industry practices and in compliance with all applicable laws, and, in particular, all applicable licencing and Environmental Laws or other lawful requirements of any Governmental Entities applicable to it in each jurisdiction in which it carries on business and holds all licences, registrations and qualifications in all jurisdictions in which it carries on business or which are necessary or desirable to carry on the Business, as now conducted, and none of such licences, registrations or qualifications contains any burdensome term, provision, condition or limitation which has or is likely to have any Material Adverse Effect in respect of Normabec. |
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(c) |
To the best of Normabec's knowledge, all Taxes and assessments based on, or measured by, the ownership of the Mineral Rights of Normabec or any Normabec Subsidiary or the production from such Mineral Rights, or the receipt of proceeds from them, and all royalties and rentals accruing prior to the Effective Date, that are payable by Normabec or the Normabec Subsidiaries with respect to their Mineral Rights will at the Effective Date have been properly paid or will be paid in a timely fashion. |
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(d) |
In those cases where Normabec or the Normabec Subsidiaries is the operator, the Mineral Rights of Normabec and each of the Normabec Subsidiaries have been operated and maintained in a manner consistent with prudent practices in the mining industry and in compliance with all applicable Laws and all orders of all Governmental Entities having jurisdiction over the same and, in cases where neither Normabec nor any of the Normabec Subsidiaries is the operator thereof, Normabec has no knowledge that such has not been, is not and will not be the case. |
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(e) |
Neither Normabec nor any of the Normabec Subsidiaries has elected or refused to participate in any exploration, development or other operations with respect to its Mineral Rights which has or may give rise to any penalties, forfeitures or reduction of its interest by virtue of any conversion or other alteration occurring under the title and operating documents which govern Normabec's or the Normabec Subsidiaries' Mineral Rights. |
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(f) |
No Interested Person or any party not at arm's length to Normabec or any Normabec Subsidiary owns, has or is entitled to any royalty, net profits interest, carried interest or other Encumbrances of any nature whatsoever which are based on production from its properties or assets or any revenue or rights attributed thereto. |
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(g) |
Normabec does not have any currently outstanding hedges, swaps or other financial instruments or like transactions. |
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(h) |
Normabec has made available to Micon International Limited, prior to the issuance of the Technical Report, all information material to an adequate determination of mineral resources and reserves with respect to the Mexican Property, none of which information contained a material misrepresentation and Normabec has no knowledge of any material adverse change to the mineral resources and reserves therein evaluated since the effective date of the Technical Report. |
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(i) |
Normabec is not aware of any defects, failures or impairments in the title of Normabec or the Normabec Subsidiaries to the Mineral Rights with respect to the Mexican Property or their mining facilities at the Mexican Property whether or not an action, suit, proceeding or inquiry is pending or threatened and whether or not discovered by any third party, which in aggregate could have a Material Adverse Effect in respect of Normabec. |
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(j) |
Normabec and each of the Normabec Subsidiaries has duly and timely satisfied all of the obligations required to be satisfied, performed and observed by it under, and there exists no default or event of default or event, occurrence, condition or act which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default by Normabec or any Normabec Subsidiary under any agreement pertaining to their respective Mineral Rights or to their other respective assets or properties and each such lease, contract or other agreement is enforceable and in full force and effect. |
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(k) |
Subject to the rights, covenants, conditions and stipulations in the title documents and any agreement pertaining to its assets or properties (including the Mineral Rights of Normabec and the Normabec Subsidiaries) and on the lessee's or holder's part thereunder to be paid or performed and observed, Normabec and each of the Normabec Subsidiaries may enter into and upon, hold and enjoy its respective property and assets (including its respective Mineral Rights) for the remainder of their respective terms and all renewals or extensions thereof for its own use and benefit without any lawful interruption of or by any other person whomsoever claiming by, through or under Normabec or any Normabec Subsidiary. |
3.1.35 Intellectual Property.
(a) |
Normabec or the Normabec Subsidiaries owns or has the valid right to use all trade-marks, service marks, and trade names used by Normabec and the Normabec Subsidiaries in connection with the Business. |
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(b) |
To the knowledge of Normabec, the operation of the Business does not infringe or misappropriate the intellectual property rights of any Person, violate the rights of any Person (including rights to privacy or publicity) or constitute unfair competition or trade practices under the Laws of any jurisdiction in which Normabec or any Normabec Subsidiary carries on business. |
3.1.36 Advisory Fees; Third Party Expenses. Except as set forth in Section 3.1.36 of the Normabec Disclosure Schedule and except for the accountants and lawyers of Normabec retained to negotiate, advance, carry out and complete the transactions contemplated herein, there is no investment banker, broker, finder or other intermediary or advisor that has been retained by or is authorized to act on behalf of Normabec, any Normabec Subsidiary or any of their respective directors, officers or shareholders who might be entitled to any fee, commission or reimbursement of expenses from Normabec or any Normabec Subsidiary upon consummation of the transactions contemplated by this Agreement. Section 3.1.36 of the Normabec Disclosure Schedule sets forth a reasonable estimate of all Third Party Expenses which are reasonably expected to be incurred by Normabec and the Normabec Subsidiaries in connection with the negotiation and implementation of the terms and conditions of this Agreement and the transactions contemplated hereby and Normabec agrees that it will not incur or agree to incur any expenses in excess of the estimated amounts set forth in Section 3.1.36 of the Disclosure Schedule without the consent of First Majestic, acting reasonably.
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3.1.37 Corrupt Practices. Neither Normabec nor any of the Normabec Subsidiaries has, directly or indirectly: (A) made or authorized any contribution, payment or gift of funds or property to any official, employee or agent of any Governmental Entity of any jurisdiction; or (B) made any contribution to any candidate for public office, in either case, where either the payment or the purpose of such contribution, payment or gift was, is, or would be prohibited under the Canada Corruption of Foreign Public Officials Act (Canada), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) or the rules and regulations promulgated thereunder or under any other Law of any relevant jurisdiction covering a similar subject matter applicable to Normabec or any of the Normabec Subsidiaries and their respective operations and have instituted and maintained policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance with such legislation.
3.1.38 Other Negotiations . None of Normabec, any Normabec Subsidiary or, to the knowledge of Normabec, any of their respective directors, officers or shareholders (nor any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of Normabec or any Normabec Subsidiary or at their respective direction) (a) has entered into any agreement that conflicts with any of the transactions contemplated by this Agreement, or (b) has entered into any agreement or had any discussions with any Person regarding any transaction involving Normabec or any Normabec Subsidiary which could reasonably be expected to result in any of First Majestic, Normabec, any Normabec Subsidiary or any of the officers, directors, employees, agents or shareholders of any of them being subject to any claim for liability to such Person as a result of entering into this Agreement or consummating the transactions contemplated hereby.
3.1.39 Disclosure . As of the date hereof, the representations and warranties of Normabec contained in this Agreement and in any agreement, certificate, affidavit, statutory declaration or other document delivered or given pursuant to this Agreement, including the Normabec Disclosure Schedule, are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained in such representations and warranties not misleading to First Majestic.
3.1.40 Approval of Arrangement .
(a) |
The board of directors of Normabec has determined unanimously: |
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(i) |
that the Arrangement is fair to and in the best interests of the holders of Normabec Shares and is in the best interests of Normabec; and |
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(ii) |
to recommend that the holders of Normabec Shares vote in favour of the Arrangement. |
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(b) |
All of Normabecs directors have advised Normabec that they intend to vote the Normabec Shares held by them in favour of the Arrangement and will, accordingly, so represent in the Circular. |
3.2 Representations and Warranties of First Majestic . First Majestic represents and warrants to and in favour of Normabec as follows and acknowledges that Normabec is relying upon such representations and warranties in connection with the transactions and matters contemplated by this Agreement:
3.2.1 Incorporation and Organization . First Majestic has been duly incorporated under the laws of its jurisdiction of incorporation, is validly subsisting, has full corporate or legal power and authority to own, lease and operate the properties currently owned, leased and operated by it and to conduct its business as currently conducted, and is in good standing with respect to the filing of annual returns. First Majestic is duly qualified or licenced to do business and is in good standing as a foreign corporation or organization authorized to do business in all jurisdictions in which the character of the properties owned, leased or operated or the nature of the business conducted by it would make such qualification or licencing necessary. No proceedings have been instituted or are pending for the dissolution or liquidation of First Majestic.
3.2.2 Capitalization . The authorized share structure of First Majestic consists of an unlimited number of First Majestic Shares, of which, as of the date hereof, 86,198,050 First Majestic Shares were issued and outstanding. Except for (a) warrants to purchase an aggregate of 10,930,788 First Majestic Shares, and (b) employee stock options granted by First Majestic pursuant to employment compensation plans, there are no options, warrants, conversion privileges or other rights, agreements, arrangements or commitments (contingent or otherwise) obligating First Majestic to issue or sell any shares or securities or obligations of any kind convertible into or exchangeable for any shares of First Majestic. No First Majestic Shares are held in treasury or authorized or reserved for issuance, other than upon the exercise of the warrants and options referred to above. There are no outstanding bonds, debentures or other evidences of indebtedness of First Majestic having the right to vote (or that are convertible for or exercisable into securities having the right to vote) with the holders of the First Majestic Shares on any matter. The First Majestic Shares to be issued pursuant to the Arrangement or upon the exercise from time to time of the Replacement Warrants in accordance with the terms of the Replacement Warrants, will, when issued and delivered be duly and validly issued by First Majestic on their respective dates of issue as fully paid and non-assessable shares and will not be issued in violation of the terms of any agreement or other understanding binding upon First Majestic at the time that such shares are issued and will be issued in compliance with the constating documents of First Majestic and all applicable Laws. As of the Effective Date, all of the Replacement Warrants will be outstanding as duly authorized and validly existing warrants to acquire First Majestic Shares, which will not be issued in violation of the terms of any agreement or other understanding binding upon First Majestic at the time at which they are issued and will be issued in compliance with the constating documents of First Majestic and all applicable Laws.
3.2.3 Authority and No Violation.
(a) |
First Majestic has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by First Majestic and the consummation by First Majestic of the transactions contemplated by this Agreement have been duly authorized by its board of directors and no other corporate proceedings on its part are necessary to authorize this Agreement or the transactions contemplated hereby other than the approval by its board of directors of other matters (if any) relating solely to the implementation of the Arrangement. |
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(b) |
This Agreement has been duly executed and delivered by First Majestic and constitutes a legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and other similar Laws affecting creditors rights generally, and to general principles of equity. All documents required to be executed by First Majestic in connection with the transactions contemplated herein will be duly executed and delivered by First Majestic and, when so executed and delivered, will constitute a legal, valid and binding obligation, enforceable against First Majestic in accordance with its terms, subject to bankruptcy, insolvency and other similar Laws affecting creditors rights generally, and to general principles of equity. |
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(c) |
The approval of this Agreement and the other documents required to be executed by First Majestic in connection with the transactions contemplated herein, the execution and delivery by First Majestic of this Agreement and such other documents, the performance by it of its obligations hereunder and the completion of the Arrangement and the transactions contemplated thereby, will not: |
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(i) |
conflict with, result in a violation or breach of, require any consent to be obtained under or give rise to any termination rights or payment obligation under any provision of: |
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(A) |
its notice of articles or articles; |
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(B) |
any resolutions of its board of directors (or any committee thereof) or shareholders; |
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(C) |
any applicable Laws subject to obtaining authorization for listing of the First Majestic Shares issuable in connection with the Arrangement and upon exercise of the Replacement Warrants on the TSX; or |
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(D) |
any material contract, agreement, licence, franchise or permit to which it is party or by which it is bound; |
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(ii) |
give rise to any right of termination or acceleration of indebtedness of First Majestic, or cause any third party indebtedness to come due before its stated maturity or cause any available credit to cease to be available; or |
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(iii) |
except as would not, individually or in the aggregate, have a Material Adverse Effect on First Majestic, result in the imposition of any Encumbrance upon any of its assets, or restrict, hinder, impair or limit its ability to carry on its business as and where it is now being carried on or as and where it may be carried on in the future. |
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(d) |
No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or other Person is required to be obtained by First Majestic in connection with the execution and delivery of this Agreement or the consummation by First Majestic of the transactions contemplated hereby other than: |
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(i) |
obtaining authorization for listing of the First Majestic Shares issuable in connection with the Arrangement and upon exercise of the Replacement Warrants on the TSX; |
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(ii) |
any approvals required by the Interim Order; |
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(iii) |
the Final Order; and |
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(iv) |
any other consents, approvals, orders, authorizations, declarations or filings of or with a Governmental Entity which, if not obtained, would not in the aggregate have a Material Adverse Effect on First Majestic. |
3.2.4 No Defaults . Neither First Majestic nor any First Majestic Subsidiary is in default under, and there exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute such a default under, any contract, agreement, licence or franchise to which it is a party which would, if terminated due to such default, cause a Material Adverse Effect on First Majestic.
3.2.5 Ownership of First Majestic Subsidiaries . First Majestic or one or more of the First Majestic Subsidiaries is the sole beneficial and registered owner of all of the outstanding shares in the capital of each of the First Majestic Subsidiaries with good and marketable title thereto, free and clear of all Encumbrances. No person has any other agreement, option, commitment, arrangement, or any other right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, option or commitment (including any such right or privilege under convertible securities, warrants or convertible obligations of any nature) for the purchase, subscription, allotment or issuance of, or conversion into, any of the unissued shares or any other securities of the First Majestic Subsidiaries or the purchase or other acquisition from the First Majestic Subsidiaries of any of their undertakings, business or assets.
