Inferred Mineral Resources

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Mining and Milling Operations

Total mill throughput in 2017 was 825,486 tonnes grading an average of 127 g/t Ag which resulted in 2.18 million ounces of silver being produced. The decrease in production was primarily due to a 6% decrease in tonnes milled and a reduction in average silver grade partially offset by an improvement in the metallurgical recoveries. In 2017 the Company focused on developing the caving system in the San Javier Breccia while mining mineralized material from old stopes, stockpiles, recovery of pillars and a portion of high grade narrow veins. During 2017, 2,965 tonnes of ore were processed from reserves and 822,522 tonnes were processed from material not in reserves.

The La Encantada mine has largely been developed below ore zones indicated from surface exploration work within a block about four kilometres long, 700 metres wide and 400 metres 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 and shaft hoisting are still used on some areas of the mine. The mine has been developed to the northeast of the shafts over a vertical range of about 400 metres from the surface (2,035 metres above sea-level) to about the 1525 level (1,525 metres 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. In order to improve mine safety the Company built two underground mine refuges with a capacity of 20 people each. The Company also constructed a new underground maintenance shop in 2011 to improve the availability and productivity of the underground fleet.

Mining the veins system and other minor deposits at La Encantada is undertaken using primarily the conventional overhand cut-and-fill mining method. Ramps are driven into the orebodies, and stopes are developed from sill drifts driven in the ore zones and slashed out the full width of the ore.

Mining operations at La Encantada are partially mechanized. Drilling of access drifts and ramps is carried out using hydraulic jumbos, and most of the headings and cut-and-fill stoping is accomplished using pneumatic hand-held jackleg machines.

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The cut-and-fill stoping cycle is started with blast holes drilled using hand-held jackleg drills, followed by blasting using conventional mining explosives. After blasting, low-profile loaders are used to muck the blasted ore. The cut and fill stopes range between 50-150 metres in length along strike, and extend between levels which are typically spaced 15 to 30 metres apart vertically. Each cut is 2.5 to 3.0 metres in height. Depending on ground conditions, the blast holes are drilled either upward or horizontally. Waste and mineralized material below cut-off grade is blasted down and used as backfill as needed.

The minimum mining width is 2.0 metres, and planned dilution is included in the mine design, which varies according to the ground conditions, vein width, and the dip of the vein. The dilution factors range from 5% to 20%, with an average of approximately 10%. Mined areas are measured to compare the width of the vein and the width of the cut on a regular basis; as mining advances, this comparison is used as means of reconciliation and to build the historical database of the dilution and mining recovery factors. Sills and access drifts are excavated at 2.5 metres wide by 3.0 metres high, cross-cuts and access ramps to the stopes are excavated 3.0 metres wide by 3.0 metres high, and main access ramps are excavated 4.0 metres wide by 4.5 metres high.

Conventional diesel haul trucks are used for haulage of the ore to the ROM pad located close to the primary crusher site.

Employee and material movement in and out of the mine is via the mine portal driven into the side of the mountain, or from the Maria Isabel shaft.

Based on the geotechnical characteristics and the geometry of the San Javier and Milagros breccias, First Majestic has started the implementation of a variant of inclined caving for these areas. This configuration allows the extraction of ore by building draw-points at different elevations, starting from the outside of the deposits and working inwards as the lower levels are developed. Production from material not in reserves is expected to continue in 2017 and the first quarter of 2018 at similar levels to the 2016 throughput while the preparation of the caving blocks is completed.

As a result of the addition of the cyanidation plant in 2009, the only area operating at the old flotation plant is the crushing and grinding areas for the mined fresh ore. There are four ball mills at La Encantada, two processing fresh mined ore at an average rate of approximately 2,000 tpd, a third ball mill used until 2013 for processing tailings, and after the expansion of the crushing and grinding capacity, an additional 12’ x 24’ ball mill, an additional tertiary crusher, two vibrating screens and a series of conveyor belts have been installed. The plant expansion was completed in May 2015, and the ramp up to 3,000 tpd was attained in July 2015. Two ball mills with a capacity or 2,000 tpd sit in care and maintenance.

Fresh crushed ore is fed to the grinding circuit where cyanide is added to pre-condition the pulp and promote silver leaching. The resulting pre-conditioned pulp is sent to a dynamic cyanidation plant which includes primary and secondary leaching circuits. The silver rich (pregnant) solution is sent to a Merrill-Crowe plant to obtain silver precipitates which are then melted in an induction furnace and poured into 25-30 kilogram silver doré bars containing between 80% to 95% silver.

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The average head grade of material fed to the mill for 2017 was 127 g/t of silver. Metallurgical recovery of the mineralized material in the cyanidation plant was 64% resulting in the production of 2.18 million ounces of silver in 2017.

Total development during 2017 was 3,064 metres. In comparison, total development during 2016 was 3,767 metres. A total of 15,370 metres of exploration drilling were completed in 2017 at La Encantada which represents a 41% increase in drilling compared to the 10,939 metres drilled in 2016.

Capital and Operating Costs

As of December 31, 2017, First Majestic estimated total sustaining capital costs for the remaining LOM of $47.4 million, including development, delineation and infill drilling, plant and infrastructure sustaining capital.

Note: All numbers in millions of US dollars.

Operating Costs

Operating costs for La Encantada have been estimated for the underground mining, processing costs and general and administrative costs. First Majestic currently estimates the LOM plan operating costs at an average of $36.27 per tonne of ore processed based on current and projected costs. The life-of-mine plan assumed an approximate 43% underground ore to 57% roasted tailings.

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La Parrilla Silver Mine, Durango State, México

La Parrilla Silver Mine is an underground producing silver mine and processing facility in Durango State, Mexico which the Company acquired in 2004. The mine is owned and operated by the Company’s wholly-owned indirect subsidiary, First Majestic Plata, S.A. de C.V. La Parrilla Silver Mine includes three underground silver mines, an open pit mine and a 2,000 tpd dual-circuit processing facility consisting a 1,000 tpd cyanidation circuit and a 1,000 tpd flotation circuit.

La Parrilla consists of 41 contiguous mining concessions covering a total of 69,478 hectares. The La Parrilla area is located partly within Ejido land and partly on private property. La Parrilla also includes 12 parcels of surface rights covering approximately 167 hectares supporting operations including the processing plant installations, tailings storage, and other mine operations requirements.

Certain of the information on the La Parrilla Silver Mine is based on the Technical Report titled, “La Parrilla Silver Mine San Jose de La Parrilla, Durango, Mexico, NI 43-101 Technical Report on Mineral Resource and Mineral Reserve Update” prepared by Ramon Mendoza Reyes, P. Eng., Jesus M. Velador Beltran, MMSA, Maria E. Vazquez Jaimes, P. Geo., Stephen Taylor, P. Eng., Dominic Chartier, P. Geo., Daniel Sepulveda, SME-RM and David Maarse, P. Eng., with an effective date of December 31, 2016, which was filed on SEDAR on December 20, 2017 (the “ 2017 La Parrilla Technical Report ”). Mrs. Maria E. Vazquez Jaimes, Mr. Jesus M. Velador Beltran and Mr. Ramon Mendoza Reyes are Qualified Persons for the purposes of NI 43-101 and are each employees of First Majestic and accordingly, are not considered independent. Mr. Stephen Taylor, Mr. Dominic Chartier, Mr. Daniel Sepulveda and Mr. David Maarse are independent Qualified Persons for the purposes of NI 43-101. The 2017 La Parrilla Technical Report has been filed with the 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 2017 La Parrilla Technical Report which is available for review on SEDAR at www.sedar.com.

