CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Management’s Responsibilities over 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 International Financial Reporting Standards as issued by the International Accounting Standards Board 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 LLP and their report outlines the scope of their examination and gives their opinion on the consolidated financial statements.
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Keith Neumeyer
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Raymond Polman, CA
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President & CEO
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Chief Financial Officer
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February 18, 2021
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February 18, 2021
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of First Majestic Silver Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of First Majestic Silver Corp. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of earnings (loss), comprehensive income (loss), changes in equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Primero Tax Rulings — Refer to Note 26 to the financial statements
Critical Audit Matter Description
The Company has an ongoing dispute with the Mexican Tax Authorities, the Servicio de Administracion Tributaria (“SAT”). The dispute relates to the determination of the transfer price, which is based upon an Advanced Pricing Agreement ("APA") from the SAT, applied to intercompany silver sales in connection with a silver streaming arrangement with an unrelated third party. In 2020, the Mexican Federal Court on Administrative Matters issued a decision nullifying the APA and directing the SAT to re-examine the evidence and basis for the issuance of the APA; the Company has appealed this decision to the Mexican Circuit Courts. As a result of the tax dispute with the SAT, should the Company ultimately be required to pay tax on its intercompany silver revenues based on market prices, the incremental income tax for the years 2010 - 2018 would be approximately $219.2 million, before interest and penalties, without any mitigating adjustments. The Company has not recognized a tax liability related to the Primero tax dispute with the SAT.
The evaluation of the accounting and the disclosure of the matter requires significant management judgment to determine the probability of having to pay incremental income tax. Auditing the accounting and the disclosures related to the tax matter required a high degree of auditor judgment due to the significant judgment by management and evaluating whether the audit evidence supports management’s position. This resulted in an increased extent of audit effort, including the involvement of tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures relating to the evaluation of the accounting and disclosure related to the tax matter included the following, among others:
•Inquired of management to understand the developments of the tax dispute;
•Evaluated the effectiveness of management’s controls over the evaluation of the appropriateness of income tax filing positions and corresponding disclosures in the financial statements;
•Obtained and evaluated management’s assessment of the dispute, including analysis from the Company’s external counsel;
•With the assistance of tax specialists, analyzed the Company’s accounting position related to the tax dispute; and
•Evaluated the Company’s disclosures for consistency with our knowledge of the Company’s tax matters and audit evidence obtained.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
February 18, 2021
We have served as the Company's auditor since 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of First Majestic Silver Corp.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of First Majestic Silver Corp. and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 18, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
February 18, 2021
TABLE OF CONTENTS
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CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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General
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Note 2. Basis of Presentation
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Note 3. Significant Accounting Policies, Estimates and Judgments
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Statements of Earnings (Loss)
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Statements of Financial Position
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Other items
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CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
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FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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Audited Consolidated Financial Statements
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(In thousands of US dollars, except share and per share amounts)
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The Consolidated Statements of Earnings (Loss) provide a summary of the Company’s financial performance and net earnings or loss over the reporting periods.
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Year Ended December 31,
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Note
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2020
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2019
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Revenues
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$363,876
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$363,944
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Mine operating costs
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Cost of sales
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194,305
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232,146
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Cost of sales - standby costs
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10,112
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—
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Depletion, depreciation and amortization
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54,405
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65,584
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258,822
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297,730
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Mine operating earnings
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105,054
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66,214
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General and administrative expenses
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24,855
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26,800
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Share-based payments
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8,255
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8,325
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Mine holding costs
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21,583
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7,579
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Loss on divestiture of exploration projects
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3,685
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—
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Impairment of non-current assets
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—
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58,739
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Foreign exchange loss (gain)
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6,319
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(3,243)
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Operating earnings (loss)
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40,357
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(31,986)
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Fair value adjustment on foreign currency derivatives
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(982)
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—
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Investment and other income
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5,127
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8,109
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Finance costs
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(14,773)
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(15,147)
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Earnings (loss) before income taxes
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29,729
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(39,024)
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Income taxes
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Current income tax expense
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9,966
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16,423
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Deferred income tax recovery
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(3,324)
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(14,973)
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6,642
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1,450
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Net earnings (loss) for the year
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$23,087
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($40,474)
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Earnings (loss) per common share
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Basic
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$0.11
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($0.20)
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Diluted
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$0.11
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($0.20)
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Weighted average shares outstanding
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Basic
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213,879,622
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201,615,489
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Diluted
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215,878,829
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201,615,489
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Approved by the Board of Directors
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Keith Neumeyer, Director
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Douglas Penrose, Director
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 1
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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Audited Consolidated Financial Statements
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(In thousands of US dollars)
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The Consolidated Statements of Comprehensive Income (Loss) provide a summary of total comprehensive earnings or loss and summarizes items recorded in other comprehensive income that may or may not be subsequently reclassified to profit or loss depending on future events.
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Note
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Year Ended December 31,
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2020
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2019
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Net earnings (loss) for the year
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$23,087
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($40,474)
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Other comprehensive income
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Items that will not be subsequently reclassified to net earnings (loss):
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Unrealized gain (loss) on fair value of investments in marketable securities, net of tax
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10,249
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(255)
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Realized gain on investments in marketable securities, net of tax
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211
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572
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Remeasurement of retirement benefit plan
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(515)
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—
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Other comprehensive income
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9,945
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317
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Total comprehensive income (loss)
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$33,032
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($40,157)
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 2
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
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Audited Consolidated Financial Statements
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(In thousands of US dollars)
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The Consolidated Statements of Cash Flows provide a summary of movements in cash and cash equivalents during the reporting periods by classifying them as operating, investing or financing activities.
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Year Ended December 31,
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Note
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2020
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2019
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Operating Activities
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Net earnings (loss) for the year
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$23,087
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($40,474)
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Adjustments for:
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Depletion, depreciation and amortization
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56,283
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67,220
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Share-based payments
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8,255
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8,325
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Income tax expense
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6,642
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1,450
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Finance costs
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14,773
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15,147
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Loss on divestiture of exploration projects
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3,894
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—
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Fair value adjustment on foreign currency derivatives
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982
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—
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Impairment of non-current assets
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—
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58,739
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Unrealized gains from marketable securities and silver futures derivatives
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(4,051)
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(1,765)
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Unrealized foreign exchange (gain) loss
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(2,522)
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273
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Operating cash flows before movements in working capital and taxes
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107,343
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108,915
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Net change in non-cash working capital items
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(22,831)
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37,327
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Income taxes paid
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(4,799)
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(6,217)
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Cash generated by operating activities
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79,713
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140,025
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Investing Activities
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Expenditures on mining interests
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(68,647)
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(76,983)
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Acquisition of property, plant and equipment
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(43,322)
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(41,625)
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Deposits paid for acquisition of non-current assets
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(13,846)
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(1,748)
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Acquisition of Springpole Silver Stream
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(2,521)
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—
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Other
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1,221
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3,422
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Cash used in investing activities
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(127,115)
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(116,934)
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Financing Activities
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Proceeds from prospectus offerings, net of share issue costs
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126,132
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81,916
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Proceeds from exercise of stock options
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14,011
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16,663
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Repayment of lease liabilities
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(7,706)
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|
(5,213)
|
|
|
Finance costs paid
|
|
|
|
|
|
(4,200)
|
|
|
(5,686)
|
|
|
Proceeds from debt facility
|
|
|
|
|
|
10,000
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt facility
|
|
|
|
|
|
(19,969)
|
|
|
—
|
|
|
Shares repurchased and cancelled
|
|
|
|
|
|
(1,694)
|
|
|
—
|
|
|
Cash provided by financing activities
|
|
|
|
|
|
116,574
|
|
|
87,680
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents held in foreign currencies
|
|
|
|
|
|
397
|
|
|
1,225
|
|
|
Increase in cash and cash equivalents
|
|
|
|
|
|
69,172
|
|
|
110,771
|
|
|
Cash and cash equivalents, beginning of the year
|
|
|
|
|
|
169,009
|
|
|
57,013
|
|
|
Cash and cash equivalents, end of year
|
|
|
|
|
|
$238,578
|
|
|
$169,009
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
$207,132
|
|
|
$161,268
|
|
|
Short-term investments
|
|
|
|
|
|
31,446
|
|
|
7,741
|
|
|
Cash and cash equivalents, end of year
|
|
|
|
|
|
$238,578
|
|
|
$169,009
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 3
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
|
AS AT DECEMBER 31, 2020 AND 2019
|
|
Audited Consolidated Financial Statements
|
(In thousands of US dollars)
|
The Consolidated Statements of Financial Position provides a summary of assets, liabilities and equity, as well as their current versus non-current nature, as at the reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$238,578
|
|
|
$169,009
|
|
|
Trade and other receivables
|
|
|
4,271
|
|
|
4,295
|
|
|
Value added taxes receivable
|
|
|
41,641
|
|
|
29,637
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
32,512
|
|
|
30,517
|
|
|
Other financial assets
|
|
|
36,319
|
|
|
7,488
|
|
|
Prepaid expenses and other
|
|
|
2,725
|
|
|
2,033
|
|
|
Total current assets
|
|
|
356,046
|
|
|
242,979
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
Mining interests
|
|
|
509,730
|
|
|
463,391
|
|
|
Property, plant and equipment
|
|
|
258,220
|
|
|
236,639
|
|
|
Right-of-use assets
|
|
|
14,330
|
|
|
12,034
|
|
|
Deposits on non-current assets
|
|
|
14,246
|
|
|
2,189
|
|
|
Non-current income taxes receivable
|
|
|
—
|
|
|
4,579
|
|
|
Non-current value added taxes receivable
|
|
|
15,301
|
|
|
—
|
|
|
Deferred tax assets
|
|
|
69,644
|
|
|
51,141
|
|
|
Total assets
|
|
|
$1,237,517
|
|
|
$1,027,924
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Trade and other payables
|
|
|
$76,002
|
|
|
$59,123
|
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
|
2,717
|
|
|
4,486
|
|
|
Current portion of debt facilities
|
|
|
10,975
|
|
|
1,175
|
|
|
Current portion of lease liabilities
|
|
|
5,358
|
|
|
6,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
6,574
|
|
|
149
|
|
|
Total current liabilities
|
|
|
101,626
|
|
|
71,853
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
Debt facilities
|
|
|
141,733
|
|
|
154,643
|
|
|
Lease liabilities
|
|
|
15,217
|
|
|
15,016
|
|
|
Decommissioning liabilities
|
|
|
51,471
|
|
|
40,528
|
|
|
Other liabilities
|
|
|
5,406
|
|
|
4,675
|
|
|
Non-current income taxes payable
|
|
|
23,099
|
|
|
—
|
|
|
Deferred tax liabilities
|
|
|
48,729
|
|
|
63,916
|
|
|
Total liabilities
|
|
|
$387,281
|
|
|
$365,603
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Share capital
|
|
|
1,087,139
|
|
|
933,182
|
|
|
Equity reserves
|
|
|
101,997
|
|
|
90,692
|
|
|
Accumulated deficit
|
|
|
(338,900)
|
|
|
(361,553)
|
|
|
Total equity
|
|
|
$850,236
|
|
|
$662,321
|
|
|
Total liabilities and equity
|
|
|
$1,237,517
|
|
|
$1,027,924
|
|
|
|
|
|
|
|
|
Commitments (Note 14; Note 24(c)); Subsequent event (Note 29)
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 4
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
FOR THE YEARS ENDED DECEMBER 31 2020 AND 2019
|
|
Audited Consolidated Financial Statements
|
(In thousands of US dollars, except share and per share amounts)
|
The Consolidated Statements of Changes in Equity summarizes movements in equity, including common shares, share capital, equity reserves and retained earnings or accumulated deficit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital
|
|
Equity Reserves
|
|
Accumulated deficit
|
|
|
|
Shares
|
|
Amount
|
|
Share-based payments(a)
|
|
Other comprehensive income(loss)(b)
|
|
Equity component of convertible debenture(c)
|
|
Total equity reserves
|
|
Total equity
|
|
Balance at December 31, 2018
|
193,873,335
|
|
|
$827,622
|
|
|
$71,715
|
|
|
($2,849)
|
|
|
$19,164
|
|
|
$88,030
|
|
|
($321,079)
|
|
$594,573
|
|
|
Net loss for the year
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,474)
|
|
(40,474)
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
317
|
|
|
—
|
|
|
317
|
|
|
—
|
|
317
|
|
|
Total comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
317
|
|
|
—
|
|
|
317
|
|
|
(40,474)
|
|
(40,157)
|
|
|
Share-based payments
|
—
|
|
|
—
|
|
|
9,319
|
|
|
—
|
|
|
—
|
|
|
9,319
|
|
|
—
|
|
9,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prospectus offerings (Note 23(a))
|
11,172,982
|
|
|
81,916
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
81,916
|
|
Exercise of stock options (Note 23(b))
|
2,918,518
|
|
|
22,649
|
|
|
(5,986)
|
|
|
—
|
|
|
—
|
|
|
(5,986)
|
|
|
—
|
|
16,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of restricted share units
|
145,576
|
|
|
988
|
|
|
(988)
|
|
|
—
|
|
|
—
|
|
|
(988)
|
|
|
—
|
|
—
|
|
|
Shares cancelled
|
1,661
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
208,112,072
|
|
|
$933,182
|
|
|
$74,060
|
|
|
($2,532)
|
|
|
$19,164
|
|
|
$90,692
|
|
|
($361,553)
|
|
$662,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the year
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,087
|
|
23,087
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
9,945
|
|
|
—
|
|
|
9,945
|
|
|
—
|
|
9,945
|
|
|
Total comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
9,945
|
|
|
—
|
|
|
9,945
|
|
|
23,087
|
|
33,032
|
|
|
Share-based payments
|
—
|
|
|
—
|
|
|
8,255
|
|
|
—
|
|
|
—
|
|
|
8,255
|
|
|
—
|
|
8,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prospectus offerings (Note 23(a))
|
10,654,338
|
|
|
126,132
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
126,132
|
|
Exercise of stock options (Note 23(b))
|
2,473,926
|
|
|
19,914
|
|
|
(5,903)
|
|
|
—
|
|
|
—
|
|
|
(5,903)
|
|
|
—
|
|
14,011
|
|
Acquisition of Springpole Silver Stream (Note 14(c))
|
805,698
|
|
|
7,479
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
7,479
|
|
|
Acquisition of mining interests
|
66,997
|
|
|
700
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
700
|
|
|
Settlement of restricted share units
|
127,000
|
|
|
992
|
|
|
(992)
|
|
|
—
|
|
|
—
|
|
|
(992)
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased and cancelled
|
(275,000)
|
|
|
(1,260)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(434)
|
|
(1,694)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
221,965,031
|
|
|
$1,087,139
|
|
|
$75,420
|
|
|
$7,413
|
|
|
$19,164
|
|
|
$101,997
|
|
|
($338,900)
|
|
$850,236
|
|
(a)Share-based payments reserve records the cumulative amount recognized under IFRS 2 share-based payments in respect of stock options granted, restricted share units and shares purchase warrants issued but not exercised or settled to acquire shares of the Company.
(b)Other comprehensive income reserve principally records the unrealized fair value gains or losses related to fair value through other comprehensive income ("FVTOCI") financial instruments and re-measurements arising from actuarial gains or losses and return on plan assets in relation to San Dimas' retirement benefit plan.
(c)Equity component of convertible debenture reserve represents the estimated fair value of its conversion option of $26.3 million, net of deferred tax effect of $7.1 million. This amount is not subsequently remeasured and will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share capital. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance will remain in equity reserves.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 5
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
1. NATURE OF OPERATIONS
First Majestic Silver Corp. (the “Company” or “First Majestic”) is in the business of silver production, development, exploration, and acquisition of mineral properties with a focus on silver production in Mexico. The Company owns three producing mines: the San Dimas Silver/Gold Mine, the Santa Elena Silver/Gold Mine and the La Encantada Silver Mine, four mines in suspension: the San Martin Silver Mine, the Del Toro Silver Mine, the La Parrilla Silver Mine and the La Guitarra Silver/Gold Mine, and several exploration stage projects.
First Majestic is incorporated in Canada with limited liability under the legislation of the Province of British Columbia and is publicly listed on the New York Stock Exchange under the symbol “AG”, on the Toronto Stock Exchange under the symbol “FR” and on the Frankfurt Stock Exchange under the symbol “FMV”. The Company’s head office and principal address is located at 925 West Georgia Street, Suite 1800, Vancouver, British Columbia, Canada, V6C 3L2.
2. BASIS OF PRESENTATION
These audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The significant accounting policies, estimates and judgments applied in preparing these consolidated financial statements are summarized in Note 3 of the consolidated financial statements and have been consistently applied throughout all periods presented.
These audited consolidated financial statements have been prepared on an historical cost basis except for certain items that are measured at fair value including derivative financial instruments (Note 24(a)) and other financial assets (Note 13). All dollar amounts presented are in thousands of United States dollars unless otherwise specified.
These audited consolidated financial statements incorporate the financial statements of the Company and its controlled subsidiaries. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidated financial statements include the accounts of the Company and its subsidiaries (see Note 27). Intercompany balances, transactions, income and expenses are eliminated on consolidation.
These audited consolidated financial statements of First Majestic Silver Corp. for the years ended December 31, 2020 and 2019 were approved and authorized for issue by the Board of Directors on February 18, 2021.
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The preparation of audited consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions about future events that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amounts, events or actions, actual results may differ from these estimates.
Amended IFRS standards that are effective for the current year
In the current year, the Company has applied the below amendments to IFRS Standards and Interpretations issued by the International Accounting Standards Board ("IASB") that were effective for annual periods that begin on or after January 1, 2020. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
The amendments in Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) clarify that entities would continue to apply certain hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform. This amendment did not have a significant impact to the Company's financial statements as the Company does not currently apply hedge accounting.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 6
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Amendments to IFRS 16 Leases
To provide practical relief to lessees in accounting for rent concessions arising as a result of COVID-19 the International Accounting Standards Board ("IASB") proposed an amendment to IFRS 16 which provides lessees with a practical expedient that relieves a lessee from assessing whether a COVID-19-related rent concession is a lease modification. The amendment is effective for annual reporting periods beginning on or after June 1, 2020, with earlier application permitted. This amendment did not have a significant impact to the Company's financial statements as the Company has not received any COVID-19 related rent concessions as of the date of these financial statements.
Amendments to IFRS 3 Definition of a Business
The amendments clarify that while businesses usually have outputs, outputs are not required for an integrated set of activities and assets to qualify as a business. To be considered a business an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.
Additional guidance is provided that helps to determine whether a substantive process has been acquired.
The amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. Under the optional concentration test, the acquired set of activities and assets is not a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar assets.
The amendments are applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after the first annual reporting period beginning on or after January 1, 2020. The Company will assess the impact of these amendments on future acquisitions to all business combinations and asset acquisitions.
Business Combinations
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Accounting Policy:
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Acquisitions of businesses are accounted for using the acquisition method. The consideration of each business combination is measured, at the date of the exchange, as the aggregate of the fair value of assets given, liabilities incurred or assumed and equity instruments issued by the Company to the former owners of the acquiree in exchange for control of the acquiree. Acquisition-related costs incurred for the business combination are expensed. The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized at their fair value at the acquisition date.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the consideration of the acquisition over the Company’s interest in the fair value of the net identifiable assets, liabilities and contingent liabilities recognized. If the Company’s interest in the fair value of the acquiree’s net identifiable assets, liabilities and contingent liabilities exceeds the cost of the acquisition, the excess is recognized in earnings or loss immediately. Goodwill may also arise as a result of the requirement under IFRS to record a deferred tax liability on the excess of the fair value of the acquired assets over their corresponding tax bases, with the corresponding offset recorded as goodwill.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 7
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Goodwill
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Accounting Policy:
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Goodwill arising on the acquisition of a business is carried at cost as established at the date of the acquisition less accumulated impairment losses, if any. Goodwill is allocated to each of the Company’s cash-generating units that is expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss in the consolidated statements of earnings or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods. As at December 31, 2020, the Company had $nil goodwill (2019 - $nil).
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Foreign Currency
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Accounting Policy:
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The consolidated financial statements are presented in U.S. dollars. The individual financial statements of each entity are presented in their functional currency, which is the currency of the primary economic environment in which the entity operates.
Transactions in foreign currencies are translated into the entities’ functional currencies at the exchange rates at the date of the transactions. Monetary assets and liabilities of the Company’s operations denominated in a currency other than the U.S. dollar are translated using exchange rates prevailing at the date of the statement of financial position. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates on the dates of the transactions. Revenue and expense items are translated at the exchange rates in effect at the date of the underlying transaction, except for depletion and depreciation related to non-monetary assets, which are translated at historical exchange rates. Exchange differences are recognized in the statements of earnings or loss in the period in which they arise.
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Accounting Estimates and Judgments:
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Determination of Functional Currency
The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the entity operates. The Company has determined that the functional currency of each entity is the U.S. dollar. Determination of functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.
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Accounting Policy:
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The Company's primary product is silver. Other metals, such as gold, lead and zinc, produced as part of the extraction process are considered to be by-products arising from the production of silver. Smelting and refining charges are net against revenue from the sale of metals.
Revenue relating to the sale of metals is recognized when control of the metal or related services are transferred to the customer in an amount that reflects the consideration the Company expects to receive in exchange for the metals.
When considering whether the Company has satisfied its performance obligation, it considers the indicators of the transfer of control, which include, but are not limited to, whether: the Company has a present right to payment; the customer has legal title to the asset; the Company has transferred physical possession of the asset to the customer; and the customer has the significant risks and rewards of ownership of the asset.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 8
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Revenue Recognition (Note 5) (continued)
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Accounting Policy:
(continued)
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Metals in doré sold are priced on date of transfer of control. Final weights and assays are adjusted on final settlement which is approximately one month after delivery. Metals in concentrate sold are provisionally priced at the date of transfer of control as the final selling price is subject to movements in the monthly average prices up to the final settlement date, typically one to three months after delivery to the customer. Upon transfer of control of the concentrate, the Company recognizes revenue on a provisional basis based on spot price and, at each period end, subsequently re-estimated by reference to forward market prices of the estimated month of settlement, with the impact of changes in the forward market prices recognized as revenue adjustments as they occur until final settlement.
Revenue from the sale of coins, ingots and bullion is recorded when the products have been shipped and funds have been received. When cash was received from customers prior to shipping of the related finished goods, the amounts are recorded as unearned revenue until the products are shipped.
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Accounting Estimates and Judgments:
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Determination of Performance Obligations
The Company applied judgment to determine if a good or service that is promised to a customer is distinct based on whether the customer can benefit from the good or service on its own or together with other readily available resources and whether the good or service is separately identifiable. Based on these criteria, the Company determined the primary performance obligation relating to its sales contracts is the delivery of the bullion, doré and concentrates. Shipping and insurance services arranged by the Company for its concentrate sales customers that occur after the transfer of control are also considered to be performance obligations.
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Accounting Policy:
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Mineral inventories, including stockpiled ore, work in process and finished goods, are valued at the lower of weighted average cost and estimated net realizable value. Cost includes all direct costs incurred in production including direct labour and materials, freight, depreciation and amortization and directly attributable overhead costs. Net realizable value is calculated as the estimated price at the time of sale based on prevailing and future metal prices less estimated future production costs to convert the inventories into saleable form.
Any write-downs of inventory to net realizable value are recorded as cost of sales. If there is a subsequent increase in the value of inventories, the previous write-downs to net realizable value are reversed to the extent that the related inventory has not been sold.
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Stockpiled ore inventory represents ore that has been extracted from the mine and is available for further processing. Costs added to stockpiled ore inventory are valued based on current mining cost per tonne incurred up to the point of stockpiling the ore and are removed at the weighted average cost per tonne. Stockpiled ore tonnage is verified by periodic surveys and physical counts.
Work in process inventory includes precipitates, inventories in tanks and in the milling process. Finished goods inventory includes metals in their final stage of production prior to sale, including primarily doré and dried concentrates at our operations and finished goods in-transit.
Materials and supplies inventories are valued at the lower of weighted average cost and net realizable value. Costs include acquisition, freight and other directly attributable costs.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 9
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Exploration and Evaluation Expenditures (Note 14)
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Accounting Policy:
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Exploration and evaluation activity involves the search for mineral resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource. Exploration and evaluation activity includes:
• acquiring the rights to explore;
• researching and analyzing historical exploration data;
• gathering exploration data through topographical, geochemical and geophysical studies;
• exploratory drilling, trenching and sampling;
• determining and examining the volume and grade of the resource;
• surveying transportation and infrastructure requirements; and
• compiling pre-feasibility and feasibility studies.
Capitalization of exploration and evaluation expenditures commences on acquisition of a beneficial interest or option in mineral rights. Capitalized costs are recorded as mining interests at cost less impairment charges, if applicable. No amortization is charged during the exploration and evaluation phase as the asset is not available for use.
The majority of the Company’s exploration and evaluation expenditures focus on mineral deposits in proximity to its existing mining operations. Where the Company is acquiring a new property, the Company makes a preliminary evaluation to determine that the property has significant potential to develop an economic ore body.
Exploration and evaluation expenditures are transferred to development or producing mining interests when technical feasibility and commercial viability of the mineral resource have been demonstrated. Factors taken into consideration include:
• there is sufficient geological certainty of converting the mineral deposit into proven and probable reserves;
• life of mine plan and economic modeling support the economic extraction of such reserves and resources;
• for new properties, a scoping study and/or feasibility study demonstrates that the additional reserves and resources will generate a positive economic outcome; and
• operating and environmental permits exist or are reasonably assured as obtainable.
Exploration and evaluation expenditures remain as exploration mining interests and do not qualify as producing mining interests until the aforementioned criteria are met. Exploration and evaluation expenditures are transferred to development or producing mining interests when the technical feasibility and commercial viability of a mineral resource has been demonstrated according to the above mentioned factors.
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Accounting Estimates and Judgments:
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Economic recoverability and probability of future economic benefits of exploration, evaluation and development costs
Management has determined that exploratory drilling, evaluation, development and related costs incurred which were capitalized have potential future economic benefits and are potentially economically recoverable, subject to impairment analysis. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefit including geologic and metallurgic information, history of conversion of mineral deposits to proven and probable reserves, scoping and feasibility studies, accessible facilities, existing permits and life of mine plans.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 10
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
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Accounting Policy:
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Exploration, development and field support costs directly related to mining interests 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.
Upon commencement of commercial production, mining interests are depleted on a units-of-production basis over the estimated economic life of the mine. In applying the units of production method, depletion is determined using quantity of material extracted from the mine in the period as a portion of total quantity of material to be extracted in current and future periods based on reserves and resources considered to be highly probable to be economically extracted over the life of mine. If no published reserves and resources are available, the Company may rely on internal estimates of economically recoverable mineralized material, prepared on a basis consistent with that used for determining reserves and resources, for purpose of determining depletion.
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 with no obligation or sale until exercised or expired and, accordingly, are recorded as mineral property costs or recoveries when the payments are made or received.
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Accounting Estimates and Judgments:
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Mineral Reserve and Resource Estimates
Mineral reserve and resource estimates affect the determination of recoverable value used in impairment assessments, the depletion and depreciation rates for non-current assets using the units of production method and the expected timing of reclamation and closure expenditures.
The figures for mineral reserves and mineral resources are determined in accordance with National Instrument 43-101 ("NI 43-101") Technical Report standards. There are numerous uncertainties inherent in estimating mineral reserves and mineral resources, including many factors beyond the Company’s control. Such estimation is a subjective process and the accuracy of any mineral reserve or mineral resource estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. Differences between management’s assumptions including economic assumptions such as metal prices and market conditions could have a material effect in the future on the Company’s financial position, results of operation and cash flows.
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Accounting Estimates and Judgments:
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Depletion Rate for Mining Interests
Depletion expenses are allocated based on estimated useful life of the asset. Should the expected asset life and associated depletion rate differ from the initial estimate, the change in estimate would be made prospectively in the consolidated statements of earnings or loss.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 11
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
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Accounting Policy:
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A stream asset is a long-term metal purchase agreement for which settlement is called for in silver, the amount of which is based on production at a mine corresponding to the specific agreement. On acquisition of a stream asset, it is recorded at cost and is accounted for in accordance with IFRS 6, Exploration and Evaluation of Mineral Resources (“IFRS 6”). A stream asset where the mine corresponding to the specific agreement is an exploration and evaluation stage property is classified as exploration and evaluation asset and is assessed for impairment whenever indicators of impairment exist in accordance with IFRS 6. An impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount.
Once the technical feasibility, commercial viability and a development decision have been established, the value of the stream asset is reclassified and accounted for in accordance with IAS 16, Property, Plant and Equipment (“IAS 16”). The exploration and evaluation asset is subject to an impairment test prior to reclassification in accordance with IFRS 6. It is subsequently measured at cost less accumulated depletion and accumulated impairment losses, if any.
A producing stream asset is depleted using the units-of-production method over the life of the property to which the interest relates, which is estimated using available information of proven and probable reserves and the portion of resources expected to be classified as mineral reserves at the mine corresponding to the specific agreement.
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Property, Plant and Equipment (Note 15)
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Accounting Policy:
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Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment includes the purchase price or construction cost, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use, an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and borrowing costs related to the acquisition or construction of qualifying assets.
Property, plant and equipment are depreciated using either the straight-line or units-of-production method over the shorter of the estimated useful life of the asset or the expected life of mine. Where an item of property, plant and equipment comprises of major components with different useful lives, the components are accounted for as separate items of property, plant and equipment. Assets under construction are recorded at cost and re-allocated to machinery and equipment when it becomes available for use.
Depreciation commences when the asset is in the condition and location necessary for it to operate in the manner intended by management. Depreciation charges on assets that are directly related to mineral properties are allocated to those mineral properties.
The Company conducts an annual review of residual balances, useful lives and depreciation methods utilized for property, plant and equipment. Any changes in estimate that arise from this review are accounted for prospectively.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 12
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Property, Plant and Equipment (Note 15) (continued)
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Accounting Estimates and Judgments:
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Commencement of Commercial Production
Prior to reaching commercial production levels intended by management, costs incurred are capitalized as part of the related mine or mill and proceeds from mineral sales are offset against costs capitalized. Depletion of capitalized costs for mining properties and depreciation and amortization of property, plant and equipment begin when operating levels intended by management have been reached.
Determining when a mine or mill is in the condition necessary for it to be capable of operating in the manner intended by management is a matter of judgment dependent on the specific facts and circumstances. The following factors may indicate that commercial production has commenced:
• substantially all major capital expenditures have been completed to bring the asset to the condition necessary to operate in the manner intended by management;
• the mine or mill has reached a pre-determined percentage of design capacity;
• the ability to sustain a pre-determined level of design capacity for a significant period of time (i.e. the ability to process ore continuously at a steady or increasing level);
• the completion of a reasonable period of testing of the mine plant and equipment;
• the ability to produce a saleable product (i.e. the ability to produce concentrate within required sellable specifications);
• the mine or mill has been transferred to operating personnel from internal development groups or external contractors; and
• mineral recoveries are at or near the expected production levels.
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Accounting Estimates and Judgments:
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Depreciation and Amortization Rates for Property, Plant and Equipment
Depreciation and amortization expenses are allocated based on estimated useful life of the asset. Should the expected asset life and associated depreciation rates differ from the initial estimate, the change in estimate would be made prospectively in the consolidated statements of earnings or loss.
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Borrowing Costs
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Accounting Policy:
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Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that takes a substantial period of time to get ready for its intended use are capitalized as part of the cost of the asset until the asset is substantially ready for its intended use. Other borrowing costs are recognized as an expense in the period incurred. As at December 31, 2020 and 2019, the Company does not have any qualifying assets under construction.
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Right of Use Assets (Note 16) and Lease Liabilities (Note 20)
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Accounting Policy:
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Effective January 1, 2019, the Company assesses whether a contract is or contains a lease, at inception of the contract. The Company recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For short-term and low value leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
• the amount expected to be payable by the lessee under residual value guarantees;
• the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• the lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
• a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 13
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Right of Use Assets (Note 16) and Lease Liabilities (Note 20) (continued)
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Accounting Policy (continued):
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Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
• the amount expected to be payable by the lessee under residual value guarantees;
• the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• the lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
• a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.
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Accounting Policy:
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The right-of-use assets comprise of the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company’s general policy on borrowing costs.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 14
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Impairment of Non-Current Assets (Note 17)
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Accounting Policy:
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At each statement of financial position date, the Company reviews the carrying amounts of its non-current assets to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate independent cash inflows, the Company estimates the recoverable amount of the cash generating unit (“CGU”) to which the asset belongs.
If the recoverable amount of the asset or CGU is determined to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount and an impairment loss is recognized as an expense in the consolidated statements of earnings or loss. Recoverable amount is the higher of fair value less costs of disposal (“FVLCD”) and value in use (“VIU”).
FVLCD is determined as the amount that would be obtained from the sale of the asset or CGU in an arm’s length transaction between knowledgeable and willing parties. The Company considers the use of a combination of its internal discounted cash flow economic models and in-situ value of reserves, resources and exploration potential of each CGU for estimation of its FVLCD. These cash flows are discounted by an appropriate post-tax discount rate to arrive at a net present value of the asset. VIU is determined as the present value of the estimated cash flows expected to arise from the continued use of the asset or CGU in its present form and its eventual disposal. VIU is determined by applying assumptions specific to the Company’s continued use and does not take into account future development.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognized for the asset or CGU in prior periods, adjusted for additional amortization which would have been recorded had the asset or CGU not been impaired. A reversal of an impairment loss is recognized as a gain in the statements of earnings or loss.
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Accounting Estimates and Judgments:
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Indications of Impairment and Reversal of Impairment
Management considers both external and internal sources of information in assessing whether there are any indications that the Company’s property, plant and equipment and mining interests are impaired or previous impairments should be reversed. External sources of information management considers include changes in the market, economic and legal environment in which the Company operates that are not within its control and affect the recoverable amount of its property, plant and equipment and mining interests. Internal sources of information management consider include the manner in which mining properties and plant and equipment are being used or are expected to be used and indications of economic performance of the assets.
For exploration and evaluation assets, indications include but are not limited to expiration of the right to explore, substantive expenditure in the specific area is neither budgeted nor planned, and if the entity has decided to discontinue exploration activity in the specific area.
Fair Value Estimates
In determining the recoverable amounts of the Company’s property, plant and equipment and mining interests, management makes estimates of the discounted future cash flows expected to be derived from the Company’s mining properties, costs of disposal of the mining properties and the appropriate discount rate. Reductions in metal price forecasts, increases in estimated future costs of production, increases in estimated future capital expenditures, reductions in the amount of recoverable reserves, resources, and exploration potential, and/or adverse current economics can result in an impairment of the carrying amounts of the Company’s non-current assets. Conversely, favourable changes to the aforementioned factors can result in a reversal of previous impairments.
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|
|
The accompanying notes are an integral part of the audited consolidated financial statements
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|
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First Majestic Silver Corp. 2020 Annual Report
|
Page 15
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|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
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Accounting Policy:
|
|
Employees (including directors and officers) of the Company may receive a portion of their remuneration in the form of stock options which are share‐based payment transactions (“share-based payments”). Stock options issued to employees are measured by reference to their fair value using the Black-Scholes model at the date on which they were granted. Forfeitures are estimated at grant date and adjusted prospectively based on actual forfeitures. Share-based payments expense, for stock options that are forfeited or cancelled prior to vesting, is reversed. The costs of share-based payments are recognized, together with a corresponding increase in the equity reserve, over the period in which the services and/or performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). On exercise by the employee, the associated option value in the equity reserve is reclassified to share capital.
The Company adopted the 2019 LTIP to allow the Company to grant to its directors, employees and consultants non-transferable Restricted Share Units ("RSU's") based on the value of the Company's share price at the date of grant. Unless otherwise stated, the awards typically have a graded vesting schedule over a three-year period and can be settled either in cash or equity upon vesting at the discretion of the Company. The Company intends to settle all RSU's in equity.
In situations where equity instruments are issued to non‐employees, the share-based payments are measured at the fair value of goods or services received. If some or all of the goods or services received by the Company as consideration cannot be specifically identified, they are measured at the fair value of the share‐based payment.
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Accounting Estimates and Judgments:
|
|
Valuation of Share-based Payments
The Company uses the Black-Scholes Option Pricing Model for valuation of share-based payments. Option pricing models require the input of subjective assumptions including expected price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings and equity reserves.
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Accounting Policy:
|
|
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case they are recognized in other comprehensive income or directly in equity.