3.2.6 Reporting Issuer; Public Documents.
(a) |
First Majestic is a reporting issuer in each of the provinces of Canada except Québec and is not in default of any of its filing obligations under applicable securities Laws and the First Majestic Shares are listed and posted for trading on the TSX. |
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(b) |
No order ceasing, halting or suspending trading in securities of First Majestic or prohibiting the distribution of such securities has been issued to and is outstanding against First Majestic and no investigations or proceedings for such purposes are, to the knowledge of First Majestic, pending or threatened. |
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(c) |
The documents contained in First Majestic's Information Record were, at their respective dates, true and correct in all material respects and did not omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. |
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(d) |
First Majestic has publicly disclosed in First Majestics Information Record all information regarding any event, circumstance or action taken or failed to be taken which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on First Majestic. |
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(e) |
Except as qualified by the disclosure in First Majestic's Information Record, and except as otherwise disclosed in writing to Normabec, First Majestic beneficially owns or leases the properties, business and assets or the interests in the properties, business or assets referred to in First Majestic's Information Record, no party is challenging or disputing First Majestic's title to any such properties, business or assets and all agreements by which First Majestic holds an interest in a property, business or assets are in good standing according to their terms and the properties are in good standing under the applicable laws of the jurisdictions in which they are situated. |
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(f) |
The financial statements of First Majestic, including the notes thereto, included in First Majestics Information Record comply as to form and content in all material respects with applicable Laws with respect thereto, have been prepared in accordance with generally accepted accounting principles consistently applied (except as may be indicated in the notes) and present fairly the consolidated financial position of First Majestic at the dates thereof and the consolidated results of its operations and cash flows for the periods then ended (subject, in the case of unaudited financial statements, to normal year-end adjustments). |
3.2.7 Absence of Certain Changes or Events . Except as disclosed in the First Majestic Information Record, since December 31, 2008 First Majestic has conducted its business only in the ordinary course of business and there has not occurred:
(a) |
any Material Adverse Change in respect of First Majestic; or |
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(b) |
any agreement or arrangement to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Agreement materially untrue or incorrect as of the date when made. |
3.2.8 Legal Proceedings . Except as disclosed in First Majestics Information Record, there are no claims, actions, suits, complaints, investigations or proceedings (whether private, governmental or otherwise, and whether or not purportedly on behalf of First Majestic or any First Majestic Subsidiary) in progress, pending, or to the knowledge of First Majestic, threatened, against or affecting First Majestic or any First Majestic Subsidiary (including actions, suits, investigations or proceedings against any directors, officers or employees of First Majestic or any First Majestic Subsidiary which relate to the business, affairs, assets or operations of First Majestic ) , at law or in equity, or before or by any Tribunal which could reasonably be expected to have a Material Adverse Effect on First Majestic. First Majestic is not aware of any grounds on which any such action, suit, investigation or proceeding might be commenced with any reasonable likelihood of success.
3.2.9 Compliance with Applicable Laws . First Majestic and each of the First Majestic Subsidiaries has conducted and is conducting its business in compliance in all material respects with all applicable Laws, in each jurisdiction in which its business is carried on, is not in material breach of any of such Laws and is duly licenced or registered in each jurisdiction in which it owns or leases its property and assets or carries on its business, so as to enable its business to be carried on as now conducted and its property and assets to be so owned or leased.
3.2.10 No Breach of Material Contracts. Except as disclosed in First Majestics Information Record, First Majestic and each of the First Majestic Subsidiaries has performed all of the material obligations required to be performed by it, and is entitled to all benefits under, and is not in default in respect of, any Material Agreement to which it is a party. Except as disclosed in First Majestics Information Record, each of the Material Agreements is enforceable, is in full force and effect, unamended, and there exists no breach thereof or default or event of default or event, occurrence, condition or act with respect to First Majestic or any First Majestic Subsidiary or, to First Majestics knowledge, with respect to the other contracting party or otherwise that, with or without the giving of notice, the lapse of time or the happening of any other event or conditions, would (a) become a default or event of default under any Material Agreement, or (b) result in the loss or expiration of any right or option by First Majestic or any First Majestic Subsidiary (or the gain thereof by any third party) under any Material Agreement.
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3.2.11 Mineral Rights.
(a) |
All of the material Mineral Rights of First Majestic and the First Majestic Subsidiaries have been disclosed in the First Majestic Information Record. |
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(b) |
First Majestic is not aware of any defects, failures or impairments in the title of First Majestic or the First Majestic Subsidiaries to their material Mineral Rights or to their mining facilities, whether or not an action, suit, proceeding or inquiry is pending or threatened and whether or not discovered by any third party, which in aggregate could have a Material Adverse Effect in respect of First Majestic. |
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(c) |
First Majestic and each of the First Majestic Subsidiaries has duly and timely satisfied all of the obligations required to be satisfied, performed and observed by it under, and there exists no default or event of default or event, occurrence, condition or act which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default by First Majestic or any First Majestic Subsidiary under any material agreement pertaining to their respective material Mineral Rights or to their other respective material assets or properties and each such lease, contract or other agreement is enforceable and in full force and effect. |
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(d) |
Subject to the rights, covenants, conditions and stipulations in the title documents and any agreement pertaining to its material assets or properties (including the material Mineral Rights of First Majestic and the First Majestic Subsidiaries) and on the lessee's or holder's part thereunder to be paid or performed and observed, First Majestic and each of the First Majestic Subsidiaries may enter into and upon, hold and enjoy its respective material property and assets (including its respective material Mineral Rights) for the remainder of their respective terms and all renewals or extensions thereof for its own use and benefit without any lawful interruption of or by any other person whomsoever claiming by, through or under First Majestic or any First Majestic Subsidiary. |
3.2.12 Other Negotiations. None of First Majestic, any First Majestic Subsidiary or, to the knowledge of First Majestic, any of their respective directors, officers or shareholders (nor any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of First Majestic or any First Majestic Subsidiary or at their respective direction) (a) has entered into any agreement that conflicts with any of the transactions contemplated by this Agreement, or (b) has entered into any agreement or had any discussions with any Person regarding any transaction involving First Majestic or any First Majestic Subsidiary which could reasonably be expected to result in any of First Majestic, any First Majestic Subsidiary or any of the officers, directors, employees, agents or shareholders of any of them being subject to any claim for liability to such Person as a result of entering into this Agreement or consummating the transactions contemplated hereby.
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3.2.13 Disclosure . As of the date hereof, the representations and warranties of First Majestic contained in this Agreement and in any agreement, certificate, affidavit, statutory declaration or other document delivered or given pursuant to this Agreement are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained in such representations and warranties not misleading to First Majestic.
3.3 Non-Waiver . No investigations made by or on behalf of any of the parties at any time shall have the effect of waiving, diminishing the scope of or otherwise affecting any representation or warranty made by any other party herein or pursuant hereto, unless disclosure of the fact at issue is expressly made in writing to the other party prior to the execution hereof and such disclosure contains no material untrue statement.
3.4 Survival . For greater certainty, the representations and warranties of Normabec and First Majestic contained herein shall survive the execution and delivery of this Agreement and shall terminate on the earlier of the termination of this Agreement in accordance with its terms and the Expiration Date.
ARTICLE 4
COVENANTS
4.1 Retention of Goodwill . During the Pre-Effective Date Period, Normabec will and will cause each of the Normabec Subsidiaries to, subject to the fact that the Arrangement and related transactions are contemplated hereby, continue to carry on the Business in the ordinary course of business, working to preserve the attendant goodwill of Normabec and the Normabec Subsidiaries and to contribute to retention of that goodwill to and after the Effective Date, but subject to the following provisions of this Article 4. The following provisions of this Article 4 are intended to be in furtherance of this general commitment, subject to the fact that the Arrangement and related transactions are contemplated hereby.
4.2 Covenants of Normabec.
(a) |
Normabec covenants and agrees that, during the Pre-Effective Date Period, except with the consent of First Majestic to any deviation therefrom or with respect to any matter contemplated by this Agreement or the Plan of Arrangement, Normabec will, and will cause each of the Normabec Subsidiaries to: |
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(i) |
carry on its respective business in, and only in, the ordinary and regular course in substantially the same manner as heretofore conducted and, to the extent consistent with such business, use all reasonable efforts to preserve intact its present business organization and keep available the services of its present officers and employees and others having business dealings with it to the end that its goodwill and business shall be maintained; |
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(ii) |
not commence to undertake a substantial or unusual expansion of its business facilities or an expansion that is out of the ordinary course of business consistent with prior practice; |
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(iii) |
not split, combine or reclassify any of its outstanding shares, nor declare or pay any dividends on or make any other distributions (in either case, in stock or property) on or in respect of its outstanding shares; |
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(iv) |
not amend its articles or bylaws or other constating documents; |
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(v) |
not sell, pledge, encumber, allot, reserve, set aside or issue, authorize or propose the sale, pledge, encumbrance, allotment, reservation, setting aside or issuance of, or purchase or redeem or propose the purchase or redemption of, any shares in its capital stock or any class of securities convertible or exchangeable into, or rights, warrants or options to acquire, any such shares or other convertible or exchangeable securities, except for the issuance of Normabec Shares pursuant to the exercise of Normabec Warrants or of fully vested Normabec Options granted prior to the date hereof; |
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(vi) |
not accelerate the vesting of any unvested Normabec Options or otherwise amend, vary or modify Normabecs stock option plan or any Normabec Options; |
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(vii) |
not acquire or agree to acquire any of its outstanding shares or other securities; |
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(viii) |
not reorganize, amalgamate or merge with any other person, nor acquire or agree to acquire by amalgamating, merging or consolidating with, purchasing substantially all of the assets of or otherwise, any business of any corporation, partnership, association or other business organization or division thereof; |
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(ix) |
not guarantee the payment of indebtedness by a third party or incur indebtedness for money borrowed or issue or sell any Debt Instruments; |
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(x) |
other than as specifically contemplated in this Agreement, not enter into or modify any employment, severance, collective bargaining or other Employee Benefits, policies or arrangements with, or grant any bonuses, salary increases, stock options, pension or supplemental pension benefits, profit sharing, retirement allowances, deferred compensation, incentive compensation, severance or termination pay to, or make any loan to, any officers, directors or employees of Normabec or any of the Normabec Subsidiaries; |
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(xi) |
not, except in the ordinary course of business: |
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(A) |
satisfy or settle any claims or liabilities prior to the same being due, except such as have been reserved against in the 2008 Financial Statements, which are, individually or in the aggregate, material; |
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(B) |
grant any waiver, exercise any option or relinquish any contractual rights which are, individually or in the aggregate, material; or |
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(C) |
enter into any interest rate, currency or commodity swaps, hedges or other similar financial instruments; |
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(xii) |
not settle or compromise any claim brought by any present, former or purported holder of any of its securities in connection with the transactions contemplated by this Agreement or the Arrangement; |
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(xiii) |
not enter into any material contract, agreement, licence, franchise, lease transaction, commitment or other right or obligation or amend, modify, relinquish, terminate or fail to renew in any material respect any Material Agreement; |
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(xiv) |
not acquire or sell, pledge, encumber or otherwise dispose of any material property or assets or incur or commit to incur capital expenditures prior to the Effective Date, other than in the ordinary course of business, and not, in any event, exceeding $10,000 in the aggregate; |
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(xv) |
not make any changes to existing accounting practices, except as required by applicable Law or required by generally accepted accounting principles or make any material tax election inconsistent with past practice; and |
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(xvi) |
promptly advise First Majestic orally and, if then requested, in writing: |
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(A) |
of any event occurring subsequent to the date of this Agreement that would render any representation or warranty of Normabec contained in this Agreement (except any such representation or warranty which speaks as of a date prior to the date of this Agreement), if made on or as of the date of such event or the Effective Date, untrue or inaccurate in any material respect; |
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(B) |
of any Material Adverse Change in respect of Normabec; and |
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(C) |
of any breach by Normabec of any covenant or agreement contained in this Agreement. |
(b) |
Normabec shall perform all obligations required or desirable to be performed by Normabec under this Agreement and shall do all such other acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated in this Agreement, and shall cause Newco to act likewise, and without limiting the generality of the foregoing, Normabec shall and, where applicable, shall cause Newco to: |
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(i) |
use all reasonable efforts to obtain the approvals of Normabec Securityholders to the Arrangement at the Normabec Meeting, as provided for in Section 2.2 and in the Interim Order; |
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(ii) |
apply for and use all reasonable efforts to obtain the Interim Order and the Final Order; |
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(iii) |
carry out the terms of the Interim Order and Final Order applicable to it and use its reasonable efforts to comply promptly with all requirements which applicable Laws may impose on Normabec with respect to the transactions contemplated hereby and by the Arrangement; |
41
(iv) |
defend all lawsuits or other legal, regulatory or other proceedings challenging or affecting this Agreement or the consummation of the transactions contemplated hereby; |
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(v) |
use all reasonable efforts to have lifted or rescinded any injunction or restraining order or other order relating to it which may adversely affect the ability of the parties to consummate the transactions contemplated hereby; |
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(vi) |
on or before the Effective Date, effect all necessary registrations, filings, notices and submissions of information required by Governmental Entities from Normabec or the Normabec Subsidiaries relating to the transactions contemplated herein; |
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(vii) |
use all reasonable efforts to obtain, on or before the Effective Date, all Applicable Regulatory Approvals required by Governmental Entities for Normabec or the Normabec Subsidiaries; |
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(viii) |
in connection with the Arrangement and other transactions contemplated herein, use its reasonable efforts to obtain, before the Effective Date, all necessary waivers, consents and approvals required to be obtained by Normabec or the Normabec Subsidiaries from other parties pursuant to the Material Agreements (including the consents, approvals and waivers referred to in Section 5.2(g)); |
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(ix) |
prepare the 2009 Financial Statements in accordance with generally accepted accounting principals, on a basis consistent with previous years, use all reasonable efforts to have such statements audited by its auditors, and following such audit file such statements on SEDAR; |
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(x) |
use all reasonable efforts to cause Robert Ayotte to enter into an agreement in a form satisfactory to First Majestic, to transfer the shares which he owns in each of the Normabec Subsidiaries to such person as First Majestic may direct, effective as of the Effective Time, for a purchase price of $1.00; |
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(xi) |
enter into and use all reasonable efforts to cause Robert Ayotte and Gestion Somiray Inc., a company wholly-owned by Robert Ayotte, to enter into the Ayotte Settlement; |
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(xii) |
use all reasonable efforts to obtain, on or before the Effective Date, written resignations effective as at the Effective Time, from all other directors, administrators and officers of Normabec and each of the Normabec Subsidiaries (other than Newco); |
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(xiii) |
retain Haywood Securities Inc. to prepare an opinion (the Fairness Opinion ), to be addressed to the board of directors of Normabec and the holders of Normabec Shares, to the effect that the Arrangement is fair and reasonable to the holders of Normabec Shares, from a financial point of view, shall co-operate with Haywood Securities Inc. in the preparation of the Fairness Opinion and shall use all reasonable efforts to ensure the Fairness Opinion is delivered by Haywood Securities Inc. prior to the date of mailing the Circular. |
42
4.3 Covenants of First Majestic. First Majestic hereby covenants and agrees:
(a) |
to perform all obligations required or desirable to be performed by it under this Agreement and to do all such other acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated by this Agreement and, without limiting the generality of the foregoing, to: |
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(i) |
use all reasonable efforts to have lifted or rescinded any injunction or restraining order or other order relating to First Majestic which may adversely affect the ability of First Majestic to consummate the transactions contemplated hereby; |
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(ii) |
on or before the Effective Date, effect all necessary registrations, filings and submissions of information required by Governmental Entities from First Majestic or the First Majestic Subsidiaries relating to the transactions contemplated herein; |
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(iii) |
use all reasonable efforts to obtain, on or before the Effective Date, all Applicable Regulatory Approvals required by Governmental Entities for First Majestic or the First Majestic Subsidiaries; and |
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(iv) |
on or before the Effective Date reserve a sufficient number of First Majestic Shares for issuance upon the completion of the Arrangement and the exercise from time to time of Replacement Warrants; |
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(b) |
to carry out the terms of the Interim Order and Final Order applicable to it and use its reasonable efforts to comply promptly with all requirements which applicable Laws may impose on First Majestic with respect to the transactions contemplated hereby and by the Arrangement; |
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(c) |
in connection with the consummation of the transactions contemplated hereby and by the Arrangement, to use its reasonable efforts to obtain, before the Effective Date, all necessary waivers, consents and approvals required to be obtained by First Majestic or the First Majestic Subsidiaries from other parties to loan agreements, leases or other contracts; and |
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(d) |
until the Effective Date or the earlier termination of this Agreement in accordance with Article 6, except (i) with the consent of Normabec to any deviation therefrom which shall not be unreasonably withheld; or (ii) with respect to any matter contemplated by this Agreement or the Plan of Arrangement, First Majestic will: |
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(i) |
not reorganize, amalgamate or merge First Majestic with any other Person, nor acquire by amalgamating, merging or consolidating with, purchasing a majority of the voting securities of or substantially all of the assets of or otherwise, any business or Person which acquisition would reasonably be expected to materially delay the transactions contemplated hereby; and |
43
(ii) |
promptly advise Normabec orally and, if then requested, in writing: |
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(A) |
of any event occurring subsequent to the date of this Agreement that would render any representation or warranty of First Majestic contained in this Agreement (except any such representation or warranty which speaks as of a date prior to the occurrence of such event), if made on or as of the date of such event or the Effective Date, untrue or inaccurate in any material respect; |
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(B) |
of any Material Adverse Change in respect of First Majestic; and |
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(C) |
of any material breach by First Majestic of any covenant or agreement contained in this Agreement. |