Project Description and Location

La Parrilla is a producing mine located in the municipality of Nombre de Dios, in the southeastern part of the state of Durango, Mexico. It is approximately 76 kilometres southeast of the state capital and is in close proximity to the border of the state of Zacatecas to the east. La Parrilla includes three underground silver mines, an open pit mine and a 2,000 tpd dual-circuit processing facility consisting of a 1,000 tpd cyanidation circuit and a 1,000 tpd flotation circuit.

La Parrilla is located within the physiographic sub-province of Sierras y Llanuras de Durango. Elevations range from 1,600 metres above sea-level (masl) up to 3,000 masl. The main La Parrilla mine portal is located at an elevation of 2,100 masl. The La Parrilla land package is located partly within the Ejido San José de la Parrilla and partly within private property. La Parrilla’s 12 parcels of surface rights cover approximately 167 hectares and support operations such as the processing plant installations, tailings storage, and other mine operations requirements. The Company has a current lease agreement in place with the local Ejido. The rights on all of the concessions making up La Parrilla expire between 2019 and 2062.

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Accessibility, Local Resources, Infrastructure and Physiography

Access to La Parrilla Silver Mine is via Federal Highway No. 45, then via a paved road to San José de la Parrilla, followed by all-weather gravel roads to the mine site. Roads within the mine site that link key facilities, such as the administration building, central laboratory, and mill, are paved. Driving time from the city of Durango to La Parrilla takes approximately one hour.

The existing surface infrastructure includes the processing plant, repair workshops, an analytical laboratory, temporary ore stockpiles, a tailings storage facility, water management and diversion structures, offices, a drill core and logging shack, power substations and power lines. Existing underground workshop facilities include a washing bay, a lubricant station and several repair stations for mobile equipment. There are two stockpile areas, one for oxide ores and one for sulphide ores.

Fresh water is supplied to the site by two permitted wells located in the adjoining valley. Water is pumped into one of four water tanks located on the hill above the processing plant. Process water is fed directly to the main mine from the surface water tanks. The majority of the plant process water is recycled. Any water captured in the catchments around the tailings facility is also recycled. Process water underground is also largely recycled. Power to the site is provided by a 115 kV high-voltage transmission line from a major Comisión Federal de Electricidad transmission line that runs parallel to the nearby highway. This line feeds a 10/12.5 MVA transformer than steps the voltage down to 13.2 kV before metering and distribution.

History

Mining activity in the La Parrilla mining district began in the 16th century during the early days of the Spanish colonial times. Numerous discoveries were made during this period including the mines at Fresnillo, San Martin, Sombrerete, La Colorada and Cerro del Mercado.

The first underground silver-gold-lead mines and processing facility at La Parrilla were constructed in 1956 by unknown small operators. In 1960, the mining claims were acquired by Minera Los Rosarios, S.A. de C.V. (“MLR”), who operated several small underground mines until 1999, when these were put on a care-and-maintenance program due to low silver prices.

In 1961, the now disbanded Comision de Fomento Minero (“CFM”) (a federal entity that was responsible for promoting and supporting the mining industry in Mexico) constructed a 180 tonne per day (tpd) flotation plant at La Parrilla, which operated as a custom toll mill processing ore from nearby areas such as Chalchihuites, Sombrerete and Zacatecas. This plant was purchased in 1990 by MLR from CFM.

In 2004, the Company acquired the mining rights and the plant from MLR, and in 2006, successfully negotiated the acquisition of the mineral rights held by Grupo México that surrounded the original La Parrilla mine.

Starting in September 2008, a series of incremental improvements were made at the La Parrilla mill, such as addition of new filter presses and an additional leach tank to the leach circuit. In December 2010, the Company launched a major expansion of La Parrilla’s mill capacity, increasing throughput to 1,000 tpd for both the leach circuit and the flotation circuit. The flotation circuit began commercial production in October 2011 with the new leach circuit beginning commercial production in March 2012. Expansion of the production capacity of the underground mines was also undertaken at Rosarios, San Marcos, Quebradillas, and Vacas mines in order to feed the larger mill. This included a capital development program to access more work areas, ventilation upgrades, electrical system upgrades, new mining equipment, and a larger workforce.

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Geological Setting

Two mineral deposit models are proposed by First Majestic for La Parrilla: intrusion-related carbonate replacement deposits and mesothermal fault-veins.

La Parrilla is located at the transition between the Mesa Central and the Sierra Madre Occidental physiographic provinces of Mexico. The Sierra Madre Occidental province is a large volcanic province that formed as a result of the subduction of the Farallon plate under North America. This volcanic province locally overlaps rocks of the Mesa Central. The La Parrilla district contains hydrothermal mineral deposits hosted by Early Cretaceous limestones and shales that have been intruded by an Eocene quartz monzonite–granodiorite stock, Oligocene dikes, rhyolite–rhyodacite dikes and plugs, and Miocene–Quaternary basalt–basaltic andesite dikes. The Eocene-age stocks and dikes have metamorphosed the Cretaceous rocks into marble, hornfels, skarnoid and minor skarn.

The Mesa Central is an elevated plateau that comprises marine sedimentary rocks of the Mesozoic Basin of Central Mexico (the “ MBCM ”) to the east, and two sequences of volcano-sedimentary rocks: the Parral terrane to the northwest and the Guerrero super terrane to the southwest. A clear boundary between the volcano-sedimentary terranes and the calcareous rocks of the MBCM has not been defined, but it has been proposed that the San Luis Tepehuanes Fault System could represent the boundary between the Guerrero terrane and the MBCM.

The geology of the La Parrilla project is conformed mainly by Cretaceous and Miocene – Oligocene sedimentary and igneous rocks. The oldest units in the area consist of Lower to Upper Cretaceous calcareous rocks of the Cuesta del Cura and Indidura Formations. The Paleocene Ahuichila calcareous conglomerate overlies the Cretaceous formations and is in turn partially overlain by Eocene–Oligocene dacite–rhyodacite flows and tuffs and rhyolite tuffs of the Sierra Madre Occidental Province. Miocene–Quaternary basalts represent the latest volcanic event; they overly the Eocene–Oligocene volcanic units, Quaternary conglomerates, and unconsolidated gravels. The Cretaceous formations have been intruded by an Eocene-age granodiorite–quartz monzonite stock, andesite dikes, Oligocene-age rhyolite–rhyodacite dikes, and Miocene–Quaternary basalt–basaltic andesite dikes.

Mineralization

Mineralization occurs as vein and replacement deposits, the locations of which are structurally controlled by pre-existing faults, fractures, and bedding planes. Veins can be either open space filling, forming massive sulphide and breccia veins, or fault-related, consisting of matrix-supported breccias or gouge containing disseminated sulphides and oxides. Gradations commonly occur between the two types in any vein system. Stockworks can occur at country rock/vein contacts. Replacement deposits occur as oblique or perpendicular splays to veins and faults, and as larger replacement deposits concordant with sedimentary bedding.

The La Parrilla deposits contain primary sulphides such as galena, sphalerite, pyrite, pyrrhotite, arsenopyrite, chalcopyrite, covellite, acanthite, native silver, and silver sulphosalts (tetrahedrite–freibergite solid solution). Due to supergene oxidation, the primary sulphides in the upper parts of some deposits have been altered to cerussite, anglesite, hemimorphite, hydrozincite, jarosite, goethite, hematite, cervantite, malachite, chrysocolla, chalcanthite, and native silver.

