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strength
in adversity
2020 ANNUAL REPORT
One of the World’s
Purest Silver Producers
Vancouver-based First Majestic Silver Corp. is one of the world’s purest
silver producers, deriving roughly 65% of its revenue from silver. The company
employs more than 5,000 workers across three operating mines in México
and ranks as one of the country’s leaders in the mining sector. After 18 years
of operation, First Majestic continues to reach new production milestones as
it modernizes, expands operations, acquires new mines and explores for new
resources. The company has developed a leading reputation for community
outreach and support, especially through its comprehensive response to the
COVID-19 pandemic.
Our Mines and Projects
About the Cover: Photo taken by Jose Pacheco Ochoa
LA ENCANTADA SILVER MINESANTA ELENA SILVER/GOLD MINESAN DIMAS SILVER/GOLD MINELA PARRILLA SILVER MINEDEL TORO SILVER MINESAN MARTIN SILVER MINELA GUITARRA SILVER MINE PHOTO: Hernán Valdez Gutiérrez
A Team Effort:
Employee Photos in This Report
For this year’s Annual Report, we are proud to feature photos
taken by employees at our operations in México. The photos were
part of a company-wide photo contest conducted in 2020.
The contest aligned with First Majestic’s Heart-Mind and Well-
Being initiative, where we brought employees together through
our company intranet to share knowledge on managing pandemic
stress and demands. The programs included Wellness Wednesday,
a monthly news item sent to all employees with helpful tips for
health, safety and well-being.
I’m pleased to report this initiative was received enthusiastically
with participation throughout the company. The photos in this report
reflect the closeness, community and shared support amongst our
First Majestic Family.
Jill Anne Arias
Vice President of Marketing & Corporate Communications
Table of Contents
02 Our Vision, Our Mission, Our Values
04 Milestones in 2020
05 Operating and Financial Highlights
06 Looking Ahead
07 Why Silver is More Essential than Ever
08 Message from the President and CEO
10 Letter from the Chief Operating Officer
11 Letter from the Chief Financial Officer
12 Community, Health and Safety
14 Environmental Review
16 San Dimas Silver/Gold Mine
18 La Encantada Silver Mine
20 Santa Elena Silver/Gold Mine
22 Ermitaño Project
23 Exploration: the Key to Organic Growth
25 Reserves & Resources
27 Audited Consolidated Financial Statements
68 Management Discussion & Analysis
Our Vision
First Majestic’s vision is to become the world’s
largest primary silver producer while improving
lives and communities in our host regions and
increasing shareholder value.
WE WILL ACHIEVE OUR VISION BY:
Continuing to hire the
industry’s best talent
Aggressively pursuing
development of our
existing property assets
Maximizing margins
and minimizing risk
through company-wide
R&D, optimization and
modernization
Ongoing investment
in exploration
Acquiring additional
mineral assets
02
PHOTO: Guadalupe Maria Salazar
Our Mission
First Majestic’s mission is to produce profitable
silver ounces and to optimize and grow our
miner al resources through an empowered
work force that encour ages continuity and
permanence of the organization.
Our Values
TRUST Act and firmly believe in
commitment and dedication of each other.
ATTITUDE Maintain a strong
positive disposition and commit in order
to learn and change.
ACCOUNTABILITY Take
ownership of our responsibilities and
meet our commitments.
HONESTY Always tell the truth,
have strong moral principles
CREATIVITY Turn new and
imaginative ideas into better ways of
doing things.
SUSTAINABILITY Work
to improve the quality of life of the
communities where we operate, while
using the best practices.
LOYALTY Be true to our values,
always look after the best interest of
our co-workers and families
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
03
Milestones in 2020
Despite major COVID-related headwinds in Q1 and Q2, First Majestic’s achievements for 2020 included:
Finished 2020 with record
cash and cash equivalents
of $238.6 million
Announced a quarterly
dividend policy to begin
in 2021
Silver production
of 11.6 million ounces
(2019 = 13.2 million ounces)
Gold production
of 100,081 ounces
(2019 = 134,580 ounces)
Total capital expenditures
in 2020 of $125 million
focused on underground
development and
exploration
All-in Sustaining Costs
(“AISC”) of $13.92 per
payable silver ounce
(2019 = $12.64)
“ the announcement of our inaugural dividend policy validates the
overall strength and sustainability of the business given our robust
operations in Mexico.”
04
Operating and Financial Highlights
All dollar amounts in this report US$ unless otherwise indicated
OPERATING
2020
2019
2018
2017
2016
Silver equivalent ounces produced
20,379,010
25,554,288
22,243,071
16,207,905
18,669,800
Silver ounces produced
Gold ounces produced
11,598,380
13,241,118
11,679,452
9,749,591
11,853,438
100,081
134,580
111,084
62,991
62,436
Cash costs per ounce of silver(1)(3)(4)
All-in Sustaining Costs (AISC) per ounce of silver
FINANCIAL (Millions except per share amounts)
Revenues
Mine 0perating earnings
Net (loss) earnings
(Loss) earnings per share
Cash flow per share
$
$
$
$
$
$
$
5.09
13.92
2020
363.9
105,054
23.1
0.11
0.50
$
$
$
$
$
$
$
5.16
12.64
$
$
6.98
14.95
$
$
7.04
13.82
$
$
2019
363.9
66.2
$
$
2018
2017
300.9
$
252.3
(11.9) $
16.0
$
$
(40.5) $
(204.2) $
(53.3) $
(0.20) $
(1.11) $
(0.32) $
0.54
$
0.34
$
0.49
$
5.92
10.79
2016
278.1
49.2
8.6
0.05
0.67
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
05
Looking Ahead
strength
in silver
FOR 2021
Increase annual silver equivalent production to
20.6 – 22.9 million ounces
Increase silver production to 12.5 – 13.9 million ounces
Aggressive, record exploration investment, both
brownfield and greenfield, of up to $27.6 million —
expected to drill approximately 200,000 metres,
compared with 156,244 metres in 2019.