4.4 Covenants Regarding Non-Solicitation.
(a) |
Subject to Section 4.5, Normabec shall not, directly or indirectly, through any officer, director, employee, representative or agent of Normabec or any Normabec Subsidiary: |
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(i) |
solicit, initiate or knowingly encourage (including by way of furnishing information or entering into any form of agreement, arrangement or understanding) the initiation of any inquiries or proposals regarding an Acquisition Proposal; |
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(ii) |
participate in any discussions or negotiations regarding any Acquisition Proposal; |
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(iii) |
withdraw or modify in a manner adverse to First Majestic the approval of the board of directors of Normabec of the transactions contemplated hereby; |
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(iv) |
approve or recommend any Acquisition Proposal; or |
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(v) |
enter into any agreement, arrangement or understanding related to any Acquisition Proposal. |
Notwithstanding the preceding part of this Section 4.4(a) and any other provision of this Agreement, nothing shall prevent the board of directors of Normabec prior to the issuance of the Final Order from considering, participating in any discussions or negotiations, or entering into a confidentiality agreement and providing information pursuant to Section 4.4(c), regarding an unsolicited bona fide written Acquisition Proposal that did not otherwise result from a breach of this Section 4.4 and that the board of directors of Normabec determines in good faith, after consultation with financial advisors and outside legal counsel, is reasonably likely to result in a Superior Proposal. Normabec shall not consider, negotiate, accept or recommend an Acquisition Proposal after the date of the issuance of the Final Order. Normabec shall, and shall cause its officers, directors and employees and any financial advisors or other advisors, representatives or agents retained by it, to cease immediately upon execution of this Agreement all discussions and negotiations regarding any proposal that constitutes, or may reasonably be expected to lead to, an Acquisition Proposal.
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(b) |
Normabec shall promptly notify First Majestic, at first orally and then in writing, of any Acquisition Proposal and any enquiry that could lead to an Acquisition Proposal, or any amendments to the foregoing, or any request for non-public information relating to Normabec in connection with an Acquisition Proposal or for access to the properties, books or records of Normabec by any Person that informs Normabec that it is considering making, or has made, a proposal that constitutes, or may reasonably be expected to lead to an Acquisition Proposal. Such notice shall include a description of the material terms and conditions of any proposal, the identity of the Person making such proposal, enquiry or contact and provide such other details of the proposal, enquiry or contact as First Majestic may reasonably request. Normabec shall: |
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(i) |
keep First Majestic fully informed of the status including any change to the material terms of any such Acquisition Proposal or enquiry; and |
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(ii) |
provide to First Majestic as soon as practicable after receipt or delivery thereof with copies of all correspondence and other written material sent or provided to Normabec from any Person in connection with any Acquisition Proposal or sent or provided by Normabec to any Person in connection with any Acquisition Proposal. |
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(c) |
If Normabec receives a request for material non-public information from a Person who has made an unsolicited bona fide written Acquisition Proposal and Normabec is permitted, as contemplated under the second sentence of Section 4.5(a), to negotiate the terms of such Acquisition Proposal, then, and only in such case, the board of directors of Normabec may, subject to the execution by such Person of a confidentiality agreement on terms substantially similar to the Confidentiality Agreement, provide such Person with access to information regarding Normabec; provided, however, that the Person making the Acquisition Proposal shall not be precluded under such confidentiality agreement from making the Acquisition Proposal (but not any material amendment thereto) and provided further that Normabec sends a copy of any such confidentiality agreement to First Majestic promptly upon its execution and concurrently provides First Majestic with a list of or copies of the information provided to such Person and access to similar information which was provided to such Person. |
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(d) |
Normabec shall ensure that its officers, directors and employees and any financial advisors or other advisors, representatives or agents retained by it are aware of the provisions of this Section 4.4, and it shall be responsible for any breach of this Section 4.4 by any such Person. |
4.5 Notice by Normabec of Superior Proposal Determination . Notwithstanding Sections 4.4(a), (b) and (d), Normabec may accept, approve, recommend or enter into any agreement, understanding or arrangement in respect of a Superior Proposal if, and only if:
(a) |
it has provided First Majestic with a copy of the Superior Proposal document; |
45
(b) |
five Business Days shall have elapsed from the later of (i) the date First Majestic received written notice advising First Majestic that Normabecs board of directors has resolved, subject only to compliance with this Section 4.5 and termination of this Agreement, to accept, approve, recommend or enter into an agreement in respect of such Superior Proposal, specifying the terms and conditions of such Superior Proposal and identifying the Person making such Superior Proposal, and (ii) the date First Majestic received a copy of such Superior Proposal; and |
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(c) |
it has previously or concurrently will have: |
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(i) |
paid to First Majestic the break fee, if any, payable under Section 6.3; and |
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(ii) |
terminated this Agreement pursuant to Section 6.2. |
Any information provided by Normabec to First Majestic pursuant to this Section 4.5 or pursuant to Section 4.4 shall be subject to the provisions of Section 3(b) of the Confidentiality Agreement.
During the five Business Day period (the Match Period ) referred to in Section 4.5(b), Normabec agrees that First Majestic shall have the right, but not the obligation, to offer to amend the terms of this Agreement. The board of directors of Normabec will review any offer by First Majestic to amend the terms of this Agreement in good faith in order to determine, in its discretion in the exercise of its fiduciary duties, whether First Majestics offer upon acceptance by Normabec would result in such Superior Proposal ceasing to be a Superior Proposal. If the board of directors of Normabec so determines, it will enter into an amended agreement with First Majestic reflecting First Majestics amended proposal and will, within two Business Days of entering into such amendment, reaffirm its recommendation of the Arrangement and issue a press release to that effect. If the board of directors of Normabec continues to believe, in good faith and after consultation with financial advisors and outside legal counsel, that such Superior Proposal remains a Superior Proposal and therefore rejects First Majestics amended proposal, Normabec may terminate this Agreement pursuant to Section 6.2(c)(iv); provided, however, that Normabec must concurrently therewith pay to First Majestic the break fee, if any, payable to First Majestic under Section 6.3 and must prior to or concurrently with such termination enter into a binding agreement, understanding or arrangement with respect to such Acquisition Proposal. Normabec acknowledges and agrees that payment of the break fee, if any, payable under Section 6.3 is a condition to valid termination of this Agreement under Section 6.2(c)(iv) and this Section 4.5.
If, less than six Business Days before the Normabec Meeting, Normabec has provided First Majestic with a notice under Section 4.5(b), an Acquisition Proposal has been publicly disclosed or announced and the Match Period has not elapsed, then, subject to applicable Laws, at First Majestics request, Normabec will postpone or adjourn the Normabec Meeting to a date acceptable to First Majestic and Normabec, acting reasonably, which shall not be less than five Business Days and not more than 10 Business Days after the scheduled date of the Normabec Meeting and shall, in the event that First Majestic and Normabec amend the terms of this Agreement pursuant to this Section 4.5, ensure that the details of such amended Agreement are communicated to the Normabec Shareholders at or prior to the resumption of the adjourned Normabec Meeting
Normabec also acknowledges and agrees that each successive modification of any Acquisition Proposal shall constitute a new Acquisition Proposal for purposes of the requirement under clause (b) of this Section 4.5 to initiate an additional five Business Day notice period.
46
4.6 Access to Information. Subject to the terms of the Confidentiality Agreement and applicable Laws, upon reasonable notice, Normabec shall afford First Majestics officers, employees, counsel, accountants and other authorized representatives and advisors ( Representatives ) access, during normal business hours in the Pre-Effective Date Period to such properties, books, contracts and records and other documents, information or data relating to Normabec and the Normabec Subsidiaries which First Majestic or its Representatives deem necessary or advisable to review in making an examination of Normabec, the Normabec Subsidiaries and the Business, as well as to its management personnel, and, during such period, Normabec shall furnish promptly to First Majestic all information concerning Normabec, the Normabec Subsidiaries and their respective Business, properties and personnel as First Majestic or its Representatives may reasonably request. Subject to applicable Laws, upon reasonable notice, First Majestic shall afford Normabecs Representatives access, during normal business hours in the Pre-Effective Date Period to such of First Majestics management personnel as First Majestic may determine, acting reasonably, and, during such period, First Majestic shall furnish promptly to Normabec all information respecting material changes in First Majestics business, properties and personnel as Normabec may reasonably request. At the request of First Majestic, Normabec will execute or cause to be executed such consents, authorizations and directions as may be necessary to enable First Majestic or its Representatives to obtain full access to all files and records relating to Normabec or its assets maintained by any Governmental Entity.
4.7 Covenant Regarding Representations and Warranties . Each of Normabec and First Majestic covenants that it will use all reasonable efforts to ensure that the representations and warranties given by it and contained in Article 3 are true and correct on and as at the Effective Date (except as affected by transactions contemplated or permitted by this Agreement or otherwise consented to by the other parties hereto) or if not true, do not have a Material Adverse Effect on such party.
4.8 Closing Matters . Each of First Majestic, Normabec and Newco shall deliver, at the closing of the Arrangement and other transactions contemplated hereby, such customary certificates (including bring-down certificates), resolutions, opinions and other closing documents as may be required by the other party, acting reasonably. The closing of the Arrangement and the transactions contemplated hereby will take place at 9:00 a.m. (Pacific Time) on the Effective Date at the offices of McCullough OConnor Irwin LLP, 1100 888 Dunsmuir Avenue, Vancouver, British Columbia or such other time and place as the parties hereto may agree, acting reasonably.