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Exploration and Drilling

Drilling by prior operators, consisting of 73 drill-holes (16,634 metres drilled), are not used to support mineral resource estimation. Between 2005 and 2016, the Company drilled a total of 122,040 metres in 588 core drill-holes. An additional 111 core holes totalling approximately 28,839 metres were drilled in 2017. The Company categorizes drillholes into “delineation holes” (used to guide and support the mine operation), “infill holes” (to improve quality of known resources) and “exploration holes” (to identify new mineralization). The Company uses a contractor for most infill and exploration holes whereas the Company uses its own rigs and personnel for delineation holes.

Data collected at La Parrilla includes, but is not limited to, collar surveys, downhole surveys, logging, specific gravity and geotechnical information. The data collection practices employed by First Majestic are consistent with industry-standard exploration and operational practices. Core logging is done digitally and lithology, structures, alteration, mineralogy, sample intervals, recovery and RQD information are all captured digitally. Core recoveries typically average 100%, except in select mineralized intercepts where recovery may be reduced significantly due to brecciation and hydrothermal alteration associated with the veins and fault veins. The average core recovery in mineralized structures is 91%. All core boxes are photographed after they have been logged and sample intervals are marked.

Since 2005, drill-hole collars have been surveyed by the engineering department at La Parrilla. In 2016, First Majestic hired the services of J&A Arquitectura and Geomatica S.A. de C.V. to resurvey in WGS84 datum surface and underground collars used for resource estimation. Currently, holes are surveyed every 30 metres using a reflex tool by the contractor Versa Perforaciones.

Upon completion of the drilling programs, the diamond drill core is securely stored and catalogued in the core storage facility at the La Parrilla mine site. Drill core samples are stored in a secure core processing and storage warehouse at La Parrilla prior to their shipment to the sample processing laboratories. All of the samples are securely sealed, and chain-of-custody documents are issued for all shipments. Samples are taken to the laboratories by Company trucks that are driven by First Majestic personnel. All samples are securely sealed, and chain of custody documents are issued for all shipments.

Additional exploration targets at La Parrilla may be defined by a combination of geological mapping, geochemistry, geophysics and drilling, and may include the area to the southwest of the Quebradillas pit, and San Marqueña–Los Perros and Cerro de Santiago areas. In 2013, exploration mapping and sampling initiatives at the San Marqueña – Los Perros and Cerro de Santiago areas defined a system of epithermal veins and breccias with anomalous silver and gold concentrations. In late 2017, the Company completed 3,171 metres of diamond drilling in five holes located in this area which confirmed the continuity of the veins at depth.

Other than diamond drilling for exploration, ongoing prospecting activities include: geological and structural mapping, geochemical sampling programs, orthophoto interpretation and the geophysical survey carried out in 2015.

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Sampling Analysis and Security

Core sampling intervals have varied over time. During 2005–2013, sample intervals were generally <1.5 metres in length. During 2013, the sample interval varied from 0.30 –5 m, depending on the core size. Sample intervals in material considered to be non-mineralized were typically about 5 m. After 2014, the sample interval in mineralized material ranged from 0.2 –1.5 m, and in waste ranged from 2.5 –3 m. Core is typically halved, with one half of the core subsequently placed in a numbered bag and sent to the primary laboratory for analysis.

Diamond power saw channel sampling is undertaken underground, under the supervision of a mine geologist at every 25m along strike. Channel samples are typically 6 cm wide, 3 cm deep, and have variable sample lengths as samples are taken respecting vein/wall contacts and any textural or mineralogical variations. Chip samples have been the primary means of grade control sampling since 2005. Until 2013, samples were taken using a hammer and chisel to cut a channel that was generally <1.5 metres in length. From 2014, chip samples are taken from every 3 metres advance on a heading, and every 3 metres along the backs of every third stope lift. Chip samples are generally at least 2 metres long and often, but not always, include barren or silver-poor shoulder samples. Lithology boundaries are respected.

Bulk density measurements were taken on site by First Majestic geologists on core samples using the water immersion method. A total of 1,863 bulk density determinations are in the resource database, covering the Quebradillas, Intermedia, Rosario, San Nicolas and San Marcos areas.

Several analytical laboratories have been used for processing and assaying La Parrilla samples since 2005, including Inspectorate America Corporation (primary laboratory for drill core samples from , 2005–2012), First Majestic Central Laboratory (formerly known as the La Parrilla mine laboratory; primary laboratory for production samples from 2005 to date; primary laboratory to drill core samples from 2015 to date), SGS Durango (secondary and occasionally primary laboratory for drill core samples from 2013 to date), and Bureau Veritas Mineral Laboratory (secondary laboratory for 2017). The Inspectorate and Bureau Veritas laboratories are independent of First Majestic and hold ISO 9001:2008 and ISO/IEC 17025:2005 certification. The La Parrilla and Central laboratories are not independent of First Majestic. Central Laboratory obtained ISO 9001:2008 accreditation in 2017. In mid- 2012 SGS Durango obtained ISO 9001:2008 accreditation

From 2005–2013, the sample preparation protocol at La Parrilla/Central laboratory included drying, crushing to 10-mesh, and pulverizing to -100 mesh. The Central laboratory protocol from 2014 onwards consisted of drying, crushing to 80% passing 10-mesh, and pulverizing to 80% passing -150 mesh. Sample preparation at Inspectorate from 2005 to 2012 comprised drying, crushing to 80% passing 10-mesh, then pulverizing to greater than 90% passing 150-mesh. SGS Durango dried samples, then crushed to 75% passing 2 mm, followed by pulverizing to 85% passing 200-mesh. Bureau Veritas crushed samples to 70% passing 10 mesh, then pulverized to 85% passing 200-mesh.

Analytical methods used by La Parrilla/Central Lab included fire assays for gold and silver, and multi-acid digest followed by atomic absorption or inductively-coupled plasma (“ ICP ”) for lead, zinc, and copper, and from 2013, arsenic. Inspectorate analysed for silver and gold by fire assay with an atomic absorption finish. Multi-element analyses were undertaken using an aqua regia digest, and 30-element ICP package. Silver samples that were overlimit were re-assayed using fire assay with a gravimetric finish; lead, zinc, or copper values overlimit were checked using aqua regia digestion with an atomic absorption finish. SGS Durango used a three-acid digest with atomic absorption spectroscopy (“ AAS ”) finish and aqua regia digest with 34-element ICP-atomic emission spectroscopy (“ AES ”) package for silver. Overlimit three-acid digest silver assays were also analyzed by fire assay with a gravimetric finish. Gold was analyzed by fire assay. Overlimit results for manganese, lead, and zinc were subsequently analyzed by a sodium peroxide fusion and ICP-AES package. All samples at Bureau Veritas are analyzed by four-acid digestion with AAS finish, and aqua regia with ICP finish for silver. Overlimit silver results are analyzed by fire assay with a gravimetric finish.

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From 2007 to 2012, First Majestic implemented a quality control program to evaluate silver assay results from the La Parrilla Laboratory for chip and core samples by submitting one core sample for every 20 original samples to Inspectorate in Reno, Nevada for duplicate check assaying. Channel sample check assays were performed by SGS Durango. From 2013 to 2014, quality control samples included duplicates, in-house standard reference materials and blanks, with an overall QA/QC insertion rate of about 5%. The insertions changed in 2015 to an insertion program that included quarter-core field duplicates, coarse and pulp duplicates, certified reference materials and blanks, with an overall QA/QC insertion rate of about 16%.