Current income tax is based on taxable earnings for the year. The tax rates and tax laws to compute the amount payable are those that are substantively enacted in each tax regime at the date of the statement of financial position.
Deferred income tax is recognized, using the liability method, on temporary differences between the carrying value of assets and liabilities in the statement of financial position, unused tax losses, unused tax credits and the corresponding tax bases used in the computation of taxable earnings, based on tax rates and tax laws that are substantively enacted at the date of the statement of financial position and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, and interests in joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences to the extent that the realization of the related tax benefit through future taxable earnings is probable.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset the current tax assets against the current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
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The accompanying notes are an integral part of the audited consolidated financial statements
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|
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First Majestic Silver Corp. 2020 Annual Report
|
Page 16
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|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
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Accounting Policy (continued):
|
|
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, and interests in joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences to the extent that the realization of the related tax benefit through future taxable earnings is probable.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset the current tax assets against the current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
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Accounting Estimates and Judgments:
|
|
Recognition of Deferred Income Tax Assets
In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified.
Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Forecasted cash flows from operations are based on life of mine projections internally developed, reviewed by management and are consistent with the forecasts utilized for business planning and impairment testing purposes. Weight is attached to tax planning opportunities that are within the Company’s control, and are feasible and implementable without significant obstacles. The likelihood that tax positions taken will be sustained upon examination by applicable tax authorities is assessed based on individual facts and circumstances of the relevant tax position evaluated in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax assets recognized. At the end of each reporting period, the Company reassesses recognized and unrecognized income tax assets.
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|
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Accounting Estimates and Judgments:
|
|
Tax Contingencies
The Company’s operations involve dealing with uncertainties and judgments in the application of tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with tax authorities in various jurisdictions and resolution of disputes arising from tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues based on its estimate of whether, and the extent to which, additional taxes will be due. The Company adjusts these liabilities in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the tax liabilities. If the Company’s estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If the estimate of tax liabilities proves to be greater than the ultimate assessment, a tax benefit would result.
|
Cash and Cash Equivalents
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Accounting Policy:
|
|
Cash in the statement of financial position includes cash on hand and held at banks and cash equivalents include short-term guaranteed investment certificates redeemable within three months or less at the date of purchase.
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The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 17
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|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Financial Instruments
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Accounting Policy:
|
|
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. On initial recognition, all financial assets and financial liabilities are recorded at fair value, net of attributable transaction costs, except for financial assets and liabilities classified as at fair value through profit or loss (“FVTPL”). The directly attributable transaction costs of financial assets and liabilities classified as at FVTPL are expensed in the period in which they are incurred.
Subsequent measurement of financial assets and liabilities depends on the classifications of such assets and liabilities.
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Amortized cost
Financial assets that meet the following conditions are measured subsequently at amortized cost:
•the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and
•the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. Interest income is recognized using the effective interest method.
The Company's financial assets at amortized cost primarily include cash and cash equivalents, trade and other receivables and value added taxes receivable included in other current and non-current financial assets in the Consolidated Statement of Financial Position.
Fair value through other comprehensive income ("FVTOCI")
Financial assets that meet the following conditions are measured at FVTOCI:
•The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
•The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The Company has designated certain investments in marketable securities that are not held for trading as FVTOCI (note 13).
On initial recognition, the Company may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in OCI. The cumulative gain or loss is not reclassified to profit or loss on disposal of the equity instrument, instead, it is transferred to retained earnings.
Financial assets measured subsequently at fair value through profit or loss (“FVTPL”)
By default, all other financial assets, including derivatives, are measured subsequently at FVTPL.
The Company, at initial recognition, may also irrevocably designate a financial asset as measured at FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets measured at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or loss to the extent they are not part of a designated hedging relationship. Fair value is determined in the manner described in note 24. The Company's financial assets at FVTPL include its account receivable arising from sales of metal contained in concentrates.
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|
|
The accompanying notes are an integral part of the audited consolidated financial statements
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|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 18
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|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Financial Instruments (continued)
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|
|
|
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|
|
|
Accounting Policy:
|
|
Financial assets measured subsequently at fair value through profit or loss (“FVTPL”)
By default, all other financial assets, including derivatives, are measured subsequently at FVTPL.
The Company, at initial recognition, may also irrevocably designate a financial asset as measured at FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets measured at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or loss to the extent they are not part of a designated hedging relationship. Fair value is determined in the manner described in note 24. The Company's financial assets at FVTPL include its account receivable arising from sales of metal contained in concentrates.
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Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held for trading or designated as FVTPL, are measured at amortized cost using the effective interest method. The Company's financial liabilities at amortized cost primarily include trade and other payables, debt facilities (note 19) and lease liabilities (note 20).
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Accounting Policy:
|
|
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate of the obligation can be made. The amount recognized as a provision is the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as finance costs.
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|
|
Accounting Estimates and Judgments:
|
|
Estimated Reclamation and Closure Costs
The Company’s provision for decommissioning liabilities represents management’s best estimate of the present value of the future cash outflows required to settle estimated reclamation and closure costs at the end of the mine’s life. The provision reflects estimates of future costs, inflation, movements in foreign exchange rates and assumptions of risks associated with the future cash outflows, and the applicable risk-free interest rates for discounting the future cash outflows. Changes in the above factors can result in a change to the provision recognized by the Company.
Changes to reclamation and closure cost obligations are recorded with a corresponding change to the carrying amounts of related mining properties. Adjustments to the carrying amounts of related mining properties can result in a change to future depletion expense.
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|
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|
|
|
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|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 19
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Earnings or Loss per Share (Note 11)
|
|
|
|
|
|
|
|
|
|
|
Accounting Policy:
|
|
Basic earnings or loss per share for the period is calculated by dividing the earnings or loss attributable to equity holders of the Company by the weighted average number of shares outstanding during the reporting period.
Diluted earnings or loss per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potentially dilutive share equivalents, such as stock options and share purchase warrants, and assumes the receipt of proceeds upon exercise of the options to determine the number of shares assumed to be purchased at the average market price during the period.
|
Future Changes in Accounting Policies Not Yet Effective as at December 31, 2020
Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The amendments in Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) introduce a practical expedient for modifications required by the reform, clarify that hedge accounting is not discontinued solely because of the IBOR reform, and introduce disclosures that allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition.
The amendments are applied on or after the first annual reporting period beginning on or after January 1, 2021, with early application permitted. This amendment is not expected to have a material impact on the Company’s financial statements.
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.
The amendments are applied on or after the first annual reporting period beginning on or after January 1, 2022, with early application permitted. The amendments are applied retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the Company first applies the amendments. The Company will recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings at the beginning of that earliest period presented. This amendment will impact the Company’s accounting for proceeds from mineral sales prior to reaching commercial production levels intended by management.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current.
The amendments are applied on or after the first annual reporting period beginning on or after January 1, 2023, with early application permitted. This amendment is not expected to have a material impact on the Company’s financial statements.
4. SEGMENTED INFORMATION
All of the Company’s operations are within the mining industry and its major products are precious metals doré which are refined or smelted into pure silver and gold and sold to global metal brokers. Historically, the Company has also produced industrial metals of lead and zinc from its sales of concentrates. Transfer prices between reporting segments are set on an arms-length basis in a manner similar to transactions with third parties. Coins and bullion cost of sales are based on transfer prices.
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|
|
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|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 20
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|
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|
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|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
4. SEGMENTED INFORMATION (continued)
A reporting segment is defined as a component of the Company that:
•engages in business activities from which it may earn revenues and incur expenses;
•whose operating results are reviewed regularly by the entity’s chief operating decision maker; and
•for which discrete financial information is available.
For the year ended December 31, 2020, the Company's reporting segments includes its three operating mines in Mexico. Effective January 1, 2020, the Company no longer considers the La Parrilla, Del Toro, San Martin and La Guitarra mines, which have been placed on suspension, as significant reporting segments. Accordingly, these mines have been grouped as "non-producing properties" category for the year ended December 31, 2020 and 2019. “Others” consists primarily of the Company’s corporate assets including cash and cash equivalents, other development and exploration properties (Note 14), debt facilities (Note 19), intercompany eliminations, and corporate expenses which are not allocated to operating segments. The Company’s chief operating decision maker (“CODM”) evaluates segment performance based on mine operating earnings. Therefore, other income and expense items are not allocated to the segments. The segmented information for the comparative periods have been adjusted to reflect the Company's reporting segments for the reporting year ended December 31, 2020 for consistency.
Significant information relating to the Company’s reportable operating segments is summarized in the tables below:
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|
|
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|
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|
|
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|
|
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|
|
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|
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|
|
|
|
|
|
|
|
Year Ended December 31, 2020 and 2019
|
|
|
Revenue
|
|
Cost of sales
|
|
Depletion, depreciation, and amortization
|
|
Mine operating earnings (loss)
|
|
Capital expenditures
|
|
Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
2020
|
|
$211,759
|
|
|
$110,782
|
|
|
$33,738
|
|
|
$67,239
|
|
|
$43,772
|
|
|
|
2019
|
|
185,999
|
|
|
100,120
|
|
|
28,491
|
|
|
57,388
|
|
|
42,511
|
|
|
Santa Elena
|
2020
|
|
76,051
|
|
|
52,990
|
|
|
10,472
|
|
|
12,589
|
|
|
33,739
|
|
|
|
2019
|
|
94,378
|
|
|
53,605
|
|
|
12,204
|
|
|
28,569
|
|
|
23,004
|
|
|
La Encantada
|
2020
|
|
73,632
|
|
|
37,794
|
|
|
8,265
|
|
|
27,573
|
|
|
10,733
|
|
|
|
2019
|
|
50,867
|
|
|
36,609
|
|
|
11,648
|
|
|
2,610
|
|
|
13,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-producing Properties
|
2020
|
|
183
|
|
|
1,362
|
|
|
848
|
|
|
(2,027)
|
|
|
4,338
|
|
|
|
2019
|
|
32,204
|
|
|
40,910
|
|
|
12,162
|
|
|
(20,868)
|
|
|
20,258
|
|
|
Others
|
2020
|
|
2,251
|
|
|
1,489
|
|
|
1,082
|
|
|
(320)
|
|
|
32,453
|
|
|
|
2019
|
|
496
|
|
|
902
|
|
|
1,079
|
|
|
(1,485)
|
|
|
25,196
|
|
|
Consolidated
|
2020
|
|
$363,876
|
|
|
$204,417
|
|
|
$54,405
|
|
|
$105,054
|
|
|
$125,035
|
|
|
|
2019
|
|
$363,944
|
|
|
$232,146
|
|
|
$65,584
|
|
|
$66,214
|
|
|
$124,194
|
|
During the year ended December 31, 2020, the Company had three (December 31, 2019 - six) customers that accounted for 99% of its sales revenue, with one major metal broker accounting for 92% of total revenue (2019 - 85%).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2020 and 2019
|
|
|
Mining Interests
|
|
Property, plant and equipment
|
|
Total
mining assets
|
|
|
|
Total
assets
|
|
Total liabilities
|
|
|
Producing
|
|
Exploration
|
|
|
|
|
|
|
Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
2020
|
|
$204,592
|
|
|
$17,179
|
|
|
$112,105
|
|
|
$333,876
|
|
|
|
|
$439,145
|
|
|
$105,462
|
|
|
|
2019
|
|
193,433
|
|
|
8,699
|
|
|
116,556
|
|
|
318,688
|
|
|
|
|
375,359
|
|
|
61,476
|
|
|
Santa Elena
|
2020
|
|
52,892
|
|
|
33,951
|
|
|
49,245
|
|
|
136,088
|
|
|
|
|
166,525
|
|
|
33,467
|
|
|
|
2019
|
|
45,046
|
|
|
18,592
|
|
|
47,787
|
|
|
111,425
|
|
|
|
|
134,666
|
|
|
23,867
|
|
|
La Encantada
|
2020
|
|
25,865
|
|
|
2,955
|
|
|
16,555
|
|
|
45,375
|
|
|
|
|
99,185
|
|
|
29,354
|
|
|
|
2019
|
|
23,091
|
|
|
1,104
|
|
|
14,736
|
|
|
38,931
|
|
|
|
|
71,255
|
|
|
21,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-producing Properties
|
2020
|
|
108,837
|
|
|
37,004
|
|
|
29,888
|
|
|
175,729
|
|
|
|
|
219,109
|
|
|
40,274
|
|
|
|
2019
|
|
105,778
|
|
|
32,938
|
|
|
31,050
|
|
|
169,766
|
|
|
|
|
213,061
|
|
|
36,261
|
|
|
Others
|
2020
|
|
—
|
|
|
26,456
|
|
|
50,427
|
|
|
76,883
|
|
|
|
|
313,553
|
|
|
178,724
|
|
|
|
2019
|
|
—
|
|
|
34,710
|
|
|
26,510
|
|
|
61,220
|
|
|
|
|
233,583
|
|
|
222,436
|
|
|
Consolidated
|
2020
|
|
$392,185
|
|
|
$117,545
|
|
|
$258,220
|
|
|
$767,950
|
|
|
|
|
$1,237,517
|
|
|
$387,281
|
|
|
|
2019
|
|
$367,348
|
|
|
$96,043
|
|
|
$236,639
|
|
|
$700,030
|
|
|
|
|
$1,027,924
|
|
|
$365,603
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 21
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
|
Condensed Interim Consolidated Financial Statements - Unaudited
|
(Tabular amounts are expressed in thousands of US dollars)
|
5. REVENUES
The majority of the Company’s revenues are from the sale of precious metals contained in doré form. The Company’s primary products are precious metals of silver and gold. Revenues from sale of metal, including by-products, are recorded net of smelting and refining costs.
Revenues for the period are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue from payable metals:
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver
|
|
|
|
|
|
|
$242,338
|
|
66
|
%
|
|
$215,301
|
|
58
|
%
|
|
Gold
|
|
|
|
|
|
|
124,264
|
|
34
|
%
|
|
143,029
|
|
39
|
%
|
|
Lead
|
|
|
|
|
|
|
74
|
|
—
|
%
|
|
6,988
|
|
2
|
%
|
|
Zinc
|
|
|
|
|
|
|
—
|
|
—
|
%
|
|
3,517
|
|
1
|
%
|
|
Gross revenue
|
|
|
|
|
|
|
366,676
|
|
100
|
%
|
|
368,835
|
|
100
|
%
|
|
Less: smelting and refining costs
|
|
|
|
|
|
|
(2,800)
|
|
|
|
(4,891)
|
|
|
|
Revenues
|
|
|
|
|
|
|
$363,876
|
|
|
|
$363,944
|
|
|
As at December 31, 2020, the Company had $2.7 million of unearned revenue (December 31, 2019 - $4.5 million) that has not satisfied performance obligations.
(a)Gold Stream Agreement with Sandstorm Gold Ltd.
The Santa Elena mine has a purchase agreement with Sandstorm Gold Ltd. (“Sandstorm”), which requires the Company to sell 20% of its gold production over the life of mine from its leach pad and a designated area of its underground operations. The selling price to Sandstorm is the lesser of the prevailing market price or $450 per ounce, subject to a 1% annual inflation. During the year ended December 31, 2020, the Company delivered 5,697 ounces (2019 - 9,164 ounces) of gold to Sandstorm at an average price of $463 per ounce (2019 - $458 per ounce).
(b) Gold Stream Agreement with Wheaton Precious Metals Corporation
In 2018, the San Dimas mine entered into a purchase agreement with Wheaton Precious Metals International ("WPMI"), which entitles Wheaton Precious Metals Corp. ("WPM") to receive 25% of the gold equivalent production (based on a fixed exchange ratio of 70 silver ounces to 1 gold ounce) at San Dimas in exchange for ongoing payments equal to the lesser of $600 (subject to a 1% annual inflation adjustment) and the prevailing market price, for each gold equivalent ounce delivered. Should the average gold to silver ratio over a six month period exceed 90:1 or fall below 50:1, the fixed exchange ratio would be increased to 90:1 or decreased to 50:1, respectively. The fixed gold to silver exchange ratio was revised to 90:1 on April 1, 2020 and reverted to 70:1 on October 14, 2020 after the average gold to silver price ratio over a six month period fell back below 90:1.
During the year ended December 31, 2020, the Company delivered 38,604 ounces (2019 - 44,667 ounces) of gold to WPM at $610 (2019 - $604) per ounce.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed interim consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Second Quarter Report
|
Page 22
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
6. COST OF SALES
Cost of sales excludes depletion, depreciation and amortization and are costs that are directly related to production and generation of revenues at the operating segments. Significant components of cost of sales are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Consumables and materials
|
|
|
|
|
$36,760
|
|
|
$45,947
|
|
|
Labour costs
|
|
|
|
|
103,075
|
|
|
118,229
|
|
|
Energy
|
|
|
|
|
25,075
|
|
|
35,135
|
|
|
Other costs
|
|
|
|
|
11,275
|
|
|
13,243
|
|
|
Production costs
|
|
|
|
|
$176,185
|
|
|
$212,554
|
|
|
Transportation and other selling costs
|
|
|
|
|
2,288
|
|
|
2,735
|
|
|
Workers participation costs
|
|
|
|
|
14,245
|
|
|
9,036
|
|
|
Environmental duties and royalties
|
|
|
|
|
2,010
|
|
|
1,438
|
|
|
Inventory changes
|
|
|
|
|
(423)
|
|
|
3,459
|
|
|
Cost recovery related to Republic Metals Refining Corp. bankruptcy(1)
|
|
|
|
|
—
|
|
|
(1,600)
|
|
|
Standby Costs(2)
|
|
|
|
|
—
|
|
|
2,879
|
|
|
Restructuring costs(3)
|
|
|
|
|
—
|
|
|
1,645
|
|
|
Cost of Sales
|
|
|
|
|
$194,305
|
|
|
$232,146
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales - Standby Costs(4)
|
|
|
|
|
$10,112
|
|
|
$—
|
|
(1) In November 2018, one of the refineries used by the Company, Republic Metals Refining Corp. ("Republic"), announced it filed for bankruptcy. As a result, the Company wrote off $7.5 million in inventory that was in Republic's possession for refining. In September 2019, the Company reached a partial litigation settlement for $1.6 million. The Company continues to pursue legal channels to recover the remaining balance of inventory, but there is no assurance that this inventory is recoverable.
(2) Effective from July 2019, the Company temporarily suspended all mining and processing activities at the San Martin operation due to a growing insecurity in the area and safety concerns for its workforce. The Company is working with authorities to secure the area and is uncertain of a restart date. From January 1, 2020, such costs were classified as mine holding costs (Note 8) due to continued uncertainty with respect to the timing of restart at San Martin.
(3) Effective September 2019, the Company temporarily suspended milling operations at the La Parrilla mine. Restructuring costs include severance and plant closure costs incurred for re-organizing the operation.
(4) Cost of sales for the year ended December 31, 2020 included standby costs of $10.1 million, primarily related to direct costs incurred at the San Dimas ($3.5 million), Santa Elena ($2.0 million) and La Encantada ($1.7 million) mines due to temporary suspensions following Mexico’s Ministry of Health’s Federal Decree requiring all non-essential businesses, including mining, to temporarily suspend activities throughout most of April and May in response to the global pandemic. In addition, the Company incurred $2.0 million in standby costs related to the 13-day union work stoppage at San Dimas in June 2020.
7. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses are incurred to support the administration of the business that are not directly related to production. Significant components of general and administrative expenses are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Corporate administration
|
|
|
|
|
$5,012
|
|
|
$5,202
|
|
|
Salaries and benefits
|
|
|
|
|
11,271
|
|
|
13,797
|
|
|
Audit, legal and professional fees
|
|
|
|
|
5,353
|
|
|
4,943
|
|
|
Filing and listing fees
|
|
|
|
|
499
|
|
|
429
|
|
|
Directors fees and expenses
|
|
|
|
|
842
|
|
|
793
|
|
|
Depreciation
|
|
|
|
|
1,878
|
|
|
1,636
|
|
|
|
|
|
|
|
$24,855
|
|
|
$26,800
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 23
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
8. MINE HOLDING COSTS
The Company’s mine holding costs are primarily comprised of labour costs associated with care and maintenance staffs, electricity, security, environmental and community support costs for the following mines which are currently under temporary suspension:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Del Toro
|
|
|
|
|
|
$7,999
|
|
|
$—
|
|
|
La Parrilla
|
|
|
|
|
|
5,563
|
|
|
5,010
|
|
|
San Martin
|
|
|
|
|
|
5,265
|
|
|
—
|
|
|
La Guitarra
|
|
|
|
|
|
2,757
|
|
|
2,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$21,583
|
|
|
$7,579
|
|
9. INVESTMENT AND OTHER INCOME
The Company’s investment and other income (loss) are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Gain from investment in marketable securities (Note 13(a))
|
|
|
|
|
|
$1,973
|
|
|
$528
|
|
|
Gain from investment in silver futures derivatives
|
|
|
|
|
|
2,079
|
|
|
1,237
|
|
|
Interest income and other
|
|
|
|
|
|
1,075
|
|
|
6,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5,127
|
|
|
$8,109
|
|
10. FINANCE COSTS
Finance costs are primarily related to interest and accretion expense on the Company’s debt facilities, lease liabilities and accretion of decommissioning liabilities. The Company’s finance costs in the period are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Debt facilities(1) (Note 19)
|
|
|
|
|
|
$10,593
|
|
|
$10,885
|
|
Lease liabilities (Note 20)
|
|
|
|
|
|
1,479
|
|
|
1,142
|
|
|
Accretion of decommissioning liabilities
|
|
|
|
|
|
2,362
|
|
|
2,410
|
|
|
Silver sales and other
|
|
|
|
|
|
339
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$14,773
|
|
|
$15,147
|
|
(1) Finance costs for debt facilities include $6.8 million of non-cash accretion expense for the year ended December 31, 2020 (2019 - $6.4 million).
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 24
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
11. EARNINGS OR LOSS PER SHARE
Basic earnings or loss per share is the net earnings or loss available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted net earnings or loss per share adjusts basic net earnings per share for the effects of potential dilutive common shares.
The calculations of basic and diluted earnings or loss per share for the years ended December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Net earnings (loss) for the year
|
|
|
|
|
|
$23,087
|
|
|
($40,474)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares on issue - basic
|
|
|
|
|
|
213,879,622
|
|
|
201,615,489
|
|
|
Impact of effect on dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
1,705,689
|
|
|
—
|
|
|
Restricted and performance share units
|
|
|
|
|
|
293,518
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares on issue - diluted(1)
|
|
|
|
|
|
215,878,829
|
|
|
201,615,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - basic and diluted
|
|
|
|
|
|
$0.11
|
|
|
($0.20)
|
|
(1)For the year ended December 31, 2020, diluted weighted average number of shares excluded 2,666,819 (2019 - 7,583,439) options, nil restricted and performance share units (2019 - 128,944) and 16,327,598 (2019 - 16,327,598) common shares issuable under the convertible debentures (Note 19(a)) that were anti-dilutive.
12. INVENTORIES
Inventories consist primarily of materials and supplies and products of the Company’s operations, in varying stages of the production process, and are presented at the lower of weighted average cost or net realizable value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
|
Finished goods - doré
|
$2,812
|
|
|
$1,965
|
|
|
Work-in-process
|
2,780
|
|
|
3,229
|
|
|
Stockpile
|
1,336
|
|
|
2,130
|
|
|
Silver coins and bullion
|
956
|
|
|
291
|
|
|
Materials and supplies
|
24,628
|
|
|
22,902
|
|
|
|
$32,512
|
|
|
$30,517
|
|
The amount of inventories recognized as an expense during the period is equivalent to the total of cost of sales plus depletion, depreciation and amortization for the period.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 25
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
13. OTHER FINANCIAL ASSETS
As at December 31, 2020, other financial assets consists of the Company’s investment in marketable securities and foreign exchange derivatives comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FVTPL marketable securities (a)
|
$13,876
|
|
|
$5,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FVTOCI marketable securities (b)
|
22,444
|
|
|
880
|
|
|
Total marketable securities
|
$36,319
|
|
|
$6,506
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives (Note 24)
|
—
|
|
|
982
|
|
|
Total other financial assets
|
$36,319
|
|
|
$7,488
|
|
(a)Fair Value through Profit or Loss ("FVTPL") Marketable Securities
Gain in marketable securities designated as FVTPL for the year ended December 31, 2020 was $2.0 million (2019 - loss of $0.5 million) and was recorded through profit or loss.
As consideration for the acquisition of the Springpole Silver Stream (Note 14(c)), the Company received 30 million common share purchase warrants of First Mining Gold Corp., each of which will entitle the Company to purchase one common share of First Mining at CAD$0.40 over a period of five years. The fair value of the warrants was measured at $5.7 million using the Black-Scholes model at the time of the acquisition, and subsequently remeasured at $4.7 million at December 31, 2020.
(b)Fair Value through Other Comprehensive Income ("FVTOCI") Marketable Securities
Changes in fair value of marketable securities designated as FVTOCI for the year ended December 31, 2020 was $10.5 million (2019 - $0.3 million), net of tax, and was recorded through other comprehensive income and will not be transferred into earnings or loss upon disposition or impairment.
As part of the consideration received for the option arrangement of the La Joya Project (see Note 14(d)), in September 2020, the Company received 5,146,401 common shares of Silver Dollar Resources Inc. ("Silver Dollar") with a fair value of $6.9 million. In September and December 2020, the Company participated in two private placements of Silver Dollar to acquire an additional 700,000 common shares for $0.7 million. As at December 31, 2020, the fair value of these shares was $8.6 million.
As part of consideration received for the sale of the Plomosas Silver Project (see Note 14(e)), the Company received 17,097,500 common shares of GR Silver Mining Ltd. with a fair value of $1.7 million on March 27, 2020. In May 2020, the Company participated in a private placement by GR Silver Mining Ltd. ("GR Silver") and for $0.8 million acquired an additional 4,000,000 shares with 2,000,000 one-year warrants with a strike price of CAD$0.40 per share. As at December 31, 2020, the fair value of these shares was $12.9 million. These shares are designated as FVTOCI marketable securities while the warrants are designated as FVTPL marketable securities.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 26
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
14. MINING INTERESTS
Mining interests primarily consist of acquisition, development and exploration costs directly related to the Company’s operations and projects. Upon commencement of commercial production, mining interests for producing properties are depleted on a units-of-production basis over the estimated economic life of the mine. In applying the units of production method, depletion is determined using quantity of material extracted from the mine in the period as a portion of total quantity of material, based on reserves and resources, considered to be highly probable to be economically extracted over the life of mine plan.
The Company’s mining interests are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
|
Depletable properties
|
$392,185
|
|
|
$367,348
|
|
|
Non-depletable properties (exploration and evaluation costs)
|
117,545
|
|
|
96,043
|
|
|
|
$509,730
|
|
|
$463,391
|
|
Depletable properties are allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletable properties
|
San Dimas
|
|
Santa Elena
|
|
La Encantada
|
|
|
|
|
|
|
|
|
|
Non-producing
Properties(1)
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
$193,305
|
|
|
$45,041
|
|
|
$99,436
|
|
|
|
|
|
|
|
|
|
|
$478,883
|
|
|
$816,665
|
|
|
Additions
|
24,596
|
|
|
6,813
|
|
|
5,995
|
|
|
|
|
|
|
|
|
|
|
9,088
|
|
|
46,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in decommissioning liabilities (Note 21)
|
301
|
|
|
2,338
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
6,161
|
|
|
9,300
|
|
|
Transfer from exploration properties
|
2,456
|
|
|
7,462
|
|
|
5,659
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
15,577
|
|
|
At December 31, 2019
|
$220,658
|
|
|
$61,654
|
|
|
$111,590
|
|
|
|
|
|
|
|
|
|
|
$494,132
|
|
|
$888,034
|
|
|
Additions
|
21,263
|
|
|
6,218
|
|
|
4,201
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
31,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in decommissioning liabilities (Note 21)
|
4,527
|
|
|
1,191
|
|
|
2,049
|
|
|
|
|
|
|
|
|
|
|
3,059
|
|
|
10,826
|
|
|
Transfer from exploration properties
|
3,645
|
|
|
4,229
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
8,346
|
|
|
At December 31, 2020
|
$250,093
|
|
|
$73,292
|
|
|
$118,312
|
|
|
|
|
|
|
|
|
|
|
$497,191
|
|
|
$938,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depletion, amortization and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
($10,871)
|
|
|
($11,594)
|
|
|
($59,872)
|
|
|
|
|
|
|
|
|
|
|
($380,677)
|
|
|
($463,014)
|
|
|
Depletion and amortization
|
(16,354)
|
|
|
(5,014)
|
|
|
(6,025)
|
|
|
|
|
|
|
|
|
|
|
(7,677)
|
|
|
(35,070)
|
|
|
Impairment
|
—
|
|
|
—
|
|
|
(22,602)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(22,602)
|
|
|
At December 31, 2019
|
($27,225)
|
|
|
($16,608)
|
|
|
($88,499)
|
|
|
|
|
|
|
|
|
|
|
($388,354)
|
|
|
($520,686)
|
|
|
Depletion and amortization
|
(18,277)
|
|
|
(3,792)
|
|
|
(3,948)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(26,017)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2020
|
($45,502)
|
|
|
($20,400)
|
|
|
($92,447)
|
|
|
|
|
|
|
|
|
|
|
($388,354)
|
|
|
($546,703)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
$193,433
|
|
|
$45,046
|
|
|
$23,091
|
|
|
|
|
|
|
|
|
|
|
$105,778
|
|
|
$367,348
|
|
|
At December 31, 2020
|
$204,592
|
|
|
$52,892
|
|
|
$25,865
|
|
|
|
|
|
|
|
|
|
|
$108,837
|
|
|
$392,185
|
|
(1) Non-producing properties include the San Martin, Del Toro, La Parrilla and La Guitarra mines.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 27
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
14. MINING INTERESTS (continued)
Non-depletable properties costs are allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-depletable properties
|
San Dimas(a)
|
|
Santa Elena(b)
|
|
La Encantada
|
|
|
|
|
|
|
|
|
|
Non-producing
Properties(1)
|
|
Exploration Projects(2)
|
|
Springpole
Stream(c)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
$3,705
|
|
|
$14,316
|
|
|
$5,660
|
|
|
|
|
|
|
|
|
|
|
$24,841
|
|
|
$33,440
|
|
|
$—
|
|
|
$81,962
|
|
|
Exploration and evaluation expenditures
|
7,450
|
|
|
11,738
|
|
|
2,164
|
|
|
|
|
|
|
|
|
|
|
8,097
|
|
|
1,032
|
|
|
—
|
|
|
30,481
|
|
Change in decommissioning liabilities (Note 21)
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
238
|
|
|
—
|
|
|
238
|
|
|
Impairment
|
—
|
|
|
—
|
|
|
(1,061)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,061)
|
|
|
Transfer to producing properties
|
(2,456)
|
|
|
(7,462)
|
|
|
(5,659)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,577)
|
|
|
At December 31, 2019
|
$8,699
|
|
|
$18,592
|
|
|
$1,104
|
|
|
|
|
|
|
|
|
|
|
$32,938
|
|
|
$34,710
|
|
|
$—
|
|
|
$96,043
|
|
|
Exploration and evaluation expenditures
|
12,125
|
|
|
19,588
|
|
|
2,323
|
|
|
|
|
|
|
|
|
|
|
4,066
|
|
|
1,142
|
|
|
4,356
|
|
|
43,601
|
|
Change in decommissioning liabilities (Note 21)
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
59
|
|
|
—
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of exploration project
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(13,812)
|
|
|
—
|
|
|
(13,812)
|
|
|
Transfer to producing properties
|
(3,645)
|
|
|
(4,229)
|
|
|
(472)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,346)
|
|
|
At December 31, 2020
|
$17,179
|
|
|
$33,951
|
|
|
$2,955
|
|
|
|
|
|
|
|
|
|
|
$37,004
|
|
|
$22,099
|
|
|
$4,356
|
|
|
$117,545
|
|
(1) Non-producing properties include the San Martin, Del Toro, La Parrilla and La Guitarra mines.
(2) Exploration projects include the La Luz, La Joya, Los Amoles, Jalisco Group of Properties and Jimenez del Tuel projects, as well as the Plomosas project which was sold during 2020.
(a)San Dimas Silver/Gold Mine, Durango State
In 2018, the San Dimas Mine is subject to a gold and silver streaming agreement with WPMI which entitles WPM to receive 25% of the gold equivalent production (based on a fixed exchange ratio of 70 silver ounces to 1 gold ounce) at San Dimas in exchange for ongoing payments equal to the lesser of $600 (subject to a 1% annual inflation adjustment commencing in May 2019) and the prevailing market price, for each gold ounce delivered. Should the average gold to silver ratio over a six month period exceed 90:1 or fall below 50:1, the fixed exchange ratio would be increased to 90:1 or decreased to 50:1, respectively. The fixed gold to silver exchange ratio was revised to 90:1 on April 1, 2020 and reverted to 70:1 on October 14, 2020 after the average gold to silver price ratio over a six month period fell back below 90:1.
(b)Santa Elena Silver/Gold Mine, Sonora State
The Santa Elena Mine is subject to a gold streaming agreement with Sandstorm, which requires the mine to sell 20% of its life of mine gold production from its leach pad and a designated area of its underground operations to Sandstorm. The selling price to Sandstorm is currently the lesser of $464 per ounce, subject to a 1% annual inflation increase every April, and the prevailing market price.
(c) Springpole Silver Stream, Ontario, Canada
On July 2, 2020, the Company completed an agreement with First Mining Gold Corp. (“First Mining”) to purchase 50% of the life of mine payable silver produced from the Springpole Gold Project ("Springpole Silver Stream"), a development stage mining project located in Ontario, Canada. Pursuant to the agreement, First Majestic agreed to pay First Mining consideration of $22.5 million in cash and shares, in three milestone payments, for the right to purchase silver at a price of 33% of the silver spot price per ounce, to a maximum of $7.50 per ounce (subject to annual inflation escalation of 2%, commencing at the start of the third anniversary of production). Commencing with its production of silver, First Mining must deliver 50% of the payable silver which it receives from the offtaker within five business days of the end of each quarter.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 28
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
14. MINING INTERESTS (continued)
(c) Springpole Silver Stream, Ontario, Canada (continued)
Transaction consideration paid and payable by First Majestic is summarized as follows:
•The first payment of $10.0 million, consisting of $2.5 million in cash and $7.5 million in First Majestic shares (805,698 common shares) was paid to First Mining on July 2, 2020;
•The second payment consisting of $3.75 million in cash and $3.75 million in First Majestic shares (287,300 common shares) was paid on January 21, 2021 upon the completion and public announcement by First Mining of the results of a Pre-Feasibility Study for Springpole; and
•The third payment consisting of $2.5 million in cash and $2.5 million in First Majestic shares (based on 20 days volume weighted average price) will be paid upon receipt by First Mining of a Federal or Provincial Environmental Assessment approval for Springpole.
In connection with the agreement, First Mining also granted First Majestic 30 million common share purchase warrants, each of which will entitle the Company to purchase one common share of First Mining at CAD$0.40 over a period of five years. The fair value of the warrants was measured at $5.7 million using the Black-Scholes model.
First Mining shall have the right to repurchase 50% of the silver stream for $22.5 million at any time prior to the commencement of production at Springpole leaving the Company with a reduced silver stream of 25% of life of mine payable silver production.
As at December 31, 2020, the Company has paid $10.0 million in consideration to First Mining as part of the agreement, of which $5.7 million was allocated to other financial assets and $4.3 million was allocated to the Springpole Silver Stream recognized within exploration and evaluation assets.
First Mining is a related party with two independent board members who are also directors and/or officers of First Majestic.
(d) La Joya Silver Project, Durango, Mexico
In August 2020, the Company entered into a five year option agreement with Silver Dollar Resources Inc. ("Silver Dollar"), which gives Silver Dollar the option to earn an initial 80% interest in the Company's La Joya Project, following the exercise of which it may earn an additional 20% for an aggregate 100% interest.
To exercise its first option to acquire an 80% interest in the La Joya Project, Silver Dollar will pay the Company CAD$1.3 million in cash over four years, issue shares equal to 19.9% of Silver Dollar's then-outstanding common shares within one year, incur $1 million of exploration expenditures within the first five years, and grant First Majestic a 2% net smelter returns royalty. If Silver Dollar incurs the exploration expenditures within the first three years; however, First Majestic will waive the remaining $0.6 million of the cash option payments.
Silver Dollar may exercise its second option and acquire the remaining 20% (for an aggregate 100% interest) of the La Joya Project by providing notice to First Majestic within 30 days of earning the first 80% interest and issuing to First Majestic additional shares equal to 5% of Silver Dollar's then-outstanding common shares within five years.