ARTICLE 5
CONDITIONS
5.1 Mutual Conditions Precedent. The respective obligations of the parties to complete the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Effective Date, of the following conditions precedent, each of which may only be waived by the mutual consent of First Majestic and Normabec (on behalf of itself and Newco):
(a) |
the Arrangement shall have been approved at the Normabec Meeting by not less than two-thirds of the votes cast by the Normabec Shareholders who are represented in person or by proxy thereat in the manner contemplated by Article 2; |
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(b) |
the Arrangement shall have been approved at the Normabec Meeting in accordance with any conditions in addition to those set out in Section 5.1(a) which may be imposed by the CBCA or the Interim Order; |
47
(c) |
the Interim Order and the Final Order shall each have been obtained in form and terms satisfactory to each of Normabec and First Majestic, acting reasonably, and shall not have been set aside or modified in a manner unacceptable to such parties, acting reasonably, on appeal or otherwise; |
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(d) |
there shall not be in force any order or decree restraining or enjoining the consummation of the transactions contemplated by this Agreement and there shall be no proceeding (other than an appeal made in connection with the Arrangement), of a judicial or administrative nature or otherwise, in progress or threatened that relates to or results from the transactions contemplated by this Agreement that would, if successful, result in an order or ruling that would preclude completion of the transactions contemplated by this Agreement in accordance with the terms hereof or would otherwise be inconsistent with the Applicable Regulatory Approvals which have been obtained; |
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(e) |
this Agreement shall not have been terminated pursuant to Article 6; |
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(f) |
Normabec shall have received the consent of the TSXV to the transactions contemplated herein; |
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(g) |
the First Majestic Shares issuable (i) pursuant to the Arrangement, (ii) to Gestion Somiray Inc. under Section 5.2(k); and (iii) upon exercise of the Replacement Warrants from time to time, shall have been authorized for listing on the TSX, subject to official notice of issuance; |
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(h) |
the various issuances and exchanges of Normabec Shares, Normabec Warrants, Newco Shares, Newco Warrants, First Majestic Shares and Replacement Warrants will be exempt from the registration requirements of the U.S. Securities Act and the registration and prospectus requirements of applicable securities Laws in each of the Provinces of Canada in which holders of Normabec securities are resident; and such First Majestic securities will not be subject to hold periods under the securities laws of Canada or the United States except as may be imposed by Rule 144 under the U.S. Securities Act with respect to affiliates or except as disclosed in the Circular or except by reason of the existence of any controlling interest in First Majestic pursuant to the securities laws of any applicable jurisdiction; |
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(i) |
the board of directors of Normabec shall have received the Fairness Opinion; |
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(j) |
all consents, waivers, permits, orders and approvals of any Governmental Entity, and the expiry of any waiting periods, in connection with, or required to permit, the consummation of the Arrangement and the other transactions contemplated herein, the failure of which to obtain or the non-expiry of which would constitute a criminal offense, or would have a Material Adverse Effect on First Majestic or Normabec, as the case may be, shall have been obtained or received on terms that will not have a Material Adverse Effect on First Majestic and/or Normabec and there shall not be pending or threatened any suit, action or proceeding by any Governmental Entity, in each case that has a reasonable likelihood of success: |
(i) |
seeking to restrain or prohibit the consummation of the Plan of Arrangement or seeking to obtain from any of the parties hereto any damages that are material in relation to Normabec; |
48
(ii) |
seeking to prohibit or materially limit the ownership or operation by First Majestic or any of the First Majestic Subsidiaries of any material portion of the business or assets of Normabec or any Normabec Subsidiary or to compel First Majestic or any of the First Majestic Subsidiaries to dispose of or hold separate any material portion of the business or assets of Normabec or any Normabec Subsidiary; |
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(iii) |
seeking to impose limitations on the ability of First Majestic to acquire or hold, or exercise full rights of ownership of, any Normabec Shares, including the right to vote the Normabec Shares on all matters properly presented to the shareholders of Normabec; |
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(iv) |
seeking to prohibit First Majestic or any of the First Majestic Subsidiaries from effectively controlling in any material respect the business or operations of Normabec or any Normabec Subsidiary; or |
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(v) |
which otherwise is reasonably likely to have a Material Adverse Effect on Normabec or First Majestic; and |
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(k) |
First Majestic and Newco shall have entered into a subscription agreement on mutually satisfactory terms (acting reasonably) pursuant to which First Majestic shall have agreed to purchase securities representing approximately (and no less than) 10% of the issued and outstanding shares of Newco for an aggregate purchase price of $300,000, such purchase to be effective immediately prior to listing of Newco on the TSXV. |
5.2 Additional Conditions Precedent to the Obligations of First Majestic . The obligations of First Majestic to complete the transactions contemplated by this Agreement shall also be subject to the fulfillment of each of the following conditions precedent (each of which is for the exclusive benefit of First Majestic and may be waived by First Majestic and any one or more of which, if not satisfied or waived, will relieve First Majestic of any obligation under this Agreement):
(a) |
all covenants and agreements of Normabec under this Agreement to be performed or observed on or before the Effective Date shall have been duly performed and observed by Normabec in all material respects; |
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(b) |
the representations and warranties of Normabec contained in this Agreement shall be true and correct in all material respects as of the Effective Date as if made on and as of such date (except to the extent such representations and warranties speak as of a specified date which is earlier than the date of this Agreement, in which event such representations and warranties shall be true and correct in all material respects as of such earlier specified date, or except as affected by transactions contemplated or permitted by this Agreement or otherwise consented to by First Majestic) and First Majestic shall have received a certificate of Normabec addressed to First Majestic and dated the Effective Date, signed on behalf of Normabec by two directors or senior executive officers of Normabec, confirming the same as at the Effective Date; |
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(c) |
between the date hereof and the Effective Date, there shall not have occurred, in the judgment of First Majestic, acting reasonably, a Material Adverse Change to Normabec; provided that a reduction in the market price or value of the Normabec Shares on the TSXV or any other stock exchange or quotation system on which the Normabec Shares may be listed or posted for trading shall not, in and of itself, constitute such a Material Adverse Change; |
49
(d) |
the board of directors of Normabec shall have adopted all necessary resolutions, and all other necessary corporate action shall have been taken by Normabec, to permit the consummation of the Arrangement; |
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(e) |
the board of directors of Normabec shall have made and shall not have withdrawn or modified or amended, in any material respect, prior to the Normabec Meeting, an affirmative recommendation that the holders of Normabec Shares approve the Arrangement; |
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(f) |
holders of more than 5% of the issued and outstanding Normabec Shares shall not have exercised the Dissent Rights in respect of the Arrangement; |
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(g) |
all consents, approvals, authorizations and waivers of any Persons (other than Governmental Entities) which are required, necessary or desirable for the completion of the Arrangement and other transactions contemplated hereby (including all those consents, approvals, authorizations and waivers required under the Material Agreements and referred to in the Normabec Disclosure Schedule) shall have been obtained or received on terms which are acceptable to First Majestic, acting reasonably; |
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(h) |
each of the Lock-up Agreements shall be and remain in full force and effect, unamended, and each of the parties thereto (other than First Majestic) shall be, in all material respects, in full compliance with their respective obligations thereunder; |
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(i) |
Normabec shall have prepared in accordance with generally accepted accounting principles, applied on a basis consistent with previous years, and filed on SEDAR the 2009 Financial Statements and the 2009 Financial Statements shall be correct and complete and present fairly the consolidated financial position of Normabec as at the date thereof and the consolidated results of its operations as cash flows for the period then ended; |
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(j) |
Robert Ayotte shall have sold the shares which he owns in each of the Normabec Subsidiaries to such person as First Majestic may direct effective as of the Effective Time, for a purchase price of $1.00; |
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(k) |
Robert Ayotte and Gestion Somiray Inc. shall have entered into a settlement agreement (the Ayotte Settlement ) with First Majestic and Normabec on terms reasonably satisfactory to First Majestic [REDACTED INFORMATION]; and |
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(l) |
Normabec shall have provided to First Majestic, on or before the Effective Date, written resignations effective as of the Effective Time, from all other directors, administrators and officers of Normabec and the Normabec Subsidiaries (other than Newco). |
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First Majestic may not rely on the failure to satisfy any of the above conditions precedent as a basis for a non-compliance by it with its obligations under this Agreement if the condition precedent would have been satisfied but for a material default by First Majestic in complying with its obligations hereunder.
5.3 Additional Conditions Precedent to the Obligations of Normabec . The obligations of Normabec to complete the transactions contemplated by this Agreement shall also be subject to the following conditions precedent (each of which is for the exclusive benefit of Normabec and may be waived by Normabec and any one or more of which, if not satisfied or waived, will relieve Normabec of any obligation under this Agreement):
(a) |
all covenants of First Majestic under this Agreement to be performed on or before the Effective Date shall have been duly performed by First Majestic in all material respects; |
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(b) |
all representations and warranties of First Majestic contained in this Agreement shall be true and correct in all material respects as of the Effective Date as if made on and as of such date (except to the extent such representations and warranties speak as of a specified date which is earlier than the date of this Agreement, in which event such representations and warranties shall be true and correct in all material respects as of such earlier specified date, or except as affected by transactions contemplated or permitted by this Agreement) and Normabec shall have received a certificate of First Majestic addressed to Normabec and dated the Effective Date, signed on behalf of First Majestic by two senior executive officers of First Majestic confirming the same as at the Effective Date; |
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(c) |
between the date hereof and the Effective Date, there shall not have occurred, in the judgment of Normabec, acting reasonably, a Material Adverse Change to First Majestic; provided that a reduction in the market price or value of the First Majestic Shares on the TSX or any other stock exchange or quotation system on which the First Majestic Shares may be listed or posted for trading shall not, in and of itself, constitute such a Material Adverse Change; and |
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(d) |
the board of directors of First Majestic shall have adopted all necessary resolutions, and all other necessary corporate action shall have been taken by First Majestic to permit the consummation of the Arrangement and the issue of First Majestic Shares pursuant to the Arrangement, pursuant to Section 5.2(k) and upon the exercise from time to time of the Replacement Warrants. |
Normabec may not rely on the failure to satisfy any of the above conditions precedent as a basis for noncompliance by Normabec with its obligations under this Agreement if the condition precedent would have been satisfied but for a material default by Normabec in complying with its obligations hereunder.
5.4 Notice and Cure Provisions . First Majestic and Normabec will give prompt notice to the other of the occurrence, or failure to occur, at any time from the date hereof until the Effective Date, of any event or state of facts which occurrence or failure would, or would be likely to:
(a) |
cause any of the representations or warranties of the other contained herein to be untrue or inaccurate in any material respect on the date hereof or on the Effective Date; or |
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(b) |
result in the failure to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by the other hereunder prior to the Effective Date. |
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Neither First Majestic nor Normabec may elect not to complete the transactions contemplated hereby pursuant to the conditions precedent contained in Sections 5.1, 5.2 and 5.3, or exercise any termination right arising therefrom, unless forthwith and in any event prior to the filing of the Final Order for acceptance by the Registrar, First Majestic or Normabec, as the case may be, has delivered a written notice to the other specifying in reasonable detail all breaches of covenants, representations and warranties or other matters which First Majestic or Normabec, as the case may be, are asserting as the basis for the non-fulfillment of the applicable condition precedent or the exercise of the termination right, as the case may be. If any such notice is delivered, provided that First Majestic or Normabec, as the case may be, are proceeding diligently to cure such matter, if such matter is susceptible to being cured, the other may not terminate this Agreement until the earlier of the Drop Dead Date and the expiration of a period of 15 days from such notice. If such notice has been delivered prior to the date of the Normabec Meeting, such meeting shall be postponed until the expiry of such period. If such notice has been delivered prior to the making of the application for the Final Order or the filing of the Amalgamation Application with the Registrar, such application and such filing shall be postponed until the expiry of such period. For greater certainty, in the event that such matter is cured within the time period referred to herein, this Agreement may not be terminated as a result of such matter.
5.5 Satisfaction of Conditions . The conditions precedent set out in Sections 5.1, 5.2 and 5.3 shall be conclusively deemed to have been satisfied, waived or released when, with the approval of First Majestic and Normabec a certificate of arrangement in respect of the Arrangement is issued by the Director.
ARTICLE 6
AMENDMENT AND TERMINATION
6.1 Amendment . This Agreement may, at any time and from time to time before or after the holding of the Normabec Meeting but not later than the Effective Date, be amended by mutual written agreement of the parties hereto provided, however, that any such change, waiver or modification does not invalidate any required approval of the Normabec Securityholders to the Arrangement.
6.2 Termination.
(a) |
If any condition contained in Sections 5.1 or 5.2 is not satisfied on or before the Effective Date, to the satisfaction of First Majestic, then First Majestic may by notice to Normabec terminate this Agreement and the obligations of the parties hereunder except as otherwise herein provided, but without detracting from the rights of First Majestic arising from any breach by Normabec but for which the condition would have been satisfied. |
|
(b) |
If any condition contained in Sections 5.1 or 5.3 is not satisfied on or before the Effective Date to the satisfaction of Normabec, then Normabec may by notice to First Majestic terminate this Agreement and the obligations of the parties hereunder except as otherwise herein provided, but without detracting from the rights of Normabec arising from any breach by First Majestic but for which the condition would have been satisfied. |
|
(c) |
This Agreement may, at any time before or after the holding of the Normabec Meeting but not later than the Effective Date: |
52
(i) |
be terminated by the mutual agreement of Normabec and First Majestic without further action on the part of the holders of Normabec Shares if terminated after the holding of the Normabec Meeting; |
||
(ii) |
be terminated by either Normabec or First Majestic, if there shall be passed any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or if any injunction, order or decree enjoining First Majestic, Newco or Normabec from consummating the transactions contemplated by this Agreement is entered and such injunction, order or decree shall become final and non-appealable; |
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(iii) |
be terminated by First Majestic if: |
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(A) |
the board of directors of Normabec shall have failed to recommend or withdrawn or modified or changed in a manner adverse to First Majestic its approval or recommendation of this Agreement or the Arrangement or shall have recommended or approved an Acquisition Proposal; or |
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(B) |
through no fault of First Majestic the Arrangement shall not have been submitted for the approval of the Normabec Shareholders at the Normabec Meeting, on or before November 12, 2009, in the manner provided for in Article 2 and in the Interim Order, unless such failure results from: (i) delays in obtaining all Applicable Regulatory Approvals that are beyond the control of Normabec; or (ii) an adjournment of such meeting for not more than 10 Business Days in the circumstances described in Section 4.5; |
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(iv) |
be terminated by Normabec in order to enter into a definitive written agreement with respect to a Superior Proposal, subject to compliance with Section 4.6 and the payment of the fee required to be paid pursuant to Section 6.3(a); or |
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(v) |
be terminated by either Normabec or First Majestic if the Arrangement, through no fault of First Majestic, shall not have been approved by the Normabec Shareholders, on or before November 12, 2009, in the manner provided for in Article 2 and in the Interim Order, unless such failure results from: (i) delays in obtaining all Applicable Regulatory Approvals that are beyond the control of Normabec; (ii) an adjournment of such meeting for not more than 10 Business Days in the circumstances described in Section 4.5; or (iii) strikes, lockouts, labour, power or fuel shortages, fires, wars, acts of God, civil disturbances or any other reason or reasons of force majeure beyond the reasonable control of Normabec acting in good faith. |
(d) |
Notwithstanding any other provision hereof, if the Effective Date does not occur on or prior to the Drop Dead Date, then this Agreement shall terminate without further action by any party. |
|
(e) |
If this Agreement is terminated in accordance with the foregoing provisions of this Section 6.2, no party shall have any further liability to perform its obligations hereunder, except as provided for in Section 6.3 or as otherwise contemplated hereby, and provided that, subject to Section 6.5, neither the termination of this Agreement nor anything contained in this Section 6.2(e) shall relieve any party from any liability for any breach by it of this Agreement, including from any inaccuracy in its representations and warranties and any non-performance by it of its covenants made herein. |
53
6.3 Break Fee.
(a) |
If: |
||
(i) |
Normabec shall terminate this Agreement pursuant to Section 6.2(c)(iv); |
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(ii) |
First Majestic shall terminate this Agreement pursuant to Section 6.2(c)(iii); |
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(iii) |
an Acquisition Proposal is publicly announced or made to the Normabec Shareholders and is not publicly withdrawn prior to the Normabec Meeting; the Arrangement Resolution is not approved at the Normabec Meeting; either Normabec or First Majestic terminates this Agreement pursuant to Section 6.2(c)(v); and an Acquisition Proposal is consummated within 12 months of such termination; or |
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(iv) |
this Agreement is terminated by First Majestic pursuant to Section 6.2(a) as a result of (i) a breach or non-performance by Normabec of any of its material covenants, agreements, obligations, representations and warranties under this Agreement (other than as a result of or in response to a breach of First Majestic of covenants, agreements, obligations, representations and warranties under this Agreement) which makes it impossible that all of the conditions of this Agreement in favour of First Majestic will be satisfied, or (b) a failure by Normabec to complete the Arrangement and the mutual conditions precedent in Section 5.1 and the additional conditions precedent to the obligations of Normabec in Section 5.3 have been satisfied, |
then in any such case Normabec shall pay to First Majestic the sum of $350,000 in immediately available funds to an account designated by First Majestic. Such payment shall be due and payable:
(v) |
in the case of a termination specified in clause (i), prior to or concurrent with the termination of this Agreement; |
|
(vi) |
in the case of a termination specified in clause (ii), within five Business Days after written notice of termination by First Majestic; |
|
(vii) |
in the case of a termination specified in clause (iii), within five Business Days after consummation of an Acquisition Proposal; or |
|
(viii) |
in the case of a termination specified in clause (iv), within three Business Days after written notice of termination by First Majestic. |
54
Normabec shall not be obligated to make more than one payment pursuant to this Section 6.3(a). |
||
(b) |
If this Agreement is terminated by Normabec pursuant to Section 6.2(b) as a result of (i) a breach or non-performance by First Majestic of any of its material covenants, agreements, obligations, representations and warranties under this Agreement (other than as a result of or in response to a breach of Normabec of covenants, agreements, obligations, representations and warranties under this Agreement) which makes it impossible that all of the conditions of this Agreement in favour of Normabec will be satisfied, or (b) a failure by First Majestic to complete the Arrangement and the mutual conditions precedent in Section 5.1 and the additional conditions precedent to the obligations of First Majestic in Section 5.2 have been satisfied then, in any such case, First Majestic shall pay to Normabec the sum of $350,000 in immediately available funds to an account designated by Normabec. Such payment shall be due and payable within three Business Days after written notice of termination by Normabec. First Majestic shall not be obliged to make more than one payment pursuant to this Section 6.3(b). |
6.4 Liquidated Damages . Each of Normabec and First Majestic acknowledges that the damages set forth in this Article 6 are a genuine pre-estimate of the damages which the other will suffer or incur as a result of the event giving rise to those damages and are not penalties. Each of Normabec and First Majestic irrevocably waives any right it may have to raise as a defence in any proceedings that any such damages are abusive.