Sample preparation, analysis, and security are generally performed in accordance with exploration best practices and industry standards. First Majestic continues to enforce and improve these practices. Review of the QA/QC data indicates that caution should be used with respect to the pre-2013 results due to their limited QA/QC. Current Resource and Reserves estimation does not include a significant amount of pre-2013 results since those areas have been depleted.

Independent data verification was performed by Pincock, Allen & Holt in 2007 and 2011 in support of technical reports on La Parrilla, including verification for assay checks of production concentrates at La Parrilla laboratory, and concentrate assays reported by the MET-MEX Peñoles smelter in 2007, and check assaying assessments in 2011. Pincock, Allen & Holt concluded that results from check assaying were reasonable with appropriate preparation procedures, and that the sample results appeared to be reasonably representative of the deposit mineralization and usable with acceptable confidence in the resource estimation.

SRK performed an independent review of the analytical data in 2017. Control samples (blanks and standards) were summarized on time series plots, and paired data (duplicates and check assays) were analyzed using bias charts, quantile-quantile, and relative precision plots to highlight their performance. Although a number of failures were identified, the analytical results delivered by the Central Laboratory and by SGS Durango were considered by SRK to be sufficiently reliable for the purpose of Mineral Resource estimation. SRK noted that First Majestic is improving current methodologies for sampling and assaying procedures to increase confidence in analytical quality control data.

First Majestic staff have undertaken verification of drill-hole and channel data collected between 2013 and 2017, including verification for transcription errors; verification of collar and channel sample locations; down hole survey deviations; verification of down hole lithology and sample intervals; verification of specific gravity data; and conducting site visits. First Majestic also evaluated field, coarse reject, and pulp duplicates from core samples from 2014 to 2016 drilling campaigns to assess laboratory precision at the Central Laboratory, SGS Durango and Bureau Veritas. Standard reference materials and certified reference materials were used to assess laboratory accuracy for silver, gold, lead and zinc at the Central Laboratory and SGS Durango. Pulp and coarse blanks were used to assess contamination during sample preparation and analysis for silver, gold, lead, and zinc at the Central Laboratory and SGS Durango.

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Mineral Resources and Mineral Reserves

The 2017 La Parrilla Technical Report represents the first reporting of a mineral resource for this property estimated from a modern three-dimensional block model that was developed using advanced geostatistics, variography, and advanced software applications. All previously published mineral resource estimates were estimated using two-dimensional polygonal estimation methods.

The resource estimation included in the 2017 La Parrilla Technical Report for the San Marcos and Rosarios-Intermedia zones using three-dimensional block models was completed by Mr. Dominic Chartier, P. Geo. and Mr. Sébastien Bernier, P. Geo. of SRK.

The estimates based on two-dimensional polygonal estimation methods included in the 2017 La Parrilla Technical Report for the Quebradillas and San Nicolas zones were completed under supervision of Mr. Jesus M. Velador Beltran, MMSA, QP Geology for First Majestic.

Mineral Resource estimates updates for the Quebradillas, San Nicolas, Rosarios, San Marcos, and Intermedia zones have been updated by First Majestic under the supervision of Mr. Jesus M. Velador Beltran, MMSA, QP Geology. These estimates are based on the models and estimates prepared for 2017 La Parrilla Technical Report, incorporating exploration results from the 2017 exploration program.

Updated Indicated and Inferred Mineral Resources are summarized in Table 14. Mineral Resources are reported inclusive of Mineral Reserves and have an effective date of December 31st, 2017. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

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Table 14
La Parrilla Silver Mine Mineral Resources Estimates with an Effective Date of December 31, 2017
(prepared under the supervision of Jesus M. Velador Beltran, MMSA, QP Geology for First Majestic)

TABLE 15
La Parrilla Silver Mine Inferred Mineral Resource with an Effective Date of December 31, 2017
(prepared under the supervision of Jesus M. Velador Beltran, MMSA, QP Geology for First Majestic)

Inferred Mineral Resources

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The Mineral Resources may be impacted by additional infill and exploration drilling that may identify additional mineralization or cause changes to the current domain shapes and geological assumptions. The Mineral Resources may also be affected by subsequent assessments of mining, processing, environment, permitting, taxation, socioeconomics, and other factors.

Mineral Reserve Estimates

Mineral Reserve estimates were developed separately for both oxide and sulphide ores with the majority of the assumptions and modifying factors being the same for both types. Zones estimated using block modelling methods included Rosarios, Intermedia, and San Marcos. Mineral Reserves were separately estimated for each deposit and mineralization type. Zones estimated using polygonal methods were the Quebradillas and San Nicolas areas.

A silver equivalent cut-off grade (“ COG ”) was estimated to identify the polygons that complete La Parrilla’s initial mine design and initiate the process of underground mine optimization. The all-in-sustaining mining cost for mining underground oxide material was $59.78/t and the cost for mining underground sulphide material was $63.51/t; these figures include sustaining development and sustaining capital costs. The all-in-sustaining mining cost for mining oxide material using open pit methods $37.33/t; this figure includes sustaining capital and sustaining waste stripping cost. The AgEq cut-off used for Mineral Reserves reporting, is based on 2017 actual costs. A COG of 100 g/t AgEq was used for remnant oxide open pit material, and a cut-off grade of 160 AgEq was used for both oxide and sulphide material to be mined using underground methods.

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Metallurgical Testwork

The metallurgical processing plant at La Parrilla treats two types of material: oxide and sulphide ores. Oxide ore is processed by cyanide leaching to produce doré bars while sulphide ore is processed by differential flotation to produce a silver-rich lead concentrate and a zinc concentrate.

Current grinding throughput in the flotation (sulphide) and cyanidation (oxide) circuits are typically 850 and 780 t/d, respectively (although both circuits have the capacity to process 1000 t/d following a plant expansion performed in March, 2012). Particle size in the flotation and cyanidation circuits are typically 120 and 108 µm, respectively.

To determine the metallurgical performance of the different ore types that feed the plant, stope samples collected from mining faces as well as monthly plant composites are regularly sent for bench-scale testing to First Mining’s Central Laboratory. There are no metallurgical reports issued by external commercial laboratories. Since 2015, all test work has been performed at the Central Laboratory. Since the metallurgical testwork results and data originate from material collected from the plant feed and mine production faces, the samples tested are considered representative of the various types and styles of mineralization and the mineral deposit as a whole. Test variables include: grind fineness (% passing 200 mesh) and sodium cyanide (NaCN) concentration. Processing conditions were chosen to replicate those used at the plant at the time the test was performed. The main variables that impact recovery are the particle size and sodium cyanide concentration.

Composites samples representing one month of plant feed are collected and then sent to the Central Laboratory. One objective is to determine the relationship between the metallurgical performance at the laboratory and at the full-scale operation using a set of typical (standard) plant conditions. The second objective is to forecast the plant metallurgical response of future ore types. In addition, since February 2014, monthly and quarterly samples have been sent to the Central Laboratory to perform grindability tests by means of the Bond Ball Mill Work Index method (“ BWi ”). To date, BWi grindability tests have been conducted on more than 30 monthly composites and more than 90 stope samples. In summary:

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Since January 2015, the head grades in the flotation (sulphide) circuit ore have shown a downward trend in terms of silver and zinc content, while lead grades seem to be stable at around 1%. Deportment of silver to lead concentrate shows major variations over the 34-month evaluation period. Similarly, the deportment of lead to the lead concentrate varied significantly over the same period. Recovery of zinc to lead concentrate also showed variations, with an overall upward trend in the first half of 2016. Note that zinc in the lead concentrate is not a payable metal and is typically considered an impurity by smelters and may be subject to penalties. Deportment of silver to zinc concentrate shows major variation over the 34-month evaluation period. Zinc recovery to zinc concentrate shows a downward trend, similar to declining head grades.