As at December 31, 2020, the Company received $0.3 million in cash and 5,146,401 common shares with a fair value of $6.9 million from Silver Dollar. The Company deducted proceeds received from Silver Dollar from the carrying value of the La Joya project ($0.6 million), reducing its carrying value to $nil and recognized the remaining $6.5 million of proceeds as a gain on divestiture of exploration project.
(e) Plomosas Silver Project, Sinaloa, Mexico
In March 2020, the Company divested its subsidiary Minera La Rastra, S.A. de C.V. ("MLR"), which holds the Plomosas Silver Project, to GR Silver for total consideration of $1.7 million, consisting of 17,097,500 common shares of GR Silver with a fair value on the measurement date of $1.7 million, CAD$0.1 million in cash and a 2% net smelter return royalty ("NSR"). GR Silver has the option to repurchase half of the NSR for CAD$1.0 million. As at the date of the transaction, MLR had a carrying value of $11.8 million, including $13.1 million in mining interests, resulting in a loss of $10.2 million on the disposal.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 29
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
15. PROPERTY, PLANT AND EQUIPMENT
The majority of the Company's property, plant and equipment is used in the Company's operating mine segments. Property, plant and equipment is depreciated using either the straight-line or units-of-production method over the shorter of the estimated useful life of the asset or the expected life of mine. Where an item of property, plant and equipment comprises of major components with different useful lives, the components are accounted for as separate items of property, plant and equipment. Assets under construction are recorded at cost and re-allocated to land and buildings, machinery and equipment or other when they become available for use.
Property, plant and equipment are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and Buildings(1)
|
|
Machinery and Equipment
|
|
Assets under Construction(2)
|
|
Other
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
$177,864
|
|
|
$430,862
|
|
|
$35,673
|
|
|
$23,410
|
|
|
$667,809
|
|
|
Additions
|
—
|
|
|
1,991
|
|
|
44,709
|
|
|
521
|
|
|
47,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers and disposals
|
20,548
|
|
|
23,802
|
|
|
(52,737)
|
|
|
507
|
|
|
(7,880)
|
|
|
At December 31, 2019
|
$198,412
|
|
|
$456,655
|
|
|
$27,645
|
|
|
$24,438
|
|
|
$707,150
|
|
|
Additions
|
—
|
|
|
2,096
|
|
|
47,266
|
|
|
391
|
|
|
49,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers and disposals
|
917
|
|
|
9,873
|
|
|
(19,242)
|
|
|
3,822
|
|
|
(4,630)
|
|
|
At December 31, 2020
|
$199,329
|
|
|
$468,624
|
|
|
$55,669
|
|
|
$28,651
|
|
|
$752,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation, amortization and impairment
|
|
|
|
|
|
|
|
At December 31, 2018
|
($111,258)
|
|
|
($291,959)
|
|
|
$—
|
|
|
($13,508)
|
|
|
($416,725)
|
|
|
Depreciation and amortization
|
(4,980)
|
|
|
(23,829)
|
|
|
—
|
|
|
(2,122)
|
|
|
(30,931)
|
|
|
Transfers and disposals
|
271
|
|
|
5,189
|
|
|
—
|
|
|
459
|
|
|
5,919
|
|
|
Impairment
|
(13,073)
|
|
|
(15,701)
|
|
|
—
|
|
|
—
|
|
|
(28,774)
|
|
|
At December 31, 2019
|
($129,040)
|
|
|
($326,300)
|
|
|
$—
|
|
|
($15,171)
|
|
|
($470,511)
|
|
|
Depreciation and amortization
|
(4,188)
|
|
|
(19,833)
|
|
|
—
|
|
|
(2,555)
|
|
|
(26,576)
|
|
|
Transfers and disposals
|
72
|
|
|
2,754
|
|
|
—
|
|
|
208
|
|
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2020
|
($133,156)
|
|
|
($343,379)
|
|
|
$—
|
|
|
($17,518)
|
|
|
($494,053)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying values
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
$69,372
|
|
|
$130,355
|
|
|
$27,645
|
|
|
$9,267
|
|
|
$236,639
|
|
|
At December 31, 2020
|
$66,173
|
|
|
$125,245
|
|
|
$55,669
|
|
|
$11,133
|
|
|
$258,220
|
|
(1) Included in land and buildings is $11.2 million (2019 - $11.5 million) of land which is not subject to depreciation.
(2) Assets under construction includes certain innovation projects, such as high-intensity grinding ("HIG") mills and related modernization, plant improvements, other mine infrastructures and equipment overhauls.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 30
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
15. PROPERTY, PLANT AND EQUIPMENT (continued)
Property, plant and equipment, including land and buildings, machinery and equipment, assets under construction and other assets above are allocated by mine as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
|
Santa Elena
|
|
La Encantada
|
|
|
|
|
|
|
|
|
|
Non-producing
Properties(1)
|
|
Other
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
$127,763
|
|
|
$76,671
|
|
|
$132,146
|
|
|
|
|
|
|
|
|
|
|
$299,037
|
|
|
$32,192
|
|
|
$667,809
|
|
|
Additions
|
10,465
|
|
|
4,453
|
|
|
5,066
|
|
|
|
|
|
|
|
|
|
|
3,073
|
|
|
24,164
|
|
|
47,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers and disposals
|
(1,925)
|
|
|
9,638
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
(4,870)
|
|
|
(10,813)
|
|
|
(7,880)
|
|
|
At December 31, 2019
|
$136,303
|
|
|
$90,762
|
|
|
$137,302
|
|
|
|
|
|
|
|
|
|
|
$297,240
|
|
|
$45,543
|
|
|
$707,150
|
|
|
Additions(2)
|
10,384
|
|
|
7,933
|
|
|
4,209
|
|
|
|
|
|
|
|
|
|
|
272
|
|
|
26,955
|
|
|
49,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers and disposals
|
41
|
|
|
(1,364)
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
(3,751)
|
|
|
(1,555)
|
|
|
(4,630)
|
|
|
At December 31, 2020
|
$146,728
|
|
|
$97,331
|
|
|
$143,510
|
|
|
|
|
|
|
|
|
|
|
$293,761
|
|
|
$70,943
|
|
|
$752,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation,
amortization and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
($7,545)
|
|
|
($37,007)
|
|
|
($89,086)
|
|
|
|
|
|
|
|
|
|
|
($265,811)
|
|
|
($17,276)
|
|
|
($416,725)
|
|
|
Depreciation and amortization
|
(12,355)
|
|
|
(6,989)
|
|
|
(5,278)
|
|
|
|
|
|
|
|
|
|
|
(4,378)
|
|
|
(1,931)
|
|
|
(30,931)
|
|
|
Transfers and disposals
|
153
|
|
|
1,021
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
3,999
|
|
|
174
|
|
|
5,919
|
|
|
Impairment
|
—
|
|
|
—
|
|
|
(28,774)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(28,774)
|
|
|
At December 31, 2019
|
($19,747)
|
|
|
($42,975)
|
|
|
($122,566)
|
|
|
|
|
|
|
|
|
|
|
($266,190)
|
|
|
($19,033)
|
|
|
($470,511)
|
|
|
Depreciation and amortization
|
(15,032)
|
|
|
(6,451)
|
|
|
(2,646)
|
|
|
|
|
|
|
|
|
|
|
(592)
|
|
|
(1,855)
|
|
|
(26,576)
|
|
|
Transfers and disposals
|
156
|
|
|
1,340
|
|
|
(1,743)
|
|
|
|
|
|
|
|
|
|
|
2,909
|
|
|
372
|
|
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2020
|
($34,623)
|
|
|
($48,086)
|
|
|
($126,955)
|
|
|
|
|
|
|
|
|
|
|
($263,873)
|
|
|
($20,516)
|
|
|
($494,053)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
$116,556
|
|
|
$47,787
|
|
|
$14,736
|
|
|
|
|
|
|
|
|
|
|
$31,050
|
|
|
$26,510
|
|
|
$236,639
|
|
|
At December 31, 2020
|
$112,105
|
|
|
$49,245
|
|
|
$16,555
|
|
|
|
|
|
|
|
|
|
|
$29,888
|
|
|
$50,427
|
|
|
$258,220
|
|
(1) Non-producing properties include the San Martin, Del Toro, La Parrilla and La Guitarra mines.
(2) Additions classified in "Other" primarily consist of innovation projects and construction-in-progress.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 31
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
16. RIGHT-OF-USE ASSETS
The Company entered into operating leases to use certain land, building, mining equipment and corporate equipment for its operations. The Company is required to recognize right-of-use assets representing its right to use these underlying leased asset over the lease term.
Right-of-use asset is initially measured at cost, equivalent to its obligation for payments over the term of the leases, and subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation is recorded on a straight-line basis over the shorter period of lease term and useful life of the underlying asset.
Right-of-use assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and Buildings
|
|
Machinery and Equipment
|
|
Other
|
|
Total
|
|
At December 31, 2018
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
Initial adoption
|
2,624
|
|
|
1,036
|
|
|
22
|
|
|
3,682
|
|
|
Additions
|
571
|
|
|
14,132
|
|
|
—
|
|
|
14,703
|
|
|
Remeasurements
|
1,686
|
|
|
232
|
|
|
—
|
|
|
1,918
|
|
|
Depreciation and amortization
|
(674)
|
|
|
(1,286)
|
|
|
(7)
|
|
|
(1,967)
|
|
|
Impairment
|
—
|
|
|
(6,302)
|
|
|
—
|
|
|
(6,302)
|
|
|
At December 31, 2019
|
$4,207
|
|
|
$7,812
|
|
|
$15
|
|
|
$12,034
|
|
|
Additions
|
1,939
|
|
|
554
|
|
|
—
|
|
|
2,494
|
|
|
Remeasurements
|
2,789
|
|
|
(10)
|
|
|
—
|
|
|
2,779
|
|
|
Depreciation and amortization
|
(848)
|
|
|
(2,106)
|
|
|
(7)
|
|
|
(2,961)
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
—
|
|
|
(16)
|
|
|
—
|
|
|
(16)
|
|
|
At December 31, 2020
|
$8,087
|
|
|
$6,234
|
|
|
$8
|
|
|
$14,330
|
|
17. IMPAIRMENT OF NON-CURRENT ASSETS
The Company did not identify any indicators of potential impairment or impairment reversal on its non-current assets and CGUs during the year ended December 31, 2020.
During the year ended December 31, 2019, the Company determined that the La Encantada mine had an indicator of potential impairment on its non-current assets due to a decrease in economics of the roaster project and mine plan. Based on the Company’s assessment in 2019, the Company concluded that the La Encantada mine had estimated recoverable value, based on its FVLCD, below its carrying value and impairment charge was required:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of non-current assets
|
|
|
|
$58,739
|
|
|
Deferred income tax recovery
|
|
|
|
(6,300)
|
|
|
Impairment of non-current assets, net of tax
|
|
|
|
$52,439
|
|
The impairment charge recognized for the year ended December 31, 2019 in respect of La Encantada was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining interests
|
|
Right of use assets
|
|
Property, plant and equipment
|
|
|
|
|
|
Producing
|
|
Exploration
|
|
|
|
Total
|
|
La Encantada Silver Mine
|
|
$22,602
|
|
|
$1,061
|
|
|
$6,302
|
|
|
$28,774
|
|
|
$58,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverable values are determined based on fair market value of the asset and estimated using internal discounted cash flow economic models projected using management’s best estimate of recoverable mineral reserves and resources, future operating costs, capital expenditures and long-term foreign exchange rates.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 32
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
17. IMPAIRMENT OF NON-CURRENT ASSETS (continued)
Metal price assumptions used to determine the recoverable amounts for the year ended December 31, 2019 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Commodity Prices
|
|
|
|
|
2020-2023
Average
|
|
Long-term
|
|
Silver (per ounce)
|
|
|
|
|
$18.84
|
|
|
$19.50
|
|
|
Gold (per ounce)
|
|
|
|
|
$1,536
|
|
|
$1,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A discount rate of 4.5%, equivalent to the Company’s weighted average cost of capital for the year ended December 31, 2019 was used to determine FVLCD based on an internal discounted cash flow economic model.
The internal discounted cash flow economic model used to determine FVLCD is significantly affected by changes in key assumptions for future metal prices, Reserve and Resource levels and recovery rates. Management’s estimate of FVLCD is classified as level 3 in the fair value hierarchy. There was no material change in the valuation techniques utilized to determine FVLCD in the year ended December 31, 2020.
18. TRADE AND OTHER PAYABLES
The Company’s trade and other payables are primarily comprised of amounts outstanding for purchases relating to mining operations, exploration and evaluation activities and corporate expenses. The normal credit period for these purchases is usually between 30 to 90 days.
Trade and other payables are comprised of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
|
Trade payables
|
$31,262
|
|
|
$23,984
|
|
|
Trade related accruals
|
18,635
|
|
|
12,314
|
|
|
Payroll and related benefits
|
21,427
|
|
|
19,059
|
|
|
Environmental duty
|
2,156
|
|
|
1,483
|
|
|
Other accrued liabilities
|
2,522
|
|
|
2,283
|
|
|
|
$76,002
|
|
|
$59,123
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 33
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
|
Condensed Interim Consolidated Financial Statements - Unaudited
|
(Tabular amounts are expressed in thousands of US dollars)
|
19. DEBT FACILITIES
The movement in debt facilities during the year ended December 31, 2020 and year ended December 31, 2019, respectively, are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debentures
(a)
|
|
Revolving Credit Facility
(b)
|
|
|
|
|
|
Total
|
|
Balance at December 31, 2018
|
|
$130,807
|
|
|
$18,705
|
|
|
|
|
|
|
$149,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
2,975
|
|
|
1,498
|
|
|
|
|
|
|
4,473
|
|
|
Accretion
|
|
5,758
|
|
|
654
|
|
|
|
|
|
|
6,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of finance costs
|
|
(2,933)
|
|
|
(1,646)
|
|
|
|
|
|
|
(4,579)
|
|
|
Balance at December 31, 2019
|
|
$136,607
|
|
|
$19,211
|
|
|
|
|
|
|
$155,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
2,984
|
|
|
763
|
|
|
|
|
|
|
3,747
|
|
|
Accretion
|
|
6,168
|
|
|
678
|
|
|
|
|
|
|
6,846
|
|
|
Proceeds from drawdown of Revolving Credit Facility
|
|
—
|
|
|
10,000
|
|
|
|
|
|
|
10,000
|
|
|
Repayments of principal
|
|
—
|
|
|
(19,969)
|
|
|
|
|
|
|
(19,969)
|
|
|
Payments of finance costs
|
|
(2,934)
|
|
|
(801)
|
|
|
|
|
|
|
(3,735)
|
|
|
At December 31, 2020
|
|
$142,825
|
|
|
$9,882
|
|
|
|
|
|
|
$152,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Financial Position Presentation
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt facilities
|
|
$1,043
|
|
|
$132
|
|
|
|
|
|
|
$1,175
|
|
|
Non-current portion of debt facilities
|
|
135,564
|
|
|
19,079
|
|
|
|
|
|
|
154,643
|
|
|
Balance at December 31, 2019
|
|
$136,607
|
|
|
$19,211
|
|
|
|
|
|
|
$155,818
|
|
|
Current portion of debt facilities
|
|
$1,092
|
|
|
$9,882
|
|
|
|
|
|
|
$10,975
|
|
|
Non-current portion of debt facilities
|
|
141,733
|
|
|
—
|
|
|
|
|
|
|
141,733
|
|
|
At December 31, 2020
|
|
$142,825
|
|
|
$9,882
|
|
|
|
|
|
|
$152,707
|
|
(a)Convertible Debentures
During the first quarter of 2018, the Company issued $156.5 million of unsecured senior convertible debentures (the “Notes”). The Company received net proceeds of $151.1 million after transaction costs of $5.4 million. The Notes mature on March 1, 2023 and bear an interest rate of 1.875% per annum, payable semi-annually in arrears in March and September of each year.
The Notes are convertible into common shares of the Company at any time prior to maturity at a conversion rate of 104.3297 common shares per $1,000 principal amount of Notes converted, representing an initial conversion price of $9.59 per common share, subject to certain anti-dilution adjustments. In addition, if certain fundamental changes occur, holders of the Notes may be entitled to an increased conversion rate.
The Company may not redeem the Notes before March 6, 2021, except in the event of certain changes in Canadian tax law. At any time on or after March 6, 2021 and until maturity, the Company may redeem all or part of the Notes for cash if the last reported share price of the Company’s common shares for 20 or more trading days in a period of 30 consecutive trading days exceeds 130% of the conversion price or $12.47 per common share. The redemption price is equal to the sum of: (i) 100% of the principal amount of the notes to be redeemed and (ii) accrued and unpaid interest, if any, to the redemption date.
The Company is required to offer to purchase for cash all of the outstanding Notes upon a fundamental change, at a cash purchase price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest, if any, to the fundamental change purchase date.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 34
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
|
Condensed Interim Consolidated Financial Statements - Unaudited
|
(Tabular amounts are expressed in thousands of US dollars)
|
19. DEBT FACILITIES (continued)
(a)Convertible Debentures (continued)
The component parts of the convertible debentures, a compound instrument, are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company's own equity instrument is an equity instrument.
At initial recognition, net proceeds of $151.1 million from the Notes were allocated into its debt and equity components. The fair value of the debt portion was estimated at $124.8 million using a discounted cash flow model method with an expected life of five years and a discount rate of 6.14%. This amount is recorded as a financial liability on an amortized cost basis using the effective interest method using an effective interest rate of 6.47% until extinguished upon conversion or at its maturity date.
The conversion option is classified as equity and was estimated based on the residual value of $26.3 million. This amount is not subsequently remeasured and will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share capital. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance will remain in equity reserves. Deferred tax liability of $7.1 million related to taxable temporary difference arising from the equity portion of the convertible debenture was recognized in equity reserves.
Transaction costs of $5.4 million that relate to the issuance of the convertible debentures were allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the life of the convertible debentures using the effective interest method.
(b)Revolving Credit Facility
On May 10, 2018, the Company entered into a $75.0 million senior secured revolving credit facility ("Revolving Credit Facility") with the Bank of Nova Scotia, Bank of Montreal and Investec Bank PLC, as lenders. The Revolving Credit Facility will mature on its third anniversary date on May 10, 2021. Interest on the drawn balance will accrue at LIBOR plus an applicable range of 2.25% to 3.5% while the undrawn portion is subject to a standby fee with an applicable range of 0.5625% to 0.875%, dependent on certain financial parameters of First Majestic. As at December 31, 2020, the applicable rates were 2.9% to 0.6875%, respectively.
These debt facilities are guaranteed by certain subsidiaries of the Company and are also secured by a first priority charge against the assets of the Company, and a first priority pledge of shares of the Company’s subsidiaries.
The Revolving Credit Facility includes financial covenants, to be tested quarterly on a consolidated basis, requiring First Majestic to maintain the following: (a) a leverage ratio based on total debt to rolling four quarters adjusted EBITDA of not more than 3.00 to 1.00; (b) an interest coverage ratio, based on rolling four quarters adjusted EBITDA divided by interest payments, of not less than 4.00 to 1.00; and (c) tangible net worth of not less than $563.5 million plus 50% of its positive earnings subsequent to June 30, 2018. The debt facilities also provide for negative covenants customary for these types of facilities and allows the Company to enter into finance leases up to $30.0 million. As at December 31, 2020 and December 31, 2019, the Company was in compliance with these covenants.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 35
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
|
Condensed Interim Consolidated Financial Statements - Unaudited
|
(Tabular amounts are expressed in thousands of US dollars)
|
20. LEASE LIABILITIES
The Company has finance leases, operating leases and equipment financing liabilities for various mine and plant equipment, office space and land. Finance leases and equipment financing obligations require underlying assets to be pledged as security against the obligations and all of the risks and rewards incidental to ownership of the underlying asset being transferred to the Company. For operating leases, the Company controls but does not have ownership of the underlying right-of-use assets.
Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Lease liabilities are subsequently measured at amortized cost using the effective interest rate method.
Certain lease agreements may contain lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, the Company has elected to account for the lease and non-lease components as a single lease component.
The movement in lease liabilities during the year ended December 31, 2020 and year ended December 31, 2019 are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
(a)
|
|
Operating Leases
(b)
|
|
Equipment Financing
(c)
|
|
Total
|
|
Balance at December 31, 2018
|
$409
|
|
|
$—
|
|
|
$5,438
|
|
|
$5,847
|
|
|
Initial adoption of IFRS 16
|
—
|
|
|
3,682
|
|
|
—
|
|
|
3,682
|
|
|
Additions
|
—
|
|
|
14,706
|
|
|
—
|
|
|
14,706
|
|
|
Remeasurements
|
—
|
|
|
1,918
|
|
|
—
|
|
|
1,918
|
|
|
Finance costs
|
18
|
|
|
789
|
|
|
335
|
|
|
1,142
|
|
|
Repayments of principal
|
(359)
|
|
|
(2,395)
|
|
|
(2,459)
|
|
|
(5,213)
|
|
|
Payments of finance costs
|
(18)
|
|
|
—
|
|
|
(379)
|
|
|
(397)
|
|
|
Foreign exchange loss
|
—
|
|
|
251
|
|
|
—
|
|
|
251
|
|
|
Balance at December 31, 2019
|
$50
|
|
|
$18,951
|
|
|
$2,935
|
|
|
$21,936
|
|
|
Additions
|
—
|
|
|
2,494
|
|
|
—
|
|
|
2,494
|
|
|
Remeasurements
|
—
|
|
|
2,779
|
|
|
—
|
|
|
2,779
|
|
|
Finance costs
|
—
|
|
|
1,396
|
|
|
83
|
|
|
1,479
|
|
|
Repayments of principal
|
(50)
|
|
|
(5,353)
|
|
|
(2,303)
|
|
|
(7,706)
|
|
|
Payments of finance costs
|
—
|
|
|
—
|
|
|
(126)
|
|
|
(126)
|
|
|
Foreign exchange gain
|
—
|
|
|
(281)
|
|
|
—
|
|
|
(281)
|
|
|
At December 31, 2020
|
$—
|
|
|
$19,986
|
|
|
$589
|
|
|
$20,575
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Financial Position Presentation
|
|
|
|
|
|
|
|
|
Current portion of lease liabilities
|
$50
|
|
|
$4,518
|
|
|
$2,352
|
|
|
$6,920
|
|
|
Non-current portion of lease liabilities
|
—
|
|
|
14,433
|
|
|
583
|
|
|
15,016
|
|
|
Balance at December 31, 2019
|
$50
|
|
|
$18,951
|
|
|
$2,935
|
|
|
$21,936
|
|
|
Current portion of lease liabilities
|
$—
|
|
|
$4,820
|
|
|
$538
|
|
|
$5,358
|
|
|
Non-current portion of lease liabilities
|
—
|
|
|
15,166
|
|
|
51
|
|
|
15,217
|
|
|
At December 31, 2020
|
$—
|
|
|
$19,986
|
|
|
$589
|
|
|
$20,575
|
|
(a)Finance Leases
From time to time, the Company may purchase equipment under finance leases with terms ranging from 24 to 48 months. As at December 31, 2020, the Company has fully repaid all of its finance leases and all pledges on related property, plant and equipment have been released.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 36
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
|
Condensed Interim Consolidated Financial Statements - Unaudited
|
(Tabular amounts are expressed in thousands of US dollars)
|
20. LEASE LIABILITIES (continued)
(b) Operating Leases
Operating leases primarily relate to equipment and building rental contracts, land easement contracts and service contracts that contain embedded leases for property, plant and equipment. These operating leases have remaining lease terms of one to ten years, some of which include options to terminate the leases within a year, with incremental borrowing rates ranging from 5.8% to 12.4%.
During the year ended December 31, 2020 and 2019, the amounts of lease payments recognized in the profit and loss are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2020
|
Year Ended
December 31, 2019
|
Expenses relating to variable lease payments not included in
the measurement of lease liability
|
|
$25,560
|
|
$14,241
|
|
Expenses relating to short-term leases
|
|
19,607
|
|
|
42,994
|
|
|
Expenses relating to low value leases
|
|
81
|
|
—
|
|
|
|
|
$45,248
|
|
|
$57,235
|
|
(c) Equipment Financing
During 2017, the Company entered into a $7.9 million credit facility with repayment terms ranging from 12 to 16 equal quarterly installments in principal plus related interest. The facility bears an interest rate of LIBOR plus 4.60%. Proceeds from the equipment financing were primarily used for the purchase and rehabilitation of property, plant and equipment. The equipment financing is secured by certain equipment of the Company and is subject to various covenants, including the requirement for First Majestic to maintain a leverage ratio based on total debt to rolling four quarters adjusted EBITDA. As at December 31, 2020 and year ended December 31, 2019, the Company was in compliance with these covenants.
As at December 31, 2020, the net book value of property, plant and equipment includes $1.9 million (2019 - $3.3 million) of equipment pledged as security for the equipment financing.
21. DECOMMISSIONING LIABILITIES
The Company has an obligation to undertake decommissioning, restoration, rehabilitation and environmental work when environmental disturbance is caused by the development and ongoing production of a mining operation. Movements in decommissioning liabilities during the years ended December 31, 2020 and 2019 are allocated as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
|
Santa Elena
|
|
La Encantada
|
|
San Martin
|
|
La Parrilla
|
|
Del Toro
|
|
La Guitarra
|
|
La Luz
|
|
Total
|
|
Balance at December 31, 2018
|
$8,412
|
|
|
$2,321
|
|
|
$6,709
|
|
|
$2,694
|
|
|
$3,245
|
|
|
$2,498
|
|
|
$1,615
|
|
|
$302
|
|
|
$27,796
|
|
|
Movements during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in rehabilitation provision
|
301
|
|
|
2,338
|
|
|
500
|
|
|
4,051
|
|
|
696
|
|
|
945
|
|
|
469
|
|
|
238
|
|
|
9,538
|
|
|
Reclamation costs incurred
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(104)
|
|
|
—
|
|
|
(104)
|
|
|
Interest or accretion expense
|
744
|
|
|
207
|
|
|
592
|
|
|
237
|
|
|
282
|
|
|
219
|
|
|
129
|
|
|
—
|
|
|
2,410
|
|
|
Foreign exchange loss
|
(15)
|
|
|
105
|
|
|
311
|
|
|
121
|
|
|
114
|
|
|
107
|
|
|
69
|
|
|
76
|
|
|
888
|
|
|
Balance at December 31, 2019
|
$9,442
|
|
|
$4,971
|
|
|
$8,112
|
|
|
$7,103
|
|
|
$4,337
|
|
|
$3,769
|
|
|
$2,178
|
|
|
$616
|
|
|
$40,528
|
|
|
Movements during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposition of exploration project
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(153)
|
|
|
—
|
|
|
(153)
|
|
|
Change in rehabilitation provision
|
4,527
|
|
|
1,191
|
|
|
2,049
|
|
|
1,240
|
|
|
830
|
|
|
772
|
|
|
217
|
|
|
59
|
|
|
10,885
|
|
|
Reclamation costs incurred
|
—
|
|
|
(55)
|
|
|
—
|
|
|
(81)
|
|
|
(20)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(156)
|
|
|
Interest or accretion expense
|
565
|
|
|
295
|
|
|
477
|
|
|
418
|
|
|
259
|
|
|
226
|
|
|
122
|
|
|
—
|
|
|
2,362
|
|
|
Foreign exchange loss
|
(476)
|
|
|
(252)
|
|
|
(415)
|
|
|
(359)
|
|
|
(216)
|
|
|
(190)
|
|
|
(86)
|
|
|
(2)
|
|
|
(1,995)
|
|
|
Balance at December 31, 2020
|
$14,059
|
|
|
$6,150
|
|
|
$10,223
|
|
|
$8,321
|
|
|
$5,190
|
|
|
$4,577
|
|
|
$2,278
|
|
|
$673
|
|
|
$51,471
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 37
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
21. DECOMMISSIONING LIABILITIES (continued)
A provision for decommissioning liabilities is estimated based on current regulatory requirements and is recognized at the present value of such costs. The expected timing of cash flows in respect of the provision is based on the estimated life of the Company's mining operations. The discount rate is a risk-free rate determined based on Mexican pesos default swap rates ranging between 5.0% to 5.3% (2019 - 6.6% to 6.8%) for the respective estimated life of the operations.
The inflation rate used is based on historical Mexican inflation rate of 3.9% (2019 - 4.0%). The present value of reclamation liabilities may be subject to change based on changes to cost estimates, remediation technologies or applicable laws and regulations. Changes in decommissioning liabilities are recorded against mining interests.
22. INCOME TAXES
The following is a reconciliation of income taxes calculated at the combined Canadian federal and provincial statutory tax rate to the income tax expense for the year ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Earnings (loss) before tax
|
|
|
|
|
$29,729
|
|
|
($39,024)
|
|
|
Combined statutory tax rate
|
|
|
|
|
27.00
|
%
|
|
27.00
|
%
|
|
Income tax expense (recovery) computed at statutory tax rate
|
|
|
|
|
8,027
|
|
|
(10,536)
|
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Effect of different foreign statutory tax rates on earnings of subsidiaries
|
|
|
|
|
(4,760)
|
|
|
(24,320)
|
|
|
Impact of foreign exchange on deferred income tax assets and liabilities
|
|
|
|
|
15,688
|
|
|
(10,194)
|
|
|
Change in unrecognized deferred income tax asset
|
|
|
|
|
(4,596)
|
|
|
30,399
|
|
|
7.5% mining royalty in Mexico
|
|
|
|
|
7,415
|
|
|
(814)
|
|
|
Other non-deductible expenses
|
|
|
|
|
758
|
|
|
3,256
|
|
|
Impact of inflationary adjustments
|
|
|
|
|
(1,317)
|
|
|
(2,412)
|
|
|
Change in tax provision estimates
|
|
|
|
|
10,387
|
|
|
23,987
|
|
|
Impact of divestitures and restructurings
|
|
|
|
|
(16,724)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
(8,236)
|
|
|
(7,916)
|
|
|
Income tax expense
|
|
|
|
|
$6,642
|
|
|
$1,450
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Earnings (Loss) Presentation
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
|
|
$9,966
|
|
|
$16,423
|
|
|
Deferred income tax recovery
|
|
|
|
|
(3,324)
|
|
|
(14,973)
|
|
|
Income tax expense
|
|
|
|
|
$6,642
|
|
|
$1,450
|
|
|
Effective tax rate
|
|
|
|
|
22
|
%
|
|
(4
|
%)
|
As at December 31, 2020 and 2019, the Company has the following income tax receivable and payable balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Current income tax receivable
|
|
|
|
|
$—
|
|
|
$—
|
|
|
Non-current income tax receivable
|
|
|
|
|
—
|
|
|
4,579
|
|
|
|
|
|
|
|
$—
|
|
|
$4,579
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax payable
|
|
|
|
|
$6,574
|
|
|
$149
|
|
|
Non-current income tax payable
|
|
|
|
|
23,099
|
|
|
—
|
|
|
|
|
|
|
|
$29,673
|
|
|
$149
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 38
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
22. INCOME TAXES (continued)
During the years ended December 31, 2020 and 2019, the movement in deferred tax assets and deferred tax liabilities is shown as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
Losses
|
Provisions
|
Deferred tax asset not recognized
|
Other
|
Total
|
|
At December 31, 2018
|
$118,393
|
|
$16,508
|
|
($68,348)
|
|
$3,556
|
|
$70,109
|
|
|
Benefit (expense) to income statement
|
8,079
|
|
6,379
|
|
(32,156)
|
|
4,295
|
|
(13,403)
|
|
|
Charged to equity
|
—
|
|
—
|
|
—
|
|
994
|
|
994
|
|
|
At December 31, 2019
|
$126,472
|
|
$22,887
|
|
($100,504)
|
|
$8,845
|
|
$57,700
|
|
|
Benefit to income statement
|
21,327
|
|
2,389
|
|
11,788
|
|
456
|
|
35,960
|
|
|
|
|
|
|
|
|
|
At December 31, 2020
|
$147,799
|
|
$25,276
|
|
($88,716)
|
|
$9,301
|
|
$93,660
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
Property, plant and equipment and mining interests
|
Effect of
Mexican tax deconsolidation
|
Other
|
Total
|
|
At December 31, 2018
|
|
$65,382
|
|
$6,744
|
|
$37,688
|
|
$109,814
|
|
|
(Benefit) expense to income statement
|
|
(32,381)
|
|
498
|
|
(4,643)
|
|
(36,526)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassed to current income taxes payable
|
|
—
|
|
(2,813)
|
|
—
|
|
(2,813)
|
|
|
At December 31, 2019
|
|
$33,001
|
|
$4,429
|
|
$33,045
|
|
$70,475
|
|
|
(Benefit) expense to income statement
|
|
23,883
|
|
(113)
|
|
(18,311)
|
|
5,459
|
|
|
Reclassed to current income taxes payable
|
|
—
|
|
(2,245)
|
|
—
|
|
(2,245)
|
|
|
Charged to OCI
|
|
—
|
|
—
|
|
1,633
|
|
1,633
|
|
|
Divestiture of exploration projects
|
|
—
|
|
—
|
|
(2,577)
|
|
(2,577)
|
|
|
At December 31, 2020
|
|
$56,884
|
|
$2,071
|
|
$13,790
|
|
$72,745
|
|
|
|
|
|
|
|
|
|
Statements of Financial Position Presentation
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
$51,141
|
|
|
Deferred tax liabilities
|
|
|
|
|
63,916
|
|
|
At December 31, 2019
|
|
|
|
|
$12,775
|
|
|
Deferred tax assets
|
|
|
|
|
$69,644
|
|
|
Deferred tax liabilities
|
|
|
|
|
48,729
|
|
|
At December 31, 2020
|
|
|
|
|
($20,915)
|
|
At December 31, 2020, the Company recognized $69.6 million (2019 - $51.1 million) of net deferred tax assets in entities that have had a loss for tax purposes in either 2020 or 2019, or both. In evaluating whether it is probable that sufficient taxable income will be generated to realize the benefit of these deferred tax assets, the Company considered all available evidence, including approved budgets, forecasts and business plans and, in certain cases, tax planning opportunities.
The aggregate amount of taxable temporary differences associated with investments in subsidiaries for which deferred taxes have not been recognized, as at December 31, 2020 was $236.5 million (2019 - $379.3 million).
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 39
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
22. INCOME TAXES (continued)
As at December 31, 2020 and 2019, the Company has available Canadian, Swiss and Mexican non-capital tax losses, which if not utilized will expire as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of expiry
|
Canadian
non-capital losses
|
|
|
|
Mexican
non-capital losses
|
|
December 31, 2020
|
|
December 31, 2019
|
|
2020
|
$—
|
|
|
|
|
$—
|
|
|
$—
|
|
|
544
|
|
|
2021
|
—
|
|
|
|
|
3,835
|
|
|
3,835
|
|
|
7,825
|
|
|
2022
|
—
|
|
|
|
|
3,878
|
|
|
3,878
|
|
|
4,060
|
|
|
2023
|
—
|
|
|
|
|
2,071
|
|
|
2,071
|
|
|
2,213
|
|
|
2024
|
—
|
|
|
|
|
34,964
|
|
|
34,964
|
|
|
39,319
|
|
|
2025
|
—
|
|
|
|
|
38,901
|
|
|
38,901
|
|
|
51,911
|
|
|
2026
|
—
|
|
|
|
|
104,044
|
|
|
104,044
|
|
|
113,630
|
|
|
2027
|
—
|
|
|
|
|
21,040
|
|
|
21,040
|
|
|
56,760
|
|
|
2028
|
—
|
|
|
|
|
57,809
|
|
|
57,809
|
|
|
99,315
|
|
|
2029
|
—
|
|
|
|
|
68,074
|
|
|
68,074
|
|
|
89,754
|
|
|
2030 and after
|
3,141
|
|
|
|
|
149,721
|
|
|
152,862
|
|
|
22,209
|
|
|
Total
|
$3,141
|
|
|
|
|
$484,337
|
|
|
$487,478
|
|
|
$487,540
|
|
|
Unrecognized losses
|
$—
|
|
|
|
|
$199,775
|
|
|
$199,775
|
|
|
$208,253
|
|
23. SHARE CAPITAL
(a)Authorized and issued capital
The Company has unlimited authorized common shares with no par value.