6.5 Remedies . Subject to Section 6.6, the parties hereto acknowledge and agree that an award of money damages would be inadequate for any breach of this Agreement by any party or its representatives and any such breach would cause the non-breaching party irreparable harm. Accordingly, the parties hereto agree that, in the event of any breach or threatened breach of this Agreement by one of the parties, the non-breaching party will also be entitled, without the requirement of posting a bond or other security, to equitable relief, including injunctive relief and specific performance. Such remedies will not be the exclusive remedies for any breach of this Agreement but will be in addition to all other remedies available at law or equity to the parties.
6.6 Effect of Break Fee Payment . For greater certainty, the parties agree that the payment of the amount pursuant to Section 6.3 is the sole monetary remedy as a result of the occurrence of any of the events referred to in Section 6.3.
Subject to the immediately preceding paragraph, nothing in this Agreement shall preclude a party from seeking damages in respect of losses incurred or suffered by such party as a result of any breach of this Agreement by the other party, seeking injunctive relief to restrain any breach or threatened breach of the covenants or agreements set forth in this Agreement or the Confidentiality Agreement or otherwise, or seeking specific performance of any of such covenants or agreements, without the necessity of posting bond or security in connection therewith.
ARTICLE 7
GENERAL
7.1 Notices . All notices and other communications which may or are required to be given pursuant to any provision of this Agreement shall be given or made in writing and shall be deemed to be validly given if served personally or by telecopy, in each case addressed to the particular party at:
55
(a) | If to First Majestic: | ||
First Majestic Silver Corp. | |||
1805 925 West Georgia St. | |||
Vancouver, British Columbia V6C 3E8 | |||
Attention: | Keith Neumeyer | ||
Facsimile: | (604) 639-8873 | ||
with a copy to: | |||
McCullough OConnor Irwin LLP | |||
1100 888 Dunsmuir Street | |||
Vancouver, British Columbia V6C 3K4 | |||
Attention : | James D. Beeby | ||
Facsimile: | (604) 687-7099 | ||
(b) | If to Normabec or Newco: | ||
Normabec Mining Resources Limited | |||
144 de Normandie | |||
St. Bruno, Québec J3V 2C3 | |||
Attention: | Robert Ayotte | ||
Facsimile: | (450) 653-3721 | ||
with a copy to: | |||
Miller Thomson Pouliot SENCRL/ LLP | |||
CIBC Tower, 31st Floor | |||
1155 René-Lévesque Blvd. Ouest | |||
Montréal, Québec H3B 3S6 | |||
Attention: | Frank Mariage | ||
Facsimile: | (514) 875-4308 |
or at such other address of which any party may, from time to time, advise the other parties by notice in writing given in accordance with the foregoing. The date of receipt of any such notice shall be deemed to be the date of delivery or telecopying thereof.
7.2 Assignment . No party hereto may assign its rights or obligations under this Agreement or the Arrangement.
7.3 Binding Effect . This Agreement and the Arrangement shall be binding upon and shall enure to the benefit of the parties hereto and their respective successors.
7.4 Waiver and Modification . Each of the parties may waive or consent to the modification of, in whole or in part, any inaccuracy of any representation or warranty made to them hereunder or in any document to be delivered pursuant hereto and may waive or consent to the modification of any of the covenants herein contained for their respective benefit or waiver or consent to the modification of any of the obligations of the other parties hereto. Any waiver or consent to the modification of any of the provisions of this Agreement, to be effective, must be in writing executed by the party granting such waiver or consent.
56
7.5 Further Assurances . Each party hereto shall, from time to time, and at all times hereafter, at the request of the other parties hereto, but without further consideration, do all such further acts and things and execute and deliver all such further documents and instruments as shall be reasonably required in order to fully perform and carry out the terms and intent hereof.
7.6 Expenses . Except as provided in Section 6.3 and the Plan of Arrangement, all out-of-pocket expenses of the parties relating to the Arrangement and the transactions contemplated hereby, including all Third Party Expenses, shall be paid by the party incurring such expenses.
7.7 Consultation . First Majestic and Normabec agree to consult with each other as to the general nature of any news releases or public statements with respect to this Agreement or the Arrangement, and to use their respective reasonable efforts not to issue any news releases or public statements inconsistent with the results of such consultations. Subject to applicable Laws, each party shall use its reasonable efforts to enable the other parties to review and comment on all such news releases prior to the release thereof. The parties agree to issue jointly a news release with respect to this Arrangement as soon as practicable following the execution of this Agreement.
7.8 Governing Laws . This Agreement shall be governed by and construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein and shall be treated in all respects as a British Columbia contract.
7.9 Counterparts . This Agreement may be executed in one or more counterparts and by facsimile or other electronic means, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
57
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first written above.
FIRST MAJESTIC SILVER CORP. | ||
By: | (signed) Keith Neumeyer | |
NORMABEC MINING RESOURCES LIMITED | ||
By: | (signed) Robert Boisjoli | |
4528255 CANADA INC. | ||
By: | (signed) Lewis Lawrick |
EXHIBIT A
ARRANGEMENT RESOLUTIONS
SPECIAL RESOLUTION OF
THE HOLDERS OF COMMON SHARES
OF
NORMABEC MINING RESOURCES LIMITED
BE IT RESOLVED THAT:
1. The arrangement (the Arrangement ) under Section 192 of the Canada Business Corporations Act (the Act ) involving Normabec Mining Resources Limited ( Normabec ), as more particularly described and set forth in the Information Circular (the Circular ) of Normabec dated <>, 2009 (as the Arrangement may be modified or amended), is hereby authorized, approved and adopted.
2. The Plan of Arrangement (the Plan of Arrangement ) involving Normabec, the full text of which is set out as Exhibit B to the Arrangement Agreement made as of September 11, 2009 between First Majestic Silver Corp., Normabec and 4528255 Canada Inc. (the Arrangement Agreement ) (as the Plan of Arrangement may be or may have been amended), is hereby approved and adopted.
3. The Arrangement Agreement, the actions of the directors of Normabec in approving the Arrangement Agreement and the actions of the directors and officers of Normabec in executing and delivering the Arrangement Agreement and any amendments thereto in accordance with its terms are hereby ratified and approved.
4. Notwithstanding that this resolution has been passed (and the Arrangement adopted) by the shareholders of Normabec or that the Arrangement has been approved by the Superior Court of Quebec, the directors of Normabec are hereby authorized and empowered (i) to amend the Arrangement Agreement, or the Plan of Arrangement to the extent permitted by the Arrangement Agreement, and (ii) not to proceed with the Arrangement without further approval of such holders, but only if the Arrangement Agreement is terminated in accordance with Article 6 thereof.
5. Any officer or director of Normabec is hereby authorized and directed for and on behalf of Normabec to execute or cause to be executed, under the seal of Normabec or otherwise, and to deliver or cause to be delivered, all such documents and instruments and to perform or cause to be performed all such other acts and things as in such persons opinion may be necessary or desirable to give full effect to the foregoing resolution and the matters authorized thereby, such termination to be conclusively evidenced by the execution and delivery of such document, agreement or instrument or the doing of any such act or thing.
EXHIBIT B
PLAN OF ARRANGEMENT UNDER THE PROVISIONS OF SECTION 192 OF
THE
CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1
INTERPRETATION
1.1 Definitions . In this Plan of Arrangement, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:
(a) |
Affiliate has the meaning set out in Section 2 of the CBCA; |
|
(b) |
Arrangement means the arrangement under Section 192 of the CBCA on the terms and subject to the conditions set out in this Plan of Arrangement, subject to any amendments or variations thereto made in accordance with Section 6.1 of the Arrangement Agreement or Article 5 hereof or made at the direction of the Court in the Final Order; |
|
(c) |
Arrangement Agreement means the agreement made as of September 11, 2009 between First Majestic, Normabec and Newco as amended, supplemented and/or restated in accordance therewith prior to the Effective Date, providing for, among other things, the Arrangement; |
|
(d) |
Articles means the articles of incorporation of Normabec; |
|
(e) |
Business Day means any day on which commercial banks are open for business in Vancouver, British Columbia and Montréal, Québec, other than a Saturday, a Sunday or a day observed as a holiday in Vancouver, British Columbia under the laws of the Province of British Columbia or the federal laws of Canada or in Montréal, Québec under the laws of the Province of Québec or the federal laws of Canada; |
|
(f) |
CBCA means the Canada Business Corporations Act ; |
|
(g) |
Certificate means the certificate of arrangement issued with respect to the Arrangement pursuant to Section 192 of the CBCA; |
|
(h) |
Circular means the notice of the Meeting and accompanying management proxy circular to be sent to holders of Normabec Shares in connection with the Meeting; |
|
(i) |
Court means the Superior Court of Québec; |
|
(j) |
Depositary means Computershare Investor Services Inc., the depositary appointed by First Majestic and Newco for the purpose of, among other things, exchanging certificates representing First Majestic Shares and Newco Shares in connection with the Arrangement, at such offices as will be set out in the Letter of Transmittal; |
|
(k) |
Director means the Director appointed pursuant to Section 260 of the CBCA; |
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(l) |
Dissent Procedures has the meaning set out in Section 3.1; |
|
(m) |
Dissent Rights has the meaning set out in Section 3.1; |
|
(n) |
Dissenting Shareholder means a holder of Normabec Shares who dissents in respect of the Arrangement in strict compliance with the Dissent Procedures; |
|
(o) |
Effective Date means the date the Certificate is issued by the Registrar; |
|
(p) |
Effective Time means 12:01 a.m. on the Effective Date; |
|
(q) |
Exchange means the TSX Venture Exchange; |
|
(r) |
Final Order means the final order of the Court approving the Arrangement, granted pursuant to Section 192 of the CBCA, as such order may be amended at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed; |
|
(s) |
First Majestic means First Majestic Silver Corp., a company existing under the laws of the Province of British Columbia; |
|
(t) |
First Majestic Exchange Ratio means 0.060425; |
|
(u) |
First Majestic Share means a common share in the authorized share structure of First Majestic and any other securities into which such share may be changed; |
|
(v) |
holder means, (i) when used with reference to any Normabec Securities, the holder of such Normabec Securities (in the case of Normabec Shares, as shown from time to time on the register of shareholders maintained by or on behalf of Normabec in respect of the Normabec Shares), (ii) when used with reference to any First Majestic Shares, means the holder of such First Majestic Shares shown from time to time on the register of shareholders maintained by or on behalf of First Majestic in respect of such First Majestic Shares, and (iii) when used with reference to any Newco Shares, means the holder of such Newco Shares shown from time to time on the register of shareholders maintained by or on behalf of Newco in respect of such Newco Shares; |
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(w) |
Interim Order means the interim order of the Court pursuant to Section 192 of the CBCA made in connection with the process for obtaining shareholder approval of the Arrangement and related matters, as such order may be amended, supplemented or varied by the Court; |
|
(x) |
ITA means the Income Tax Act (Canada); |
|
(y) |
Letter of Transmittal means the Letter of Transmittal for use by holders of Normabec Shares; |
|
(z) |
Meeting means the special meeting of the holders of Normabec Shares (including any adjournment thereof) that is to be convened as provided by the Interim Order to consider and, if deemed advisable, approve the Arrangement; |
|
(aa) |
Meeting Date means the date of the Meeting; |
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(bb) |
Mexican Assets means all shares of Minera Real Bonanza owned by Normabec, any and all records, data, rights, interests, and assets owned or controlled by Normabec in Mexico or pertaining to the Mexican Property and any and all agreements to which Normabec is a party relating to any of the foregoing; |
|
(cc) |
Mexican Property means the property know as the Real de Catorce Property located in San Luis Potosi State, Mexico; |
|
(dd) |
Mineral Rights means all rights, whether contractual or otherwise, for the exploration for or exploitation or extraction of mineral resources and reserves together with surface rights, water rights, royalty interests, fee interests, joint venture interests and other leases, rights of way and enurements related to any such rights; |
|
(ee) |
Minera Real Bonanza means Minera Real Bonanza S.A. de C.V., a company existing under the laws of Mexico; |
|
(ff) |
Newco means 4528255 Canada Inc., a corporation existing under the CBCA; |
|
(gg) |
Newco Exchange Ratio means 0.25; |
|
(hh) |
Newco Share means a common share in the capital of Newco; |
|
(ii) |
Newco Warrant has the meaning set out in Section 2.3(g); |
|
(jj) |
Normabec or the Company means Normabec Mining Resources Limited, a corporation existing under the CBCA; |
|
(kk) |
Normabec Class A Common Share has the meaning set out in Section 2.3(c); |
|
(ll) |
Normabec Option means an option to purchase Normabec Shares outstanding and unexercised immediately prior to the Effective Time; |
|
(mm) |
Normabec Securities means the Normabec Shares, the Normabec Class A Common Shares, the Normabec Warrants and the Normabec Options, collectively; |
|
(nn) |
Normabec Share means a common share without par value in the authorized share capital of Normabec outstanding immediately prior to the Effective Time; |
|
(oo) |
Normabec Warrant means a common share purchase warrant of Normabec outstanding and unexercised immediately prior to the Effective Time; |
|
(pp) |
Person includes any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporation, company, unincorporated association or organization, government body, syndicate or other entity, whether or not having legal status; |
|
(qq) |
Replacement Warrant has the meaning set out in Section 2.3(g); |
|
(rr) |
Shareholder Rights Plan means the shareholder rights plan set out in the Shareholder Rights Plan Agreement dated as of December 19, 2007 between Normabec and Computershare Investor Services Inc., as rights agent; and |
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(ss) |
Transferred Assets means all assets and liabilities of Normabec at the Effective Time other than (i) the Mexican Assets; (ii) all amounts owed to Normabec by its direct and indirect subsidiaries; (iii) all cash, cash equivalents or other securities owned by Normabec (including shares of First Gold Exploration Inc. owned by Normabec); (iv) any liabilities of Normabec relating to: (A) the Mexican Assets; (B) any severance or change of control payments which may be payable in connection with the Arrangement; and (C) all fees and expenses of Normabec relating to the completion of the Arrangement, including, but not limited to, legal, accounting and financial advisory fees, but not including any fees or expenses relating to the listing of the Newco Shares on the TSX Venture Exchange; and (v) any and all intellectual property, data and information of any nature or kind relating directly or indirectly to the Mexican Assets owned, held, used or controlled by Normabec or its agents or representatives, including any and all geological, geochemical, geophysical, hydrological and title data, records, reports, drill cores, drill hole logs, drill hole orientation surveys, core samples, geochemical assays, resource calculations, opinions, maps, plans, drawings, charts, documents and other information, in whatever form and however maintained, whether electronically or documentary, computer storage or otherwise. |
1.2 Sections and Headings. The division of this Plan of Arrangement into sections and the insertion of headings are for reference purposes only and shall not affect the interpretation of this Plan of Arrangement. Unless otherwise indicated, any reference in this Plan of Arrangement to a Section refers to the specified section of this Plan of Arrangement.