The head grades from oxide ore sources at the cyanidation circuit have been reasonably stable over the 34-month evaluation period. The data shows that silver recovery at the plant increases with increasing head grade. Gold metallurgical performance also shows a tendency of increasing recovery with increasing head grade.

There have been no issues with the sale of concentrates produced from La Parrilla. However, some concentrate batches have incurred penalties due to above limit detections of one or more elements, including As, Cd, Fe, SiO2, Cl and F. There are no known deleterious elements in the doré produced at La Parrilla and no penalties have been incurred.

Mining and Milling Operations

Production in 2017 was from five underground sources and the Quebradillas open pit. The underground mining operations currently use MCF, and this mining method is assumed to apply to the LOM plan. To access the ore body, an initial access drift (attack ramp) is driven from the lower main level to near the middle of the bottom elevation of the MCF stope. Typical development methods are then used to drive sill drifts in ore to each extent of the ore body. Sill drifts are typically driven 3.5 –4 metres high to accommodate the production drilling. Production drilling is carried out by hydraulic jumbo drills where the veins are wider and by handheld pneumatic jackleg drill in narrower sections. Blast holes are generally drilled as inclined up holes in the back of the stope.

First Majestic also employs MCF with resuing when the vein width is narrower than the minimum mining width required by the mobile equipment. All areas where resuing is used are drilled by handheld pneumatic drills.

In 2017, one longhole open stope was excavated at San Marcos as a trial. First Majestic plans to continue implementing the longhole mining method as there are many areas that are suited to the application of longhole open stope mining methods.

First Majestic has developed a set of ground control standards based on the Norwegian Geotechnical Institute’s Q rock mass classification system and stope stability analysis using Mathew’s method. The current ground control standards account for six geotechnical domains, three for oxidized areas and three for sulphide areas. Areas with good quality rockmass ratings or better typically have no ground support installed. Areas with poor to very poor rockmass rating will be supported using rockbolts in the sulphide areas and shotcrete in the oxide areas. Ground support installation is not mechanized.

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A portion of the Mineral Reserves are in areas that are already developed, and represent stopes currently in production, or extension and remnants of past stopes. The following underground areas are scheduled to be mined in the current LOM plan:

A basic development and production schedule was developed based on site mine design standards and previous performance metrics for production and development. The schedule tracks and reports development metres and stope production for both oxide and sulphide ore types on a monthly basis. Under the current LOM plan, First Majestic plans to develop a total of 5–7 km of lateral waste development per year for three years, dropping to 1 km in the last year of production. The LOM total is 19.6 km of lateral waste development including 11.3 km of capital development and 8.3 km of operating development. Capital vertical waste development totals 3.4 km.

Ventilation for the various mining zones is generally setup as a pull system where a return air fan on surface pulls exhaust air from the ramp at depth via a 3 metres diameter raise. This pulls fresh air into the ramp portal and down the ramp. Local auxiliary fans are than used to distribute fresh air from the ramp above the return air raise into the working, with the contaminated air then being pulled to the return air raise back to surface. The current ventilation capacity was modelled in late 2016, and results indicated that ventilation flow should be improved to support deeper mining areas.

Some of the underground mining activities at La Parrilla are performed by local contractors including ramp, lateral and vertical development, stoping, haulage, shotcreting and maintenance activities. First Majestic staff and employees provide technical, administrative and supervisory support for the underground operations.

The Quebradillas open pit includes oxide mineralized material and is operated in a conventional way using track drills, front-end-loaders, backhoe excavators, dozers and conventional 20 m ³ trucks operated by local contractors. The remaining oxide Mineral Reserves from open pit sources are from the Quebradillas and La Herradura deposits. These Mineral Reserves are constrained by a pit shell designed with the following parameters: the pit configuration is designed with 7.5 metres high benches, 2.5 metres wide berms, and 60° slope angles, resulting in an overall slope angle of 49°. The planned design results in a stripping ratio of 2:1 (waste to ore ratio). The Mineral Reserves are planned to be mined over the next three years at rates of up to 180 kt/a over a three-year period. The open pit is mined using contractor-mining services.

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La Parrilla operates two parallel processing circuits that recover metals from the sulphide and oxide ores. Both processing lines at La Parrilla use a conventional flowsheet:

Tailing from both circuits are filtered separately before being dry-stacked in the tailings storage facility. Water for each circuit is managed independently.

The processing plants were originally designed to process 1,000 tpd per circuit for a combined throughput of 2,000 tpd; however, since completion of open pit mining in 2016, the amount of oxide ore available for treatment through the leach facility has significantly reduced. First Majestic has partially offset this by working to increase the throughput of sulphide ores through the flotation plant.

Capital and Operating Costs

As of December 31, 2017, First Majestic estimated total sustaining capital costs for the remaining LOM of $16.12 million, including development, delineation and infill drilling, plant and infrastructure sustaining capital.

Operating Costs

Operating costs for La Parrilla have been estimated for the underground mining, processing costs and general and administrative costs. First Majestic currently estimates the LOM plan operating costs at an average of $49.28 per tonne of ore processed based on current and projected costs. The life-of-mine plan assumed an approximate 56% underground sulphides ore, 28% underground oxides ore and 16% of surface oxide ore.

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San Martín Silver Mine, Jalisco State, México

The San Martín Silver Mine is an underground producing silver mine and processing facility located in the state of Jalisco, Mexico which the Company acquired in 2006. The mine is owned and operated by the Company’s wholly-owned indirect subsidiary, Minera El Pilón, S.A. de C.V. (“ Minera El Pilon ”). The San Martin Silver Mine includes two underground silver mines and a 1,300 tpd cyanidation processing facility.

San Martín is comprised of 36 contiguous mining concessions covering a total of 38,512 hectares, plus nine non-contiguous mining concessions covering 4,250 hectares for a total of 45 mining concessions covering a surface of 42,762 hectares. The Company has acquired surface rights covering approximately 810 hectares supporting operations, including plant installation, tailings storage, and other project requirements.

Certain parts of the information on the San Martin Silver Mine is based on the Technical Report titled, “San Martin Silver Mine San Martin de Bolanos, Jalisco, Mexico, NI 43-101 Technical Report on Mineral Resource and Mineral Reserve Update ” prepared by Ramon Mendoza Reyes, P. Eng., Jesus M. Velador Beltran, MMSA, Maria E. Vazquez Jaimes, P. Geo. and Phillip J. Spurgeon, P. Geo., with an effective date of December 31, 2016, which was filed on SEDAR on December 20, 2017 (the “ 2017 San Martin Technical Report ”). Mrs. Maria E. Vazquez Jaimes, Mr. Jesus M. Velador Beltran, Mr. Ramon Mendoza Reyes and Mr. Phillip J. Spurgeon are Qualified Persons for the purposes of NI 43-101 and are each employees of First Majestic and accordingly, are not considered independent. The 2017 San Martin Technical Report has been filed with the 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 2017 San Martin Technical Report which is available for review on SEDAR at www.sedar.com.