The movement in the Company’s issued and outstanding capital during the year is summarized in the consolidated statements of changes in equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Year Ended December 31, 2019
|
|
|
Number of Shares
|
|
Net Proceeds
|
|
Number of Shares
|
|
Net Proceeds
|
|
ATM program(1)
|
5,654,338
|
|
|
$67,892
|
|
8,039,363
|
|
|
$53,102
|
|
Prospectus offering(2)
|
5,000,000
|
|
|
58,240
|
|
—
|
|
|
—
|
|
|
10,654,338
|
|
|
$126,132
|
|
|
8,039,363
|
|
|
$53,102
|
|
(1) In December 2018, and subsequently amended in August 2019 and June 2020, the Company filed prospectus supplements to its short form base shelf prospectus, pursuant to which the Company may, at its discretion and from time-to-time, sell common shares of the Company for aggregate gross proceeds of up to $200.0 million. The sale of common shares is to be made through “at-the-market distributions” ("ATM"), as defined in the Canadian Securities Administrators’ National Instrument 44-102 Shelf Distributions, directly on the New York Stock Exchange. During the year ended December 31, 2020, First Majestic sold 5,654,338 common shares (December 31, 2019 - 11,172,982 common shares) of the Company under the ATM program at an average price of $12.31 (2019 - $7.55) for gross proceeds of $69.6 million (December 31, 2019 - $84.4 million), or net proceeds of $67.9 million (December 31, 2019 - $81.9 million) after costs. At December 31, 2020, the Company completed $154.0 million of the ATM program and the remaining $46.0 million balance of the program has been cancelled.
(2) In September 2020, the Company completed a bought deal prospectus offering to sell 5,000,000 common shares at a price of $11.82 (CAD$15.60) per common share for gross proceeds of $59.1 million (CAD$78.1 million), or net proceeds of $58.2 million after costs.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 40
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
23. SHARE CAPITAL (continued)
(b)Stock options
Under the terms of the Company’s 2020 Long-Term Incentive Plan ("LTIP"), the maximum number of shares reserved for issuance under the LTIP is 8% of the issued shares on a rolling basis. Options may be exercisable over periods of up to ten years as determined by the Board of Directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options granted are subject to vesting with 25% vesting on first anniversary from the date of grant, and 25% vesting each six months thereafter.
The following table summarizes information about stock options outstanding as at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Exercise prices (CAD$)
|
Number of
Options
|
|
Weighted Average Exercise Price (CAD $/Share)
|
|
Weighted Average Remaining Life (Years)
|
|
Number of
Options
|
|
Weighted Average Exercise Price (CAD $/Share)
|
|
Weighted Average Remaining Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.80 - 10.00
|
2,821,206
|
|
|
8.60
|
|
|
7.70
|
|
|
1,323,015
|
|
|
8.67
|
|
|
7.07
|
|
|
10.01 - 15.00
|
3,276,063
|
|
|
12.23
|
|
|
4.96
|
|
|
1,833,567
|
|
|
11.12
|
|
|
1.46
|
|
|
15.01 - 20.00
|
831,928
|
|
|
15.95
|
|
|
7.59
|
|
|
117,232
|
|
|
16.04
|
|
|
1.14
|
|
|
20.01 - 126.01
|
144,895
|
|
|
53.85
|
|
|
0.68
|
|
|
144,895
|
|
|
53.85
|
|
|
0.68
|
|
|
|
7,074,092
|
|
|
12.07
|
|
|
6.27
|
|
|
3,418,709
|
|
|
12.15
|
|
|
3.59
|
|
The movements in stock options issued during the years ended December 31, 2020 and 2019 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Number of
Options
|
|
Weighted Average Exercise Price (CAD $/Share)
|
|
Number of
Options
|
|
Weighted Average Exercise Price (CAD $/Share)
|
|
Balance, beginning of the year
|
7,583,439
|
|
|
10.70
|
|
|
9,266,098
|
|
|
10.76
|
|
|
Granted
|
2,621,924
|
|
|
13.46
|
|
|
2,601,680
|
|
|
8.83
|
|
|
Exercised
|
(2,473,926)
|
|
|
7.50
|
|
|
(2,918,518)
|
|
|
7.54
|
|
|
Cancelled or expired
|
(657,345)
|
|
|
18.96
|
|
|
(1,365,821)
|
|
|
14.31
|
|
|
Balance, end of the year
|
7,074,092
|
|
|
12.07
|
|
|
7,583,439
|
|
|
10.70
|
|
During the year ended December 31, 2020, the aggregate fair value of stock options granted was $12.1 million (December 31, 2019 - $8.5 million), or a weighted average fair value of $4.63 per stock option granted (December 31, 2019 - $3.26).
During the year ended December 31, 2020, total share-based payments expense related to stock options was $7.0 million (2019 - $6.5 million).
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 41
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
23. SHARE CAPITAL (continued)
(b)Stock options (continued)
The following weighted average assumptions were used in estimating the fair value of stock options granted using the Black-Scholes Option Pricing Model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
Assumption
|
|
Based on
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Risk-free interest rate (%)
|
|
Yield curves on Canadian government zero- coupon bonds with a remaining term equal to the stock options’ expected life
|
|
1.03
|
|
2.01
|
|
Expected life (years)
|
|
Average of the expected vesting term and expiry term of the option
|
|
5.83
|
|
5.80
|
|
Expected volatility (%)
|
|
Historical and implied volatility of the precious metals mining sector
|
|
49.00
|
|
51.29
|
|
Expected dividend yield (%)
|
|
Annualized dividend rate as of the date of grant
|
|
—
|
|
—
|
The weighted average closing share price at date of exercise for the year ended December 31, 2020 was CAD$15.61 (December 31, 2019 - CAD$12.81).
(c) Restricted Share Units
The Company adopted the 2019 LTIP to allow the Company to grant to its directors, employees and consultants non-transferable Restricted Share Units ("RSU's") based on the value of the Company's share price at the date of grant. Unless otherwise stated, the awards typically have a graded vesting schedule over a three-year period and can be settled either in cash or equity upon vesting at the discretion of the Company. The Company intends to settle all RSU's in equity.
The associated compensation cost is recorded as share-based payments expense against equity reserves.
The following table summarizes the changes in RSU's for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Year Ended December 31, 2019
|
|
|
Number of shares
|
Weighted
Average
Fair Value
(CAD$)
|
|
Number of shares
|
Weighted
Average
Fair Value
(CAD$)
|
|
Outstanding, beginning of the year
|
128,944
|
|
10.36
|
|
|
—
|
|
—
|
|
|
Granted
|
211,192
|
|
15.72
|
|
|
274,520
|
|
9.67
|
|
|
Settled
|
(127,000)
|
|
10.32
|
|
|
(145,576)
|
|
9.06
|
|
|
Forfeited
|
(28,653)
|
|
15.93
|
|
|
—
|
|
—
|
|
|
Outstanding, end of the year
|
184,483
|
|
15.66
|
|
|
128,944
|
|
10.36
|
|
During the year ended December 31, 2020, total share-based payments expense related to RSUs was $0.8 million (2019 - $1.8 million).
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 42
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
23. SHARE CAPITAL (continued)
(d) Performance Share Units
The Company adopted the 2019 LTIP to allow the Company to grant to its directors, employees and consultants non-transferable Performance Share Units ("PSU's"). The amount of units to be issued on the vesting date will vary from 0% to 200% of the number of PSU’s granted, depending on the Company’s total shareholder return compared to the return of a selected group of peer companies. Unless otherwise stated, the awards typically vest three years from the grant date. The fair value of a PSU based on the value of the Company's share price at the date of grant and will be adjusted based on actual units issued on the vesting date. The Company intends to settle all PSU's in equity.
The following table summarizes the changes in PSU's granted to employees and consultants for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
Number of shares
|
Weighted
Average
Fair Value
(CAD$)
|
|
Outstanding, beginning of the year
|
—
|
|
—
|
|
|
Granted
|
122,575
|
|
15.65
|
|
|
|
|
|
|
Forfeited
|
(13,540)
|
|
(15.93)
|
|
|
Outstanding, end of the year
|
109,035
|
|
19.57
|
|
During the year ended December 31, 2020, total share-based payments expense related to PSUs was $0.5 million (2019 - $nil).
(e) Share Repurchase Program
The Company has an ongoing share repurchase program to repurchase up to 5% of the Company’s issued and outstanding shares. The normal course issuer bids will be carried through the facilities of the Toronto Stock Exchange and alternative Canadian marketplaces. During the year ended December 31, 2020, the Company repurchased and cancelled 275,000 common shares for a total consideration of $1.7 million through a normal course issuer bid in the open market as approved by the Toronto Stock Exchange. No shares were repurchased during the year ended December 31, 2019.
24. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT
The Company’s financial instruments and related risk management objectives, policies, exposures and sensitivity related to financial risks are summarized below.
(a) Fair value and categories of financial instruments
Financial instruments included in the consolidated statements of financial position are measured either at fair value or amortized cost. Estimated fair values for financial instruments are designed to approximate amounts for which the instruments could be exchanged in an arm’s-length transaction between knowledgeable and willing parties.
The Company uses various valuation techniques in determining the fair value of financial assets and liabilities based on the extent to which the fair value is observable. The following fair value hierarchy is used to categorize and disclose the Company’s financial assets and liabilities held at fair value for which a valuation technique is used:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: All inputs which have a significant effect on the fair value are observable, either directly or indirectly, for substantially the full contractual term.
Level 3: Inputs which have a significant effect on the fair value are not based on observable market data.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 43
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
24. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)
(a) Fair value and categories of financial instruments (continued)
The table below summarizes the valuation methods used to determine the fair value of each financial instrument:
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Measured at Fair Value
|
|
Valuation Method
|
|
Trade receivables (related to concentrate sales)
|
|
Receivables that are subject to provisional pricing and final price adjustment at the end of the quotational period are estimated based on observable forward price of metal per London Metal Exchange (Level 2)
|
|
|
|
|
|
Marketable securities
|
|
Based on quoted market prices for identical assets in an active market (Level 1) as at the date of statements of financial position
|
|
Silver futures derivatives
|
|
|
Foreign currency derivatives
|
|
|
|
|
|
|
Financial Instruments Measured at Amortized Cost
|
|
Valuation Method
|
|
Cash and cash equivalents
|
|
Approximated carrying value due to their short-term nature
|
|
Trade and other receivables
|
|
|
|
Trade and other payables
|
|
|
|
Debt facilities
|
|
Assumed to approximate carrying value as discount rate on
|
|
|
|
these instruments approximate the Company's credit risk.
|
The following table presents the Company’s fair value hierarchy for financial assets and financial liabilities that are measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
Fair value measurement
|
|
|
|
Fair value measurement
|
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$1,182
|
|
|
$—
|
|
|
$1,182
|
|
Marketable securities (Note 13)
|
36,319
|
|
|
30,996
|
|
|
5,323
|
|
|
6,506
|
|
|
6,506
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives (Note 13)
|
—
|
|
|
—
|
|
|
—
|
|
|
982
|
|
|
982
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between levels 1, 2 and 3 during the years ended December 31, 2020 and 2019.
(b) Capital risk management
The Company’s objectives when managing capital are to maintain financial flexibility to continue as a going concern while
optimizing growth and maximizing returns of investments from shareholders.
The Company monitors its capital structure and, based on changes in operations and economic conditions, may adjust the structure by repurchasing shares, issuing new shares, issuing new debt or retiring existing debt. The Company prepares annual budget and quarterly forecasts to facilitate the management of its capital requirements. The annual budget is approved by the Company’s Board of Directors.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 44
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
24. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)
(b) Capital risk management (continued)
The capital of the Company consists of equity (comprising of issued capital, equity reserves and retained earnings or accumulated deficit), debt facilities, lease liabilities, net of cash and cash equivalents as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
|
Equity
|
$850,236
|
|
|
$662,321
|
|
|
Debt facilities
|
152,708
|
|
|
155,818
|
|
|
Lease liabilities
|
20,575
|
|
|
21,936
|
|
|
Less: cash and cash equivalents
|
(238,578)
|
|
|
(169,009)
|
|
|
|
|
|
|
|
|
$784,941
|
|
|
$671,066
|
|
The Company’s investment policy is to invest its cash in highly liquid short-term investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from operations. The Company expects that its available capital resources will be sufficient to carry out its development plans and operations for at least the next 12 months.
The Company is not subject to any externally imposed capital requirements with the exception of complying with covenants under the debt facilities (Note 19) and lease liabilities. As at December 31, 2020 and December 31, 2019, the Company was in compliance with these covenants.
(c) Financial risk management
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 chartered banks, trade receivables in the ordinary course of business, value added taxes receivable and other receivables.
As at December 31, 2020, value added taxes (“VAT”) receivable was $56.9 million (2019 - $29.6 million), of which $37.9 million (2019 - $14.2 million) relates to Primero Empresa Minera, S.A. de C.V. ("PEM"). Servicio de Administración Tributaria (“SAT”) has not been responsive to VAT refund requests by PEM nor provided any legal basis for withholding these VAT receivables. The Company believes that it has full legal rights to these VAT refunds and expects the amounts to be refunded in the future. As at December 31, 2020, VAT receivables totaling $15.3 million are currently being pursued in Mexican Courts. Due to the uncertain timeline associated with recovery of these amounts, the Company reclassified such amounts as non-current assets though, in the Company's opinion, such amounts are currently due and payable to the Company.
The Company sells and receives payment upon delivery of its silver doré and by-products primarily through three international customers. All of the Company's customers have good ratings and payments of receivables are scheduled, routine and fully received within 60 days of submission; therefore, the balance of trade receivables owed to the Company
in the ordinary course of business is not significant.
The carrying amount of financial assets recorded in the consolidated financial statements represents the Company’s maximum exposure to credit risk. With the exception to the above, the Company believes it is not exposed to significant credit risk.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 45
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
24. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)
(c) Financial risk management (continued)
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company manages liquidity risk by monitoring actual and projected cash flows and matching the maturity profile of financial assets and liabilities. Cash flow forecasting is performed regularly to ensure that there is sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and our holdings of cash and cash equivalents.
The following table summarizes the maturities of the Company’s financial liabilities as at December 31, 2020 based on the undiscounted contractual cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Contractual
Cash Flows
|
|
Less than
1 year
|
|
2 to 3
years
|
|
4 to 5
years
|
|
After 5 years
|
|
Trade and other payables
|
|
$76,002
|
|
|
$76,002
|
|
|
$76,002
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
Debt facilities
|
|
152,708
|
|
|
174,082
|
|
|
13,180
|
|
|
160,902
|
|
|
—
|
|
|
—
|
|
|
Lease liabilities
|
|
20,575
|
|
|
16,520
|
|
|
4,557
|
|
|
6,562
|
|
|
4,692
|
|
|
709
|
|
|
Other liabilities
|
|
5,406
|
|
|
5,406
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$254,691
|
|
|
$272,010
|
|
|
$93,739
|
|
|
$167,464
|
|
|
$4,692
|
|
|
$6,115
|
|
At December 31, 2020, the Company had working capital of $254.4 million (December 31, 2019 – $171.1 million). Total available liquidity at December 31, 2020 was $319.4 million, including $65.0 million of undrawn revolving credit facility.
The Company believes it has sufficient cash on hand, combined with cash flows from operations, to meet operating requirements as they arise for at least the next 12 months. If the Company needs additional liquidity to meet obligations, the Company may consider drawing on its debt facility, securing additional debt financing and/or equity financing.
Currency Risk
The Company is exposed to foreign exchange risk primarily relating to financial instruments that are denominated in Canadian dollars or Mexican pesos, which would impact the Company’s net earnings or loss. To manage foreign exchange risk, the Company may occasionally enter into short-term foreign currency derivatives, such as forwards and options, to hedge its cash flows.
The sensitivity of the Company’s net earnings or loss and comprehensive income or loss due to changes in the exchange rates of the Canadian dollar and the Mexican peso against the U.S. dollar is included in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Cash and cash equivalents
|
|
Trade and other receivables
|
|
Value added taxes receivable
|
|
Other financial assets
|
|
Trade and other payables
|
|
|
|
Net assets (liabilities) exposure
|
|
Effect of +/- 10% change in currency
|
|
Canadian dollar
|
$75,958
|
|
|
$74
|
|
|
$—
|
|
|
$10,140
|
|
|
($3,133)
|
|
|
|
|
$83,039
|
|
|
$8,304
|
|
|
Mexican peso
|
8,369
|
|
|
—
|
|
|
53,201
|
|
|
—
|
|
|
(42,763)
|
|
|
|
|
18,807
|
|
|
1,881
|
|
|
|
$84,327
|
|
|
$74
|
|
|
$53,201
|
|
|
$10,140
|
|
|
($45,896)
|
|
|
|
|
$101,846
|
|
|
$10,185
|
|
The Company utilizes certain derivatives to manage its foreign exchange exposures to the Mexican Peso. During the year ended December 31, 2020, the Company realized a foreign exchange loss of $11.5 million (2019 - gain of $2.1 million) and an unrealized loss of $0.9 million (2019 - gain of $1.0 million) on fair value adjustments to its foreign currency derivatives. As at December 31, 2020, the Company does not hold any foreign currency derivatives (2019 - $0.9 million).
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 46
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
24. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)
(c) Financial risk management (continued)
Commodity Price Risk
The Company is exposed to commodity price risk on silver and gold, which have a direct and immediate impact on the value of its related financial instruments and net earnings. The Company’s revenues are directly dependent on commodity prices that have shown volatility and are beyond the Company’s control. The Company does not use derivative instruments to hedge its commodity price risk to silver
The following table summarizes the Company’s exposure to commodity price risk and their impact on net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Effect of +/- 10% change in metal prices
|
|
|
Silver
|
|
Gold
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals in doré inventory
|
$104
|
|
|
$226
|
|
|
|
|
|
|
$330
|
|
|
|
$104
|
|
|
$226
|
|
|
|
|
|
|
$330
|
|
Interest Rate Risk
The Company is exposed to interest rate risk on its short-term investments, debt facilities and lease liabilities. 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 of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time.
As at December 31, 2020, the Company’s exposure to interest rate risk on interest bearing liabilities is limited to its debt facilities and lease liabilities. Based on the Company’s interest rate exposure at December 31, 2020, a change of 25 basis points increase or decrease of market interest rate does not have a significant impact on net earnings or loss.
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the audited consolidated financial statements
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 47
|
|
|
|
|
|
|
|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
25. SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments to investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
($1,522)
|
|
|
$—
|
|
|
Proceeds from disposal of marketable securities
|
|
|
|
|
|
|
664
|
|
|
867
|
|
|
Cash received on settlement of derivatives
|
|
|
|
|
|
|
2,079
|
|
|
2,555
|
|
|
|
|
|
|
|
|
|
$1,221
|
|
|
$3,422
|
|
|
Net change in non-cash working capital items:
|
|
|
|
|
|
|
|
|
|
|
Decrease in trade and other receivables
|
|
|
|
|
|
|
$24
|
|
|
$1,304
|
|
|
(Increase) decrease in value added taxes receivable
|
|
|
|
|
|
|
(27,525)
|
|
|
30,028
|
|
|
(Increase) decrease in inventories
|
|
|
|
|
|
|
(4,288)
|
|
|
2,829
|
|
|
(Increase) decrease in prepaid expenses and other
|
|
|
|
|
|
|
(692)
|
|
|
776
|
|
|
Decrease in income taxes payable
|
|
|
|
|
|
|
(1,115)
|
|
|
(6,569)
|
|
|
Increase in trade and other payables
|
|
|
|
|
|
|
10,765
|
|
|
8,959
|
|
|
|
|
|
|
|
|
|
($22,831)
|
|
|
$37,327
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Transfer of share-based payments reserve upon settlement of RSUs
|
|
|
|
|
|
|
$992
|
|
|
$988
|
|
|
Transfer of share-based payments reserve upon exercise of options
|
|
|
|
|
|
|
5,903
|
|
|
5,986
|
|
|
Acquisition of mining interests
|
|
|
|
|
|
|
(8,179)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2020, cash and cash equivalents include $6.4 million (2019 - $5.2 million) that are held in-trust as bonds for tax audits in Mexico that are expected to be resolved within the next 12 months.
26. CONTINGENCIES AND OTHER MATTERS
Due to the size, complexity and nature of the Company’s operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is 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.
Claims and Legal Proceedings Risks
The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of business activities. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements or information and the Company has made assumptions and estimates based on or related to many of these factors. Such factors include, without limitation: availability of time on court calendars in Canada and elsewhere; the recognition of Canadian judgments under Mexican law; the possibility of settlement discussions; the risk of appeal of judgment; and the insufficiency of the defendant’s assets to satisfy the judgment amount. Each of these matters is subject to various uncertainties and it is possible that some of these matters may be resolved unfavourably to the Company. First Majestic carries liability insurance coverage and establishes provisions for matters that are probable and can be reasonably estimated. In addition, the Company may be involved in disputes with other parties in the future which may result in a significant impact on our financial condition, cash flow and results of operations.
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. However, management is not aware of any such agreements, transfers or defects.
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The accompanying notes are an integral part of the audited consolidated financial statements
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|
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First Majestic Silver Corp. 2020 Annual Report
|
Page 48
|
|
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|
|
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
|
26. CONTINGENCIES AND OTHER MATTERS (continued)
Primero Tax Rulings
When Primero Mining Corp. ("Primero") acquired the San Dimas Mine in August 2010, it had a Silver Purchase Agreement (“Old Stream Agreement”) that required PEM to sell 100% of the silver produced from the San Dimas mine to WPMI, up to 6 million ounces and 50% of silver produced thereafter, at the lower of: (i) the spot market price and (ii) $4.04 per ounce plus an annual increase of 1%.
In order to reflect commercial realities and the effects of the Old Stream Agreement, for Mexican income tax purposes, PEM recognized the revenue on these silver sales based on its actual realized revenue (“PEM Realized Price”) instead of at spot market prices.
To obtain assurance that the SAT would accept the PEM Realized Price as the price to use to calculate Mexican income taxes, Primero applied for and received an Advance Pricing Agreement (“APA”) from the SAT. The APA confirmed that the PEM Realized Price would be used as Primero’s basis for calculating taxes owed by Primero on the silver sold under the Old Stream Agreement. Primero believed that the intent of an APA was to have SAT provide tax certainty and as a result made significant investments in Mexico based on that certainty. On October 4, 2012, Primero received the APA Ruling from SAT which confirmed the appropriate price for sales of silver under the Old Stream Agreement was the PEM Realized Price. Under Mexican tax law, an APA ruling is generally applicable for a five year period and this ruling was made effective for 2010 to 2014.
In February 2016, PEM received a legal claim from the SAT seeking to nullify the APA. The legal claim initiated does not identify any different basis for paying taxes. The Company is continuing PEM's effort to vigorously defend the validity of its APA. If the SAT were successful in retroactively nullifying the APA, the SAT may seek to audit and reassess PEM in respect of its sales of silver in connection with the Old Stream Agreement for 2010 through 2014. If the SAT were successful in retroactively nullifying the APA and issuing reassessments, it would likely have a material adverse effect on the Company’s results of operations, financial condition and cash flows. Should the Company ultimately be required to pay tax on its silver revenues based on market prices without any mitigating adjustments, the incremental income tax for the years 2010-2018 would be approximately $219.2 million (4,373 million MXN), before interest or penalties.
In 2019, as part of the ongoing annual audits of the PEM tax returns, the SAT issued reassessments (the "Reassessments") for the 2010 to 2012 tax years in the total amount of $246.6 million (4,919 million MXN) inclusive of interest, inflation, and penalties. The Company believes that the Reassessments were issued in violation of the terms of the APA. The key items relate to the view that PEM should pay taxes based on the market price of silver and denial of the deductibility of interest expense and service fees in Mexico all of which the Company disagrees with. The Company continues to defend the APA in the Mexican legal proceedings, and initiated proceedings under relevant tax treaties between the competent tax authorities of Mexico, Canada, Luxembourg and Barbados, all of which were subsequently dismissed on a unilateral basis by the SAT ("Dismissals") in May 2020. The Company believes that the Dismissals have no legal basis and breach international obligations regarding double taxation treaties, and that the APA remains valid and legally binding. The Company will continue disputing the Reassessments, exhausting its domestic and international remedies.
While the Company continues to vigorously defend the validity of the APA and its transfer pricing position, it is also engaging in various proceedings with the SAT seeking to resolve matters and bring tax certainty through a negotiated solution. Despite these extensive efforts and ongoing legal challenges to the Reassessments and the Dismissals, in April 2020, SAT issued notifications to PEM to attempt to secure amounts it claims are owed pursuant to its reassessments issued. These notifications impose certain restrictions on PEM including its ability to dispose its concessions and real properties.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
|
Page 49
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Tabular amounts are expressed in thousands of US dollars)
|
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26. CONTINGENCIES AND OTHER MATTERS (continued)
Primero Tax Rulings (continued)
The Company has challenged SAT’s Reassessments and Dismissals through all domestic means available to it, including annulment suits before the Mexican Federal Tax Court on Administrative Matters ("Federal Court"), which has yet to be resolved, and a complaint before Mexico’s Federal Taxpayer Defense Attorney's Office (known as “PRODECON”), which determined that PEM has all legal remedies at its disposal and it has already challenged every SAT ruling, thus the matter must be decided by Mexican Courts. The Company believes that these actions are neither fair nor equitable and are discriminatory against the Company as a foreign investor and amount to a denial of justice under international law, in addition to violating various provisions of the Federal Constitution of the United Mexican States and Mexican domestic law, and Mexican court precedents. As a result, on May 13, 2020, the Company provided to the Government of Mexico notice of its intention to initiate an international arbitration proceeding (“Notice of Intent”) pursuant to the North American Free Trade Agreement (“NAFTA”). The Notice of Intent initiated a 90-day period for the Government of Mexico to enter into good faith and amicable negotiations with the Company to resolve the dispute. On August 11, 2020, the 90-day period expired without any resolution of the dispute.
In September 2020, the Company was served with a decision made by the Federal Court to nullify the APA granted to PEM. The Federal Court’s decision directs SAT to re-examine the evidence and basis for the issuance of the APA with retroactive effect, for the following key reasons:
(i) SAT’s errors in analyzing PEM’s request for the APA and the evidence provided in support of the request; and
(ii) SAT’s failure to request from PEM certain additional information before issuing the APA.
The Company’s legal advisors reviewed the written reasons and are of the view that the Federal Court’s decision is flawed both due to SAT's procedural irregularities and failure to address the relevant evidence and legal authorities. In addition, they consider that the laws applied to PEM in the decision are unconstitutional. As a result, the Company filed an appeal of the decision to the Mexican Circuit Courts on November 30, 2020.
Based on the Company’s assessments with third party advisors, the Company believes Primero filed its tax returns compliant with applicable Mexican law and, therefore, no liability has been recognized in the financial statements.
To the extent it is ultimately determined that the appropriate price of silver sales under the Old Stream Agreement is significantly different from the PEM Realized Price and while PEM would have rights of appeal in connection with any reassessments, it is likely to have a material effect on the Company’s business, financial position and results of operations.
La Encantada Tax Re-assessments
In December 2019, as part of the ongoing annual audits of the tax returns of Minera La Encantada S.A. de C.V. (“MLE”), the SAT issued tax assessments for fiscal 2012 and 2013 in the amount of $7.8 million and $6.3 million, respectively. The key items relate to forward silver purchase agreement and denial of the deductibility of mine development costs and service fees. The Company continues to defend the validity of the forward silver purchase agreement and will vigorously dispute the assessments that have been issued. The Company, based on advice from legal and financial advisors believes MLE’s tax filings were appropriate and its tax filing position is correct, therefore no liability has been recognized in the financial statements.
First Silver litigation
In April 2013, the Company received a positive judgment on the First Silver litigation from the Supreme Court of British Columbia (the “Court”), which awarded the sum of $93.8 million in favour of First Majestic against Hector Davila Santos (the “Defendant”). The Company received a sum of $14.1 million in June 2013 as partial payment of the judgment, leaving an unpaid amount of approximately $62.8 million (CAD$81.5 million). As part of the ruling, the Court granted orders restricting any transfer or encumbrance of the Bolaños Mine by the Defendant and limiting mining at the Bolaños Mine. The orders also require that the Defendant to preserve net cash flow from the Bolaños Mine in a holding account and periodically provide to the Company certain information regarding the Bolaños Mine. However, there can be no guarantee that the remainder of the judgment amount will be collected and it is likely that it will be necessary to take additional action in Mexico and/or elsewhere to recover the balance. Therefore, as at December 31, 2020, the Company has not accrued any of the remaining $64.2 million (CAD$81.5 million) unrecovered judgment in favour of the Company.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
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Page 50
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NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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(Tabular amounts are expressed in thousands of US dollars)
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27. SUBSIDIARIES
The consolidated financial statements of the Company include the following significant subsidiaries as at December 31, 2020 and 2019 as follows:
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Name of subsidiary
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Operations and Projects
|
Location
|
2020
% Ownership
|
2019
% Ownership
|
|
First Majestic Silver Corp.
|
Parent company and bullion sales
|
Canada
|
100%
|
100%
|
|
Corporación First Majestic, S.A. de C.V.
|
Holding company
|
Mexico
|
100%
|
100%
|
|
Primero Empresa Minera, S.A de C.V.
|
San Dimas Silver/Gold Mine
|
Mexico
|
100%
|
100%
|
|
Nusantara de Mexico, S.A. de C.V.
|
Santa Elena Silver/Gold Mine
|
Mexico
|
100%
|
100%
|
|
Minera La Encantada, S.A. de C.V.
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La Encantada Silver Mine
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Mexico
|
100%
|
100%
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First Majestic Plata, S.A. de C.V.
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La Parrilla Silver Mine
|
Mexico
|
100%
|
100%
|
|
Minera El Pilón, S.A. de C.V.
|
San Martin Silver Mine
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Mexico
|
100%
|
100%
|
|
First Majestic Del Toro, S.A. de C.V.
|
Del Toro Silver Mine
|
Mexico
|
100%
|
100%
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|
La Guitarra Compañia Minera, S.A. de C.V.
|
La Guitarra Silver Mine
|
Mexico
|
100%
|
100%
|
|
Majestic Services, S.A. de C.V.
|
Service company
|
Mexico
|
100%
|
100%
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FM Metal Trading (Barbados) Ltd.
|
Metals trading company
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Barbados
|
100%
|
100%
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|
FMS Trading AG
|
Metals trading company
|
Switzerland
|
100%
|
100%
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28. KEY MANAGEMENT COMPENSATION
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Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
Salaries, bonuses, fees and benefits
|
|
|
|
|
Independent members of the Board of Directors
|
$803
|
|
|
$790
|
|
|
Other members of key management
|
3,937
|
|
|
4,267
|
|
|
Share-based payments
|
|
|
|
|
Independent members of the Board of Directors
|
402
|
|
|
439
|
|
|
Other members of key management
|
2,646
|
|
|
2,975
|
|
|
|
$7,788
|
|
|
$8,471
|
|
29. SUBSEQUENT EVENTS
Completion of Second Payment to First Mining for Acquisition of the Springpole Stream
On January 21, 2021, First Majestic completed its second payment of $7.5 million to First Mining for the acquisition of the Springpole Stream by paying $3.75 million in cash and issuing 287,300 common shares. The payment was due upon First Mining's announcement on January 20, 2021 of its positive results of a Pre-Feasibility Study ("PFS") for the Springpole Gold Project, located in northwestern Ontario, Canada. The PFS results support a 30,000 tonnes-per-day open pit mining operation over an 11 year mine life.
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The accompanying notes are an integral part of the audited consolidated financial statements
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First Majestic Silver Corp. 2020 Annual Report
|
Page 51
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR AND QUARTER ENDED DECEMBER 31, 2020
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925 West Georgia Street, Suite 1800, 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
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OVERVIEW OF OPERATING RESULTS
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OVERVIEW OF FINANCIAL PERFORMANCE
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OTHER DISCLOSURES
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First Majestic Silver Corp. 2020 Annual Report
|
Page 2
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”) should be read in conjunction with the audited consolidated financial statements of First Majestic Silver Corp. (“First Majestic” or “the Company”) for the year ended December 31, 2020 which are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). All dollar amounts are expressed in United States (“US”) dollars and tabular amounts are expressed in thousands of US dollars, unless otherwise indicated. Certain amounts shown in this MD&A may not add exactly to total amounts due to rounding differences.
This MD&A contains “forward-looking statements” that are subject to risk factors set out in a cautionary note contained at the end of this MD&A. All information contained in this MD&A is current and has been approved by the Board of Directors of the Company as of February 18, 2021 unless otherwise stated.
First Majestic is a multinational mining company headquartered in Vancouver, Canada, focused on primary silver production in México, pursuing the exploration and development of its existing mineral properties and acquiring new assets. The Company owns three producing mines: the San Dimas Silver/Gold Mine, the Santa Elena Silver/Gold Mine, the La Encantada Silver Mine, and four mines currently in care and maintenance: the San Martin Silver Mine, the Del Toro Silver Mine, the La Parrilla Silver Mine and the La Guitarra Silver/Gold Mine.
First Majestic is publicly listed on the New York Stock Exchange under the symbol “AG”, on the Toronto Stock Exchange under the symbol “FR” and on the Frankfurt Stock Exchange under the symbol “FMV”.
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First Majestic Silver Corp. 2020 Annual Report
|
Page 3
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Key Performance Metrics
|
|
2020
|
|
2019
|
|
2018
|
|
Change
'20 vs '19
|
|
Operational
|
|
|
|
|
|
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|
Ore Processed / Tonnes Milled
|
|
2,213,954
|
|
|
2,831,999
|
|
|
3,375,452
|
|
|
(22
|
%)
|
|
Silver Ounces Produced
|
|
11,598,380
|
|
|
13,241,118
|
|
|
11,679,452
|
|
|
(12
|
%)
|
|
Silver Equivalent Ounces Produced
|
|
20,379,010
|
|
|
25,554,288
|
|
|
22,243,071
|
|
|
(20
|
%)
|
|
Cash Costs per Ounce (1)
|
|
$5.09
|
|
|
$5.16
|
|
|
$6.98
|
|
|
(1
|
%)
|
|
All-in Sustaining Cost per Ounce (1)
|
|
$13.92
|
|
|
$12.64
|
|
|
$14.95
|
|
|
10
|
%
|
|
Total Production Cost per Tonne (1)
|
|
$79.59
|
|
|
$75.05
|
|
|
$60.71
|
|
|
6
|
%
|
|
Average Realized Silver Price per Ounce (1)
|
|
$21.15
|
|
|
$16.40
|
|
|
$15.53
|
|
|
29
|
%
|
|
|
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|
Financial (in $millions)
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$363.9
|
|
|
$363.9
|
|
|
$300.9
|
|
|
0
|
%
|
|
Mine Operating Earnings (Loss)
|
|
$105.1
|
|
|
$66.2
|
|
|
($11.9)
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) before Income Taxes
|
|
$29.7
|
|
|
($39.0)
|
|
|
($263.0)
|
|
|
176
|
%
|
|
Net Earnings (Loss)
|
|
$23.1
|
|
|
($40.5)
|
|
|
($204.2)
|
|
|
157
|
%
|
|
Operating Cash Flows before Working Capital and Taxes
|
|
$107.3
|
|
|
$108.9
|
|
|
$61.6
|
|
|
(1
|
%)
|
|
Cash and Cash Equivalents
|
|
$238.6
|
|
|
$169.0
|
|
|
$57.0
|
|
|
41
|
%
|
|
Working Capital (1)
|
|
$254.4
|
|
|
$171.1
|
|
|
$108.1
|
|
|
49
|
%
|
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Shareholders
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Share ("EPS") - Basic
|
|
$0.11
|
|
|
($0.20)
|
|
|
($1.11)
|
|
|
154
|
%
|
|
Adjusted EPS (1)
|
|
$0.18
|
|
|
$0.04
|
|
|
($0.21)
|
|
|
NM
|
|
Cash Flow per Share (1)
|
|
$0.50
|
|
|
$0.54
|
|
|
$0.34
|
|
|
(7
|
%)
|
NM - Not meaningful
(1)The Company reports non-GAAP measures which include cash costs per ounce produced, all-in sustaining cost per ounce, total production cost per tonne, average realized silver price per ounce sold, working capital, adjusted EPS and cash flow per share. These measures are widely used in the mining industry as a benchmark for performance, but do not have a standardized meaning and the methods used by the Company to calculate such measures may differ from methods used by other companies with similar descriptions. See “Non-GAAP Measures” on pages 39 to 45 for a reconciliation of non-GAAP to GAAP measures.