1.3 Number, Gender and Persons. In this Plan of Arrangement, unless the context otherwise requires, words importing the singular number include the plural and vice versa and words importing any gender include all genders.
1.4 Date for any Action. If any date on which any action is required to be taken under this Plan of Arrangement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day.
ARTICLE 2
ARRANGEMENT
2.1 Arrangement Agreement. This Plan of Arrangement is made pursuant to, is subject to the provisions of and forms a part of the Arrangement Agreement.
2.2 Binding Effect. This Plan of Arrangement will become effective at, and be binding at and after, the Effective Time on (i) Normabec, (ii) First Majestic, (iii) Newco and (iv) all holders of Normabec Securities.
2.3 Arrangement. Commencing at the Effective Time, the following shall occur and shall be deemed to occur in the following order without any further act or formality:
(a) |
the Shareholder Rights Plan shall terminate and cease to have any further force or effect and all rights issued and outstanding thereunder shall immediately be cancelled without need for any further act or formality; |
|
(b) |
Normabec shall, and shall be deemed to, transfer all of the Transferred Assets to Newco in consideration for the issuance by Newco to Normabec of such number of Newco Shares as is equal to the total number of Normabec Shares issued and outstanding at the Effective Time (other than Normabec Shares held by a holder who has validly exercised its Dissent Rights) multiplied by the Newco Exchange Ratio; |
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(c) |
Normabecs share capital and its Articles will be altered by: |
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(i) |
creating an unlimited number of Class A common shares (the Normabec Class A Common Shares ) with the rights, privileges and restrictions as set forth in Schedule I hereto; and; |
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(ii) |
amending the rights, privileges and restrictions attaching to the Normabec Shares so as to match those set forth in Schedule II hereto; |
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(d) |
each of the issued Normabec Shares (except Normabec Shares held by a holder who has validly exercised its Dissent Rights) will be deemed to be exchanged with Normabec for one Normabec Class A Common Share and such number of Newco Shares received by Normabec in accordance with paragraph (b), above, as is equal to the Newco Exchange Ratio and the Normabec Shares will be cancelled and will form part of the authorized but unissued share capital of Normabec and no Normabec Shares will remain outstanding; |
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(e) |
Normabecs share capital and its Articles will be altered by: |
||
(i) |
reducing the authorized capital by eliminating the authorized and unissued Normabec Shares; and |
||
(ii) |
altering the indentifying name of all of the Normabec Class A Common Shares to be Common Shares. |
||
(f) |
each outstanding Normabec Class A Common Share will be exchanged by the holder thereof, without any further act or formality and free and clear of all liens, claims and encumbrances, for that number of fully paid and non-assessable First Majestic Shares equal to the First Majestic Exchange Ratio, and the name of each such holder of Normabec Class A Common Shares will be removed from the register of holders of Normabec Class A Common Shares and added to the register of holders of First Majestic Shares; |
||
(g) |
each Normabec Warrant, to the extent it has not been exercised as of the Effective Date, will be exchanged by the holder thereof, without any further act or formality and free and clear of all liens, claims and encumbrances, for (i) a warrant (a Replacement Warrant) to purchase a number of First Majestic Shares equal to the product of the First Majestic Exchange Ratio multiplied by the number of Normabec Shares issuable on exercise of such Normabec Warrant for an exercise price per First Majestic Share equal to the exercise price per share of such Normabec Warrant immediately prior to the Effective Time divided by the First Majestic Exchange Ratio and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a Replacement Warrant being exercisable for a fraction of an First Majestic Share, then the number of First Majestic Shares subject to such Replacement Warrant shall be rounded down to the next whole number of First Majestic Shares); and (ii) a warrant (a Newco Warrant) to purchase a number of Newco Shares equal to the Newco Exchange Ratio multiplied by the number of Normabec Shares issuable on exercise of such Normabec Warrant for an exercise price per Newco Share equal to the exercise price per share of such Normabec Warrant immediately prior to the Effective Time divided by the Newco Exchange Ratio and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a Newco Warrant being exercisable for a fraction of a Newco Share, then the number of Newco Shares subject to such Newco Warrant shall be rounded down to the next whole number of Newco Shares); and the Normabec Warrants shall thereupon be cancelled. The term to expiry, conditions to and manner of exercise and other terms and conditions of each of the Replacement Warrants and Newco Warrants shall be the same as the terms and conditions of the Normabec Warrant for which it is exchanged and First Majestic and Newco shall, as soon as practicable following the Effective Date, issue to such holder certificates representing such Replacement Warrants or Newco Warrants, as the case may be, and the original certificates representing such Normabec Warrants shall thereupon be void; and |
- 6 -
(h) |
each Normabec Option that has not been duly exercised prior to the Effective Time shall be terminated without any further act or formality. |
2.4 Adjustments to Exchange Ratios. The First Majestic Exchange Ratio shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into First Majestic Shares or Normabec Shares), reorganization, recapitalization or other like change with respect to First Majestic Shares or Normabec Shares occurring after the date of the Arrangement Agreement and prior to the Effective Time. The Newco Exchange Ratio shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Newco Shares or Normabec Shares), reorganization, recapitalization or other like change with respect to Newco Shares or Normabec Shares occurring after the date of the Arrangement Agreement and prior to the Effective Time.
ARTICLE 3
RIGHTS OF DISSENT
3.1 Rights of Dissent. Holders of Normabec Shares may exercise rights of dissent (Dissent Rights) with respect to such shares pursuant to and in the manner set forth in Section 190 of the CBCA, the Interim Order and this Section 3.1 (the Dissent Procedures) in connection with the Arrangement; provided that, notwithstanding Section 190(5) of the CBCA, the written objection to the Arrangement Resolution referred to in Section 190(5) of the CBCA must be received by Normabec not later than 5:00 p.m. (Montréal time) on the last Business Day preceding the Meeting Date. Holders of Normabec Shares who duly exercise such rights of dissent and who:
(a) |
are ultimately entitled to be paid fair value for their Normabec Shares shall be deemed to have transferred such Normabec Shares to First Majestic as of the Effective Time without any further act or formality and free and clear of all liens, claims and encumbrances, in consideration for the payment by First Majestic of the fair value thereof, in cash; or |
|
(b) |
are ultimately not entitled, for any reason, to be paid fair value for their Normabec Shares shall be deemed to have participated in the Arrangement on the same basis as a non- dissenting holder of Normabec Shares and shall receive First Majestic Shares and Newco Shares on the basis determined in accordance with Section 2.3(d), |
but in no case shall First Majestic, Normabec, Newco or any other Person be required to recognize such holders as holders of Normabec Shares after the Effective Time, and the names of such holders of Normabec Shares shall be deleted from the registers of holders of Normabec Shares at the Effective Time.
- 7 -
ARTICLE 4
CERTIFICATES AND FRACTIONAL
SHARES
4.1 Exchange of Share Certificates . As soon as practicable following the later of the Effective Date and the surrender to the Depositary for cancellation of certificates that, immediately before the Effective Time, represented a holders Normabec Shares, together with a duly completed Letter of Transmittal and such other documents and instruments as would have been required to effect the transfer of the shares formerly represented by such certificates under the CBCA and the articles of Normabec and such additional documents and instruments as the Depositary may reasonably require, (a) First Majestic shall cause the Depositary to deliver to such holder a certificate representing that number of First Majestic Shares which such holder has the right to receive and (b) Newco shall cause the Depositary to deliver to such holder a certificate representing that number of Newco Shares which such holder has the right to receive (together, in either case, with any dividends or distributions with respect thereto pursuant to Section 4.2) and the certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Normabec Shares which is not registered in the transfer records of Normabec, certificates representing the proper number of First Majestic Shares and Newco Shares may be issued to the transferee if the certificate representing such Normabec Shares is presented to the Depositary, accompanied by all documents required to evidence and effect such transfer to the transferee. Until surrendered as contemplated by this Section 4.1, each certificate which immediately prior to the Effective Time represented one or more outstanding Normabec Shares shall be deemed at all times after the Effective Time to represent only the right to receive upon such surrender (i) the certificates representing First Majestic Shares and Newco Shares as contemplated by this Section 4.1, and (ii) any dividends or distributions with a record date after the Effective Time theretofore paid or payable with respect to First Majestic Shares and Newco Shares as contemplated by Section 4.2.
4.2 Distributions with Respect to Unsurrendered Certificates . No dividends or other distributions declared or made after the Effective Time with respect to First Majestic Shares and Newco Shares with a record date after the Effective Time shall be paid to the holder of any unsurrendered certificate which immediately prior to the Effective Time represented outstanding Normabec Shares that were exchanged pursuant to Section 2.3(d), unless and until the holder of record of such certificate shall surrender such certificate in accordance with Section 4.1. Subject to applicable law, at the time of such surrender of any such certificate (or in the case of clause (ii) below, at the appropriate payment date), there shall be paid to the holder of record of the certificates formerly representing whole Normabec Shares, without interest, (i) the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole First Majestic Share or Newco Share and (ii) on the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole First Majestic Share or Newco Share.
4.3 No Fractional Shares . No certificates or scrip representing fractional First Majestic Shares or Newco Shares shall be issued upon the surrender for exchange of certificates pursuant to Section 4.1 and no dividend, stock split or other change in the capital structure of First Majestic or Newco shall relate to any such fractional security and such fractional interests shall not entitle the owner thereof to exercise any rights as a security holder of First Majestic or Newco. Any entitlement pursuant to Section 4.1 to fractional First Majestic Shares or Newco Shares shall be rounded down to the nearest whole number of First Majestic Shares and Newco Shares, as the case may be.
4.4 Lost Certificates . In the event any certificate which immediately prior to the Effective Time represented one or more outstanding Normabec Shares that were exchanged pursuant to Section 2.3(d) shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed, the Depositary will issue in exchange for such lost, stolen or destroyed certificate, one or more certificates representing one or more First Majestic Shares and Newco Shares (and any dividends or distributions with respect thereto) deliverable in accordance with such holders Letter of Transmittal. When authorizing such payment in exchange for any lost, stolen or destroyed certificate, the Person to whom certificates representing First Majestic Shares and Newco Shares are to be issued shall, as a condition precedent to the issuance thereof, give a bond satisfactory to First Majestic, Newco and the Depositary in such sum as they may direct or otherwise indemnify First Majestic, Newco and the Depositary in a manner satisfactory to each of them against any claim that may be made against them with respect to the certificate alleged to have been lost, stolen or destroyed.
- 8 -
4.5 Extinction of Rights . Any certificate which immediately prior to the Effective Time represented outstanding Normabec Shares that were exchanged pursuant to Section 2.3(d) and not deposited, with all other instruments required by Section 4.1 on or prior to the third anniversary of the Effective Date shall cease to represent a claim or interest of any kind or nature as a shareholder of First Majestic or Newco. On such date, the First Majestic Shares and Newco Shares to which the former registered holder of the certificate referred to in the preceding sentence was ultimately entitled shall be deemed to have been surrendered to First Majestic or Newco, respectively, together with all entitlements to dividends, distributions and interest thereon held for such former registered holder. None of First Majestic, Newco, Normabec or the Depositary shall be liable to any person in respect of any First Majestic Shares or Newco Shares (or dividends, distributions and interest in respect thereof) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
4.6 Withholding and Sale Rights . Each of First Majestic, Newco and the Depositary shall be entitled to deduct and withhold from (i) any First Majestic Shares, Newco Shares or other consideration otherwise issuable or payable pursuant to this Plan of Arrangement to any holder of Normabec Shares, or (ii) any dividend or consideration otherwise payable to any holder of Normabec Shares, First Majestic Shares or Newco Shares such amounts as First Majestic, Newco or the Depositary, respectively, is required to deduct and withhold with respect to such issuance or payment, as the case may be, under the ITA, the United States Internal Revenue Code of 1986 or any provision of provincial, state, local or foreign tax law, in each case as amended. To the extent that the amount so required to be deducted or withheld from the First Majestic Shares, Newco Shares, dividends or consideration otherwise issuable or payable to a holder exceeds the cash portion of the consideration otherwise payable to such holder, each of First Majestic, Newco and the Depositary is hereby authorized to sell or otherwise dispose of, at such times and at such prices as it determines, in its sole discretion, such portion of the First Majestic Shares or Newco Shares otherwise issuable or payable to such holder as is necessary to provide sufficient funds to First Majestic, Newco or the Depositary, as the case may be, to enable it to comply with such deduction or withholding requirement, and shall notify the holder thereof and remit to such holder any unapplied balance of the net proceeds of such sale or disposition (after deducting applicable sale commissions and any other reasonable expenses relating thereto) in lieu of the First Majestic Shares, Newco Shares or other consideration so sold or disposed of. To the extent that amounts are so withheld or First Majestic Shares or Newco Shares or other consideration are so sold or disposed of, such withheld amounts, or shares or other consideration so sold or disposed of, shall be treated for all purposes as having been paid to the holder of the shares in respect of which such deduction, withholding, sale or disposition was made, provided that such withheld amounts, or the net proceeds of such sale or disposition, as the case may be, are actually remitted to the appropriate taxing authority. None of First Majestic, Newco or the Depositary shall be obligated to seek or obtain a minimum price for any of the First Majestic Shares, Newco Shares or other consideration sold or disposed of by it hereunder, nor shall any of them be liable for any loss arising out of any such sale or disposition.
- 9 -
ARTICLE 5
AMENDMENTS
5.1 This Plan of Arrangement may be amended, modified and/or supplemented at any time and from time to time prior to the Effective Date, provided that each such amendment, modification and/ or supplement must be (i) set out in writing, (ii) approved by First Majestic and Normabec (on its own behalf and on behalf of Newco), (iii) filed with the Court and, if made following the Meeting, approved by the Court, and (iv) communicated to holders of Normabec Securities if and as required by the Court.
5.2 Any amendment, modification or supplement to this Plan of Arrangement may be proposed by Normabec at any time prior to the Meeting (provided that First Majestic shall have consented thereto) with or without any other prior notice or communication, and if so proposed and accepted by the Persons voting at the Meeting (other than as may be required under the Interim Order), shall become part of this Plan of Arrangement for all purposes.
5.3 Any amendment, modification or supplement to this Plan of Arrangement that is approved by the Court following the Meeting shall be effective only if (i) it is consented to by each of Normabec (on its own behalf and on behalf of Newco) and First Majestic, and (ii) if required by the Court, it is consented to by holders of the Normabec Shares and Normabec Warrants voting in the manner directed by the Court.