Project Description and Location

The San Martín Silver Mine and processing facility are located on the eastern side of the Bolaños River, to the southeast of the town of San Martín de Bolaños at an elevation of 850 metres above sea-level. The San Martín Silver Mine is located 10 km northwest from the town at elevations varying between 1,080 and 1,190 metres above sea-level. The town of San Martín de Bolaños is located about 250 km north of Guadalajara in the state of Jalisco, Mexico.

San Martín has acquired surface rights covering approximately 800 ha that are sufficient to support operations, including plant installation, tailings storage, and other requirements. The rights on all of the concessions making up San Martin expire between 2024 and 2056.

Accessibility, Local Resources, Infrastructure and Physiography

The town of San Martín de Bolaños is located 250 km north of Guadalajara, the capital city of the state of Jalisco. Travel time from Guadalajara to the town is about 5 hours by road or about 45 minutes by charter plane. An alternate access route to San Martín is from the city of Durango. Travel time is approximately 7 hours by road or about 1.5 hours by charter plane. Airports with service for international flights are available in the nearby cities of Durango, Zacatecas, Aguascalientes and Guadalajara. San Martín’s mines are located approximately 10 km to the west of the town of San Martín de Bolaños, while the mill and office facilities are located approximately 3 km east of the town. The mine and process plant can be accessed by all-weather dirt roads.

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The existing surface infrastructure includes the processing plant, repair workshops, an analytical laboratory, temporary ore stockpiles, a tailings storage facility, water management and diversion structures, offices, a drill core and logging shack, power substations, and power lines. There are also onsite 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. Existing underground workshop facilities in the Rosario mine include a washing bay, a lube station, and several repair stations for mobile equipment.

The San Martín mine and plant are also connected to the national power grid. Water for the town’s domestic use is pumped from water wells. The water source for the San Martín processing plant is the Bolaños River, which has a permanent flow, except in extreme drought conditions such as the one that occurred during the 2012 summer months. In that case, water is truck-hauled from the mine for the use of both the town and the processing plant. During the summer of 2012, the Company assisted the town of San Martín de Bolaños in building a 10-km long pipeline from a water source near the mine to the town storage tank. The excess water that was not required by the town was used for processing operations during the drought. These installations have been left in place as a backup for future use in similar recurring drought conditions.

History

Silver, gold, lead and zinc have been produced from the Bolaños mining district since colonial times. The San Martín area production has included underground workings along the Zuloaga vein, with some drifting at the Ballenas, Mancha, Plomosa, Melón and Hedionda veins, and discoveries of the Blanca, Condesa, Cinco Señores, and Rosario veins.

According to historical records, over 46 million silver-equivalent ounces have been extracted from approximately 6.7 million tonnes from the Zuloaga and adjacent veins during the period from 1983 to 2016. First Majestic obtained its 100% interest in the San Martín Silver Mine in 2006 and has since completed geological mapping, limited prospecting and geochemical surveys, core drilling, metallurgical testwork, Mineral Resource and Mineral Reserve estimation, and ongoing mine development and mining extraction.

A mill expansion was completed during the second quarter of 2014. The expansion included the installation of a new and larger 9.5’ x 12’ ball mill to replace the older 8.5’ x 12’ ball mill and production capacity increased from 900 tpd to 1,300 tpd. In 2017, the Company begun the installation of a tailings filter-press system, which is expected to be completed in late 2017 and will increase water recycling capabilities and reduce the tailings deposit stability risk.

First Majestic production from 2006 to September 30, 2017, represents approximately 37% of the mined tonnes and about 48% of the silver ounces produced over the mine life to date.

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Geological Setting

The geological model proposed by the Company for San Martín is a low-sulphidation epithermal deposit.

San Martín is located in the southern portion of the Sierra Madre Occidental physiographic province within the Bolaños graben. There are five main igneous complexes within the Sierra Madre Occidental, including Late Cretaceous to Paleocene plutonic and volcanic rocks, Eocene andesites and rhyolites, Oligocene and Early Miocene silicic ignimbrite pulses, transitional basaltic-andesitic lavas that erupted toward the end of, and after, each ignimbrite pulse, and Late Miocene, Pliocene, and Pleistocene alkaline basalts and ignimbrites.

In the mine area, the stratigraphy has been refined to a basal sequence of undifferentiated welded tuffs, overlain in turn by rhyolitic welded tuffs, rhyolitic welded and non-welded tuffs; andesite and basalt flows; and a sequence of andesitic and rhyolitic tuffs with minor latitic and trachytic tuffs that hosts the mineralization. Rhyolite domes and dikes of late Miocene age intrude all of the previously mentioned units at the San Martín mine. The uppermost units are a post-mineralization series of tuffs and basalts.

Mineralization

Mineralization in the San Martín Silver Mine occurs in east–west, northwest–southeast, northeast–southwest and north–south fault structures in the form of stockworks, sheeted veinlets, veins, and breccias. The veins in the San Martín Silver Mine can be described as fault veins or mineralized faults, given that the amount of gangue minerals such as quartz, calcite, fluorite, epidote, ankerite and adularia are very limited, meaning they do not form massive or banded veins typical of open space-filling veins.

Gangue mineralogy typically includes quartz, calcite, fluorite, epidote, ankerite and adularia, whereas the sulfide mineralogy generally consists of sphalerite, galena, pyrite, chalcopyrite, pyrrhotite and undifferentiated sulfosalts.

Known vein structures include the following veins, splays and fractures: Zuloaga, Rosario, Veladora, Lima, Huichola E-W, Huichola N, Intermedia, 99, Guitarrona, Pitayo, La Reina, Hedionda, La Blanca, La Esperanza, Veta 420, Desprendimiento 7000 and Dique 690.

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Exploration and Drilling

1,174 drill-holes, totaling 178,277 m, have been recorded as being completed at San Martín since 1996. First Majestic has drilled a total of 146,396 metres in 837 diamond drill-holes since its acquisition of the mine in 2006. A significant proportion of those drill-holes are located in mined-out areas, and much of the remaining historical data presents issues, such as geological logging inconsistencies, collar topographic inconsistencies, questionable downhole surveys or lack of such surveys, and potentially unreliable sample preparation procedures or assay data. As a result, at the start of 2016, First Majestic decided to re-log and re-sample the drill-holes that intersect the main structures in San Martín. A total of 151 of the 196 holes that support Mineral Resource estimation were re-logged using standardized lithological codes, and re-sampled and assayed, applying current industry standard practices for sample preparation and security, QA/QC, and analysis. During 2017, First Majestic completed 26,078 metres in 106 diamond drill-holes. Drilling during 2017 focused on upgrading and expanding resources in the Intermedia, Rosario and Hedionda veins. Surface exploration focused on the extension of the Rosario vein in the area known as the 5 Señores, as well as the Guitarrona, Pitayo and Huichola Norte veins.

First Majestic categorizes drill-holes into “delineation holes” (used to guide and support the mine operation), “infill holes” (to improve quality of known resources) and “exploration holes” (to add new resources). First Majestic uses a contractor for most infill and exploration holes; the Company’s own rigs and personnel are used for delineation holes. The core diameters used for drilling at San Martín are 36.4 mm (TT46), 47.6 mm (NQ) or 63.5 mm (HQ). The TT46 diameter is generally used only for delineation holes, whereas the bigger NQ and HQ diameters are used for infill and exploration holes. The small-diameter drill-holes are not surveyed and are not used in Mineral Resource estimation.