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First Majestic Silver Corp. 2020 Annual Report
|
Page 4
|
Operational Highlights
|
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|
Annual Production Summary
|
San Dimas
|
Santa Elena
|
La Encantada
|
|
|
|
|
Consolidated
|
|
Ore Processed / Tonnes Milled
|
713,064
|
|
640,276
|
|
860,613
|
|
|
|
|
|
2,213,954
|
|
|
Silver Ounces Produced
|
6,399,667
|
|
1,692,761
|
|
3,505,953
|
|
|
|
|
|
11,598,380
|
|
|
Gold Ounces Produced
|
71,598
|
|
28,242
|
|
241
|
|
|
|
|
|
100,081
|
|
|
Silver Equivalent Ounces Produced
|
12,670,526
|
|
4,181,708
|
|
3,526,776
|
|
|
|
|
|
20,379,010
|
|
|
Cash Costs per Ounce(1)
|
$2.04
|
|
$5.81
|
|
$10.27
|
|
|
|
|
|
$5.09
|
|
|
All-in Sustaining Cost per Ounce(1)
|
$8.75
|
|
$12.78
|
|
$12.43
|
|
|
|
|
|
$13.92
|
|
|
Total Production Cost per Tonne(1)
|
$127.91
|
|
$78.44
|
|
$40.37
|
|
|
|
|
|
$79.59
|
|
(1)See "Non-GAAP measures"
•Annual silver production of 11,598,380 ounces, which achieved the top-end of the Company’s revised guidance range of 11.0 to 11.7 million ounces. Strong silver production from La Encantada and San Dimas in the second half of 2020 helped to offset some of the production losses during the Mexican national COVID-19 shutdowns in the second quarter of 2020.
•Annual gold production of 100,081 ounces, which was slightly below the Company’s revised guidance range of 106,000 to 112,000 ounces, primarily due to lower production rates at Santa Elena and lower gold grades at San Dimas in the second half of 2020.
•La Encantada achieved highest annual silver production since 2014 with 3.5 million ounces of silver produced during the year, representing a 14% increase from the prior year and beating the Company’s revised production guidance of 3.1 to 3.3 million silver ounces.
•Record consolidated silver recoveries of 88% during 2020, the highest in the Company’s 18-year history due primarily to the continued success with fine grinding technologies and mill modernizations.
•The impact of COVID-19 on business and operations:
◦In compliance with the decree issued by the Mexican Ministry of Health on March 31, 2020, the Company temporarily suspended operations at its three operating mines during most of April and May ("COVID-19 Suspensions"). Operations resumed following the Mexican Government's decision to allow the restart of mining activities on May 23, 2020.
◦In order to accommodate COVID-19 related protocols, all mines have been operating with reduced workforce levels. Worker availability continues to be a challenge but is currently being mitigated by increasing the use of temporary workers and contractors to replace vulnerable workers.
◦The Company continues to support its vulnerable workers with paid leave including base pay and medical services as needed. Vulnerable workers currently account for approximately 9% of the Company's workforce at its three operating mines, an improvement from 18% at the end of the second quarter.
•Cash cost per ounce: Cash cost per payable silver ounce in the year was $5.09, a marginal decrease compared to the previous year. The decrease in cash cost was primarily due to cost savings from suspension of higher cost mines in 2019 and a 12% weaker Mexican Peso, partially offset by lower by-product credits and decrease in production attributed to the COVID-19 Suspensions in the second quarter, as well as higher mining contractor costs and COVID-19 related costs.
•All-in sustaining cost ("AISC"): AISC per payable silver ounce in 2020 was $13.92, compared to $12.64 in the previous year. The increase in AISC per ounce was primarily attributed to an increase in fixed overhead costs, such as general and administration expenses and annual workers participation benefits, being divided by 12% less silver ounces produced due to the required COVID-19 Suspensions.
Financial Highlights
•Robust cash position and liquidity: The Company ended the year with cash and cash equivalents of $238.6 million compared to $169.0 million at the end of the previous year, while working capital improved to $254.4 million compared to $171.1 million.
•Revenue: The Company generated annual revenues of $363.9 million in 2020, consistent with 2019 as lost production from COVID-19 Suspensions and worker availability were offset by a 29% increase in average realized silver price, which averaged $21.15 per ounce during the year compared to $16.40 in 2019.
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First Majestic Silver Corp. 2020 Annual Report
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Page 5
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•Mine operating earnings: During the year, the Company recognized mine operating earnings of $105.1 million compared to $66.2 million in 2019. The increase in mine operating earnings was primarily driven by higher margins attributed to higher silver and gold prices, as well as shifting a greater proportion of the Company's production to its larger and lower cost operations.
•Net earnings: The Company recognized net earnings of $23.1 million (earnings per share of $0.11) in 2020 compared to net loss of $40.5 million (loss per share of $0.20) in 2019. Net loss in 2019 was primarily due to the $52.4 million after tax impairment on non-current assets taken in 2019.
•Adjusted earnings: Adjusted earnings (see “Non-GAAP Measures”), normalized for non-cash or unusual items such as COVID-19 standby costs, share-based payments and deferred income taxes for the year ended December 31, 2020 was $37.4 million ($0.18 per share), compared to adjusted earnings of $7.3 million ($0.04 per share) in 2019.
•Cash flow from operations: During the year, cash flow from operations before changes in working capital and income taxes was $107.3 million ($0.50 per share) compared to $108.9 million ($0.54 per share) in 2019.
Corporate Development and Other
•Acquisition of Springpole Silver Stream from First Mining Gold Corp. ("First Mining"): On July 2, 2020, the Company completed an agreement with First Mining to purchase 50% of the life of mine payable silver produced from the Springpole Gold Project ("Springpole Silver Stream"), a development stage mining project located in Ontario, Canada. Under the agreement, First Majestic agreed to pay First Mining total upfront consideration of $22.5 million in cash and shares, over three milestone payments, with ongoing payments of 33% of the silver spot price per ounce, to a maximum of $7.50 per ounce (subject to annual inflation escalation of 2% commencing at the start of the third anniversary of production), as payable silver is delivered by First Mining. The Company made its initial payment of $10.0 million in the third quarter by paying $2.5 million in cash and $7.5 million by issuing 805,698 common shares to First Mining. In January 2021, the Company completed its second payment of $7.5 million to First Mining for the acquisition of the Springpole Stream by paying $3.75 million in cash and issuing 287,300 common shares. The payment was due upon First Mining's announcement on January 20, 2021 of its positive results of the Pre-Feasibility Study ("PFS") for the Springpole Gold Project, located in northwestern Ontario, Canada. The PFS results support a 30,000 tonnes-per-day open pit mining operation over an 11 year mine life.
•Option Agreement with Silver Dollar Resources Inc. ("Silver Dollar") for Sale of the La Joya Project: In August 2020, First Majestic entered into a five year option agreement which gives Silver Dollar the option to earn an initial 80% interest in the Company's La Joya Project, following the exercise of which it may earn an additional 20% for an aggregate 100% interest within five years of executing the option agreement.
◦To exercise its first option to acquire an 80% interest in the La Joya Project, Silver Dollar will pay the Company CAD$1.3 million in cash over four years, issue shares equal to 19.9% of Silver Dollar's then-outstanding common shares within one year, incur CAD$1.0 million of exploration expenditures within the first five years, and grant First Majestic a 2% net smelter returns royalty. If Silver Dollar incurs the exploration expenditures within the first three years; however, First Majestic will waive CAD$600,000 of the remaining cash option payments.
◦Silver Dollar may exercise its second option and acquire the remaining 20% (for an aggregate 100% interest) of the La Joya Project by providing notice to First Majestic within 30 days of earning the first 80% interest and issuing to First Majestic additional shares equal to 5% of Silver Dollar's then-outstanding common shares.
◦During the third quarter, the Company has received CAD$0.3 million in cash and 19.9% of Silver Dollar’s outstanding common shares or 5,146,401 common shares with a fair value of $6.9 million from Silver Dollar. After netting La Joya's carrying value of $0.6 million, the Company recognized a gain of $6.5 million on the transaction.
•Divestiture of the Plomosas Silver Project In March 2020, the Company sold its Plomosas Silver Project to GR Silver Mining Ltd. ("GR Silver") for total consideration of $1.7 million, consisting of 17,097,500 common shares of GR Silver with a fair value of $1.7 million on the measurement date, CAD$100,000 in cash and a 2% net smelter return royalty on the Plomosas Project with half of the NSR being subject to a buy-back option for CAD$1,000,000.
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First Majestic Silver Corp. 2020 Annual Report
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Page 6
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2020 FOURTH QUARTER HIGHLIGHTS
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Key Performance Metrics
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2020-Q4
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2020-Q3
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Change
Q4 vs Q3
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2019-Q4
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Change
Q4 vs Q4
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Operational
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Ore Processed / Tonnes Milled
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|
625,332
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|
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655,920
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(5
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%)
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|
626,482
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0
|
%
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|
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|
Silver Ounces Produced
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3,452,959
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|
3,158,866
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9
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%
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3,348,424
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3
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%
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Silver Equivalent Ounces Produced
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5,477,492
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5,201,085
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5
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%
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6,233,412
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(12
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%)
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Cash Costs per Ounce (1)
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$6.53
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|
$2.49
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162
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%
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$3.73
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75
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%
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All-in Sustaining Cost per Ounce (1)
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|
$15.92
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|
$9.94
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60
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%
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|
$12.25
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30
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%
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Total Production Cost per Tonne (1)
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|
$85.68
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|
$71.56
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20
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%
|
|
$78.62
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9
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%
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Average Realized Silver Price per Ounce (1)
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$24.88
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$22.58
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10
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%
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|
$17.46
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43
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%
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Financial (in $millions)
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Revenues
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$117.1
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|
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$125.9
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(7
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%)
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$96.5
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21
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%
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Mine Operating Earnings
|
|
$43.7
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|
|
$48.0
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(9
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%)
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$23.9
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|
82
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%
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Net Earnings (Loss)
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$34.5
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$30.9
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12
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%
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($39.9)
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NM
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Operating Cash Flows before Movements in Working Capital and Taxes
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$48.2
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$52.2
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(8
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%)
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$32.9
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|
47
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%
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|
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Cash and Cash Equivalents
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$238.6
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|
|
$232.4
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3
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%
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$169.0
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41
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%
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|
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|
Working Capital (1)
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$254.4
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|
|
$266.7
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(5
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%)
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|
$171.1
|
|
49
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%
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Shareholders
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Earnings (Loss) per Share ("EPS") - Basic
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$0.16
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$0.14
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8
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%
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($0.19)
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NM
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Adjusted EPS (1)
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$0.11
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$0.12
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(9
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%)
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$0.00
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NM
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|
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Cash Flow per Share (1)
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$0.22
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|
|
$0.24
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(10
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%)
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|
$0.16
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|
36
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%
|
|
|
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|
NM - Not meaningful
(1)See "Non-GAAP Measures"
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Fourth Quarter Production Summary
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San Dimas
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Santa Elena
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La Encantada
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Consolidated
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Ore Processed / Tonnes Milled
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208,648
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|
168,276
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|
248,408
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|
|
|
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|
625,332
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|
Silver Ounces Produced
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1,941,286
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418,153
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|
1,093,521
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3,452,959
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Gold Ounces Produced
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19,980
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6,294
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|
69
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|
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|
26,343
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Silver Equivalent Ounces Produced
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3,477,061
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901,630
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|
1,098,800
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|
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|
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|
5,477,492
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Cash Costs per Ounce
|
$3.23
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|
$11.69
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|
$10.39
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|
|
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|
$6.53
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All-in Sustaining Cost per Ounce
|
$10.09
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|
$23.02
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|
$12.37
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|
|
|
|
|
$15.92
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|
Total Production Cost per Tonne
|
$135.13
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|
$86.32
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|
$43.72
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|
|
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|
$85.68
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First Majestic Silver Corp. 2020 Annual Report
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Page 7
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Operational Highlights
•Total production in the fourth quarter was 5.5 million silver equivalent ounces, consisting of 3.5 million ounces of silver and 26,343 ounces of gold. Quarterly silver and gold production increased 9% and 2%, respectively, compared to the prior quarter.
•San Dimas achieved its highest quarterly silver production since the mine was acquired by First Majestic and produced 1.9 million ounces of silver and 19,980 ounces of gold, representing an increase of 16% and 9%, respectively, from the prior quarter.
•La Encantada reached its highest quarterly production since the second quarter of 2013 and produced 1.1 million silver ounces, representing a 12% increase from the prior quarter.
•Cash cost per ounce for the quarter was $6.53 per payable silver ounce, compared to $2.49 per ounce in the previous quarter. The increase in cash cost was primarily due to: higher gold by-product credits realized in the third quarter attributed to inventory that rolled over from the second quarter, which contributed an additional $7.4 million or $2.34 per ounce in by-product credits in the previous quarter; a 6% stronger Mexican Peso against the U.S. Dollar compared to the previous quarter; as well as higher COVID-19 related expenses.
•AISC per ounce in the fourth quarter was $15.92 per ounce compared to $9.94 per ounce in the previous quarter. The increase in AISC per ounce was primarily attributed to increase in cash cost per ounce, higher sustaining development and capital expenditure activities as the mines ramp up operations after the COVID-19 Suspensions.
•Project Updates:
•San Dimas Mill Modernization Project: A new contractor camp for over 100 workers is being constructed at San Dimas to support the high-intensity grinding (“HIG”) mill installation and plant modernization programs. Demolition work and new process piping runs have continued throughout the quarter, however, due to current COVID-19 restrictions the phase-1 HIG mill project completion date has been extended to the second half of 2021.
•Santa Elena’s Ermitaño Project: the Company completed approximately 923 metres of underground development during the quarter. The underground ventilation circuit, which ties together the West and East ramps, was completed at the end of November. On surface, the construction of the transmission power line and housing for the temporary diesel generators were completed. The diesel generators were delivered to site in early January and are currently undergoing installation.
•Santa Elena LNG Project: Liquefied Natural Gas (“LNG”) generators were successfully installed at Santa Elena’s new LNG power facility during the quarter and the project was approximately 90% complete at year end. Electromechanical activities such as the installation of the natural gas pipelines, cooling system, instrumentation and controls, plant safety infrastructure and connection of the main electric cables continued throughout the quarter. Dry-testing and commissioning activities have commenced and the power generation plant is expected to be fully operational in the second quarter of 2021 after completing the commissioning and ramp-up period.
•Exploration program in the fourth quarter expanded as the Company returned to normal operations resulting from the construction of additional camp facilities and the reduction of the COVID-19 pandemic restrictions. At the end of the fourth quarter, 25 exploration drill rigs were active across the Company’s mines and projects consisting of 12 rigs at San Dimas, seven rigs at Santa Elena, four rigs at La Encantada and two rigs at La Parrilla.
Financial Highlights
•In the fourth quarter, the Company generated revenues of $117.1 million compared to $96.5 million in the fourth quarter of 2019. The increase in revenues was attributed primarily to a 43% increase in average realized silver price, partially offset by a 13% decrease in silver equivalent ounces sold.
•The Company realized mine operating earnings of $43.7 million compared to $23.9 million in the fourth quarter of 2019. The increase in mine operating earnings was primarily attributed to higher metal prices.
•Net earnings for the quarter was $34.5 million (EPS of $0.16) compared to net loss of $39.9 million (EPS of ($0.19)) in the fourth quarter of 2019. The increase in net earnings was primarily attributed to a $52.4 million after-tax impairment loss taken in the fourth quarter of the prior year.
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First Majestic Silver Corp. 2020 Annual Report
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Page 8
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•Adjusted net earnings for the quarter, normalized for non-cash or unusual items such as unrealized gain or loss on mark-to-market adjustment of foreign currency derivatives and marketable securities, share-based payments, impairment of non-current assets and deferred income taxes for the quarter ended December 31, 2020, was $24.2 million (Adjusted EPS of $0.11) compared to adjusted net earnings of $0.3 million (Adjusted EPS of $0.00) in the fourth quarter of 2019.
•Cash flow generated by operations before movements in working capital and income taxes in the quarter was $48.2 million ($0.22 per share) compared to $32.9 million ($0.16 per share) in the fourth quarter of 2019.
•Cash and cash equivalents at December 31, 2020 increased to record levels of $238.6 million and working capital was $254.4 million.
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First Majestic Silver Corp. 2020 Annual Report
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Page 9
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2021 PRODUCTION OUTLOOK AND COST GUIDANCE UPDATE
|
This section provides management’s production outlook and cost guidance for 2021. These are forward-looking estimates and are subject to the cautionary note regarding the risks associated with relying on forward-looking statements at the end of this MD&A. Actual results may vary based on production and other external factors.
The Company expects 2021 production from its three operating mines to range between 12.5 to 13.9 million ounces of silver and 100,000 to 112,000 ounces of gold for total production (with gold credits converted to silver ounces) of between 20.6 to 22.9 million silver equivalent ounces. Based on the midpoint of the guidance range the Company expects a 14% increase in silver production and a 7% increase in total production when compared to 2020. The expected increases are primarily due to higher throughputs and silver grades at San Dimas and having a full year of production following Mexico’s two month national shutdown in 2020, offset by a lower silver to gold ratio which impacts the calculation of conversion to silver equivalent ounces.
A mine-by-mine breakdown of the 2021 production guidance is included in the table below. Effective 2021, the Company is adjusting its cost guidance and future reporting to reflect cash costs and all-in sustaining cost per ounce (“AISC”) on a per silver equivalent payable ounce basis compared to previous disclosure of only silver payable ounces. For 2021, the Company is using an 80:1 silver to gold ratio compared to a 100:1 silver to gold ratio in its revised 2020 guidance. Metal price and foreign currency assumptions for calculating equivalents are: silver $22.50/oz, gold $1,800/oz, USD:MXN 20:1.
Guidance for 2021
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Mine
|
Silver Oz (M)
|
Gold Oz (K)
|
Silver Eqv Oz (M)
|
Cash Costs per AgEq Oz ($)
|
AISC per
AgEq Oz ($)*
|
|
San Dimas
|
7.1 – 8.0
|
72 – 80
|
12.9 – 14.4
|
7.94 – 8.43
|
11.36 – 12.23
|
|
Santa Elena
|
2.0 – 2.2
|
29 – 32
|
4.3 – 4.8
|
12.93 – 13.71
|
16.49 – 17.68
|
|
La Encantada
|
3.4 – 3.7
|
–
|
3.4 – 3.7
|
11.20 – 11.89
|
13.72 – 14.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Consolidated
|
12.5 – 13.9
|
100 – 112
|
20.6 – 22.9
|
$9.52 – $10.10
|
$14.81 – $15.99
|
*Certain amounts shown may not add exactly to the total amount due to rounding differences.
*Cash Cost and AISC is a non-GAAP measure. Consolidated AISC includes Corporate General & Administrative cost estimates and non-cash costs of $1.74 to $1.94 per payable silver equivalent ounce. The Company calculates consolidated AISC in the manner set out in the table below.
The Company is projecting its 2021 AISC to be within a range of $14.81 to $15.99 on a per consolidated payable silver equivalent ounce basis. Excluding non-cash items, the Company anticipates its 2021 AISC to be within a range of $14.17 to $15.29 per payable silver equivalent ounce. An itemized AISC cost table is provided below:
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|
|
All-In Sustaining Cost Calculations (1)
|
FY 2021
($/AgEq oz)
|
|
Total Cash Costs per Payable Silver Equivalent Ounce (2)
|
9.52 – 10.10
|
|
General and Administrative Costs
|
1.10 – 1.23
|
|
Sustaining Development Costs
|
1.37 – 1.53
|
|
Sustaining Property, Plant and Equipment Costs
|
1.04 – 1.16
|
|
Sustaining Exploration Costs
|
0.02 – 0.03
|
|
Workers Participation Costs
|
0.74 – 0.82
|
|
Lease Payments
|
0.37 – 0.42
|
|
Share-based Payments (non-cash)
|
0.52 – 0.58
|
|
Accretion of Reclamation Costs (non-cash)
|
0.12 – 0.13
|
|
All-In Sustaining Costs:
|
$14.81 – $15.99
|
|
All-In Sustaining Costs: (excluding non-cash items)
|
$14.17 – $15.29
|
1.AISC is a non-GAAP measure and is calculated based on the Company’s consolidated operating performance. Other mining companies may calculate AISC differently as a result of differences in underlying accounting principles, the definition of “sustaining costs” and the distinction between sustaining and expansionary capital costs.
2.Total cash cost per payable silver equivalent ounce includes estimated royalties and 0.5% mining environmental fee of $0.11 per payable silver equivalent ounce.
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First Majestic Silver Corp. 2020 Annual Report
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Page 10
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Ermitaño Development and Construction Remain Key Focus in 2021
Since its initial discovery in 2016, the high-grade Ermitaño project has been a priority exploration project for the Company. Located four kilometres east of the existing Santa Elena mill facility, the project has the potential to add significant mine life to the Santa Elena operation.
Since 2016, the Company has completed approximately 72,270 metres of diamond drilling on the property. The Company is planning to release a Preliminary Economic Assessment (“PEA”) and updated Resource statement for Ermitaño, with an effective cut-off date of December 31, 2020, by the end of the first quarter of 2021. Furthermore, the Company is currently conducting hydrogeological and geotechnical drilling and testing which will be used as key study work for a planned Pre-Feasibility Study (“PFS”) on the project. The PFS is expected to be released in the second half of 2021 and will define initial Reserves, production rates, costs and estimated life of mine for the Ermitaño project.
In 2021, the Company has budgeted a total of $42.1 million to be invested at Ermitaño to prepare for initial limited mine ore production in the second half of 2021 followed by production ramp up in early 2022. Procurement for the underground mobile mining fleet is expected to occur in the first half of 2021. The Company expects to begin initial test block mining at Ermitaño by mid-2021 to assess the geotechnical conditions, subject to delineation drilling results, and extract approximately 30,000 to 60,000 tonnes of ore material to be used for industrial metallurgical testing purposes. In addition, blending and batching test work is expected to be completed by mid-year to determine the ideal processing procedure to apply at the Santa Elena processing plant.
Investing for Future Growth
In 2021, the Company plans to invest a total of $168.4 million on capital expenditures consisting of $55.7 million for sustaining investments and $112.7 million for expansionary projects (including $42.1 million on the Ermitaño project). This represents a 35% increase compared to the Company's 2020 capital expenditures (a 15% increase excluding the Ermitaño project) and is aligned with the Company’s future growth strategy of investments in fine grinding technology, processing plant modernizations, mine development and to prepare the Ermitaño project for production in early 2022.
The 2021 annual budget includes: total capital investments of $75.9 million to be spent on underground development; $49.8 million towards property, plant and equipment; $27.6 million in exploration; and $15.1 million towards corporate innovation projects. Management may revise the guidance and budget during the year to reflect actual and anticipated changes in metal prices or to the business.
The Company plans to increase underground development in 2021 to approximately 47,000 metres compared to 38,504 metres completed in 2020. The 2021 development program consists of approximately 27,800 metres at San Dimas; 8,800 metres at Santa Elena; 4,600 metres at La Encantada; and 5,800 metres at the Ermitaño project near Santa Elena. This year-over-year increase is primarily due to the return to normal operating levels following the two-month national shutdown in the second quarter of 2020 and increased ore development within existing mines. In addition, higher development rates are planned at the Ermitaño project in order to prepare the mine for initial production in early 2022.
The Company also plans to increase exploration drilling in 2021 to approximately 184,150 metres compared to 156,244 metres completed in 2020. The 2021 drilling program will consist of approximately 104,000 metres at San Dimas with infill and step out holes focusing on near mine and brownfield targets in the West, Central, and Tayoltita blocks; 37,600 metres at Santa Elena with near mine, brownfield and greenfield holes continuing to test the Main, America and Alejandra veins and new targets north and south of the mine area; 14,550 metres at La Encantada with infill and step out holes testing the potential of several near mine and brownfield targets; 13,900 metres at the Ermitaño project intended to increase resource confidence and add new mineral resources; and 7,600 metres at Del Toro and 6,500 metres at La Parrilla intended to test new brownfield and greenfield targets identified through generative exploration in 2020.
Mr. Ramon Mendoza Reyes, Vice President of Technical Services for First Majestic, is a "Qualified Person" as such term is defined under National Instrument 43-101 and has reviewed and approved the technical information disclosed in this MD&A.
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First Majestic Silver Corp. 2020 Annual Report
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Page 11
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OVERVIEW OF OPERATING RESULTS
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Selected Production Results for the Past Eight Quarters
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2020
|
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2019
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PRODUCTION HIGHLIGHTS
|
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Q4
|
Q3
|
Q2(4)
|
Q1
|
|
Q4(3)
|
Q3(1)(2)
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Q2
|
Q1
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|
Ore processed/tonnes milled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
|
208,648
|
|
189,918
|
|
114,390
|
|
200,109
|
|
|
182,265
|
|
173,679
|
|
172,368
|
|
163,264
|
|
|
|
|
|
|
|
Santa Elena
|
|
168,276
|
|
204,577
|
|
89,590
|
|
177,834
|
|
|
196,640
|
|
229,094
|
|
229,761
|
|
219,941
|
|
|
|
|
|
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La Encantada
|
|
248,408
|
|
261,425
|
|
129,579
|
|
221,200
|
|
|
221,049
|
|
191,926
|
|
207,421
|
|
269,611
|
|
|
|
|
|
|
|
San Martin
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
39,213
|
|
62,148
|
|
|
|
|
|
|
|
La Parrilla
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
33,439
|
|
61,544
|
|
72,551
|
|
|
|
|
|
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Del Toro
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
26,528
|
|
27,829
|
|
26,587
|
|
25,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Consolidated
|
|
625,332
|
|
655,920
|
|
333,559
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|
599,142
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|
|
626,482
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|
655,967
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|
736,896
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812,654
|
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|
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Silver equivalent ounces produced
|
|
|
|
|
|
|
|
|
|
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|
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|
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San Dimas
|
|
3,477,061
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|
3,125,662
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|
2,395,633
|
|
3,672,169
|
|
|
3,516,117
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|
3,502,102
|
|
3,641,139
|
|
3,172,270
|
|
|
|
|
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Santa Elena
|
|
901,630
|
|
1,091,026
|
|
595,651
|
|
1,593,400
|
|
|
1,592,397
|
|
1,859,170
|
|
1,461,345
|
|
1,403,364
|
|
|
|
|
|
|
|
La Encantada
|
|
1,098,800
|
|
984,397
|
|
514,092
|
|
929,487
|
|
|
991,856
|
|
891,205
|
|
492,957
|
|
723,699
|
|
|
|
|
|
|
|
San Martin
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
271,450
|
|
421,091
|
|
|
|
|
|
|
|
La Parrilla
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
258,683
|
|
420,712
|
|
441,095
|
|
|
|
|
|
|
|
Del Toro
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
133,042
|
|
125,557
|
|
122,879
|
|
112,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consolidated
|
|
5,477,492
|
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5,201,085
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|
3,505,376
|
|
6,195,057
|
|
|
6,233,412
|
|
6,636,716
|
|
6,410,483
|
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6,273,677
|
|
|
|
|
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|
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Silver ounces produced
|
|
|
|
|
|
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|
|
|
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|
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San Dimas
|
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1,941,286
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|
1,678,075
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|
1,102,931
|
|
1,677,376
|
|
|
1,658,721
|
|
1,639,481
|
|
1,603,016
|
|
1,404,454
|
|
|
|
|
|
|
|
Santa Elena
|
|
418,153
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|
502,375
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|
222,100
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|
550,133
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|
|
619,321
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|
632,216
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|
596,872
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|
587,195
|
|
|
|
|
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La Encantada
|
|
1,093,521
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|
978,416
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|
509,544
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|
924,472
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|
|
987,630
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|
885,627
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|
489,194
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|
720,959
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|
|
|
|
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|
San Martin
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
224,056
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|
331,539
|
|
|
|
|
|
|
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La Parrilla
|
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—
|
|
—
|
|
—
|
|
—
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|
|
—
|
|
135,420
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|
202,698
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|
219,485
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|
|
|
|
|
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Del Toro
|
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—
|
|
—
|
|
—
|
|
—
|
|
|
82,752
|
|
74,997
|
|
77,729
|
|
67,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consolidated
|
|
3,452,959
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|
3,158,866
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|
1,834,575
|
|
3,151,980
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|
|
3,348,424
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|
3,367,740
|
|
3,193,566
|
|
3,331,388
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|
|
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|
Cash cost per payable silver ounce
|
|
|
|
|
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|
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|
|
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|
|
|
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|
San Dimas
|
|
$3.23
|
|
($1.50)
|
|
$3.77
|
|
$3.08
|
|
|
$0.74
|
|
$2.28
|
|
$1.64
|
|
$0.93
|
|
|
|
|
|
|
|
Santa Elena
|
|
$11.69
|
|
$0.85
|
|
$15.10
|
|
$2.12
|
|
|
($1.40)
|
|
($7.24)
|
|
$4.28
|
|
$2.81
|
|
|
|
|
|
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|
La Encantada
|
|
$10.39
|
|
$10.14
|
|
$9.38
|
|
$10.77
|
|
|
$10.12
|
|
$10.72
|
|
$16.57
|
|
$12.60
|
|
|
|
|
|
|
|
San Martin
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$—
|
|
$—
|
|
$16.52
|
|
$11.35
|
|
|
|
|
|
|
|
La Parrilla
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$—
|
|
$16.27
|
|
$14.13
|
|
$16.58
|
|
|
|
|
|
|
|
Del Toro
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$28.62
|
|
$29.83
|
|
$27.29
|
|
$27.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$6.53
|
|
$2.49
|
|
$6.73
|
|
$5.16
|
|
|
$3.73
|
|
$3.83
|
|
$6.84
|
|
$6.34
|
|
|
|
|
|
|
|
All-in sustaining cost per payable silver ounce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
|
$10.09
|
|
$4.09
|
|
$13.04
|
|
$9.02
|
|
|
$7.41
|
|
$7.30
|
|
$8.49
|
|
$5.65
|
|
|
|
|
|
|
|
Santa Elena
|
|
$23.02
|
|
$6.37
|
|
$24.71
|
|
$6.03
|
|
|
$3.66
|
|
($5.17)
|
|
$7.73
|
|
$6.37
|
|
|
|
|
|
|
|
La Encantada
|
|
$12.37
|
|
$12.11
|
|
$11.60
|
|
$13.31
|
|
|
$12.67
|
|
$12.67
|
|
$18.87
|
|
$13.72
|
|
|
|
|
|
|
|
San Martin
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$—
|
|
$—
|
|
$21.15
|
|
$15.67
|
|
|
|
|
|
|
|
La Parrilla
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$—
|
|
$28.81
|
|
$21.61
|
|
$25.62
|
|
|
|
|
|
|
|
Del Toro
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$38.84
|
|
$39.77
|
|
$36.33
|
|
$35.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$15.92
|
|
$9.94
|
|
$18.57
|
|
$12.99
|
|
|
$12.25
|
|
$10.76
|
|
$14.76
|
|
$12.91
|
|
|
|
|
|
|
|
Production cost per tonne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
|
$135.13
|
|
$120.60
|
|
$129.67
|
|
$126.33
|
|
|
$127.19
|
|
$135.71
|
|
$142.42
|
|
$122.17
|
|
|
|
|
|
|
|
Santa Elena
|
|
$86.32
|
|
$71.44
|
|
$74.50
|
|
$81.04
|
|
|
$68.77
|
|
$57.78
|
|
$58.88
|
|
$56.53
|
|
|
|
|
|
|
|
La Encantada
|
|
$43.72
|
|
$36.04
|
|
$36.80
|
|
$43.82
|
|
|
$43.92
|
|
$47.86
|
|
$38.29
|
|
$32.71
|
|
|
|
|
|
|
|
San Martin
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$—
|
|
$—
|
|
$109.51
|
|
$80.39
|
|
|
|
|
|
|
|
La Parrilla
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$—
|
|
$89.40
|
|
$75.96
|
|
$76.78
|
|
|
|
|
|
|
|
Del Toro
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$106.99
|
|
$98.98
|
|
$91.89
|
|
$95.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$85.68
|
|
$71.56
|
|
$78.78
|
|
$82.41
|
|
|
$78.62
|
|
$78.87
|
|
$77.93
|
|
$66.65
|
|
|
|
|
|
|
1) La Parrilla was placed on temporary suspension effective September 2, 2019.
2) San Martin was placed on temporary suspension effective July 1, 2019 due to a growing insecurity in the area and safety concerns for our workforce. The re-opening date is contingent on security conditions in the region and cannot be determined at this time.
3) Del Toro's mining and milling operations were placed on temporary suspension effective January 1, 2020 to improve overall operating cash flows while focusing on an expanded drill program in the area.
4) In response to the COVID-19 pandemic, the Mexican Ministry of Health issued a decree requiring non-essential businesses, including mining, to temporarily suspend activities until May 23, 2020. As a result, production and costs were adversely affected during the quarter.
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|
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|
First Majestic Silver Corp. 2020 Annual Report
|
Page 12
|
Operating Results – Consolidated Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
|
|
2020-Q4
|
2020-Q3
|
2020-Q2
|
2020-Q1
|
|
2020-YTD
|
|
2019-YTD
|
|
Change
Q4 vs Q3
|
|
Change
'20 vs '19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore processed/tonnes milled
|
|
625,332
|
655,920
|
333,559
|
599,142
|
|
2,213,954
|
|
2,831,999
|
|
(5
|
%)
|
|
(22
|
%)
|
|
Average silver grade (g/t)
|
|
194
|
170
|
193
|
185
|
|
184
|
|
169
|
|
14
|
%
|
|
9
|
%
|
|
Average gold grade (g/t)
|
|
1.37
|
1.27
|
1.52
|
1.74
|
|
1.46
|
|
1.54
|
|
7
|
%
|
|
(5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver recovery (%)
|
|
89
|
%
|
88
|
%
|
89
|
%
|
89
|
%
|
|
88
|
%
|
|
86
|
%
|
|
1
|
%
|
|
2
|
%
|
|
Gold recovery (%)
|
|
96
|
%
|
96
|
%
|
96
|
%
|
96
|
%
|
|
96
|
%
|
|
96%
|
|
0
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces produced
|
|
3,452,959
|
3,158,866
|
1,834,575
|
3,151,980
|
|
11,598,380
|
|
13,241,118
|
|
9
|
%
|
|
(12
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold ounces produced
|
|
26,343
|
25,771
|
15,764
|
32,202
|
|
100,081
|
|
134,580
|
|
2
|
%
|
|
(26
|
%)
|
|
Pounds of lead produced
|
|
—
|
—
|
—
|
—
|
|
—
|
|
7,935,566
|
|
0
|
%
|
|
(100
|
%)
|
|
Pounds of zinc produced
|
|
—
|
—
|
—
|
—
|
|
—
|
|
3,691,100
|
|
0
|
%
|
|
(100
|
%)
|
|
Silver Equivalent Ounces Produced
|
|
5,477,492
|
5,201,085
|
3,505,376
|
6,195,057
|
|
20,379,010
|
|
25,554,288
|
|
5
|
%
|
|
(20
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable silver ounce
|
|
$6.53
|
$2.49
|
$6.73
|
$5.16
|
|
$5.09
|
|
$5.16
|
|
162
|
%
|
|
(1
|
%)
|
|
All-In sustaining costs per ounce
|
|
$15.92
|
$9.94
|
$18.57
|
$12.99
|
|
$13.92
|
|
$12.64
|
|
60
|
%
|
|
10
|
%
|
|
Total production cost per tonne
|
|
$85.68
|
$71.56
|
$78.78
|
$82.41
|
|
$79.59
|
|
$75.05
|
|
20
|
%
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underground development (m)
|
|
12,004
|
9,575
|
4,666
|
10,888
|
|
38,504
|
|
54,517
|
|
25
|
%
|
|
(29
|
%)
|
|
Diamond drilling (m)
|
|
57,147
|
46,516
|
10,250
|
40,458
|
|
156,244
|
|
204,371
|
|
23
|
%
|
|
(24
|
%)
|
The Impact of COVID-19 on Business and Operations
In compliance with the decree issued by the Mexican Ministry of Health on March 31, 2020, the Company temporarily suspended operations at its three operating mines during most of April and May ("COVID-19 Suspensions"). Operations resumed following the Mexican Government's decision to allow the restart of mining activities on May 23, 2020 contingent on the government approving sanitary control plans for each operations.
In order to accommodate COVID-19 related protocols, all mines have been operating with reduced workforce levels. Worker availability continues to be a challenge but is currently being mitigated by increasing the use of temporary workers and contractors to replace vulnerable workers.