5.4 This Plan of Arrangement may be withdrawn prior to the occurrence of any of the events in Section 2.3 in accordance with the terms of the Arrangement Agreement.
5.5 Any amendment, modification or supplement to this Plan of Arrangement may be made following the Effective Date unilaterally by First Majestic and Newco, provided that it concerns a matter which, in the reasonable opinion of First Majestic and Newco, is of an administrative nature required to better give effect to the implementation of this Plan of Arrangement and is not adverse to the financial or economic interests of any holder of Normabec Securities.
ARTICLE 6
FURTHER ASSURANCES
6.1 Notwithstanding that the transactions and events set out herein shall occur and be deemed to occur in the order set out in this Plan of Arrangement without any further act or formality, each of the parties to the Arrangement Agreement shall make, do and execute, or cause to be made, done or executed, all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by any of them in order further to document or evidence any of the transactions or events set out herein.
SCHEDULE I
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
ATTACHED
TO CLASS A COMMON SHARES
The Class A Common Shares shall have the following rights, privileges, restrictions and conditions:
1. Voting. The holders of the Class A Common Shares are entitled to receive notice of and attend all meetings of the shareholders of the Company and to cast one vote for each share held, except meetings to which only holders of specified classes or series of shares are entitled to vote.
2. Dividends. Subject to the rights attaching to any other shares of the Company, the holders of the Class A Common Shares shall be entitled to receive dividends, as and when declared by the directors in their absolute discretion from time to time.
3. Participation. Subject to the rights attaching to any other shares of the Company, in the event of the liquidation, dissolution or winding-up of the Company or other distribution of assets of the Company among its shareholders for the purpose of winding-up its affairs or upon a reduction of capital, the holders of the Class A Common Shares shall be entitled to receive a pro rata portion of the remaining property of the Company.
SCHEDULE II
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
ATTACHED
TO COMMON SHARES
The Common Shares shall have the following rights, privileges, restrictions and conditions:
1. Voting . The holders of the Common Shares shall not as such be entitled to receive notice of or to attend any meetings of the shareholders of the Company or to cast any vote thereat, except for meetings at which only holders of that class of shares are entitled to vote.
2. Dividends.
(a) |
Holders of the Common Shares shall be entitled to receive in priority to any other shares of the Company, if, as and when declared thereon by the board of directors of the Company, a non-cumulative preferential dividend in the amount (if any) declared by the board of directors of the Company. |
|
(b) |
No dividends shall be declared or paid in any year on any other shares of the Company unless all dividends which shall have been declared and which remain unpaid on the Common Shares then issued and outstanding shall gave been paid or provided for at the date of such declaration. |
|
(c) |
The rights of the holders of the Common Shares to dividends in any year shall be limited to the non-cumulative, preferential dividend specified in this Section 2. |
3. Participation. Subject to the rights attaching to any other shares of the Company, in the event of the liquidation, dissolution or winding-up of the Company or other distribution of assets of the Company among its shareholders for the purpose of winding-up its affairs or upon a reduction of capital, the holders of the Common Shares shall be entitled to receive a pro rata portion of the remaining property of the Company.
EXHIBIT C
NORMABEC DISCLOSURE SCHEDULE
Section 3.1.1 Incorporation and organization;
Normabec Mining Resources Ltd is incorporated under the Canada Business Corporations Act, is involved in the acquisition, exploration and development of mining properties.
Minera Real Bonanza, S.A. de C.V., subsidiary of Normabec is incorporated under the Mexican law. A S.A de C.V. must consist of at least two shareholders, with no limit on the maximum number, and a minimum capital contribution.
Servicios Minero-Metalúrgicos e Industriales, S.A. de C.V, subsidiary of Minera Real Bonanza is incorporated under the Mexican law. A S.A de C.V. must consist of at least two shareholders, with no limit on the maximum number, and a minimum capital contribution.
Section 3.1.2 Options and Warrants Outstanding;
The Options Outstanding are as follow as at August 31, 2009:
Number of | Number of | ||||||||
Exercise | options | options | |||||||
Expiry date | price | outstanding | exercisable | ||||||
$ | |||||||||
January 2010 | 0,15 | 300,000 | 300,000 | ||||||
May 2010 | 0,15 | 100,000 | 100,000 | ||||||
February 2011 | 0,20 | 150,000 | 150,000 | ||||||
May 2011 | 0,45 | 300,000 | 300,000 | ||||||
August 2011 | 0,15 | 1,300,000 | 1,300,000 | ||||||
August 2011 | 0.30 | 300,000 | 300,000 | ||||||
October 2011 | 0.25 | 300,000 | 300,000 | ||||||
February 2012 | 0.50 | 150,000 | 150,000 | ||||||
July 2012 | 0.60 | 500,000 | 500,000 | ||||||
June 2013 | 0.40 | 400,000 | 400,000 | ||||||
August 2013 | 0.30 | 110,000 | 110,000 | ||||||
3,910,000 | 3,910,000 |
The Warrants Outstanding are as follow as at August 31, 2009:
Exercise | Number | |||||
Expiry date | price | of shares | ||||
$ | ||||||
December 2009 | 0.55 | 1,961,572 | ||||
January 2010 | 0.55 | 2,357,285 | ||||
4,318,857 |
Section 3.1.3 Approvals & Severance payments;
The Approval of this Agreement is subject to regulatory approval including TSX-V.
[REDACTED INFORMATION]
Section
3.1.4
Defaults;
There are no Defaults.
Section 3.1.6 Shares held of other companies;
Normabec held 225,000 shares of First Gold Exploration Inc. (EFG) of which 67,500 are escrowed (release date is February 22, 2010).
Section 3.1.9 Financial information and Inter-company Indebtedness;
Normabec financial statements are prepared in accordance with generally accepted accounting principles.
[REDACTED INFORMATION]
Section
3.1.10
Material
Adverse Change since August 31, 2008;
[REDACTED INFORMATION]
Section 3.1.15 Interested
Person payments;
Normabec does not have any commitment to any Interested Persons.
Section 3.1.16 Name of employees and contractors;
The following table outlines the names and positions of full time employees, part-time employees and independent contractors.
[Table Redacted]
[REDACTED INFORMATION]
Section 3.1.18 Debt Instruments;
Normabec is not subject to any debt instrument.
Section 3.1.19 Leases of real property & Encumbrances on Mexican Property;
Normabec does not own or have any interest in any leases or real property.
Section 3.1.22 Material Agreements;
The following table lists the Material Agreements:
[Table Redacted]
Section 3.1.26 Banking Information;
Normabec has accounts at each of the following banks:
[Table Redacted]
Section 3.1.28 Licenses;
Other than the mining rights and concessions described in Section 3.1.34, there are no licences, permits, approvals, consents, certificates, registrations and authorizations (whether governmental, regulatory or similar type) relating to the Mexican Assets (the Licences ), and there are no other licences, permits, approvals, consents, certificates, registrations, or authorizations, necessary to carry on its business as presently carried on or to own or lease any of the property or the assets utilized by Normabec or any Normabec Subsidiary where the lack of grant of such would not have a Material Adverse Effect on Normabec.
Section 3.1.33 Environmental Matters;
There have been no audits, assessments and studies with respect to environmental matters relating to Normabec.
Section 3.1.34 Mineral Rights;
LOT
|
HOLDER
|
SURFACE
(Hectares) |
CONCESSION
TITLE OR FILE NUMBER |
TERM
FROM / TO |
LOCATION
|
Unificación Santa Ana
|
Minera Real Bonanza, S.A. de C.V. (MRB) | 422.8185 | 170,599 |
50 years
June 2, 1982 to June, 2032. |
Catorce, San Luis Potosí.
|
Unificación Gran Cuadra de la Unión de
Catorceña
|
MRB
|
430.6453
|
171,997
|
25 years
September 21, 1983 to September 20, 2008. *See note 1. |
Catorce, San Luis Potosí.
|
Dolores Trompeta | MRB | 61.7696 | 181,939 |
25 years
December 15, 1987 to December 14, 2012. *See note 1. |
Catorce, San Luis Potosí. |
I.N.I.R.M
|
MRB
|
82.2200
|
181,937
|
25 years
December 15, 1987 to December 14, 2012. *See note 1. |
Catorce, San Luis Potosí.
|
Dolores | MRB | 27.3592 | 189,485 |
25 years
December 5,1990 to December 4, 2015. *See note 1. |
Catorce, San Luis Potosí. |
Nueva Descubridora | MRB | 2.0990 | 181,934 |
25 years
December 15, 1987 to December 14, 2012. *See note 1. |
Catorce, San Luis Potosí. |
Nuevo San Cayetano | MRB | 3.5323 | 181,933 |
25 years
December 15, 1987 to December 14, 2012. *See note 1. |
MRB Catorce, San Luis Potosí.
|
Boquiero
|
MRB
|
19.9783
|
181,230
|
50 years
September 11, 1987 to September 10, 2037. |
Catorce, San Luis Potosí.
|
San Francisco Uno
|
MRB
|
36.7884
|
181,931
|
25 years
December 15, 1987 to December 14, 2012. *See note 1 |
Catorce, San Luis Potosí.
|
Ogarrio | MRB | 45.3752 | 181,229 |
25 years
September 11, 1987 to September 10, 2012. *See note 1 |
Catorce, San Luis Potosí. |
Candelaria y Filosofal
|
MRB
|
44.6788
|
177,822
|
25 years
April 29, 1986 to April 28 2011. *See note 1 |
Catorce, San Luis Potosí.
|
El Refugio Gran Cuadra
|
MRB
|
87.1767
|
181,415
|
50 years.
September 18, 1987 to September 17, 2037. |
Catorce, San Luis Potosí.
|
Socavón General
|
MRB
|
9.8345
|
175,213
|
25 years.
July 4, 1985 to July 3, 2010. *See note 1 |
Catorce, San Luis Potosí.
|
El Negrito
|
MRB
|
114.2110
|
186,473
|
50 years.
April 02, 1990 to April 01, 2040. |
Catorce, San Luis Potosí.
|
Napoleón | MRB | 8.0000 | 191,420 |
25 years.
December 19, 1991 to December 18, 2016 *See note 1 |
Catorce, San Luis Potosí. |
Don Vicente II, Fracc. 1.
|
MRB | 724.7587 | 230,939 |
50 years.
November 16, 2007 to November 15, 2057. |
Catorce, San Luis Potosí.
|
Don Vicente II, Fracc. 2.
|
MRB
|
37.5674
|
230,940
|
50 years.
November 16, 2007 to November 15, 2057. |
Catorce, San Luis Potosí.
|
Don Vicente II, Fracc. 3.
|
MRB
|
88.2448
|
230,941
|
50 years.
November 16, 2007 to November 15, 2057. |
Catorce, San Luis Potosí.
|
Don Vicente II, Fracc. 4.
|
MRB
|
48.6795
|
230,942
|
50 years.
November 16, 2007 to November 15, 2057. |
Catorce, San Luis Potosí.
|
Bonanza 1
|
MRB
|
598.0837
|
233,084
|
50 years
December 5, 2008 to December 4, 2058 |
Catorce, San Luis Potosí.
|
Bonanza 2
|
MRB
|
643.7596
|
233,085
|
50 years
December 5, 2008 to December 4, 2058 |
Catorce, San Luis Potosí.
|
BONANZA 3
|
|
FOURTEEN
FRACTIONS
|
067/21273
|
|
Catorce, San Luis Potosí |
Bonanza 3 fracc. 1 |
MRB
|
32.6223
|
232,045
|
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí. |
Bonanza 3 Fracc. 2
|
MRB | 15.2854 | 232,046 |
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí.
|
Bonanza 3 Fracc. 3-B
|
MRB
|
1.6630
|
232,047
|
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí.
|
Bonanza 3 Fracc. 4-C
|
MRB
|
2.4220
|
232,048
|
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí.
|
Bonanza 3 Fracc. 5-D
|
MRB
|
1.4287
|
232,049
|
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí.
|
Bonanza 3 Fracc. 6-E |
MRB
|
28.8909
|
232,050
|
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí. |
Bonanza 3 Fracc. 7-F |
MRB
|
0.6306
|
232,051
|
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí. |
Bonanza 3 Fracc. 9-H |
MRB
|
2.7158
|
232,052
|
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí. |
Bonanza 3 Fracc. 14-M |
MRB
|
11.4817
|
232,053
|
50 years
June 10, 2008 to June 9, 2058 |
Catorce, San Luis Potosí. |
Note 1. Notwithstanding the actual data contained in the mining concession title, recent rules enacted for mining concessions under the Mexican Mining Law extended their term of existence to 50 years as of the date of registration at the PRM. The PRM records have not yet been updated to reflect this extension of the term of these concessions.