Data collected at San Martín includes, but is not limited to, collar surveys, downhole surveys, logging, Specific Gravity, and geotechnical information. The data collection practices employed by First Majestic are consistent with industry-standard exploration and operational practices. Core logging is done digitally and lithology, structures, alteration, mineralogy, sample intervals, recovery and Rock Quality Designation information is captured digitally. Core recoveries for surface and underground drilling typically average over 90%. Core recoveries in mineralized intercepts may be less, varying from 85 to 90%, due to brecciation and hydrothermal alteration associated with the fault veins. All core boxes are photographed after they have been logged and sample intervals are marked.

Upon completion of the drilling programs, the diamond drill core is securely stored and catalogued in the core storage facility at the San Martín Silver Mine site. Drill core samples are stored in a secure core processing and storage warehouse at San Martín prior to their shipment to the sample processing laboratories. All samples are securely sealed, and chain-of-custody documents are issued for all shipments. Samples are delivered to the laboratories by First Majestic personnel.

Sampling Analysis and Security

Prior to 2015, core was sampled at lengths of 15 cm to 1 m, based on geological and mineralization features. After 2015, the sample lengths from mineralized areas are from 0.30 to 2 metres in length, depending on the drill diameter. Channel sampling is conducted under the supervision of a mine geologist. Channel samples are typically 6 cm wide by 3 cm deep, and sample lengths vary according to the lithology and alteration features. Production samples include chip samples and muck samples. Chip samples have been the primary means of grade control sampling since 1994. The underground sampling process includes collecting chip samples from every 3 metres advance on a heading, and every 3 metres along the backs of every third stope lift. Chip samples are generally at least 2 metres long and often, but not always, include barren or silver-poor shoulder samples. Lithology boundaries are respected. Muck samples are collected from the muck pile from various underground locations.

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Bulk density measurements were made on site by First Majestic geologists on core samples using the water immersion method. In total, 787 bulk density determinations are in the project database for the La Veladora, Rosario, La Lima, Huichola, Huichola Norte, La Guitarrona, La Hedionda, El Pitayo, Zuloaga, Santa Cecilia, La Esperanza and Enlace 2140 zones.

Due to the re-logging and re-sampling campaign, all historical drill-hole assays for those drill holes were replaced by the 2016 assay results. The 2016 re-sample campaign mainly used SGS Durango and First Majestic’s Central Laboratory at La Parrilla as primary laboratories, and Bureau Veritas Mineral Laboratories (BVML) as the secondary laboratory. For the production data, the San Martín Silver Mine laboratory has always been the primary laboratory. SGS held ISO 9001 certification from 2008 until mid-2012, by which time the laboratory was ISO 9001:2008 accredited. The Central Laboratory is not independent of First Majestic. This laboratory gained ISO 9001 accreditation in mid-2015 and ISO 9001:2008 in 2017. The laboratory currently only handles samples from First Majestic’s operations. As of January 1, 2015, the Inspectorate and ACME laboratories operate under BVML. Both laboratories are independent and hold a global certification for quality, ISO9001:2008, and ISO/IEC 17025:2005. At BVML, samples are prepared in the preparation laboratory in Durango, Mexico, and analysed in the analytical laboratory in Vancouver, Canada. The San Martín Silver Mine laboratory is not independent of First Majestic and is not ISO accredited.

Sample preparation at the San Martín Silver Mine laboratory included drying, crushing to ½”, and pulverizing to minus 200 mesh. Analytical methods included 10 g fire assay for silver with gravimetric finish, and atomic Absorption Analysis (AAS) for iron, zinc, lead, copper cadmium and manganese. Sample preparation at the Central Laboratory consisted of drying, crushing to 80% passing 1/8 inch and pulverizing to 80% passing 106 µm. All samples were analyzed for silver by AAG-13 and gold by AUAA-13 and ICPAW-20. Sample preparation at SGS comprised drying, crushing to 75% passing 2 mm, and pulverizing to 85% passing 75 µm. All samples were analyzed by AAS21E and ICP14B for silver. Over-limit AAS21E silver results were also analyzed by FAG313. Gold was analyzed by fire assay. Over limit results for manganese, lead and zinc primary analyzed by ICP14B were subsequently analyzed by ICP90Q. The BVML sample preparation protocol is crushing to 70% passing 10 mesh and pulverizing to 85% passing -200 mesh (75 μm). All samples are analyzed by four-acid AAS finish and aqua regia Inductively-Coupled Plasma finish for silver. Over-limit silver results are analyzed by fire assay gravimetric finish.

First Majestic instituted a QA/QC program for the 2016 drilling and resampling program with an overall QA/QC insertion rate of about 20%. Duplicates and check samples were inserted randomly. Standards were inserted according to a visual estimate of the mineralization grade, and blanks were inserted between samples containing visible mineralization.

Field, coarse and pulp duplicates from core samples were used to assess laboratory precision at the Central Laboratory, SGS and BVML. Results have shown poor precision and poor-to-moderate correlation for field duplicates with silver and gold results from the Central Laboratory and from SGS. The poor correlation and low precision in both laboratories is most likely attributable to natural deposit heterogeneity. Acceptable precision and good correlation were obtained for coarse duplicates from silver and gold results from SGS and from the Central Laboratory, while pulp duplicate results from both laboratories achieved lower precision but good correlation. Standard results from the Central Laboratory and SGS indicate that biases are acceptable. Failure results for silver from both laboratories are considered to be acceptable; however, around a 30% of gold failures from the Central Laboratory reflects an analytical accuracy issue for gold with the Central Laboratory, which shows a low bias when compared with certified standard materials. First Majestic has taken measures to address the assay accuracy issues that were identified at the Central Laboratory.

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Pulp and coarse blank reference materials (blanks) showed a significant number of failures occurring at both Central Laboratory and SGS. These failures have not yet been fully investigated, but it appears that either, there is some contamination occurring in both laboratories or that the blank material carries residual silver and gold values. Results show that the contamination of samples from the Central Laboratory is higher than at SGS. During the 2016 sampling campaigns, coarse reject and pulp from the Central Laboratory and SGS were submitted to BVML for check assay. Paired Central Laboratory and BVML silver and gold pulp check sample results indicated an acceptable positive bias for Central Laboratory silver results and a 13% (unacceptable) positive bias for gold results relative to BMVL results. Paired SGS and BVML coarse reject check assay silver and gold results indicated an acceptable bias for SGS results relative to BVML results.

First Majestic staff verification of the drill-hole and channel data consisted of verification for transcription errors; verification of collar and channel locations; down hole survey deviations; verification of down-hole lithology and sample intervals; and conducting site visits to check core, sample security practices and location.

Mineral Resources and Mineral Reserves

Mineral Resource estimation was performed on a vein system consisting of 14 vein zones. Four vein zones (Rosario, La Veladora, La Lima, and Hedionda) were estimated by First Majestic using three-dimensional (3D) estimation methodologies. Ten vein zones; Intermedia, Huichola Norte, Pitayo, 99, Zuloaga, La Esperanza, Veta 420, Dique 690, La Blanca, and Despendimiento 7000, were estimated by First Majestic using two-dimensional (2D) or polygonal estimation. Different interpolation methodologies could be used depending on the vein’s geological and mineralization characteristics. Collectively Huichola Norte, Pitayo, 99, La Esperanza, Veta 420, Dique 690, La Blanca, and Despendimiento 7000, veins are also referred to as the “Minor Veins”.