The Company continues to support its vulnerable workers with paid leave including base pay and medical services as needed. "Vulnerable employees" as defined by the Mexican Ministry of Health consists of any of the following list of conditions including: anyone 60 years of age or older and workers with pre-existing conditions or compromised immune systems. Vulnerable workers currently account for approximately 9% of the Company's workforce at its three operating mines. The Company is also supporting local communities by sponsoring health professionals, medical equipment, personal protective equipment, medicine and health supplements.
During the fourth quarter, the Company constructed and advanced Polymerase Chain Reaction ("PCR") laboratory test facility in the city of Durango and partnered with a test labs at Hermosillo, Sonora to speed up COVID-19 testing capabilities at its mine sites. Preventative control measures to protect the safety and health of our employees, contractors and communities in which we operate, including social distancing, remote working, cancellation of any non-essential visits to the mines, comprehensive sanitation measures for the workplace and company transportation, as well as pre-screening for virus symptoms remain in effect.
Production
During the year, the Company produced 20.4 million silver equivalent ounces, consisting of 11.6 million ounces of silver and 100,081 ounces of gold. Silver production achieved the top-end of the Company’s revised guidance range of 11.0 to 11.7 million ounces. Strong silver production from La Encantada and San Dimas in the second half of 2020 helped to offset
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 13
|
some of the production losses during the Mexican national COVID-19 shutdowns in the second quarter of 2020. Gold production was slightly below the Company’s guidance range of 106,000 to 112,000 ounces, primarily due to lower production rates at Santa Elena and lower gold grades at San Dimas in the second half of 2020.
Consolidated silver recoveries achieved a record of 88% during the year, the highest in the Company’s 18-year history due primarily to the continued success with fine grinding technologies and mill modifications.
In the fourth quarter, total production was 5.5 million silver equivalent ounces, consisting of 3.5 million ounces of silver and 26,343 ounces of gold. Quarterly silver and gold production increased 9% and 2%, respectively, compared to the prior quarter.
Despite COVID-19 related challenges, San Dimas and La Encantada both achieved significant milestones during the fourth quarter:
•San Dimas achieved its highest quarterly silver production since the mine was acquired by First Majestic and produced 1.9 million ounces of silver and 19,980 ounces of gold, representing an increase of 16% and 9%, respectively, from the prior quarter; and
•La Encantada reached its highest quarterly production since the second quarter of 2013 and produced 1.1 million silver ounces, representing a 12% increase from the prior quarter.
Consolidated silver grades in the quarter averaged 194 g/t compared to 170 g/t in the previous quarter and consolidated gold grades averaged 1.37 g/t compared to 1.27 g/t in the prior quarter. Consolidated silver and gold recoveries averaged 89% and 96%, respectively, consistent with the previous quarter. La Encantada continues to achieve higher recoveries as a result of improved blending procedures of stockpiles and processing ore with low manganese content.
Cash Cost and All-In Sustaining Cost per Ounce
Cash cost per payable silver ounce in the year was $5.09, a slight decrease compared to the previous year. The decrease in cash cost was primarily due to cost savings from suspension of higher cost mines in 2019 and a 12% weaker Mexican Peso, partially offset by lower by-product credits and decrease in production attributed to the COVID-19 Suspensions in the second quarter, as well as higher mining contractor costs and COVID-19 related costs.
AISC per payable silver ounce in 2020 was $13.92, compared to $12.64 in the previous year. The increase in AISC per ounce was primarily attributed to an increase in fixed overhead costs, such as general and administration expenses and annual workers participation benefits, being divided by 12% less silver ounces produced due to the required COVID-19 Suspensions.
Cash cost per payable silver ounce for the quarter was $6.53 per payable silver ounce, compared to $2.49 per ounce in the previous quarter. The increase in cash cost was primarily due to higher gold by-product credits realized in the third quarter attributed to inventory that rolled over from the second quarter, which contributed an additional $7.4 million or $2.34 per ounce in by-product credits in the previous quarter, a 6% stronger Mexican Peso against the U.S. Dollar compared to the previous quarter, as well as higher COVID-19 related expenses.
AISC per payable silver ounce in the fourth quarter was $15.92 per ounce compared to $9.94 per ounce in the previous quarter. The increase in AISC per payable silver ounce was primarily attributed to increase in cash cost per ounce, higher sustaining development and capital expenditure activities as the mines restarted major capital projects after the COVID-19 Suspensions.
Development and Exploration
In 2020, the Company completed 38,504 metres of underground development and 156,244 metres of diamond drilling, a decrease of 29% and 24%, respectively, compared to the previous year. At the end of the year, 25 exploration drill rigs were active across the Company’s mines and projects consisting of 12 at San Dimas, seven at Santa Elena, four at La Encantada and two at La Parrilla.
The 2020 exploration program primarily included completion of 87,659 metres in 259 drill holes at San Dimas, 16,323 metres in 74 holes at Santa Elena, 16,250 metres in 48 holes at Ermitaño and 18,611 metres in 61 holes at La Encantada. In addition, the Company completed 18,971 metres of regional drilling in 50 holes, including 6,560 metres of greenfield drilling in 21 holes at Santa Elena’s Los Hernandez project and 10,224 metres of brownfield drilling in 19 holes at La Parrilla.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 14
|
The 2021 drilling program is planned to consist of 192,900 metres including approximately 84,750 metres at San Dimas intended to add new mineral resources with a focus on the West, Central, and Tayoltita blocks; 30,500 metres at Santa Elena to continue exploring the Main, Alejandra Bajo and America veins, and to test greenfield targets around Los Hernandez; 15,000 metres at the Ermitaño project intended to increase resource confidence and add new mineral resources; 21,200 metres at La Encantada with an emphasis on exploring the mineral potential of several brownfield targets; and 22,450 metres at Del Toro and 19,000 metres at La Parrilla intended to test near mine, brownfield, and greenfield targets.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 15
|
San Dimas Silver/Gold Mine, Durango, México
The San Dimas Silver/Gold Mine is located approximately 130 km northwest of Durango, Durango State, Mexico and consists of 71,868 hectares of mining claims located in the states of Durango and Sinaloa, Mexico. San Dimas is one of the country’s most prominent silver mines and the largest producing underground mine in the state of Durango with over 250 years of operating history. The San Dimas operating plan involves processing ore from several underground mining areas with a 2,500 tpd capacity milling operation which produces silver/gold doré bars. The mine is accessible via a 40-minute flight from the Durango International Airport to the private airstrip in the town of Tayoltita. The Company owns 100% of the San Dimas mine.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
2020-Q4
|
2020-Q3
|
2020-Q2
|
2020-Q1
|
|
|
2020-YTD
|
|
2019-YTD
|
|
Change
Q4 vs Q3
|
|
Change
'20 vs '19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ore processed/tonnes milled
|
208,648
|
189,918
|
114,390
|
200,109
|
|
|
713,064
|
|
691,576
|
|
10
|
%
|
|
3
|
%
|
|
Average silver grade (g/t)
|
309
|
290
|
318
|
280
|
|
|
297
|
|
305
|
|
7
|
%
|
|
(3
|
%)
|
|
Average gold grade (g/t)
|
3.10
|
3.11
|
3.38
|
3.44
|
|
|
3.24
|
|
4.08
|
|
0
|
%
|
|
(21
|
%)
|
|
Silver recovery (%)
|
94
|
%
|
95
|
%
|
94
|
%
|
93
|
%
|
|
|
94
|
%
|
|
93
|
%
|
|
(1
|
%)
|
|
1
|
%
|
|
Gold recovery (%)
|
96
|
%
|
96
|
%
|
97
|
%
|
96
|
%
|
|
|
96
|
%
|
|
96
|
%
|
|
0
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces produced
|
1,941,286
|
1,678,075
|
1,102,931
|
1,677,376
|
|
|
6,399,667
|
|
6,305,672
|
|
16
|
%
|
|
1
|
%
|
|
Gold ounces produced
|
19,980
|
18,268
|
12,042
|
21,308
|
|
|
71,598
|
|
87,424
|
|
9
|
%
|
|
(18
|
%)
|
|
Silver equivalent ounces produced
|
3,477,061
|
3,125,662
|
2,395,633
|
3,672,169
|
|
|
12,670,526
|
|
13,831,627
|
|
11
|
%
|
|
(8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per ounce
|
$3.23
|
($1.50)
|
$3.77
|
$3.08
|
|
|
$2.04
|
|
$1.41
|
|
NM
|
|
45
|
%
|
|
All-In sustaining costs per ounce
|
$10.09
|
$4.09
|
$13.04
|
$9.02
|
|
|
$8.75
|
|
$7.26
|
|
147
|
%
|
|
21
|
%
|
|
Total production cost per tonne
|
$135.13
|
$120.60
|
$129.67
|
$126.33
|
|
|
$127.91
|
|
$131.90
|
|
12
|
%
|
|
(3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underground development (m)
|
8,454
|
7,111
|
3,488
|
7,100
|
|
|
26,154
|
|
24,021
|
|
19
|
%
|
|
9
|
%
|
|
Diamond drilling (m)
|
26,537
|
30,004
|
9,031
|
22,087
|
|
|
87,659
|
|
76,467
|
|
(12)
|
%
|
|
15
|
%
|
NM - Not meaningful
2020 vs. 2019
In 2020, San Dimas produced 6,399,667 ounces of silver and 71,598 ounces of gold for a total production of 12,670,526 equivalent silver ounces, an 8% decrease compared to 13,831,627 silver equivalent ounces in 2019. The mill processed a total of 713,064 tonnes compared to 691,576 tonnes in the previous year. Strong silver production from San Dimas in the second half of 2020 helped to offset some of the production losses resulting from the national COVID-19 shutdowns which occurred in the second quarter of 2020.
During 2020, silver and gold grades averaged 297 g/t and 3.24 g/t, respectively, compared to 305 g/t and 4.08 g/t in the previous year. Silver and gold recoveries averaged 94% and 96%, respectively, which were consistent with 2019.
During the year, cash cost per payable silver ounce averaged $2.04 compared to $1.41 per ounce in 2019. AISC averaged $8.75 per ounce in 2020 compared to $7.26 per ounce in 2019. The increase was primarily attributed to higher union costs, mining contractor costs to replace vulnerable workers, COVID-19 related medical and supplies expenditures, as well as lower by-product credits due to the reduction in gold produced, partially offset by a 12% weaker Mexican Peso against the U.S. Dollar compared to the previous year.
The San Dimas mine is subject to a gold and silver streaming agreement with Wheaton Precious Metals Corp. ("Wheaton" or "WPM") which entitles Wheaton to receive 25% of the gold equivalent production (based on a fixed exchange ratio of 70 silver ounces to 1 gold ounce) at San Dimas in exchange for ongoing payments equal to the lesser of $600 (subject to a 1% annual inflation adjustment commencing in May 2019) and the prevailing market price, for each gold ounce delivered. Should the average gold to silver ratio over a six month period exceed 90:1 or fall below 50:1, the fixed exchange ratio would be increased to 90:1 or decreased to 50:1, respectively. The fixed gold to silver exchange ratio was revised to 90:1 on
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 16
|
April 1, 2020 and reverted to 70:1 on October 14, 2020 after the average gold to silver price ratio over a six month period fell back below 90:1. During the year ended December 31, 2020, the Company delivered 38,604 ounces (2019 - 44,667 ounces) of gold to WPM at $610 (2019 - $604) per ounce.
During the year, a total of 26,154 metres of underground development and 87,659 metres of diamond drilling were completed compared to 24,021 metres and 76,467 metres, respectively, in the prior year.
2020Q4 vs. 2020Q3
During the fourth quarter, San Dimas produced a total of 3,477,061 silver equivalent ounces compared to 3,125,662 silver equivalent ounces in the prior quarter. The mine recorded its highest quarterly silver production under First Majestic’s ownership which produced 1,941,286 ounces of silver and 19,980 ounces of gold representing an increase of 16% and 9%, respectively compared to the prior quarter.
The mill processed a total of 208,648 tonnes with average silver and gold grades of 309 g/t and 3.10 g/t, respectively, compared to 189,918 tonnes milled with average silver and gold grades of 290 g/t and 3.11 g/t in the previous quarter. The Central Block and Sinaloa Graben areas contributed approximately 72% and 24%, respectively, of the total production during the quarter.
Silver and gold recoveries averaged 94% and 96%, respectively, during the quarter which were consistent with the prior quarter.
In the fourth quarter, cash cost per ounce was $3.23 per ounce compared to negative $1.50 per ounce in the prior quarter. The increase in cash cost was primarily due to higher gold by-product credits realized in the third quarter attributed to the sale of withheld metal inventory from the second quarter, an increase in mining contractor costs and productivity bonus as a result of increase in throughput during the quarter.
AISC for the quarter was $10.09 per ounce compared to $4.09 per ounce in the prior quarter. The increase in AISC was primarily due to the increase in cash cost per ounce, as well as accelerated mine development investments during the quarter.
A total of 8,454 metres of underground development in the fourth quarter, compared to 7,111 metres in the prior quarter. Rehabilitation efforts on six kilometres of underground rail-car tracks inside the Tayoltita mine was mostly completed during the quarter. Initial production from the Tayoltita mine began in June and is expected to ramp-up to more than 200 tpd in 2021.
During the fourth quarter, three surface drills and nine underground drills completed 26,537 metres compared to 30,004 metres in the prior quarter. Drilling in the fourth quarter was focused in the Central, Sinaloa and Tayoltita Blocks and one regional project.
The Company is expecting to release an updated NI 43-101 Technical Report on San Dimas by the end of the first quarter of 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 17
|
Santa Elena Silver/Gold Mine, Sonora, México
The Santa Elena Silver/Gold Mine is located approximately 150 kilometres northeast of the city of Hermosillo, Sonora, Mexico and owns mining concessions totaling over 102,244 hectares. The operating plan for Santa Elena involves the processing of ore in a 3,000 tpd cyanidation circuit from a combination of underground reserves and spent ore from the previous heap leach pad. The Company owns 100% of the Santa Elena mine.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SANTA ELENA
|
2020-Q4
|
2020-Q3
|
2020-Q2
|
2020-Q1
|
|
|
|
2020-YTD
|
|
2019-YTD
|
|
Change
Q4 vs Q3
|
|
Change
'20 vs '19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ore processed/tonnes milled
|
168,276
|
204,577
|
89,590
|
177,834
|
|
|
|
640,276
|
|
875,435
|
|
(18
|
%)
|
|
(27
|
%)
|
|
|
Underground tonnes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tonnes milled
|
105,591
|
133,108
|
58,223
|
125,529
|
|
|
|
422,451
|
|
542,085
|
|
(21
|
%)
|
|
(22
|
%)
|
|
|
Average silver grade (g/t)
|
113
|
109
|
109
|
130
|
|
|
|
116
|
|
131
|
|
4
|
%
|
|
(11
|
%)
|
|
|
Average gold grade (g/t)
|
1.58
|
1.49
|
1.70
|
2.48
|
|
|
|
1.84
|
|
2.31
|
|
6
|
%
|
|
(20
|
%)
|
|
|
Heap leach tonnes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tonnes milled
|
62,685
|
71,469
|
31,366
|
52,305
|
|
|
|
217,826
|
|
333,351
|
|
(12
|
%)
|
|
(35
|
%)
|
|
|
Average silver grade (g/t)
|
33
|
34
|
32
|
36
|
|
|
|
34
|
|
37
|
|
(3
|
%)
|
|
(8
|
%)
|
|
|
Average gold grade (g/t)
|
0.61
|
0.61
|
0.62
|
0.73
|
|
|
|
0.64
|
|
0.66
|
|
0
|
%
|
|
(3
|
%)
|
|
|
Silver recovery (%)
|
93
|
%
|
93
|
%
|
92
|
%
|
94
|
%
|
|
|
|
93
|
%
|
|
91
|
%
|
|
0
|
%
|
|
2
|
%
|
|
|
Gold recovery (%)
|
96
|
%
|
95
|
%
|
95
|
%
|
96
|
%
|
|
|
|
96
|
%
|
|
95
|
%
|
|
1
|
%
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces produced
|
418,153
|
502,375
|
222,100
|
550,133
|
|
|
|
1,692,761
|
|
2,435,604
|
|
(17
|
%)
|
|
(30
|
%)
|
|
|
Gold ounces produced
|
6,294
|
7,428
|
3,677
|
10,842
|
|
|
|
28,242
|
|
45,119
|
|
(15
|
%)
|
|
(37
|
%)
|
|
|
Silver equivalent ounces produced
|
901,630
|
1,091,026
|
595,651
|
1,593,400
|
|
|
|
4,181,708
|
|
6,316,277
|
|
(17
|
%)
|
|
(34
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per ounce
|
$11.69
|
$0.85
|
$15.10
|
$2.12
|
|
|
|
$5.81
|
|
($0.51)
|
|
NM
|
|
NM
|
|
|
All-In sustaining costs per ounce
|
$23.02
|
$6.37
|
$24.71
|
$6.03
|
|
|
|
$12.78
|
|
$3.02
|
|
NM
|
|
NM
|
|
|
Total production cost per tonne
|
$86.32
|
$71.44
|
$74.50
|
$81.04
|
|
|
|
$78.44
|
|
$60.23
|
|
21
|
%
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underground development (m)
|
2,663
|
1,273
|
606
|
1,940
|
|
|
|
7,851
|
|
8,241
|
|
109
|
%
|
|
(5
|
%)
|
|
|
Diamond drilling (m)
|
16,994
|
10,308
|
802
|
9,474
|
|
|
|
39,451
|
|
56,141
|
|
65
|
%
|
|
(30
|
%)
|
|
NM - Not meaningful
2020 vs. 2019
In 2020, Santa Elena produced 1,692,761 ounces of silver and 28,242 ounces of gold for a total production of 4,181,708 silver equivalent ounces, a 34% decrease compared to 6,316,277 silver equivalent ounces in 2019. The mill processed a total of 640,276 tonnes compared to 875,435 tonnes in the previous year. Production was affected primarily due to the national COVID-19 shutdowns which occurred in the second quarter of 2020, as well as lost productivity attributed to operating under limited workforce levels throughout most of the second half of the year.
Silver and gold grades from underground ore averaged 116 g/t and 1.84 g/t, respectively, compared to 131 g/t and 2.31 g/t in the previous year. Silver recoveries improved from 91% in 2019 to 93% this year while gold recoveries remained consistent at 96%. The increase in recoveries was primarily attributed to a full year of milling from the HIG mill that was successfully put into operation in the third quarter of 2019.
During the year, cash cost per silver equivalent ounce averaged $5.81 compared to negative $0.51 per ounce in 2019 while AISC averaged $12.78 per silver equivalent ounce compared to $3.02 per ounce in the previous year. The increase was primarily attributed to 34% lower production, a decrease in by-product credits, higher mining contractor costs to replace vulnerable workers and increase in COVID-19 related expenditures such as camp site and medical supplies costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 18
|
The Santa Elena mine is subject to a gold streaming agreement with Sandstorm Gold Ltd. (“Sandstorm”), which requires the mine to sell 20% of its gold production from the leach pad and a designated area of its underground operations over the life of mine to Sandstorm. The selling price to Sandstorm is currently the lesser of $450 per ounce (subject to a 1% annual inflation increase every April) and the prevailing market price. During the year ended December 31, 2020, the Company delivered 5,697 ounces of gold to Sandstorm at an average price of $463 per ounce.
During the year, a total of 7,851 metres of underground development and 39,451 metres of diamond drilling were completed, including 2,292 metres of underground development at the Ermitaño project near Santa Elena in advance of production ramp up scheduled for early 2022.
2020Q4 vs. 2020Q3
During the fourth quarter, Santa Elena produced 901,630 silver equivalent ounces, consisting of 418,153 ounces of silver and 6,294 ounces of gold, representing a decrease of 17% and 15%, respectively compared to the prior quarter.
The mine processed a total of 168,276 tonnes during the quarter, consisting of 105,591 tonnes from the underground mine ore and 62,685 tonnes from the above ground heap leach pad, a decrease of 18% compared to 204,577 total tonnes in the prior quarter. The decrease in tonnes was primarily due to having limited contractor and equipment availability during the quarter. The Company expects mine and plant production to return to normal operating rates by the second quarter of 2021 following improvements in underground ore haulage and increased production at the Main, Alejandra Bajo and America veins.
During the quarter, silver and gold grades from underground ore averaged 113 g/t and 1.58 g/t, respectively, compared to 109 g/t and 1.49 g/t, respectively in the prior quarter. Above ground heap leach pad averaged 33 g/t and 0.61 g/t respectively during the quarter and where consistent comparing to the prior quarter.
Silver and gold recoveries averaged 93% and 96%, respectively, during the quarter. The Company continues to advance the SAG mill circuit conversion at Santa Elena and anticipates the mill modifications to be commissioned in the third quarter of 2021. Lower operating costs are expected to be achieved once the mill is fully upgraded due to having lower power requirements compared to a standard ball mill as well as a reduction in reagent and grinding media consumption.
Cash cost in the fourth quarter was $11.69 per ounce compared to $0.85 per ounce in the previous quarter. The increase in cash cost was primarily attributed to higher gold by-product credits realized in the third quarter attributed to the sale of withheld metal inventory from the second quarter, which contributed an additional $3.2 million or $6.28 per ounce in by-product credits during the third quarter, an increase in COVID-19 related expenditures such as camp site and medical supplies costs as well as the decrease in production.
AISC for the quarter was $23.02 per ounce compared to $6.37 per ounce in the prior quarter. The increase is primarily attributed to $10.84 per ounce increase in cash cost and a 67% increase in mine development metres, divided over a 17% decrease in silver ounces produced.
The LNG generators were successfully installed at Santa Elena’s new LNG power facility during the quarter and the project was approximately 90% complete at year end. Electromechanical activities such as the installation of the natural gas pipelines, cooling system, instrumentation and controls, plant safety infrastructure and connection of the main electric cables continued throughout the quarter. Dry-testing and commissioning activities have commenced and the power generation plant is expected to be fully operational in the second quarter of 2021 after completing the commissioning and ramp-up period. The LNG power facility is expected to significantly reduce energy costs and carbon emissions going forward.
In the fourth quarter, a total of 2,663 metres of development at Santa Elena compared to 1,273 metres in the previous quarter.
At the Ermitaño project near Santa Elena, the Company completed approximately 923 metres of underground development during the quarter. The underground ventilation circuit, which ties together the West and East ramps, was completed at the end of November. On surface, the construction of the transmission power line and housing for the temporary diesel generators were completed. The land use permit (ETJ) was also received in January 2021 thus completing full permitting of the Ermitaño project.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 19
|
During the fourth quarter, five surface drills and three underground drills completed 7,791 metres compared to 7,269 metres in the previous quarter. Drilling in the quarter was directed towards near mine and greenfield targets. In addition, the Company completed 9,203 metres of exploration drilling at the Ermitaño project during the quarter.
The Company is expecting to release an updated NI 43-101 Technical Report on Santa Elena by the end of the first quarter of 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 20
|
La Encantada Silver Mine, Coahuila, México
The La Encantada Silver Mine is an underground mine located in the northern México State of Coahuila, 708 kilometres northeast of Torreon. La Encantada has 4,076 hectares of mineral concessions and surface land ownership of 1,343 hectares. La Encantada also has a 4,000 tpd cyanidation plant, a camp with 180 houses as well as administrative offices, laboratory, general store, hospital, airstrip and all infrastructure required for such an operation. The mine is accessible via a two-hour flight from the Durango International Airport to the mine’s private airstrip, or via a mostly-paved road from the closest city, Muzquiz, Coahuila State, which is 225 kilometres away. The Company owns 100% of the La Encantada Silver Mine.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LA ENCANTADA
|
2020-Q4
|
2020-Q3
|
2020-Q2
|
2020-Q1
|
|
|
2020-YTD
|
|
2019-YTD
|
|
Change
Q4 vs Q3
|
|
Change
'20 vs '19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore processed/tonnes milled
|
248,408
|
261,425
|
129,579
|
221,200
|
|
|
860,613
|
|
890,008
|
|
(5
|
%)
|
|
(3
|
%)
|
|
Average silver grade (g/t)
|
172
|
152
|
158
|
165
|
|
|
162
|
|
146
|
|
13
|
%
|
|
11
|
%
|
|
Silver recovery (%)
|
80
|
%
|
77
|
%
|
78
|
%
|
79
|
%
|
|
|
78
|
%
|
|
74
|
%
|
|
4
|
%
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces produced
|
1,093,521
|
978,416
|
509,544
|
924,472
|
|
|
3,505,953
|
|
3,083,410
|
|
12
|
%
|
|
14
|
%
|
|
Gold ounces produced
|
69
|
76
|
45
|
52
|
|
|
241
|
|
190
|
|
(9
|
%)
|
|
27
|
%
|
|
Silver equivalent ounces produced
|
1,098,800
|
984,397
|
514,092
|
929,487
|
|
|
3,526,776
|
|
3,099,717
|
|
12
|
%
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per ounce
|
$10.39
|
$10.14
|
$9.38
|
$10.77
|
|
|
$10.27
|
|
$11.89
|
|
2
|
%
|
|
(14
|
%)
|
|
All-In sustaining costs per ounce
|
$12.37
|
$12.11
|
$11.60
|
$13.31
|
|
|
$12.43
|
|
$13.90
|
|
2
|
%
|
|
(11
|
%)
|
|
Total production cost per tonne
|
$43.72
|
$36.04
|
$36.80
|
$43.82
|
|
|
$40.37
|
|
$40.06
|
|
21
|
%
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underground development (m)
|
888
|
1,191
|
572
|
1,024
|
|
|
3,674
|
|
5,444
|
|
(25
|
%)
|
|
(33
|
%)
|
|
Diamond drilling (m)
|
8,101
|
5,528
|
417
|
4,565
|
|
|
18,611
|
|
17,739
|
|
47%
|
|
|
5%
|
|
2020 vs. 2019
In 2020, La Encantada recorded its highest annual silver production since 2014. During the year, La Encantada produced 3,505,953 ounces of silver and 241 ounces of gold for a total of 3,526,776 silver equivalent ounces, an increase of 14% compared to 3,099,717 silver equivalent ounces in 2019. The increase was primarily due to an 11% increase in silver head grade and a 5% increase in silver recovery, partially offset by a 3% decrease in tonnes milled.
Silver recoveries averaged 78% during the year, compared to 74% in 2019, marking its highest annual recovery rate in the Company’s history as a result of improved blending procedures of stockpiles and processing ore with low manganese content.
Silver grades during the year averaged 162 g/t, an increase of 11% compared to 146 g/t in 2019. The improvement in the grade was driven by higher grades from San Javier and La Prieta.
During the year, cash cost per ounce averaged $10.27 compared to $11.89 per ounce in 2019, and AISC averaged $12.43 per ounce in 2020 compared to $13.90 per ounce in 2019. The decrease was primarily attributed to higher production, a 12% weaker Mexican Peso against the U.S. Dollar compared to the previous year, which was partially offset by higher COVID-19 related medical supplies costs.
A total of 3,674 metres of underground development and 18,611 metres of diamond drilling were completed in 2020 compared to 5,444 metres of underground development and 17,739 metres of diamond drilling in the prior year.
2020Q4 vs. 2020Q3
During the quarter, La Encantada produced 1,093,521 silver ounces, representing a 12% increase in production compared to the previous quarter and the highest silver quarterly production since the second quarter of 2013. Silver grades and
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 21
|
recoveries during the quarter averaged 172 g/t and 80%, respectively, compared to 152 g/t and 77%, respectively, in the previous quarter.
Strong production from the San Javier and La Prieta caving areas contributed approximately 81% of the total silver production during the quarter. Caving production benefited from higher than expected grades and tonnage during the quarter.
Cash cost and AISC for the quarter were $10.39 and $12.37 per ounce, respectively, consistent with $10.14 and $12.11 per ounce in the previous quarter.
The mill modernization project designed to improve processing efficiencies had some installation delays throughout 2020 due to the impacts caused by the COVID-19 pandemic. As a result, the project is expected to continue into 2021 with the installation of new scrubbers for the foundry, main gear replacement and new impellers for two thickener tanks, filter press upgrades and improvements to the electrical control room.
A total of 888 metres of underground development were completed in the fourth quarter compared to 1,191 metres in the prior quarter. During the quarter, ramp development continued to access the Milagros breccia to prepare the mine for initial sub-level caving production in 2021.
During the fourth quarter, one surface drill and three underground drills completed 8,101 metres of drilling compared to 5,528 metres in the previous quarter. Drilling in the quarter was directed towards near mine targets.
The Company is expecting to release an updated NI 43-101 Technical Report on La Encantada by the end of the first quarter of 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 22
|
La Parrilla Silver Mine, Durango, México
The La Parrilla Silver Mine, located approximately 65 kilometres southeast of the city of Durango in Durango State, México, is a complex of producing underground operations consisting of the Rosarios, La Blanca and San Marcos mines which are inter-connected through underground workings, and the Vacas and Quebradillas mines which are connected via above-ground gravel roads. The total mining concessions consist of 69,478 hectares. The Company owns 60 hectares, and leases an additional 107 hectares of surface rights, for a total of 167 hectares of surface rights. La Parrilla includes a 2,000 tpd sequential processing plant consisting of a 1,000 tpd cyanidation circuit and a 1,000 tpd flotation circuit, an ISO certified central laboratory, metallurgical pilot plant, buildings, offices and associated infrastructure. The Company owns 100% of the La Parrilla Silver Mine.
Operations at the La Parrilla mine have been temporarily suspended since September 2019. The Company is currently using the La Parrilla mill and its ISO Certified Laboratory on site as a research and development facility while continuing the exploration in the district.
Del Toro Silver Mine, Zacatecas, México
The Del Toro Silver Mine is located 60 kilometres to the southeast of the Company’s La Parrilla mine and consists of 2,130 hectares of mining concessions and 219 hectares of surface rights. The Del Toro operation represents the consolidation of three historical silver mines, the Perseverancia, San Juan and Dolores mines, which are approximately one and three kilometres apart, respectively. Del Toro includes a 2,000 tpd flotation circuit and a 2,000 tpd cyanidation circuit. First Majestic owns 100% of the Del Toro Silver Mine.
Effective January 2020, the Company has temporarily suspended Del Toro's mining and milling operations in order to improve overall operating cash flows and profit margins while focusing on the exploration program in the area. The exploration program will include drilling to test near mine, brownfield and greenfield targets in an effort to develop new resources necessary to support a potential reopening in the future, subject to a sufficient improvement in mineral economics to justify a restart.
San Martin Silver Mine, Jalisco, México
The San Martin Silver Mine is an underground mine located near the town of San Martin de Bolaños in the Bolaños river valley, in the northern portion of the State of Jalisco, México. San Martin has 33 contiguous mining concessions in the San Martin de Bolaños mining district covering mineral rights for 12,795 hectares, plus an application to acquire a new mining concession covering 24,723 hectares. In addition, the mine owns 160 hectares of surface land where the processing plant, camp, office facilities, maintenance shops, and tailings dams are located, and an additional 640 hectares of surface rights. The 1,300 tpd mill and processing plant consists of crushing, grinding and conventional cyanidation by agitation in tanks and a Merrill-Crowe doré production system. The mine can be accessed via small plane, 150 kilometres from Durango, or 250 kilometres by paved road north of Guadalajara, Jalisco. The San Martin Silver Mine is 100% owned by the Company.
In July 2019, the Company temporarily suspended all mining and processing activities at the San Martin operation due to growing insecurity in the area and safety concerns for our workforce. The Company continues to work with government authorities to secure the area and is evaluating alternative operating plans. The re-opening date is contingent on economics and security conditions in the region and cannot be determined at this time.
La Guitarra Silver Mine, México State, México
The La Guitarra Silver Mine is located in the Temascaltepec Mining District in the State of México, México, approximately 130 kilometres southwest from México City. The La Guitarra mine covers 39,714 hectares of mining claims and has a 500 tpd flotation processing plant, buildings and related infrastructure. The Company owns 100% of the La Guitarra Silver Mine.
The La Guitarra milling and mining operations were placed under care and maintenance effective August 3, 2018 and the Company is currently reviewing strategic options including the potential sale of the operation. The Company will continue with remediation programs to prepare the operation for a potential reopening in the future, subject to sufficient improvement in the economic situation to justify a restart of the operation. Ongoing care and maintenance activities include pumping, de-watering of the underground mine and water treatment continue.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 23
|
Springpole Silver Stream, Ontario, Canada
On July 2, 2020, the Company completed an agreement with First Mining Gold Corp. (“First Mining”) to purchase 50% of the life of mine payable silver produced from the Springpole Gold Project ("Springpole Silver Stream"), a development stage mining project located in Ontario, Canada. Pursuant to the agreement, First Majestic agreed to pay First Mining consideration of $22.5 million in cash and shares, in three milestone payments, for the right to purchase silver at a price of 33% of the silver spot price per ounce, to a maximum of $7.50 per ounce (subject to annual inflation escalation of 2%, commencing at the start of the third anniversary of production). Commencing with its production of silver, First Mining must deliver 50% of the payable silver which it receives from the offtaker within five business days of the end of each quarter.
Transaction consideration paid and payable by First Majestic is summarized as follows:
•The first payment of $10.0 million, consisting of $2.5 million in cash and $7.5 million in First Majestic shares (805,698 common shares) was paid to First Mining on July 2, 2020;
•The second payment of $7.5 million, consisting of $3.75 million in cash and $3.75 million in First Majestic shares (287,300 common shares) was paid in on January 21, 2021 upon the completion and public announcement by First Mining of the results of a Pre-Feasibility Study for Springpole; and
•The third payment consisting of $2.5 million in cash and $2.5 million in First Majestic shares (based on 20 days volume weighted average price) will be paid upon receipt by First Mining of a Federal or Provincial Environmental Assessment approval for Springpole.
First Mining shall have the right to repurchase 50% of the silver stream for $22.5 million at any time prior to the commencement of production at Springpole leaving the Company with a reduced silver stream of 25% of life of mine payable silver production.
Springpole is one of Canada’s largest, undeveloped gold projects with permitting underway. In January 2021, First Mining announced positive results of its Pre-Feasibility Study (“PFS”) which supports a 30,000 tonnes-per-day open pit mining operation over an 11 year mine life. First Mining announced resources of 24.3 million ounces of silver in the Indicated category and 1.4 million ounces of silver in the Inferred category, plus 4.6 million ounces of gold in the Indicated category and 0.3 million ounces of gold in the Inferred category.
The Springpole Project also includes large land holdings of 41,913 hectares which are fully encompassed under the silver streaming agreement.
First Mining is a related party with two independent board members who are directors and/or officers of First Majestic.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 24
|
|
|
|
|
|
|
|
|
OVERVIEW OF FINANCIAL PERFORMANCE
|
For the quarters ended December 31, 2020 and 2019 (in thousands of dollars, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
Fourth Quarter
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Variance %
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$117,075
|
|
|
$96,476
|
|
|
21
|
%
|
(1)
|
|
Mine operating costs
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
58,008
|
|
|
55,033
|
|
|
5
|
%
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Depletion, depreciation and amortization
|
|
15,399
|
|
|
17,502
|
|
|
(12)
|
%
|
(3)
|
|
|
|
73,407
|
|
|
72,535
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Mine operating earnings
|
|
43,668
|
|
|
23,941
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
7,205
|
|
|
7,644
|
|
|
(6)
|
%
|
|
|
Share-based payments
|
|
2,227
|
|
|
1,907
|
|
|
17
|
%
|
|
|
Mine holding costs
|
|
7,017
|
|
|
4,409
|
|
|
59
|
%
|
(4)
|
|
|
|
|
|
|
|
|
|
|
Impairment of non-current assets
|
|
—
|
|
|
58,739
|
|
|
(100)
|
%
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
(2,424)
|
|
|
(1,947)
|
|
|
24
|
%
|
|
|
Operating earnings
|
|
29,643
|
|
|
(46,811)
|
|
|
NM
|
|
|
Fair value adjustment on foreign currency derivatives
|
|
3,880
|
|
|
—
|
|
|
100
|
%
|
(6)
|
|
Investment and other (loss) income
|
|
(2,333)
|
|
|
1,475
|
|
|
NM
|
(7)
|
|
Finance costs
|
|
(3,717)
|
|
|
(3,940)
|
|
|
(6)
|
%
|
|
|
Earnings (loss) before income taxes
|
|
27,473
|
|
|
(49,276)
|
|
|
NM
|
|
|
Current income tax expense
|
|
4,115
|
|
|
10,487
|
|
|
61
|
%
|
|
|
Deferred income tax recovery
|
|
(11,187)
|
|
|
(19,817)
|
|
|
44
|
%
|
|
|
Income tax recovery
|
|
(7,072)
|
|
|
(9,330)
|
|
|
24
|
%
|
(8)
|
|
Net earnings (loss) for the period
|
|
$34,545
|
|
|
($39,946)
|
|
|
NM
|
(9)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share (basic)
|
|
$0.16
|
|
|
($0.19)
|
|
|
NM
|
(9)
|
|
Earnings (loss) per share (diluted)
|
|
$0.15
|
|
|
($0.19)
|
|
|
NM
|
(9)
|
NM - Not meaningful
1.Revenues in the quarter increased 21% compared to the same quarter of the previous year primarily attributed to:
•a 43% increase in realized silver price per ounce sold, which averaged $24.88 during the quarter compared to $17.46 in the fourth quarter of 2019, resulting in a $32.5 million increase in revenues;
Partially offset by:
•a 13% decrease in payable equivalent silver ounces sold compared to the same quarter of the prior year, resulting in a $12.0 million decrease in revenues.