CANTON | RANG | LOT | TITRE | INDEX | DATE_ENR | DATE_EXP | DATE_REN | SUPER | SURPLU_MER | DROITS | TRAVAUX | REN | PARTENAIREDETENTEUR_MRNF |
0020 | 0003 | CDC | CDC 2184375 | 757/2/2009 | 7/1/2011 | 5/1/2011 | 57.43 | 122.06 $ | 52.00 $ | 1,200.00 $ | 0 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0021 | 0001 | CDC | CDC 2184376 | 767/2/2009 | 7/1/2011 | 5/1/2011 | 57.42 | 122.06 $ | 52.00 $ | 1,200.00 $ | 0 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0021 | 0002 | CDC | CDC 2184377 | 777/2/2009 | 7/1/2011 | 5/1/2011 | 57.42 | 122.06 $ | 52.00 $ | 1,200.00 $ | 0 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0021 | 0003 | CDC | CDC 2184378 | 787/2/2009 | 7/1/2011 | 5/1/2011 | 57.42 | 122.06 $ | 52.00 $ | 1,200.00 $ | 0 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0021 | 0060 | CDC | CDC 2184379 | 797/2/2009 | 7/1/2011 | 5/1/2011 | 57.42 | 122.06 $ | 52.00 $ | 1,200.00 $ | 0 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0017 | 0001 | CDC | CDC 8204 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.46 | 133.23 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0017 | 0002 | CDC | CDC 8205 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.46 | 133.23 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0017 | 0003 | CDC | CDC 8206 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.46 | 706.55 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0017 | 0004 | CDC | CDC 8207 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.45 | 122.06 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0017 | 0005 | CDC | CDC 8208 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.45 | 122.06 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0018 | 0001 | CDC | CDC 8209 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.45 | 2,766.15 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0018 | 0002 | CDC | CDC 8210 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.45 | 1,695.86 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0018 | 0003 | CDC | CDC 8211 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.45 | 592.08 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0019 | 0001 | CDC | CDC 8212 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.44 | 1,734.97 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0019 | 0002 | CDC | CDC 8213 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.44 | 131.12 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0019 | 0003 | CDC | CDC 8214 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.44 | 122.06 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0020 | 0001 | CDC | CDC 8215 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.43 | 17,085.18 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0020 | 0002 | CDC | CDC 8216 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.43 | 17,085.18 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0017 | 0060 | CDC | CDC 8217 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.46 | 122.06 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0018 | 0059 | CDC | CDC 8218 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.45 | 122.06 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0018 | 0060 | CDC | CDC 8219 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.45 | 122.06 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0019 | 0059 | CDC | CDC 8220 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.44 | 17,085.17 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0019 | 0060 | CDC | CDC 8221 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.44 | 17,085.18 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0020 | 0059 | CDC | CDC 8222 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.43 | 17,085.18 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0020 | 0060 | CDC | CDC 8223 | 12/17/2003 | 12/16/2009 | 10/16/2009 | 57.43 | 17,085.18 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
Tavernier | 0001 | 0030 | CL | CL 5269186 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 122.06 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Tavernier | 0001 | 0031 | CL | CL 5269187 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 122.06 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Tavernier | 0001 | 0032 | CL | CL 5269188 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 122.06 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Tavernier | 0001 | 0033 | CL | CL 5269189 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 122.06 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Pershing | 0042 | 0033 | CL | CL 5269190 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 122.06 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Pershing | 0042 | 0034 | CL | CL 5269191 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 848.52 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Pershing | 0042 | 0035 | CL | CL 5269192 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 122.05 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Pershing | 0042 | 0036 | CL | CL 5269193 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 122.05 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Pershing | 0042 | 0037 | CL | CL 5269194 | 1/5/2004 | 1/4/2010 | 11/4/2009 | 16 | 122.05 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0027 | CL | CL 4406951 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0027 | CL | CL 4406952 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 16,942.83 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0027 | CL | CL 4406953 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 78,546.51 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0027 | CL | CL 4406954 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0026 | CL | CL 4406955 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 17,469.25 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0026 | CL | CL 4406961 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 102,954.86 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0026 | CL | CL 4406962 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 89,682.80 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0026 | CL | CL 4406963 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0025 | CL | CL 4406964 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 7,489.58 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0025 | CL | CL 4406965 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 46,249.66 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0019 | 0031 | CL | CL 4452131 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0031 | CL | CL 4452132 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0031 | CL | CL 4452133 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0028 | CL | CL 4452192 | 11/19/1987 | 11/18/2010 | 9/18/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0029 | CL | CL 4452193 | 11/19/1987 | 11/18/2010 | 9/18/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0030 | CL | CL 4452194 | 11/19/1987 | 11/18/2010 | 9/18/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0032 | CL | CL 4452195 | 11/19/1987 | 11/18/2010 | 9/18/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0028 | CL | CL 4488892 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 14,596.13 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0028 | CL | CL 4488893 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0028 | CL | CL 4488894 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 27,533.93 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0028 | CL | CL 4488895 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0030 | CL | CL 4488901 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0029 | CL | CL 4488902 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 15,951.84 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0029 | CL | CL 4488903 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 79,267.97 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0029 | CL | CL 4488904 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0029 | CL | CL 4488905 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0031 | CL | CL 4488912 | 11/20/1987 | 11/19/2010 | 9/19/2010 | 16 | 27,949.43 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0031 | CL | CL 4488913 | 11/20/1987 | 11/19/2010 | 9/19/2010 | 16 | 285,516.45 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0032 | CL | CL 4488914 | 11/20/1987 | 11/19/2010 | 9/19/2010 | 16 | 182,288.58 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0032 | CL | CL 4488921 | 11/20/1987 | 11/19/2010 | 9/19/2010 | 16 | 22,230.96 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0031 | CL | CL 4488922 | 11/20/1987 | 11/19/2010 | 9/19/2010 | 16 | 103,518.47 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0032 | CL | CL 4488923 | 11/20/1987 | 11/19/2010 | 9/19/2010 | 16 | 11,972.77 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0030 | CL | CL 4488924 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0030 | CL | CL 4488925 | 7/8/1986 | 4/15/2011 | 2/13/2011 | 16 | 103,203.69 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0025 | CL | CL 4488961 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 44,702.69 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0025 | CL | CL 4488962 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 38,335.43 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0024 | CL | CL 4488963 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0024 | CL | CL 4488964 | 7/8/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0024 | CL | CL 4488981 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0025 | CL | CL 4488982 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0012 | 0031 | CL | CL 4488983 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0026 | CL | CL 4488984 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0027 | CL | CL 4488985 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0027 | CL | CL 4488991 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0016 | 0027 | CL | CL 4488992 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0015 | 0026 | CL | CL 4488993 | 11/19/1987 | 11/18/2010 | 9/18/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0015 | 0027 | CL | CL 4488994 | 11/19/1987 | 11/18/2010 | 9/18/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0030 | CL | CL 4488995 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0023 | CL | CL 4489061 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 12,798.65 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0024 | CL | CL 4489062 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0025 | CL | CL 4489063 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0012 | 0032 | CL | CL 4489064 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0017 | 0026 | CL | CL 4489065 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0016 | 0023 | CL | CL 4489071 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0016 | 0024 | CL | CL 4489072 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0016 | 0025 | CL | CL 4489073 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0014 | 0013 | CL | CL 4489074 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0016 | 0026 | CL | CL 4489075 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
CANTON | RANG | LOT | TITRE | INDEX | DATE_ENR | DATE_EXP | DATE_REN | SUPER | SURPLU_MER | DROITS | TRAVAUX | REN | PARTENAIREDETENTEUR_MRNF |
Noyon | 0019 | 0024 | CL | CL 4489571 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 11,947.28 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0019 | 0025 | CL | CL 4489572 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 26,122.05 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0013 | 0031 | CL | CL 4489573 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0019 | 0026 | CL | CL 4489574 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0019 | 0027 | CL | CL 4489575 | 8/15/1986 | 4/14/2011 | 2/12/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0019 | 0028 | CL | CL 4489581 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0019 | 0029 | CL | CL 4489582 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 10,168.66 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0019 | 0030 | CL | CL 4489583 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 4,554.10 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0028 | CL | CL 4489584 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0029 | CL | CL 4489585 | 8/15/1986 | 4/15/2011 | 2/13/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0013 | 0012 | CL | CL 4587441 | 11/27/1987 | 11/26/2010 | 9/26/2010 | 6 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0020 | CL | CL 4587571 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0021 | CL | CL 4587572 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0022 | CL | CL 4587573 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0023 | CL | CL 4587574 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0024 | CL | CL 4587575 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0025 | 0020 | CL | CL 4587581 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0025 | 0021 | CL | CL 4587582 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0025 | 0022 | CL | CL 4587583 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0025 | 0023 | CL | CL 4587584 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0025 | 0024 | CL | CL 4587585 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0025 | CL | CL 4587621 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 3,304.98 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0025 | 0025 | CL | CL 4587622 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0025 | 0026 | CL | CL 4587623 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0026 | CL | CL 4587624 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0027 | CL | CL 4587625 | 6/26/1987 | 5/5/2011 | 3/5/2011 | 16 | 2,445.83 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0028 | CL | CL 4587631 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0029 | CL | CL 4587632 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0024 | 0030 | CL | CL 4587633 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0030 | CL | CL 4587634 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0031 | CL | CL 4587635 | 6/26/1987 | 5/6/2011 | 3/6/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0033 | CL | CL 5273488 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0034 | CL | CL 5273489 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0035 | CL | CL 5273490 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0023 | 0036 | CL | CL 5273495 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0033 | CL | CL 5273496 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0034 | CL | CL 5273497 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0035 | CL | CL 5273498 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0022 | 0036 | CL | CL 5273499 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0033 | CL | CL 5273977 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0034 | CL | CL 5273978 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0035 | CL | CL 5273979 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0036 | CL | CL 5273980 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.15 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0033 | CL | CL 5273982 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 0.00 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0034 | CL | CL 5273983 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 0.00 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0035 | CL | CL 5273984 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 0.00 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0020 | 0036 | CL | CL 5273985 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 0.00 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0033 | CL | CL 5273986 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 0.00 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0034 | CL | CL 5273987 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 0.00 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0035 | CL | CL 5273988 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 0.00 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0018 | 0036 | CL | CL 5273989 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 0.00 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Noyon | 0021 | 0037 | CL | CL 5273990 | 5/31/2007 | 5/30/2011 | 3/30/2011 | 16 | 1,346.20 $ | 26.00 $ | 500.00 $ | 1 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0017 | 0035 | CL | CL 3709441 | 3/16/1978 | 2/23/2011 | 12/24/2010 | 16 | 24,419.87 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0017 | 0034 | CL | CL 3709442 | 3/16/1978 | 2/23/2011 | 12/24/2010 | 16 | 11,404.32 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0016 | 0034 | CL | CL 3709443 | 3/16/1978 | 2/23/2011 | 12/24/2010 | 16 | 740,057.40 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0015 | 0034 | CL | CL 3709444 | 3/16/1978 | 2/23/2011 | 12/24/2010 | 16 | 2,009,922.51 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0015 | 0035 | CL | CL 3709445 | 3/16/1978 | 2/23/2011 | 12/24/2010 | 16 | 466,559.42 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0018 | 0033 | CL | CL 3709451 | 3/16/1978 | 2/26/2011 | 12/27/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0018 | 0032 | CL | CL 3709452 | 3/16/1978 | 2/26/2011 | 12/27/2010 | 16 | 46,645.50 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0018 | 0031 | CL | CL 3709453 | 3/16/1978 | 2/26/2011 | 12/27/2010 | 16 | 19,851.69 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0018 | 0030 | CL | CL 3709454 | 3/16/1978 | 2/26/2011 | 12/27/2010 | 16 | 34,395.34 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0018 | 0029 | CL | CL 3709455 | 3/16/1978 | 2/26/2011 | 12/27/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0014 | 0034 | CL | CL 3709461 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0014 | 0033 | CL | CL 3709462 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 12,100.29 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0014 | 0032 | CL | CL 3709463 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0015 | 0033 | CL | CL 3709464 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 83,196.14 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0016 | 0032 | CL | CL 3709465 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 35,765.34 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0016 | 0033 | CL | CL 3709471 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 200,446.69 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0017 | 0033 | CL | CL 3709472 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 15,199.57 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0017 | 0032 | CL | CL 3709473 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 779.14 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0017 | 0031 | CL | CL 3709474 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 779.14 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0016 | 0031 | CL | CL 3709475 | 3/16/1978 | 2/24/2011 | 12/25/2010 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 10 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0013 | 0036 | CL | CL 5137545 | 3/13/1995 | 3/12/2011 | 1/10/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 7 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0013 | 0037 | CL | CL 5137546 | 3/13/1995 | 3/12/2011 | 1/10/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 7 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0013 | 0038 | CL | CL 5137547 | 3/13/1995 | 3/12/2011 | 1/10/2011 | 16 | 0.00 $ | 26.00 $ | 1,000.00 $ | 7 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Duparquet | 0013 | 0035 | CL | CL 5137548 | 3/13/1995 | 3/12/2011 | 1/10/2011 | 16 | 23,640.32 $ | 26.00 $ | 1,000.00 $ | 7 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0049 | CDC | CDC 59282 | 3/16/2005 | 3/15/2011 | 1/13/2011 | 42 | 0.00 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0050 | CDC | CDC 59283 | 3/16/2005 | 3/15/2011 | 1/13/2011 | 41.95 | 0.00 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0051 | CDC | CDC 59284 | 3/16/2005 | 3/15/2011 | 1/13/2011 | 41.91 | 0.00 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0041 | CDC | CDC 8515 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 46.6 | 820.66 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0042 | CDC | CDC 8516 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 42.34 | 234.82 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0043 | CDC | CDC 8517 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 42.3 | 231.20 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0044 | CDC | CDC 8518 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 42.23 | 224.86 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0045 | CDC | CDC 8519 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 42.2 | 422.14 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0046 | CDC | CDC 8520 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 42.15 | 217.62 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0047 | CDC | CDC 8521 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 42.1 | 213.09 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Figuery | 0002 | 0048 | CDC | CDC 8522 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 42.05 | 208.56 $ | 52.00 $ | 1,200.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
0025 | 0051 | CDC | CDC 8523 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 15.39 | 0.00 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) | |
0024 | 0051 | CDC | CDC 9592 | 1/7/2004 | 1/6/2010 | 11/6/2009 | 18.72 | 0.00 $ | 26.00 $ | 500.00 $ | 2 | Ressources Minières Normabec Ltée (2160) 100 % (responsable) |
Liste des titres miniers
Projet Verneuil 1217
En date du 14 septembre 2009
4347651 | 1129031 | 1129043 |
4347652 | 1129032 | 1129044 |
4347653 | 1129033 | 1129045 |
4347654 | 1129034 | 1129046 |
4455995 | 1129035 | 1129047 |
4627982 | 1129036 | 1129048 |
4627983 | 1129038 | 1129049 |
5220568 | 1129039 | 1129050 |
5263108 | 1129040 | 1129051 |
1129029 | 1129041 | 1129052 |
1129030 | 1129042 | 1129053 |
Total de 33 titres miniers
1 159.58 ha
Localisés dans le SNRC 32F 02
Liste des titres miniers
Projet Dompierre 1328-1
En
date du 14 septembre 2009
1020258 | 1029861 | 5239967 | 5239991 |
1020259 | 1029863 | 5239968 | 5239992 |
1020260 | 1037971 | 5239969 | 5239993 |
5239721 | 1037972 | 5239972 | 5239994 |
5239722 | 5239952 | 5239973 | 5240005 |
5239723 | 5239953 | 5239974 | 5240006 |
5239724 | 5239954 | 5239975 | 5240007 |
5239728 | 5239955 | 5239976 | 5240008 |
5239729 | 5239956 | 5239977 | 5240010 |
5239730 | 5239957 | 5239978 | 5240012 |
5239731 | 5239958 | 5239979 | 5240036 |
5239621 | 5239959 | 5239982 | 5240042 |
5239622 | 5239960 | 5239983 | 5240043 |
5239623 | 5239961 | 5239985 | 5240044 |
5239624 | 5239962 | 5239986 | 5240045 |
5239625 | 5239963 | 5239987 | 5240046 |
5239626 | 5239964 | 5239988 | 5240047 |
1029859 | 5239965 | 5239989 | 5240048 |
1029860 | 5239966 | 5239990 | 5239984 |
Total de 76 titres miniers
1 561.15 ha
Localisés dans le SNRC 32J 10
Liste des titres miniers
Projet Armagnac 1345-1 En date du 14 septembre 2009 |
|
1117973 | 1129780 |
1117974 | 1129781 |
1117975 | 1129782 |
1129779 | |
Total de 7 titres miniers
Localisés dans le SNRC 32J 09 |
Section 3.1.36 Expenses of the Arrangement.
The following is a reasonable estimate of all Third Party Expenses related to the Arrangement:
[Table Redacted]