All available data for the Rosario, La Veladora, La Lima, and Hedionda Zones, including drill-holes, channel samples, level maps, and drill core photos, were used for geological solids modelling. Typically, however, only a high-quality data subset is used to support the estimates. Composite lengths were an accumulated interval grade at true thickness. Statistical and visual analyses were performed to validate the overall domain controls on mineralization and to ensure further domaining was not required. A metal sensitivity analysis was undertaken before any appropriate capping value was applied. All applied capping values were individually reviewed for each domain that was capped to ensure the reduction in metal was statistically appropriate and locally relevant.

In polygonal estimates for the Intermedia, Huichola Norte, Pitayo, 99, Zuloaga, La Esperanza, Veta 420, Dique 690, La Blanca, Desprendimiento 7000, longitudinal sections of vein structures were constructed. Polygons were projected from mine levels, or constructed around drill intercepts, and classified as Indicated or Inferred. No Measured Mineral Resource polygons were defined. Polygons of Indicated Mineral Resources are projected vertically (up and down) 45 metres from mine levels informed by chip samples. Indicated Mineral Resources are projected 25 metres around drill-hole intercepts where there is continuity of mineralization, as indicated by drilling information or by mine levels with sample lines reporting potentially economic grades. Inferred Mineral Resources are projected 50 metres from drill-hole intercepts or polygons of Indicated Mineral Resources. In most cases, Inferred Mineral Resources are projected 20 metres beyond Indicated Mineral Resources.

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The Mineral Resources may be impacted by additional infill and exploration drilling that may identify additional mineralization or cause changes to the current domain shapes and geological assumptions. The Mineral Resources may also be affected by subsequent assessments of mining, processing, environment, permitting, taxation, socioeconomics, and other factors. Measured and Indicated Mineral Resources are summarized in Table 19, and Inferred Mineral Resources in Table 20.

TABLE 19
San Martín Silver Mine Mineral Resources Statement with an Effective Date of December 31, 2017
(prepared under the supervision of Jesus M. Velador Beltran, MMSA, QP Geology for First Majestic)

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Modifying factors for mining were applied on a stope-by-stope evaluation and have been determined suitable for conversion to Mineral Reserves. To convert from Mineral Resources to Mineral Reserves, the resource blocks were interrogated by applying economic criteria as well as geometric constraints based on the mining method envisioned. Mineable blocks or stopes were defined by following this process. The Mineral Reserve statement for San Martín is provided as in Table 21.

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Factors that could affect the Mineral Reserves include changes to the following assumptions: unplanned dilution; mining recovery; geotechnical conditions; equipment productivities; metallurgical recoveries; metal prices and exchange rates; mill throughput capacities; operating costs; and capital costs.

Mining and Milling Operations

San Martín veins and deposits are hosted on the side of a mountain range. Access to the workings is through adits developed horizontally, followed by ascendant and descendent ramps developed in waste. All mine workings in San Martín are located above the water table, and no evidence of water bodies have been found during exploration. There are water inflows in the workings close to surface, mainly during the rainy season, but these inflows are managed by pumping. Geotechnical studies have been completed in support of design parameters for the excavations, as well as ground support requirements.

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San Martín currently uses cut-and-fill mining using resue to extract the mineralization. Resue is a mining variation that implements a two-phased process where the ore is extracted first and then the mining section is extended to allow access to mining equipment for subsequent cuts. A combination of jumbo and conventional (hand-held pneumatic) drills are used and the type of drill used depends on mining widths and availability of the jumbos.

Varying COGs were used to focus development and then lower cut-off grades were used to identify opportunistic lower-grade mineralization that can be sent for processing. This material is typically mineralization that is mined to access higher-grade mineralization. Once the mining locations were identified, stope design was followed by development design. The design component was then imported into mining planning software for sequencing and scheduling.

The current minimum mining width used at site for cut-and-fill mining is 0.8 m, and 2.5 metres for equipment access. After the resue portion is mined (typically the mineralization), additional waste is mined to allow for equipment access. Mined waste either reports to the surface waste storage facility or is used as fill for subsequent lifts. When mineralization that is greater than 2.5 metres in width is mined, no additional waste is mined. Each drift is mined 3 metres high where six drifts are mined to extract 18 metres of a 20-m-high panel. Updated designs incorporate a minimum stand-off distance of 20 metres to locate ramps away from mineralization. Planned development includes: access drifts; sills (development on mineralization); operating waste development (sills mining material below cut-off); sumps; escapeways and accesses to the escapeways; return airways and accesses to the return airways; stockpiles; and ore passes and access to the ore passes, where required. Vertical development will primarily be completed by conventional mining techniques up to a size of 1.5 metres by 1.5 metres. Large diameter raises will be excavated either by a raisebore machine (contract) or by longhole raising. Where necessary, all future production voids will be backfilled. As the operation uses sill pillars to separate active mining blocks, the backfill is uncemented waste rock.

The ventilation system at the San Martín Silver Mine is undergoing an upgrade. First Majestic is planning to install a new ventilation raise from surface to an existing drive near the Hedionda vein. Additional raises will be required to service the distal vein systems (Intermedia, La Lima, etc.) and is currently being optimized by operations. The ventilation circuit was imported into an industry-standard software used in ventilation modelling, to model the flows predicted for the mine. The estimated primary ventilation demand was calculated based on a factor of 0.6 m ³ /s of fresh air per kW. Equipment is spread over several workplaces and ventilation systems. An additional 15% has been allowed for leakage and is included in the minimum ventilation requirements.

The existing load-and-haul fleet currently handles up to 900 tpd (27 kt per month), with haulage requirements met by the onsite contractor through the provision of conventional haulage trucks. The mine plan uses development rates and productivities based on the existing fleet.

The ore is transported approximately 14 km from the underground mine to the processing plant located on the east side of the community of San Martín de Bolaños and the Bolaños River. The plant has a name plate capacity of 1,300 tpd and has typically been operating at 800 tpd. The plant is conventional, consisting of crushing, grinding, leaching, counter current decantation, Merril-Crowe circuits, and a doré.

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Silver ore is processed by conventional cyanidation, using agitation in tanks, CCD thickening, and precipitation of the dissolved silver and gold by cementation with zinc dust in the Merrill-Crowe process. The Company also runs additional processes including an acid wash and lead elimination processes prior to producing a final precipitate. The mill throughput averaged 816 tpd (out of a capacity of 1,300 tpd) all of which was through the cyanidation circuit for the production of silver doré.

The end product from the San Martín Silver Mine complex comes in the form of silver doré bars. The physical silver doré bars, usually containing greater than 95% silver with some gold and other impurities, are delivered to one of three refineries, where doré bars are refined to commercially marketable 99.9% pure silver bars.

As a normal course of business, San Martín has contracts in place for some of the services required for the mining and processing activities. All of these contracts are agreed upon one-year or multi-year terms and in the opinion of the QP, these contracts and commercial terms are in line with industry norms for such contracts.

Capital and Operating Costs

As of December 31, 2017, First Majestic estimated total sustaining capital costs for the remaining LOM of $ 30.96 million, including development, delineation and infill drilling, plant and infrastructure sustaining capital.

Operating Costs

Operating costs for San Martin have been estimated for the underground mining, processing costs and general and administrative costs. First Majestic currently estimates the LOM plan operating costs at an average of $73.92 per tonne of ore processed based on current and projected costs.

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Del Toro Silver Mine, Zacatecas State, México