2.Cost of sales in the quarter increased 5% or $3.0 million compared to the same quarter of the previous year as a result of the following factors:
•a $4.0 million increase in labour costs, primarily due to the temporary use of mining contractors to replace vulnerable workers as well as an increase in workers participation benefits and productivity bonus due to negotiated bonus agreements with the San Dimas union;
Partially offset by:
•a $1.0 million decrease due to reclassification of San Martin's standby costs from cost of sales to mine holding cost effective January 1, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 25
|
3.Depletion, depreciation and amortization in the quarter decreased $2.1 million or 12% compared to the same quarter of the previous year, primarily attributed to planned suspension of operating activities at the Del Toro, La Parrilla and San Martin mines, as well as a decrease in depletion, depreciation and amortization at La Encantada due to impairment recognized in the previous year.
4.Mine holding costs increased by $2.6 million compared to the same quarter of 2019, primarily due to planned suspension of operating activities at the Del Toro mine on January 1, 2020 as well as the reclassification of San Martin's standby costs from cost of sales to mine holding costs effective January 1, 2020.
5.Impairment on non-current assets: In the fourth quarter of the prior year, the Company recorded an impairment charge of $58.7 million, or $52.4 million net of tax, in relation to the La Encantada mine.
6.Fair value adjustment on foreign currency derivatives of $3.9 million gain in the fourth quarter relates to mark-to-market adjustments on the Company's foreign currency derivatives, which have been fully settled as at December 31, 2020. The Company utilizes these foreign currency options and swaps to hedge cash flows relating to mining operations, exploration and evaluation activities and corporate expenses in Mexican Pesos.
7.Investment and other income for the quarter decreased $3.8 million compared to the same quarter of 2019 primarily due to a $2.4 million unrealized loss on investment in marketable securities in the current quarter compared to a $1.5 million unrealized gain in the prior year.
8.During the quarter, the Company recorded an income tax recovery of $7.1 million compared to $9.3 million in the fourth quarter of 2019. The decrease in income tax recovery was attributed primarily to a $6.3 million deferred tax recovery recognized in the previous year in relation to impairment on non-current assets, net of foreign exchange impact on the Company's Mexican Peso denominated future income tax liability balances.
9.As a result of the foregoing, net earnings for the quarter was $34.5 million (EPS of $0.16) compared to a net loss of $39.9 million (EPS of ($0.19)) in the same quarter of the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 26
|
For the years ended December 31, 2020, 2019 and 2018 (in thousands of dollars, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
Annual
|
|
Annual
|
|
Variance %
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
20 vs '19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$363,876
|
|
|
$363,944
|
|
|
$300,929
|
|
|
0
|
%
|
(1)
|
|
Mine operating costs
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
194,305
|
|
|
232,146
|
|
|
219,162
|
|
|
(16)
|
%
|
(2)
|
|
Cost of sales - standby costs
|
|
10,112
|
|
|
—
|
|
|
—
|
|
|
100
|
%
|
(3)
|
|
Depletion, depreciation and amortization
|
|
54,405
|
|
|
65,584
|
|
|
93,667
|
|
|
(17)
|
%
|
(4)
|
|
|
|
258,822
|
|
|
297,730
|
|
|
312,829
|
|
|
(13)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine operating earnings (loss)
|
|
105,054
|
|
|
66,214
|
|
|
(11,900)
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
24,855
|
|
|
26,800
|
|
|
21,428
|
|
|
(7)
|
%
|
|
|
Share-based payments
|
|
8,255
|
|
|
8,325
|
|
|
7,375
|
|
|
(1)
|
%
|
|
|
Impairment of non-current assets
|
|
—
|
|
|
58,739
|
|
|
199,688
|
|
|
(100)
|
%
|
(5)
|
|
Acquisition costs
|
|
—
|
|
|
—
|
|
|
4,893
|
|
|
0
|
%
|
|
|
Mine holding costs
|
|
21,583
|
|
|
7,579
|
|
|
2,109
|
|
|
NM
|
(6)
|
|
Loss on divestiture of exploration projects
|
|
3,685
|
|
|
—
|
|
|
—
|
|
|
100
|
%
|
(7)
|
|
Foreign exchange loss (gain)
|
|
6,319
|
|
|
(3,243)
|
|
|
1,874
|
|
|
NM
|
|
|
Operating earnings (loss)
|
|
40,357
|
|
|
(31,986)
|
|
|
(249,267)
|
|
|
NM
|
|
|
Fair value adjustment on foreign currency derivatives
|
|
(982)
|
|
|
—
|
|
|
—
|
|
|
100
|
%
|
|
|
Investment and other income
|
|
5,127
|
|
|
8,109
|
|
|
(744)
|
|
|
(37)
|
%
|
(8)
|
|
Finance costs
|
|
(14,773)
|
|
|
(15,147)
|
|
|
(13,036)
|
|
|
(2)
|
%
|
|
|
Earnings (loss) before income taxes
|
|
29,729
|
|
|
(39,024)
|
|
|
(263,047)
|
|
|
NM
|
|
|
Current income tax expense
|
|
9,966
|
|
|
16,423
|
|
|
2,148
|
|
|
(39)
|
%
|
|
|
Deferred income tax recovery
|
|
(3,324)
|
|
|
(14,973)
|
|
|
(61,031)
|
|
|
78
|
%
|
|
|
Income tax expense (recovery)
|
|
6,642
|
|
|
1,450
|
|
|
(58,883)
|
|
|
NM
|
(9)
|
|
Net earnings (loss) for the year
|
|
$23,087
|
|
|
($40,474)
|
|
|
($204,164)
|
|
|
NM
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share (basic and diluted)
|
|
$0.11
|
|
|
($0.20)
|
|
|
($1.11)
|
|
|
NM
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM - Not meaningful
1.Revenues in the year ended December 31, 2020 was consistent with the previous year, primarily due to the following offsetting factors:
•a 29% increase in realized silver price per ounce sold, which averaged $21.15 during the year compared to $16.40 in the prior year, resulting in a $71.5 million increase in revenues;
•a $2.1 million decrease in smelting and refining charges due to less ounces sold and lower treatment charges for doré production;
Partially offset by:
•a 20% decrease in silver equivalent ounces sold compared to the previous year resulting in a $73.7 million decrease in revenue. The decrease in production was primarily attributed to the temporary COVID-19 Suspension and units operating with limited workforce levels.
2.Cost of sales in the year decreased $37.8 million or 16% compared to 2019 as a result of the following factors:
•a $39.5 million cost reduction relates to planned suspension of operating activities at the Company's higher cost operations including Del Toro and La Parrilla during 2019; and
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 27
|
•a decrease in production costs due to reduction in operational days pursuant to the temporary COVID-19 Suspension during the second quarter,
•cost benefits from a weaker Mexican Peso against the U.S. Dollar, which averaged 12% lower than the previous year;
Partially offset by:
•a $5.2 million increase in workers participation benefits and productivity bonus due to negotiated union bonus agreements and higher profitability margins during the year.
3.Standby costs in the year were primarily related to direct costs incurred at the San Dimas ($3.5 million), Santa Elena ($2.0 million) and La Encantada ($1.7 million) mines during the temporary COVID-19 Suspensions, as well as $2.0 million incurred during a 13-day union work stoppage at San Dimas during the second quarter of 2020.
4.Depletion, depreciation and amortization in the year decreased $11.2 million or 17% compared to the previous year primarily attributed to planned suspension of operating activities at the Del Toro, La Parrilla and San Martin mines.
5.Impairment on non-current assets: In 2019, the Company recorded an impairment charge of $58.7 million, or $52.4 million net of tax, in relation to the La Encantada mine.
6.Mine holding costs for the year increased $14.0 million compared to the previous year due to a full year of suspension of operating activities at the Del Toro, La Parrilla and San Martin mines which were placed on planned suspension in the second half of 2019.
7.Loss on divestiture of exploration projects of $3.7 million during the year relates to $10.2 million loss on the sale of the Plomosas project to GR Silver Mining Ltd. in March 2020, partially offset by $6.5 million gain on the arrangement to option the La Joya project to Silver Dollar Resources Inc. in September 2020.
8.Fair value adjustment on foreign currency derivatives of $1.0 million loss during the year relates to mark-to-market adjustments on the Company's foreign currency derivatives, which have been fully settled as at December 31, 2020. The Company utilizes these foreign currency options and swaps to hedge cash flows relating to mining operations, exploration and evaluation activities and corporate expenses in Mexican Pesos.
9.During the year ended December 31, 2020, the Company recorded an income tax expense of $6.6 million, compared to an income tax expense of $1.5 million in 2019. The increase in income tax expense was primarily driven by increase in operating earnings, a $6.3 million deferred tax recovery recognized in the previous year in relation to impairment on non-current assets, and the foreign exchange impact on the Company's Mexican Peso denominated future income tax liability balances.
10.As a result of the foregoing, net earnings for the year ended December 31, 2020 was $23.1 million (EPS of $0.11), compared to a loss of $40.5 million (EPS of ($0.20)) in the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 28
|
|
|
|
|
|
|
|
|
SUMMARY OF QUARTERLY RESULTS
|
The following table presents selected financial information for each of the most recent eight quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
Selected Financial Information
|
|
Q4
|
Q3
|
Q2
|
Q1
|
|
Q4
|
Q3
|
Q2
|
Q1
|
|
|
|
|
|
|
Revenue
|
|
$117,075
|
|
$125,881
|
|
$34,855
|
|
$86,065
|
|
|
$96,476
|
|
$96,989
|
|
$83,669
|
|
$86,810
|
|
|
|
|
|
|
|
Cost of sales
|
|
$58,008
|
|
$60,275
|
|
$26,187
|
|
$49,835
|
|
|
$55,033
|
|
$54,994
|
|
$62,772
|
|
$59,347
|
|
|
|
|
|
|
|
Cost of sales - standby costs
|
|
$—
|
|
$—
|
|
$9,166
|
|
$946
|
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
|
|
|
|
|
Depletion, depreciation and amortization
|
|
$15,399
|
|
$17,573
|
|
$7,264
|
|
$14,169
|
|
|
$17,502
|
|
$14,181
|
|
$16,691
|
|
$17,210
|
|
|
|
|
|
|
|
Mine operating earnings (loss)
|
|
$43,668
|
|
$48,033
|
|
($7,762)
|
|
$21,115
|
|
|
$23,941
|
|
$27,814
|
|
$4,206
|
|
$10,253
|
|
|
|
|
|
|
|
Net earnings (loss) after tax
|
|
$34,545
|
|
$30,946
|
|
($9,968)
|
|
($32,436)
|
|
|
($39,946)
|
|
$8,559
|
|
($11,967)
|
|
$2,880
|
|
|
|
|
|
|
|
Earnings (loss) per share - basic
|
|
$0.16
|
|
$0.14
|
|
($0.05)
|
|
($0.15)
|
|
|
($0.19)
|
|
$0.04
|
|
($0.06)
|
|
$0.01
|
|
|
|
|
|
|
|
Earnings (loss) per share - diluted
|
|
$0.15
|
|
$0.14
|
|
($0.05)
|
|
($0.15)
|
|
|
($0.19)
|
|
$0.04
|
|
($0.06)
|
|
$0.01
|
|
|
|
|
|
|
During the fourth quarter of 2020, mine operating earnings were $43.7 million compared to $48.0 million in the previous quarter. The decrease in mine operating earnings was primarily due to the third quarter sale of withheld inventories from the second quarter. During the quarter, the Company also recognized a foreign exchange gain of $2.4 million compared to a loss of $5.3 million in the previous quarter. As a result, net earnings for the quarter was $34.5 million compared to $30.9 million in the previous quarter.
|
|
|
|
|
|
|
|
LIQUIDITY, CAPITAL RESOURCES AND CONTRACTUAL OBLIGATIONS
|
Liquidity
As at December 31, 2020, the Company had cash and cash equivalents of $238.6 million, comprised primarily of cash held with reputable financial institutions and is invested in cash accounts and in highly liquid short-term investments with maturities of three months or less. With the exception of $6.4 million held in-trust for tax audits in Mexico, the Company's cash and cash equivalents 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.
Working capital as at December 31, 2020 was $254.4 million compared to $171.1 million at December 31, 2019. Total available liquidity at December 31, 2020 was $319.4 million (see page 45), including $65.0 million of undrawn revolving credit facility.
The following table summarizes the Company's cash flow activity during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Cash flow
|
|
|
|
|
|
|
|
|
Cash generated by operating activities
|
|
|
|
|
$79,713
|
|
|
$140,025
|
|
|
Cash used in investing activities
|
|
|
|
|
(127,115)
|
|
|
(116,934)
|
|
|
Cash generated by financing activities
|
|
|
|
|
116,574
|
|
|
87,680
|
|
|
Increase in cash and cash equivalents
|
|
|
|
|
$69,172
|
|
|
$110,771
|
|
|
Effect of exchange rate on cash and cash equivalents held in foreign currencies
|
|
|
|
|
397
|
|
|
1,225
|
|
|
Cash and cash equivalents, beginning of the year
|
|
|
|
|
169,009
|
|
|
57,013
|
|
|
Cash and cash equivalents, end of year
|
|
|
|
|
$238,578
|
|
|
$169,009
|
|
|
|
|
|
|
|
|
|
|
The Company’s cash flows from operating, investing and financing activities during the year ended December 31, 2020 are summarized as follows:
•Cash generated by operating activities of $79.7 million, primarily due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 29
|
•$107.3 million in operating cash flows from operating activities before movements in working capital and taxes;
net of:
•$22.8 million in net change in non-cash working capital items during the period, including $27.5 million increase in VAT receivables, $4.3 million increase in inventories, net of $10.8 million decrease in trade and other payables; and
•$4.8 million in income taxes paid during the period.
•Cash used in investing activities of $127.1 million, primarily related to:
•$68.6 million spent on mine development and exploration activities;
•$43.3 million spent on purchase of property, plant and equipment; and
•$13.8 million spent on deposits on non-current assets.
•Cash provided by financing activities of $116.6 million, primarily consists of the following:
•$126.1 million of net proceeds from prospectus offerings;
•$14.0 million of net proceeds from the exercise of stock options; and
net of:
•$10.0 million net repayment of debt facility;
•$7.7 million on repayment of lease obligations;
•$4.2 million payment of financing costs; and
•$1.7 million on repurchase of shares.
Reconciliation on Use of Proceeds from Prospectus Offerings
At-the-Market Distributions ("ATM") Programs
During the year ended December 31, 2020, the Company sold 5,654,338 common shares under the ATM programs at an average price of $12.31 for gross proceeds of $69.6 million, or net proceeds of $67.9 million after costs. The primary business objectives that the Company expected to use the net proceeds for was for general working capital purposes, for expansion of existing operations, and for one or more other general corporate purposes including to complete corporate acquisitions, to, directly or indirectly, finance future growth opportunities and to repay existing or future indebtedness. The use of proceeds from the amount raised in the current year is reconciled as follows:
|
|
|
|
|
|
|
|
Gross Proceeds:
|
$67,892
|
|
|
|
|
Use of Proceeds:
|
|
|
Offering expenses
|
1,709
|
|
|
Mine development
|
20,487
|
|
|
Mine exploration
|
25,880
|
|
|
General working capital
|
19,816
|
|
|
|
$67,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 30
|
Prospectus Offering
In September 2020, the Company completed a bought deal prospectus offering to sell 5,000,000 common shares at a price of $11.82 (CAD$15.60) per common share for gross proceeds of $59.1 million (CAD$78.1 million), or net proceeds of $58.3 million after costs. The use of net proceeds from the offering is reconciled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Use of Proceeds:
|
Intended
|
Actual
|
Variance
|
|
Offering expenses
|
$742
|
$853
|
$111
|
|
Ermitaño expansion(1)
|
10,606
|
|
11,335
|
|
729
|
|
|
La Encantada plant upgrades(2)
|
2,576
|
|
1,712
|
|
(864)
|
|
|
Santa Elena plant upgrades(3)
|
5,833
|
|
4,747
|
|
(1,086)
|
|
|
San Dimas plant upgrades(4)
|
11,591
|
|
4,331
|
|
(7,260)
|
|
|
Working capital and general purposes
|
27,742
|
|
36,112
|
|
8,370
|
|
|
|
$59,090
|
$59,090
|
$—
|
(1) Development for the Ermitaño expansion was accelerated during the fourth quarter and the intended proceeds were used in 2020.
(2) Plant upgrades at La Encantada consist of installation of a new HIG mill and mill modernization and are estimated to be complete in the first half of 2022. The remaining balance of proceeds are expected to be expended in 2021 and 2022.
(3) Plant upgrades at Santa Elena consist of installation of HIG mill, AG conversion and dual circuit optimization which are all expected to be complete in the second half of 2021 and installation of a new LNG plant which is expected to be complete in the first quarter of 2021. The remaining balance of proceeds are expected to be expended in 2021.
(4) Plant upgrades at San Dimas consist of mill modernization, which is expected to be complete in the first half of 2022, and assembly and installation of the new HIG mill which is expected to be completed in the second quarter of 2021, followed by commissioning in the fourth quarter of 2021. The remaining balance of proceeds are expected to be expended in 2021 and 2022.
Capital Resources
The Company’s objective when managing capital is to maintain financial flexibility to continue as a going concern while optimizing growth and maximizing returns of investments from shareholders.
The Company monitors its capital structure and based on changes in operations and economic conditions, may adjust the structure by repurchasing shares, issuing new shares, issuing new debt or retiring existing debt. The Company prepares an annual budget and quarterly forecasts to facilitate the management of its capital requirements. The annual budget is approved by the Company’s Board of Directors.
The Company is not subject to any externally imposed capital requirements with the exception of complying with banking covenants defined in its debt facilities. As at December 31, 2020 and 2019, the Company was fully in compliance with these covenants.
Contractual Obligations and Commitments
As at December 31, 2020, the Company’s contractual obligations and commitments are summarized as follows:
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Contractual
Cash Flows
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|
Less than
1 year
|
|
2 to 3
years
|
|
4 to 5
years
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|
After 5 years
|
|
Trade and other payables
|
$76,002
|
|
|
$76,002
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
Debt facilities
|
174,082
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|
|
13,180
|
|
|
160,902
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|
|
—
|
|
|
—
|
|
|
Lease liabilities
|
16,520
|
|
|
4,557
|
|
|
6,562
|
|
|
4,692
|
|
|
709
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|
|
Other liabilities
|
5,406
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|
|
—
|
|
|
—
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|
|
—
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|
|
5,406
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|
|
Purchase obligations and commitments
|
50,541
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|
|
45,541
|
|
|
5,000
|
|
|
—
|
|
|
—
|
|
|
|
$322,551
|
|
|
$139,280
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|
|
$172,464
|
|
|
$4,692
|
|
|
$6,115
|
|
At December 31, 2020, the Company had working capital of $254.4 million (2019 – $171.1 million) and total available liquidity of $319.4 million (2019 – $226.2 million), including $65.0 million of undrawn revolving credit facility.
The Company believes it has sufficient cash on hand, combined with cash flows from operations, to meet operating requirements as they arise for at least the next 12 months.
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First Majestic Silver Corp. 2020 Annual Report
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Page 31
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MANAGEMENT OF RISKS AND UNCERTAINTIES
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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 chartered banks, trade receivables in the ordinary course of business, value added taxes receivable and other receivables.
As at December 31, 2020, value added taxes (“VAT”) receivable was $56.9 million (2019 - $29.6 million), of which $37.9 million (2019 - $14.2 million) relates to Primero Empresa Minera, S.A. de C.V. ("PEM"). Servicio de Administración Tributaria (“SAT”) has not been responsive to VAT refund requests by PEM nor provided any legal basis for withholding these VAT receivables. The Company believes that it has full legal rights to these VAT refunds and expects the amounts to be refunded in the future. As at December 31, 2020, VAT receivables totaling $15.3 million are currently being pursued in Mexican Courts. Due to the uncertain timeline associated with recovery of these amounts, the Company reclassified such amounts as non-current assets though, in the Company's opinion, such amounts are currently due and payable to the Company.
The Company sells and receives payment upon delivery of its silver doré and by-products primarily through three international customers. All of the Company's customers have good ratings and payments of receivables are scheduled, routine and fully received within 60 days of submission; therefore, the balance of trade receivables owed to the Company
in the ordinary course of business is not significant.
The carrying amount of financial assets recorded in the consolidated financial statements represents the Company’s maximum exposure to credit risk. With the exception to the above, the Company believes it is not exposed to significant 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 manages liquidity risk by monitoring actual and projected cash flows and matching the maturity profile of financial assets and liabilities. Cash flow forecasting is performed regularly to ensure that there is sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and our holdings of cash and cash equivalents.
Currency Risk
The Company is exposed to foreign exchange risk primarily relating to financial instruments that are denominated in Canadian dollars or Mexican pesos, which would impact the Company’s net earnings or loss. To manage foreign exchange risk, the Company may occasionally enter into short-term foreign currency derivatives, such as forwards and options, to hedge its cash flows.
The sensitivity of the Company’s net earnings or loss and comprehensive income or loss due to changes in the exchange rates of the Canadian Dollar and the Mexican Peso against the U.S. Dollar is included in the table below:
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December 31, 2020
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|
Cash and cash equivalents
|
|
Trade and other receivables
|
|
Value added taxes receivable
|
|
Other financial assets
|
|
Trade and other payables
|
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Net assets (liabilities) exposure
|
|
Effect of +/- 10% change in currency
|
|
Canadian dollar
|
$75,958
|
|
|
$74
|
|
|
$—
|
|
|
$10,140
|
|
|
($3,133)
|
|
|
|
|
$83,039
|
|
|
$8,304
|
|
|
Mexican peso
|
8,369
|
|
|
—
|
|
|
53,201
|
|
|
—
|
|
|
(42,763)
|
|
|
|
|
18,807
|
|
|
1,881
|
|
|
|
$84,327
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|
|
$74
|
|
|
$53,201
|
|
|
$10,140
|
|
|
($45,896)
|
|
|
|
|
$101,846
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|
|
$10,185
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First Majestic Silver Corp. 2020 Annual Report
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Page 32
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Commodity Price Risk
The Company is exposed to commodity price risk on silver and gold, which have a direct and immediate impact on the value of its related financial instruments and net earnings. The Company’s revenues are directly dependent on commodity prices that have shown volatility and are beyond the Company’s control. The Company does not use derivative instruments to hedge its commodity price risk to silver
The following table summarizes the Company’s exposure to commodity price risk and their impact on net earnings:
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December 31, 2020
|
|
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Effect of +/- 10% change in metal prices
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Silver
|
|
Gold
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals in doré inventory
|
$104
|
|
|
$226
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|
|
|
|
|
|
$330
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|
|
|
$104
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|
|
$226
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|
|
|
|
|
|
$330
|
|
Political and Country Risk
First Majestic currently conducts foreign operations primarily in México, and as such the Company’s operations are exposed to various levels of political and economic risks by factors outside of the Company’s control. These potential factors include, but are not limited to: royalty and tax increases or claims by governmental bodies, expropriation or nationalization, foreign exchange controls, high rates of inflation, extreme fluctuations in foreign currency exchange rates, import and export tariffs and regulations, lawlessness, cancellation or renegotiation of contracts and environmental and permitting regulations. The Company currently has no political risk insurance coverage against these risks.
The Company is unable to determine the impact of these risks on its future financial position or results of operations. Changes, if any, in mining or investment policies or shifts in political attitude in foreign countries may substantively affect the Company’s exploration, development and production activities.
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 (as defined in NI 43-101). Until Mineral Reserves or Mineral Resources are actually mined, extracted and processed, the quantity of minerals and their grades must be considered estimates only. In addition, the quantity of Mineral Reserves and Mineral Resources may vary depending on, among other things, applicable metal prices. Any material change in the quantity of Mineral Reserves, Mineral Resources, grade or mining widths may affect the economic viability of some or all of the Company’s mineral properties and may have a material adverse effect on the Company's operational results and financial condition. Mineral Reserves on the Company’s properties have been calculated on the basis of economic factors at the time of calculation; variations in such factors may have an impact on the amount of the Company’s Mineral Reserves. 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.
Public Health Crises
Global financial conditions and the global economy in general have, at various times in the past and may in the future, experience extreme volatility in response to economic shocks or other events, such as the ongoing situation concerning COVID‐19. Many industries, including the mining industry, are impacted by volatile market conditions in response to the widespread outbreak of epidemics, pandemics or other health crises. Such public health crises and the responses of governments and private actors can result in disruptions and volatility in economies, financial markets and global supply chains as well as declining trade and market sentiment and reduced mobility of people, all of which could impact commodity prices, interest rates, credit ratings, credit risk and inflation.
The Company's business could be materially adversely affected by the effects of the COVID‐19 pandemic. As at the date of this MD&A, the global reactions to the spread of COVID‐19 have led to, among other things, significant restrictions in many jurisdictions on travel and gatherings of individuals, quarantines, temporary business closures and a general reduction in consumer activity. Although quarantines have been lifted in many jurisdictions, certain jurisdictions that have previously lifted quarantines have been required to re-impose them. While these effects are expected to be temporary, the duration of the disruptions to business internationally and the related financial impact on the Company and the economy in general cannot be estimated with any degree of certainty at this time. In addition, the increasing number of individuals infected
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First Majestic Silver Corp. 2020 Annual Report
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Page 33
|
with COVID‐19 has resulted in a widespread global health crisis that has adversely affected global economies and financial markets and could result in a protracted economic downturn that could have an adverse effect on the demand for precious metals and the Company's future prospects.
In particular, the continued spread of COVID‐19 globally could materially and adversely impact the Company's business, including without limitation, employee health, workforce availability and productivity, limitations on travel, supply chain disruptions, increased insurance premiums, increased costs and reduced efficiencies, the availability of industry experts and personnel, restrictions on the Company's exploration and drilling programs and/or the timing to process drill and other metallurgical testing and the slowdown or temporary suspension of operations at some or all of the Company's properties, resulting in reduced production volumes. Although the Company has the capacity to continue certain administrative functions remotely, many other functions, including mining operations, cannot be conducted remotely.
On March 24, 2020, the Mexican federal government implemented a decree imposing certain preventive measures aimed at mitigating the impact of COVID‐19. The decree temporarily suspended certain activities relating to physical gatherings and the transit or movement of individuals and was subsequently amended to restrict access and require the closure of the Company’s mines from April 3, 2020. On May 13, 2020, the Mexican government officially confirmed that mining was deemed essential and operations were permitted to restart on May 18, 2020. On May 23, 2020, Mexican government authorized the Company to restart its mining operations, however, there can be no guarantee that the decree will not be amended in the future to impose more severe measures or restrictions or that state governments in those jurisdictions in which the Company’s facilities are located will not pass similar decrees reducing or preventing access to the Company’s facilities, potentially causing disruption or closure of one or more of the Company’s mines.
As a result of the temporary closures of its facilities the Company experienced loss of production at its facilities during the second and third financial quarters of 2020. As at early November, the Company’s three operating mines had returned to normal operations. Worker availability is a challenge but has been gradually improving and is being mitigated by increasing the use of temporary workers and contractors. The Company is in the process of constructing Polymerase Chain Reaction ("PCR") laboratory test facilities on site at San Dimas and partnering with test labs at Santa Elena to speed up COVID-19 testing capabilities at its mine sites. Preventative control measures to protect the safety and health of our employees, contractors and communities in which we operate, including social distancing, remote working, cancellation of any non-essential visits to the mines, comprehensive sanitation measures for the workplace and company transportation, as well as pre-screening for virus symptoms remain in effect.
There is no guarantee that the Company will not experience significant disruptions to or additional closures of some or all of its active mining operations due to COVID-19 restrictions in the future. Any such disruptions or closures could have a material adverse effect on the Company’s production, revenue, net income and business. In addition, parties with whom the Company does business or on whom the Company is reliant, including suppliers and refineries may also be adversely impacted by the COVID-19 crisis which may in turn cause further disruption to the Company’s business, including delays or halts in availability or delivery of consumables and delays or halts in refining of ore from the Company’s mines. Any long term closures or suspensions may also result in the loss of personnel or the workforce in general as employees seek employment elsewhere.
The impact of COVID‐19 and government responses thereto may also continue to have a material impact on financial markets and could constrain the Company's ability to obtain equity or debt financing in the future, which may have a material and adverse effect on its business, financial condition and results of operations.
Environmental and Health and Safety Risks
The Company’s activities are subject to extensive laws and regulations governing environmental protection and employee health and safety. Environmental laws and regulations are complex and have tended to become more stringent over time. The Company is required to obtain governmental permits and in some instances air, water quality, and mine reclamation rules and permits. The Company has complied with environmental taxes applied to the use of certain fossil fuels according to the Kyoto Protocol. Although the Company makes provisions for reclamation costs, it cannot be assured that these provisions will be adequate to discharge its future obligations for these costs. Failure to comply with applicable environmental and health and safety laws may result in injunctions, damages, suspension or revocation of permits and imposition of penalties. While the health and safety of our people and responsible environmental stewardship are our top priorities, there can be no assurance that First Majestic has been or will be at all times in complete compliance with such laws, regulations and permits, or that the costs of complying with current and future environmental and health and safety laws and permits will not materially and adversely affect the Company’s business, results of operations or financial condition.
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First Majestic Silver Corp. 2020 Annual Report
|
Page 34
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Claims and Legal Proceedings Risks
The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of business activities. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements or information and the Company has made assumptions and estimates based on or related to many of these factors. Such factors include, without limitation: availability of time on court calendars in Canada and elsewhere; the recognition of Canadian judgments under Mexican law; the possibility of settlement discussions; the risk of appeal of judgment; and the insufficiency of the defendant’s assets to satisfy the judgment amount. Each of these matters is subject to various uncertainties and it is possible that some of these matters may be resolved unfavourably to the Company. First Majestic carries liability insurance coverage and establishes provisions for matters that are probable and can be reasonably estimated. In addition, the Company may be involved in disputes with other parties in the future which may result in a significant impact on our financial condition, cash flow and results of operations.
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. However, management is not aware of any such agreements, transfers or defects.
Primero Tax Rulings
When Primero Mining Corp. ("Primero") acquired the San Dimas Mine in August 2010, it had a Silver Purchase Agreement (“Old Stream Agreement”) that required PEM to sell 100% of the silver produced from the San Dimas mine to WPM, up to 6 million ounces and 50% of silver produced thereafter, at the lower of: (i) the spot market price and (ii) $4.04 per ounce plus an annual increase of 1%.
In order to reflect commercial realities and the effects of the Old Stream Agreement, for Mexican income tax purposes, PEM recognized the revenue on these silver sales based on its actual realized revenue (“PEM Realized Price”) instead of at spot market prices.
To obtain assurance that the SAT would accept the PEM Realized Price as the price to use to calculate Mexican income taxes, Primero applied for and received an Advance Pricing Agreement (“APA”) from the SAT. The APA confirmed that the PEM Realized Price would be used as Primero’s basis for calculating taxes owed by Primero on the silver sold under the Old Stream Agreement. Primero believed that the intent of an APA was to have SAT provide tax certainty and as a result made significant investments in Mexico based on that certainty. On October 4, 2012, Primero received the APA Ruling from SAT which confirmed the appropriate price for sales of silver under the Old Stream Agreement was the PEM Realized Price. Under Mexican tax law, an APA ruling is generally applicable for a five year period and this ruling was made effective for 2010 to 2014.
In February 2016, PEM received a legal claim from the SAT seeking to nullify the APA. The legal claim initiated does not identify any different basis for paying taxes. The Company is continuing PEM's effort to vigorously defend the validity of its APA. If the SAT were successful in retroactively nullifying the APA, the SAT may seek to audit and reassess PEM in respect of its sales of silver in connection with the Old Stream Agreement for 2010 through 2014. If the SAT were successful in retroactively nullifying the APA and issuing reassessments, it would likely have a material adverse effect on the Company’s results of operations, financial condition and cash flows. Should the Company ultimately be required to pay tax on its silver revenues based on market prices without any mitigating adjustments, the incremental income tax for the years 2010-2018 would be approximately $219.2 million (4,373 million MXN), before interest or penalties.
In 2019, as part of the ongoing annual audits of the PEM tax returns, the SAT issued reassessments (the "Reassessments") for the 2010 to 2012 tax years in the total amount of $246.6 million (4,919 million MXN) inclusive of interest, inflation, and penalties. The Company believes that the Reassessments were issued in violation of the terms of the APA. The key items relate to the view that PEM should pay taxes based on the market price of silver and denial of the deductibility of interest expense and service fees in Mexico all of which the Company disagrees with. The Company continues to defend the APA in the Mexican legal proceedings, and initiated proceedings under relevant tax treaties between the competent tax authorities of Mexico, Canada, Luxembourg and Barbados, all of which were subsequently dismissed on a unilateral basis by the SAT ("Dismissals") in May 2020. The Company believes that the Dismissals have no legal basis and breach international obligations regarding double taxation treaties, and that the APA remains valid and legally binding. The Company will continue disputing the Reassessments, exhausting its domestic and international remedies.
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First Majestic Silver Corp. 2020 Annual Report
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Page 35
|
While the Company continues to vigorously defend the validity of the APA and its transfer pricing position, it is also engaging in various proceedings with the SAT seeking to resolve matters and bring tax certainty through a negotiated solution. Despite these extensive efforts and ongoing legal challenges to the Reassessments and the Dismissals, in April 2020, SAT issued notifications to PEM to attempt to secure amounts it claims are owed pursuant to its reassessments issued. These notifications impose certain restrictions on PEM including its ability to dispose its concessions and real properties.
The Company has challenged SAT’s Reassessments and Dismissals through all domestic means available to it, including annulment suits before the Mexican Federal Tax Court on Administrative Matters ("Federal Court"), which has yet to be resolved, and a complaint before Mexico’s Federal Taxpayer Defense Attorney's Office (known as “PRODECON”), which determined that PEM has all legal remedies at its disposal and it has already challenged every SAT ruling, thus the matter must be decided by Mexican Courts. The Company believes that these actions are neither fair nor equitable and are discriminatory against the Company as a foreign investor and amount to a denial of justice under international law, in addition to violating various provisions of the Federal Constitution of the United Mexican States and Mexican domestic law, and Mexican court precedents. As a result, on May 13, 2020, the Company provided to the Government of Mexico notice of its intention to initiate an international arbitration proceeding (“Notice of Intent”) pursuant to the North American Free Trade Agreement (“NAFTA”). The Notice of Intent initiated a 90-day period for the Government of Mexico to enter into good faith and amicable negotiations with the Company to resolve the dispute. On August 11, 2020, the 90-day period expired without any resolution of the dispute.
In September 2020, the Company was served with a decision made by the Federal Court to nullify the APA granted to PEM. The Federal Court’s decision directs SAT to re-examine the evidence and basis for the issuance of the APA with retroactive effect, for the following key reasons:
(i) SAT’s errors in analyzing PEM’s request for the APA and the evidence provided in support of the request; and
(ii) SAT’s failure to request from PEM certain additional information before issuing the APA.
The Company’s legal advisors reviewed the written reasons and are of the view that the Federal Court’s decision is flawed both due to SAT's procedural irregularities and failure to address the relevant evidence and legal authorities. In addition, they consider that the laws applied to PEM in the decision are unconstitutional. As a result, the Company filed an appeal of the decision to the Mexican Circuit Courts on November 30, 2020. The Company is unable to provide any certainty as to the outcome or timing of such challenge. No tax is payable under the Reassessments while such challenges are in process.
Based on the Company’s assessments with third party advisors, the Company believes Primero filed its tax returns compliant with applicable Mexican law and, therefore, no liability has been recognized in the financial statements.
To the extent it is ultimately determined that the appropriate price of silver sales under the Old Stream Agreement is significantly different from the PEM Realized Price and while PEM would have rights of appeal in connection with any reassessments, it is likely to have a material effect on the Company’s business, financial position and results of operations.
La Encantada Tax Re-assessments
In December 2019, as part of the ongoing annual audits of the tax returns of Minera La Encantada S.A. de C.V. (“MLE”), the SAT issued tax assessments for fiscal 2012 and 2013 in the amount of $7.8 million (155.5 million MXN) and $6.3 million (126.6 million MXN), respectively. The key items relate to a forward silver purchase agreement and denial of the deductibility of mine development costs and service fees. The Company continues to defend the validity of the forward silver purchase agreement and will vigorously dispute the assessments that have been issued. The Company believes MLE’s tax filings were appropriate and its tax filing position is correct, therefore no liability has been recognized in the financial statements. The Company’s legal and financial advisors continue to believe that the Company has filed its tax returns in compliance with applicable Mexican law.
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OTHER FINANCIAL INFORMATION
|
Share Repurchase Program
The Company has an ongoing share repurchase program to repurchase up to 5% of the Company’s issued and outstanding shares. The normal course issuer bids will be carried through the facilities of the Toronto Stock Exchange and alternative Canadian marketplaces.
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First Majestic Silver Corp. 2020 Annual Report
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Page 36
|
During the year ended December 31, 2020, the Company repurchased and cancelled 275,000 common shares for a total consideration of $1.7 million, an average price of CAD$8.56 per share, through a normal course issuer bid in the open market as approved by the Toronto Stock Exchange.
Off-Balance Sheet Arrangements
At December 31, 2020, the Company had no material off-balance sheet arrangements such as 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 contingent liabilities and vendor liability and interest, as disclosed in this MD&A and the consolidated financial statements and the related notes.
Related Party Disclosures
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.
In July 2020, the Company completed the agreement with First Mining Gold Corp., to purchase 50% of the payable silver produced from the Springpole Gold Project for total consideration of $22.5 million in cash and shares, over three payments, for the silver stream which covers the life of the Springpole project (see "Corporate Development Highlights"). First Mining is a related party with two independent board members who are directors and/or officers of First Majestic.
With the exception of the agreement with First Mining Gold Corp., there were no transactions with related parties outside of the ordinary course of business during the year ended December 31, 2020.
Outstanding Share Data
As at February 17, 2021, the Company has 222,660,666 common shares issued and outstanding.
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ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
|
Critical Accounting Judgments and Estimates
The preparation of consolidated financial statements in conformity with IFRS as issued by IASB requires management to make judgments, estimates and assumptions about future events that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, events or actions, actual results may differ from these estimates. During the year ended December 31, 2020, there were no changes in critical accounting judgments and estimates that were significantly different from those disclosed in the Company's annual MD&A as at and for the year ended December 31, 2019.
Future Changes in Accounting Policies Not Yet Effective as at December 31, 2020
Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The amendments in Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) introduce a practical expedient for modifications required by the reform, clarify that hedge accounting is not discontinued solely because of the IBOR reform, and introduce disclosures that allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition.
The amendments are applied on or after the first annual reporting period beginning on or after January 1, 2021, with early application permitted. This amendment is not expected to have a material impact on the Company’s financial statements.
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.
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First Majestic Silver Corp. 2020 Annual Report
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Page 37
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The amendments are applied on or after the first annual reporting period beginning on or after January 1, 2022, with early application permitted. The amendments are applied retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the Company first applies the amendments. The Company will recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings at the beginning of that earliest period presented. This amendment will impact the Company’s accounting for proceeds from mineral sales prior to reaching commercial production levels intended by management.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current.
The amendments are applied on or after the first annual reporting period beginning on or after January 1, 2023, with early application permitted. This amendment is not expected to have a material impact on the Company’s financial statements.
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First Majestic Silver Corp. 2020 Annual Report
|
Page 38
|
The Company has included certain non-GAAP measures including “Cash costs per ounce”, “Production cost per tonne”, “All-in sustaining costs per ounce”, “Average realized silver price”, “Adjusted earnings per share”, “Cash flow per share” and "Working capital” to supplement its consolidated financial statements, which are presented in accordance with IFRS. The terms IFRS and generally accepted accounting principles (“GAAP”) are used interchangeably throughout this MD&A.
The Company believes that these measures, together with measures determined in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the Company. Non-GAAP measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Cash Cost per Ounce, All-In Sustaining Cost per Ounce and Production Cost per Tonne
Cash costs per ounce and total production cost per tonne are non-GAAP measures used by the Company to manage and evaluate operating performance at each of the Company’s operating mining units, and are widely reported in the mining industry as benchmarks for performance, but do not have a standardized meaning and are disclosed in addition to IFRS measures.
All-in sustaining cost (“AISC”) is a non-GAAP measure and was calculated based on guidance provided by the World Gold Council (“WGC”). WGC is not a regulatory industry organization and does not have the authority to develop accounting standards for disclosure requirements. Other mining companies may calculate AISC differently as a result of differences in underlying accounting principles and policies applied, as well as differences in definitions of sustaining versus expansionary capital expenditures. AISC is a more comprehensive measure than cash cost per ounce for the Company’s consolidated operating performance by providing greater visibility, comparability and representation of the total costs associated with producing silver from its current operations.
The Company defines sustaining capital expenditures as, “costs incurred to sustain and maintain existing assets at current productive capacity and constant planned levels of productive output without resulting in an increase in the life of assets, future earnings, or improvements in recovery or grade. Sustaining capital includes costs required to improve/enhance assets to minimum standards for reliability, environmental or safety requirements. Sustaining capital expenditures excludes all expenditures at the Company’s new projects and certain expenditures at current operations which are deemed expansionary in nature.”
Expansionary capital expenditure is defined as, "costs incurred to extend existing assets beyond their current productive capacity and beyond their planned levels of productive output, resulting in an increase in the life of the assets, increasing their future earnings potential, or improving their recoveries or grades which would serve to increase the value of the assets over their useful lives". Development and exploration work which moves inferred resources to measured or indicated resources and adds to the Net Present Value of the assets is considered expansionary in nature. Expansionary capital also includes costs required to improve/enhance assets beyond their minimum standard for reliability, environmental or safety requirements.
Consolidated AISC includes total production cash costs incurred at the Company’s mining operations, which forms the basis of the Company’s total cash costs. Additionally, the Company includes sustaining capital expenditures, corporate general and administrative expense, share-based payments, operating lease payments and reclamation cost accretion. AISC by mine does not include certain corporate and non-cash items such as general and administrative expense and share-based payments. The Company believes this measure represents the total sustainable costs of producing silver from current operations, and provides additional information of the Company’s operational performance and ability to generate cash flows. As the measure seeks to reflect the full cost of silver production from current operations, new project and expansionary capital at current operations are not included. Certain other cash expenditures, including tax payments, dividends and financing costs are also not included.
Effective January 1, 2021, the Company is transitioning its cost reporting from Cost per Payable Silver Ounce to Cost per Payable Silver Equivalent Ounce ("AgEq Oz") basis. Management believes the change to using Payable AgEq Oz will provide management and investors with an improved ability to evaluate operating performance of the Company, as it eliminates volatility in Cash Cost and AISC per ounce due to market volatility in silver and gold prices as well as timing of by-product credit sales.
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First Majestic Silver Corp. 2020 Annual Report
|
Page 39
|
The following tables provide detailed reconciliations of these measures to cost of sales, as reported in notes to our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expressed in thousands of U.S. Dollars,
except ounce and per ounce amounts)
|
Three Months Ended December 31, 2020
|
|
San Dimas
|
Santa Elena
|
La Encantada
|
|
|
|
|
Consolidated
|
|
Mining cost
|
$12,669
|
|
$4,461
|
|
$3,106
|
|
|
|
|
|
$20,236
|
|
|
Milling cost
|
6,028
|
|
6,308
|
|
4,573
|
|
|
|
|
|
16,909
|
|
|
Indirect cost
|
9,497
|
|
3,757
|
|
3,183
|
|
|
|
|
|
16,437
|
|
|
Total production cost (A)
|
$28,194
|
|
$14,526
|
|
$10,862
|
|
|
|
|
|
$53,582
|
|
|
Add: transportation and other selling cost
|
433
|
|
134
|
|
160
|
|
|
|
|
|
784
|
|
|
Add: smelting and refining cost
|
471
|
|
107
|
|
241
|
|
|
|
|
|
819
|
|
|
Add: environmental duty and royalties cost
|
425
|
|
97
|
|
141
|
|
|
|
|
|
665
|
|
|
Total cash cost before by-product credits (B)
|
$29,523
|
|
$14,864
|
|
$11,404
|
|
|
|
|
|
$55,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct gold by-product credits (C)
|
($23,256)
|
|
($9,981)
|
|
($93)
|
|
|
|
|
|
($33,328)
|
|
|
Total cash cost (D = B - C)
|
$6,267
|
|
$4,883
|
|
$11,311
|
|
|
|
|
|
$22,522
|
|
|
Workers’ participation
|
3,103
|
|
55
|
|
87
|
|
|
|
|
|
3,245
|
|
|
General and administrative expenses
|
—
|
|
—
|
|
—
|
|
|
|
|
|
6,727
|
|
|
Share-based payments
|
—
|
|
—
|
|
—
|
|
|
|
|
|
2,227
|
|
|
Accretion of decommissioning liabilities
|
149
|
|
78
|
|
125
|
|
|
|
|
|
623
|
|
|
Sustaining capital expenditures
|
9,999
|
|
3,636
|
|
1,298
|
|
|
|
|
|
17,507
|
|
|
Operating lease payments
|
58
|
|
963
|
|
646
|
|
|
|
|
|
2,024
|
|
|
All-In Sustaining Costs (E)
|
$19,576
|
|
$9,615
|
|
$13,467
|
|
|
|
|
|
$54,875
|
|
|
Payable silver ounces produced (F)
|
1,940,315
|
|
417,735
|
|
1,089,147
|
|
|
|
|
|
3,447,196
|
|
|
Payable silver equivalent ounces produced (G)
|
3,475,323
|
|
900,729
|
|
1,094,268
|
|
|
|
|
|
5,470,319
|
|
|
Tonnes milled (H)
|
208,648
|
|
168,276
|
|
248,408
|
|
|
|
|
|
625,332
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable silver ounce, before by-product credits (B/F)
|
$15.22
|
|
$35.58
|
|
$10.47
|
|
|
|
|
|
$16.20
|
|
|
Cash cost per payable silver ounce (D/F)
|
$3.23
|
|
$11.69
|
|
$10.39
|
|
|
|
|
|
$6.53
|
|
|
AISC per payable silver ounce (E/F)
|
$10.09
|
|
$23.02
|
|
$12.37
|
|
|
|
|
|
$15.92
|
|
|
Production cost per tonne (A/H)
|
$135.13
|
|
$86.32
|
|
$43.72
|
|
|
|
|
|
$85.68
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable AgEq Oz (B/G)
|
$8.49
|
|
$16.50
|
|
$10.42
|
|
|
|
|
|
$10.21
|
|
|
AISC per payable AgEq Oz ((E+C)/G)
|
$12.32
|
|
$21.76
|
|
$12.39
|
|
|
|
|
|
$16.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expressed in thousands of U.S. Dollars,
except ounce and per ounce amounts)
|
|
Three Months Ended December 31, 2019
|
|
San Dimas
|
Santa Elena
|
La Encantada
|
|
|
Del Toro
|
|
Consolidated
|
|
Mining cost
|
$9,803
|
|
$4,410
|
|
$2,653
|
|
|
|
$964
|
|
|
$17,830
|
|
|
Milling cost
|
4,664
|
|
6,486
|
|
4,394
|
|
|
|
705
|
|
|
16,249
|
|
|
Indirect cost
|
8,714
|
|
2,629
|
|
2,661
|
|
|
|
1,169
|
|
|
15,173
|
|
|
Total production cost (A)
|
$23,182
|
|
$13,524
|
|
$9,708
|
|
|
|
$2,838
|
|
|
$49,252
|
|
|
Add: transportation and other selling cost
|
317
|
|
81
|
|
83
|
|
|
|
52
|
|
|
641
|
|
|
Add: smelting and refining cost
|
448
|
|
162
|
|
203
|
|
|
|
138
|
|
|
951
|
|
|
Add: environmental duty and royalties cost
|
202
|
|
127
|
|
34
|
|
|
|
7
|
|
|
370
|
|
|
Total cash cost before by-product credits (B)
|
$24,149
|
|
$13,894
|
|
$10,028
|
|
|
|
$3,035
|
|
|
$51,214
|
|
|
Deduct by-product credits attributed to:
|
|
|
|
|
|
|
|
|
|
Gold by-product credits
|
(22,895)
|
|
(14,759)
|
|
(74)
|
|
|
|
3
|
|
|
(37,725)
|
|
|
Lead by-product credits
|
—
|
|
—
|
|
—
|
|
|
|
(788)
|
|
|
(795)
|
|
|
Zinc by-product credits
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
|
(50)
|
|
|
Total by-product credits (C)
|
($22,895)
|
|
($14,759)
|
|
($74)
|
|
|
|
($785)
|
|
|
($38,570)
|
|
|
Total cash cost (D = B - C)
|
$1,254
|
|
($865)
|
|
$9,954
|
|
|
|
$2,250
|
|
|
$12,644
|
|
|
Workers’ participation
|
1,930
|
|
59
|
|
78
|
|
|
|
45
|
|
|
2,413
|
|
|
General and administrative expenses
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
|
7,230
|
|
|
Share-based payments
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
|
1,907
|
|
|
Accretion of decommissioning liabilities
|
186
|
|
52
|
|
148
|
|
|
|
55
|
|
|
603
|
|
|
Sustaining capital expenditures
|
8,879
|
|
2,818
|
|
1,645
|
|
|
|
679
|
|
|
15,090
|
|
|
Operating lease payments
|
57
|
|
205
|
|
637
|
|
|
|
25
|
|
|
1,198
|
|
|
All-In Sustaining Costs (E)
|
$12,306
|
|
$2,269
|
|
$12,462
|
|
|
|
$3,054
|
|
|
$41,085
|
|
|
Payable silver ounces produced (F)
|
1,657,891
|
|
618,702
|
|
983,680
|
|
|
|
78,614
|
|
|
3,338,887
|
|
|
Payable silver equivalent ounces produced (G)
|
3,514,359
|
|
1,590,805
|
|
987,779
|
|
|
|
123,491
|
|
|
6,216,434
|
|
|
Tonnes milled (H)
|
182,265
|
|
196,640
|
|
221,049
|
|
|
|
26,528
|
|
|
626,482
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable silver ounce, before by-product credits (B/F)
|
$14.55
|
|
$22.46
|
|
$10.19
|
|
|
|
$38.60
|
|
|
$15.33
|
|
|
Cash cost per payable silver ounce (D/F)
|
$0.74
|
|
($1.40)
|
|
$10.12
|
|
|
|
$28.62
|
|
|
$3.73
|
|
|
AISC per payable silver ounce (E/F)
|
$7.41
|
|
$3.66
|
|
$12.67
|
|
|
|
$38.84
|
|
|
$12.25
|
|
|
Production cost per tonne (A/H)
|
$127.19
|
|
$68.77
|
|
$43.92
|
|
|
|
$106.99
|
|
|
$78.62
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable AgEq Oz (B/G)
|
$6.86
|
|
$8.73
|
|
$10.15
|
|
|
|
$24.58
|
|
|
$8.23
|
|
|
AISC per payable AgEq Oz ((E+C)/G)
|
$10.01
|
|
$10.70
|
|
$12.69
|
|
|
|
$31.09
|
|
|
$12.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expressed in thousands of U.S. Dollars,
except ounce and per ounce amounts)
|
Year Ended December 31, 2020
|
|
San Dimas
|
Santa Elena
|
La Encantada
|
|
|
|
|
Consolidated
|
|
Mining cost
|
$40,662
|
|
$15,952
|
|
$9,597
|
|
|
|
|
|
$66,211
|
|
|
Milling cost
|
19,318
|
|
23,187
|
|
15,335
|
|
|
|
|
|
57,840
|
|
|
Indirect cost
|
31,232
|
|
11,088
|
|
9,813
|
|
|
|
|
|
52,133
|
|
|
Total production cost (A)
|
$91,212
|
|
$50,227
|
|
$34,746
|
|
|
|
|
|
$176,185
|
|
|
Add: transportation and other selling cost
|
1,224
|
|
397
|
|
425
|
|
|
|
|
|
2,288
|
|
|
Add: smelting and refining cost
|
1,604
|
|
434
|
|
749
|
|
|
|
|
|
2,800
|
|
|
Add: environmental duty and royalties cost
|
1,278
|
|
395
|
|
337
|
|
|
|
|
|
2,010
|
|
|
Total cash cost before by-product credits (B)
|
$95,318
|
|
$51,453
|
|
$36,257
|
|
|
|
|
|
$183,283
|
|
|
Deduct by-product credits attributed to:
|
|
|
|
|
|
|
|
|
|
Gold by-product credits
|
(82,252)
|
|
(41,630)
|
|
(382)
|
|
|
|
|
|
(124,264)
|
|
|
Lead by-product credits
|
—
|
|
—
|
|
—
|
|
|
|
|
|
(74)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct gold by-product credits (C)
|
($82,252)
|
|
($41,630)
|
|
($382)
|
|
|
|
|
|
($124,338)
|
|
|
Total cash cost (D = B - C)
|
$13,066
|
|
$9,823
|
|
$35,875
|
|
|
|
|
|
$58,945
|
|
|
Workers’ participation
|
13,663
|
|
206
|
|
377
|
|
|
|
|
|
14,245
|
|
|
General and administrative expenses
|
—
|
|
—
|
|
—
|
|
|
|
|
|
22,977
|
|
|
Share-based payments
|
—
|
|
—
|
|
—
|
|
|
|
|
|
8,255
|
|
|
Accretion of decommissioning liabilities
|
565
|
|
295
|
|
477
|
|
|
|
|
|
2,362
|
|
|
Sustaining capital expenditures
|
28,361
|
|
10,033
|
|
4,112
|
|
|
|
|
|
49,003
|
|
|
Operating lease payments
|
291
|
|
1,252
|
|
2,573
|
|
|
|
|
|
5,349
|
|
|
All-In Sustaining Costs (E)
|
$55,946
|
|
$21,609
|
|
$43,414
|
|
|
|
|
|
$161,136
|
|
|
Payable silver ounces produced (F)
|
6,396,467
|
|
1,691,068
|
|
3,491,929
|
|
|
|
|
|
11,579,464
|
|
|
Payable silver equivalent ounces produced (G)
|
12,664,191
|
|
4,177,527
|
|
3,512,127
|
|
|
|
|
|
20,353,844
|
|
|
Tonnes milled (H)
|
713,064
|
|
640,276
|
|
860,613
|
|
|
|
|
|
2,213,954
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable silver ounce, before by-product credits (B/F)
|
$14.90
|
|
$30.43
|
|
$10.38
|
|
|
|
|
|
$15.83
|
|
|
Cash cost per payable silver ounce (D/F)
|
$2.04
|
|
$5.81
|
|
$10.27
|
|
|
|
|
|
$5.09
|
|
|
AISC per payable silver ounce (E/F)
|
$8.75
|
|
$12.78
|
|
$12.43
|
|
|
|
|
|
$13.92
|
|
|
Production cost per tonne (A/H)
|
$127.91
|
|
$78.44
|
|
$40.37
|
|
|
|
|
|
$79.59
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable AgEq Oz (B/G)
|
$7.53
|
|
$12.32
|
|
$10.32
|
|
|
|
|
|
$9.00
|
|
|
AISC per payable AgEq Oz ((E+C)/G)
|
$10.91
|
|
$15.14
|
|
$12.47
|
|
|
|
|
|
$14.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Production costs in the year ended December 31, 2020 exclude standby costs related to COVID-19 Suspensions at San Dimas ($3.5 million), Santa Elena ($2.0 million) and La Encantada ($1.7 million), as well as the 13-day union work stoppage at San Dimas ($2.0 million).
|
|
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|
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|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expressed in thousands of U.S. Dollars, except ounce and per ounce amounts)
|
Twelve Months Ended December 31, 2019
|
|
San Dimas
|
Santa Elena
|
La Encantada
|
San Martin
|
La Parrilla
|
Del Toro
|
|
Consolidated
|
|
Mining cost
|
$39,230
|
|
$17,922
|
|
$8,374
|
|
$3,390
|
|
$5,097
|
|
$3,621
|
|
|
$77,633
|
|
|
Milling cost
|
20,568
|
|
25,473
|
|
18,139
|
|
3,210
|
|
4,671
|
|
2,734
|
|
|
74,796
|
|
|
Indirect cost
|
31,420
|
|
9,330
|
|
9,141
|
|
2,690
|
|
3,467
|
|
4,070
|
|
|
60,118
|
|
|
Total production cost (A)
|
$91,219
|
|
$52,725
|
|
$35,654
|
|
$9,290
|
|
$13,235
|
|
$10,425
|
|
|
$212,548
|
|
|
Add: transportation and other selling cost
|
1,138
|
|
258
|
|
302
|
|
85
|
|
558
|
|
178
|
|
|
2,737
|
|
|
Add: smelting and refining cost
|
1,234
|
|
526
|
|
670
|
|
142
|
|
1,812
|
|
508
|
|
|
4,892
|
|
|
Add: environmental duty and royalties cost
|
739
|
|
472
|
|
102
|
|
52
|
|
45
|
|
27
|
|
|
1,437
|
|
|
Total cash cost before by-product credits (B)
|
$94,330
|
|
$53,981
|
|
$36,728
|
|
$9,569
|
|
$15,650
|
|
$11,138
|
|
|
$221,614
|
|
|
Deduct by-product credits attributed to:
|
|
|
|
|
|
|
|
|
|
Gold by-product credits
|
(85,468)
|
|
(55,211)
|
|
(197)
|
|
(2,105)
|
|
(42)
|
|
(6)
|
|
|
(143,029)
|
|
|
Lead by-product credits
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,997)
|
|
(2,991)
|
|
|
(6,988)
|
|
|
Zinc by-product credits
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,517)
|
|
—
|
|
|
(3,517)
|
|
|
Total by-product credits (C)
|
($85,468)
|
|
($55,211)
|
|
($197)
|
|
($2,105)
|
|
($7,556)
|
|
($2,997)
|
|
|
($153,534)
|
|
|
Total cash cost (D = B - C)
|
$8,862
|
|
($1,230)
|
|
$36,531
|
|
$7,464
|
|
$8,094
|
|
$8,141
|
|
|
$68,080
|
|
|
Workers’ participation
|
7,552
|
|
209
|
|
313
|
|
489
|
|
244
|
|
99
|
|
|
9,036
|
|
|
General and administrative expenses
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
25,164
|
|
|
Share-based payments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
8,325
|
|
|
Accretion of decommissioning liabilities
|
744
|
|
207
|
|
591
|
|
237
|
|
282
|
|
219
|
|
|
2,409
|
|
|
Sustaining capital expenditures
|
28,378
|
|
7,842
|
|
4,546
|
|
2,091
|
|
4,937
|
|
2,322
|
|
|
51,203
|
|
|
Operating lease payments
|
221
|
|
318
|
|
701
|
|
112
|
|
99
|
|
99
|
|
|
2,397
|
|
|
All-In Sustaining Costs (E)
|
$45,757
|
|
$7,346
|
|
$42,682
|
|
$10,393
|
|
$13,656
|
|
$10,880
|
|
|
$166,614
|
|
|
Payable silver ounces produced (F)
|
6,302,519
|
|
2,433,169
|
|
3,071,077
|
|
555,039
|
|
519,311
|
|
288,073
|
|
|
13,169,187
|
|
|
Payable silver equivalent ounces produced (G)
|
13,824,712
|
|
6,309,961
|
|
3,086,895
|
|
691,780
|
|
999,117
|
|
457,850
|
|
|
25,370,314
|
|
|
Tonnes milled (H)
|
691,576
|
|
875,435
|
|
890,008
|
|
101,362
|
|
167,535
|
|
106,083
|
|
|
2,831,999
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable silver ounce, before by-product credits (B/F)
|
$14.97
|
|
$22.19
|
|
$11.96
|
|
$17.24
|
|
$30.14
|
|
$38.66
|
|
|
$16.83
|
|
|
Cash cost per payable silver ounce (D/F)
|
$1.41
|
|
($0.51)
|
|
$11.89
|
|
$13.45
|
|
$15.59
|
|
$28.26
|
|
|
$5.16
|
|
|
AISC per payable silver ounce (E/F)
|
$7.26
|
|
$3.02
|
|
$13.90
|
|
$18.73
|
|
$26.29
|
|
$37.77
|
|
|
$12.64
|
|
|
Production cost per tonne (A/H)
|
$131.90
|
|
$60.23
|
|
$40.06
|
|
$91.65
|
|
$78.99
|
|
$98.29
|
|
|
$75.05
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash cost per payable AgEq Oz (B/G)
|
$6.82
|
|
$8.55
|
|
$11.90
|
|
$13.83
|
|
$15.66
|
|
$24.33
|
|
|
$8.74
|
|
|
AISC per payable AgEq Oz ((E+C)/G)
|
$9.49
|
|
$9.91
|
|
$13.89
|
|
$18.07
|
|
$21.23
|
|
$30.31
|
|
|
$12.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 43
|
Average Realized Silver Price per Ounce
Revenues are presented as the net sum of invoiced revenues related to delivered shipments of silver doré bars and concentrates, including associated metal by-products of gold, lead and zinc after having deducted refining and smelting charges, and after elimination of intercompany shipments of silver, 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 shows deducted smelting and refining charges to arrive at the net reportable revenue for the period per IFRS. Gross revenues are divided into payable equivalent silver ounces sold to calculate the average realized price per ounce of silver equivalents sold.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenues as reported
|
$117,075
|
|
|
$96,476
|
|
|
$363,876
|
|
|
$363,944
|
|
|
Add back: smelting and refining charges
|
819
|
|
|
950
|
|
|
2,800
|
|
|
4,891
|
|
|
Gross revenues
|
117,894
|
|
|
97,426
|
|
|
366,676
|
|
|
368,835
|
|
|
Less: Sandstorm gold revenues
|
(580)
|
|
|
(1,078)
|
|
|
(2,636)
|
|
|
(4,200)
|
|
|
Less: Wheaton gold revenues
|
(7,056)
|
|
|
(6,969)
|
|
|
(23,541)
|
|
|
(26,994)
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues, excluding Sandstorm, Wheaton (A)
|
$110,258
|
|
|
$89,379
|
|
|
$340,499
|
|
|
$337,641
|
|
|
|
|
|
|
|
|
|
|
|
Payable equivalent silver ounces sold
|
5,319,935
|
|
|
6,125,349
|
|
|
19,614,393
|
|
|
24,509,434
|
|
|
Less: Payable equivalent silver ounces sold to Sandstorm
|
(81,319)
|
|
|
(200,479)
|
|
|
(499,931)
|
|
|
(789,783)
|
|
|
Less: Payable equivalent silver ounces sold to Wheaton
|
(807,046)
|
|
|
(804,896)
|
|
|
(3,016,658)
|
|
|
(3,126,715)
|
|
Payable equivalent silver ounces sold, excluding
Sandstorm and Wheaton (B)
|
4,431,570
|
|
|
5,119,974
|
|
|
16,097,804
|
|
|
20,592,936
|
|
|
|
|
|
|
|
|
|
|
|
Average realized price per ounce of silver sold (A/B)(1)
|
$24.88
|
|
|
$17.46
|
|
|
$21.15
|
|
|
$16.40
|
|
|
Average market price per ounce of silver per COMEX
|
$24.44
|
|
|
$17.33
|
|
|
$21.72
|
|
|
$16.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Average realized price per ounce of silver sold in each reporting period is affected by mark-to-market adjustments and final settlements on concentrate shipments in prior periods. Concentrates sold to third-party smelters are provisionally priced and the price is not settled until a predetermined future date, typically one month after delivery to the customer, based on the market price at that time. The mark-to-market adjustments do not apply to doré sales.
Cash Flow per Share
Cash Flow per Share is determined based on operating cash flows before movements in working capital and income taxes, as illustrated in the consolidated statements of cash flow, divided by the weighted average shares outstanding during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating Cash Flows before Working Capital and Taxes
|
$48,224
|
|
|
$32,875
|
|
|
$107,343
|
|
|
$108,915
|
|
|
Weighted average number of shares on issue - basic
|
221,463,289
|
|
|
205,753,770
|
|
|
213,879,622
|
|
|
201,615,489
|
|
|
Cash Flow per Share
|
$0.22
|
|
|
$0.16
|
|
|
$0.50
|
|
|
$0.54
|
|
Adjusted Earnings per Share (“Adjusted EPS”)
The Company uses the financial measure “Adjusted EPS” to supplement information in its consolidated financial statements. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, the Company and certain investors and analysts use this information to evaluate the Company’s performance. The Company excludes certain non-cash and unusual items from net earnings to provide a measure which allows the Company and investors to evaluate the operating results of the underlying core operations. The presentation of Adjusted EPS is not meant to be a substitute for EPS presented in accordance with IFRS, but rather should be evaluated in conjunction with such IFRS measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 44
|
The following table provides a detailed reconciliation of net losses as reported in the Company’s consolidated financial statements to adjusted net earnings and Adjusted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net earnings (loss) as reported
|
$34,545
|
|
|
($39,946)
|
|
|
$23,087
|
|
|
($40,474)
|
|
|
Adjustments for non-cash or unusual items:
|
|
|
|
|
|
|
|
|
Deferred income tax recovery
|
(11,187)
|
|
|
(19,817)
|
|
|
(3,324)
|
|
|
(14,973)
|
|
|
Share-based payments
|
2,227
|
|
|
1,907
|
|
|
8,255
|
|
|
8,325
|
|
Loss (gain) from investment in derivatives and marketable
securities
|
2,445
|
|
|
(243)
|
|
|
(1,973)
|
|
|
(1,765)
|
|
|
Unrealized (gain) loss on foreign currency derivatives
|
(3,880)
|
|
|
—
|
|
|
982
|
|
|
—
|
|
|
Recovery of mineral inventory
|
—
|
|
|
(355)
|
|
|
(443)
|
|
|
(2,578)
|
|
|
Impairment of non-current assets
|
—
|
|
|
58,739
|
|
|
—
|
|
|
58,739
|
|
|
Standby costs related to COVID-19 Suspension
|
—
|
|
|
—
|
|
|
7,162
|
|
|
—
|
|
|
Loss on divestiture of exploration projects
|
—
|
|
|
—
|
|
|
3,685
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings
|
$24,150
|
|
|
$285
|
|
|
$37,431
|
|
|
$7,274
|
|
|
Weighted average number of shares on issue - basic
|
221,463,289
|
|
|
205,753,770
|
|
|
213,879,622
|
|
|
201,615,489
|
|
|
Adjusted EPS
|
$0.11
|
|
|
$0.00
|
|
|
$0.18
|
|
|
$0.04
|
|
Working Capital and Available Liquidity
Working capital is determined based on current assets and current liabilities as reported in the Company’s consolidated financial statements. The Company uses working capital as a measure of the Company’s short-term financial health and operating efficiency. Available liquidity includes the Company's working capital and undrawn revolving credit facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Current Assets
|
$356,046
|
|
|
$242,979
|
|
|
Less: Current Liabilities
|
(101,626)
|
|
|
(71,853)
|
|
|
Working Capital
|
$254,420
|
|
|
$171,126
|
|
|
Available Undrawn Revolving Credit Facility
|
65,000
|
|
|
55,031
|
|
|
Available Liquidity
|
$319,420
|
|
|
$226,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Majestic Silver Corp. 2020 Annual Report
|
Page 45
|
|
|
|
|
|
|
|
|
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|
Disclosure Controls and Procedures
The Company’s management, with the participation of its President and Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures. Based upon the results of that evaluation, the Company’s CEO and CFO have concluded that, as of December 31, 2020, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported, within the appropriate time periods and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
The Company’s management, with the participation of its CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in the rules of the United States Securities and Exchange Commission and the Canadian Securities Administrators. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. The Company’s internal control over financial reporting includes policies and procedures that:
•maintain records that accurately and fairly reflect, in reasonable detail, the transactions and dispositions of assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary for preparation of financial statements in accordance with IFRS as issued by IASB;
•provide reasonable assurance that the Company’s receipts and expenditures are made only in accordance with authorizations of management and the Company’s Directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.
The Company’s internal control over financial reporting may not prevent or detect all misstatements because of inherent limitations. Additionally, projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the Company’s policies and procedures.
The Company's management evaluated the effectiveness of our internal controls over financial reporting based upon the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management's evaluation, our CEO and CFO concluded that our internal controls over financial reporting was effective as of December 31, 2020.
The Company's independent registered public accounting firm, Deloitte LLP, have audited these Consolidated Annual Financial Statements and have issued an attestation report dated February 18, 2021 on the Company's internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of Treadway Commission.
During the year ended December 31, 2020, the Company implemented social distancing protocols to have majority of its corporate office and site administrative staff to work remotely from home. This change has required certain processes and controls that were previously done or documented manually to be completed and retained in electronic form. Despite the changes required by the current environment, there have been no significant changes in our internal controls during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
Limitations of Controls and Procedures
The Company’s management, including the President and Chief Executive Officer and Chief Financial Officer, believes that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, may not prevent or detect all misstatements because of inherent limitations. Further, the design of a control
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system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any control system also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
Cautionary Note regarding Forward-Looking Statements
Certain information contained herein this MD&A constitutes forward-looking statements under applicable securities laws (collectively, “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: commercial mining operations; anticipated mineral recoveries; projected quantities of future mineral production; statements with respect to the Company’s business strategy; future planning processes; anticipated development, expansion, exploration activities and production rates; the estimated cost and timing of plant improvements at the Company’s operating mines and development of the Company’s development projects; the timing of completion of exploration programs and drilling programs; the repayment of the Debentures; statements with respect to the Company’s future financial position including operating efficiencies, cash flow, capital budgets, costs and expenditures; the preparation of technical reports and completion of preliminary economic assessments; the repurchase of the Company’s shares; viability of the Company’s projects; potential metal recovery rates; the conversion of the Company’s securities. All statements other than statements of historical fact may be forward-looking statements. 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”, “may”, “will”, “project”, “predict”, “forecast”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions) are not statements of historical fact and may be “forward-looking statements”.
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, without limitation: 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 delays or cost overruns or unanticipated excessive operating costs and expenses, uncertainties related to the necessity of financing, 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 believes that the expectations reflected in any such 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 herein this MD&A should not be unduly relied upon. These statements speak only as of the date of this MD&A. The Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required by applicable laws. Actual results may differ materially from those expressed or implied by such forward-looking statements.
Cautionary Note regarding Reserves and Resources
National Instrument 43-101 (“NI 43-101”), issued by the Canadian Securities Administrators, lays out the standards of disclosure for mineral projects. This includes a requirement that a certified Qualified Person (“QP”) (as defined under the NI 43-101) supervises the preparation of the mineral reserves and mineral resources. Ramon Mendoza, P. Eng., Vice President of Technical Services is a certified QP for the Company and has reviewed this MD&A for QP technical disclosures. All NI 43-101 technical reports can be found on the Company’s website at www.firstmajestic.com or on SEDAR at www.sedar.com.
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Cautionary Note to United States Investors Concerning Estimates of Mineral Reserves and Resources
This Management’s Discussion and Analysis has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ in certain material respects from the disclosure requirements of United States securities laws. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian NI 43-101 Standards of Disclosure for Mineral Projects and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in the disclosure requirements promulgated by the Securities and Exchange Commission (the “Commission”) and contained in Industry Guide 7 (“Industry Guide 7”). Under Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report mineral reserves, the three-year historical average price is used in any mineral reserve or cash flow analysis to designate mineral 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 Industry Guide 7 and are not permitted to be used in reports and registration statements of United States companies filed with the Commission. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into mineral 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. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a mineral resource is permitted disclosure under Canadian regulations. In contrast, the Commission only permits U.S. companies to report mineralization that does not constitute “mineral reserves” by Commission standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this Management’s Discussion and Analysis 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 of the Commission thereunder.
Additional Information
Additional information on the Company, including the Company’s Annual Information Form and the Company’s audited consolidated financial statements for the year ended December 31, 2020, is available on SEDAR at www.sedar.com and on the Company’s website at www.firstmajestic.com.
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