Capital investments of $168.4 million, focused on
bringing Ermitaño into production and expanded
exploration and development programs
Ramp up production at the Tayoltita mine (at San Dimas)
Complete installation of high-intensity grinding (HIG)
mill at San Dimas
Convert Santa Elena power from diesel to LNG to
reduce energy costs and carbon footprint
Continued improvements in metallurgical recoveries
through implementation of microbubbles, fine grinding
& other R&D
06
“ our focus will remain
on silver, as we believe its
dual attractiveness as an
industrial and precious
metal will support continued
higher prices through 2021
and 2022 and beyond…”
PHOTO: Abraham Gómez
Why Silver is More Essential than Ever
Silver Price
US$/kg (thousands)
Gold Price
US$/oz.
6%
68
60
52
44
36
28
20
12
2,000
1,600
1,200
800
400
19%
55%
20%
55% Industrial Fabrication
20% Jewelry
19% Coins & Bars
6%
Silverware
02
04
06
08
10
12
14
16
18
20
20-YEAR SILVER VS. GOLD PRICE
SILVER DEMAND BY SECTOR
A NARROWING SILVER-GOLD RATIO POINTS
TO IMPROVING FUNDAMENTALS AND A BRIGHT
FUTURE FOR SILVER
In March 2020, the silver-to-gold price ratio reached
an all time record high of 125:1. By December, as silver
prices doubled from March, the ratio had fallen to under
80:1. We believe this move points to a fundamental
change in silver market dynamics.
Despite the dramatic shift, the silver-gold ratio remains
at historically high levels. The ratio has averaged about
60:1 over the past 20 years. The 20th century average is
even lower, at around 47:1.
Prices for silver and gold trade along similar
trajectories (see price chart). The silver-gold ratio,
however, fluctuates dramatically. Silver is primarily
an industrial and functional metal (see pie chart)
compared to gold’s use mostly as an investment
and store of value.
Looking ahead for 2021, we believe a gradual
economic recovery, fueled by COVID vaccine deployment,
will continue to expand industrial demand for silver.
Greener policies in the U.S. should increase demand
for solar panels, electric cars and other technologies.
Concurrently, the massive influx of economic stimulus
cash and continued political uncertainty may support
precious metals in general.
BOTTOM LINE: we see a sustained bull market for silver
through 2021 and into the years ahead.
FIRST MAJESTIC’S SILVER BULLION STORE:
BUY SILVER FROM THE SOURCE
Now in its 13th year, our unique Silver Bullion Store
offers investors and silver enthusiasts the opportunity
to purchase silver mined from our México operations. At
www.store.firstmajestic.com, you can buy silver bullion
online, securely, 24/7. We offer high quality 0.999-fine
silver rounds, ingots, bars and medallion sets at one of
the lowest premiums in the market. Worldwide shipping
and the ability to track your order is available.
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
07
Message from the President and CEO
strength
in leadership
Our story for 2020 is one of leadership, teamwork and
recovery in the face of unprecedented adversity. As
our teams in both México and Canada faced challenges
presented by the SARS-CoV-2 coronavirus, I’m proud to
report we finished the year in the best overall financial
and operational condition in First Majestic’s history.
While we can all be proud of this response, we are
deeply saddened at losing members of the First Majestic
family to the virus. These losses affect us deeply, and
they remind us of what’s truly important in our work:
connections, support, safety and building better lives
and communities.
We began to comprehend the scope of the virus in March.
Under the responsive leadership of Chief Operating
Officer, Steve Holmes, who had just assumed the job in
February, we quickly put monitoring and containment
protocols in place across our operations in México. We
tripled the size of our medical staff and brought in state-
of-the-art testing equipment.
As the virus spread, we shut down our operations
and provided testing and support for employees and
communities. While the closures impacted production
and revenue, they were necessary. We supported
governments at all levels and even helped train local
officials in the use of testing equipment.
When metals markets plunged late Q1-early Q2, we
temporarily suspended silver and gold sales. We believed
it was prudent to wait for prices to recover—which they
did dramatically in Q2 and Q3.
In early May, we delivered letters from mayors in
communities near the Company’s operating mines to
México’s Under-Secretary of Mining and the Ministry
of Health indicating strong local support to restart
operations. On May 13, 2020, the Mexican Government
deemed mining an essential business. We began
immediately to put our teams back to work safely.
While our more vulnerable workers remained
quarantined, we put extensive safety protocols in place.
We built safe housing for workers on site, and we ramped
up operations. By the end of Q2, all three mines had
returned to near full production.
Remarkably—and despite the Q1 and Q2 setbacks—
we generated record quarterly revenues, cash
flows and earnings in Q3-Q4 along with significant
reductions in operating costs. Better metals prices
helped our performance, but so did efficiencies and
higher production.
08
PHOTO: Jose Pacheco Ochoa
By year end 2020, we had recovered exceptionally well,
matching revenues from 2019 and achieving the highest
cash position in the company’s history ($238.6 million)
with net earnings of over $23 million.
Looking ahead, we will use our record cash position to
invest in modernization, innovation and exploration along
with quarterly dividends. We are always looking for new
ways to grow, including accretive acquisitions both in
México and abroad. Our focus will remain on silver, as
we believe its dual attractiveness as an industrial and
precious metal will support continued higher prices.
In closing, I want to recognize the remarkable teamwork,
responsiveness and resilience demonstrated by the First
Majestic family throughout this most difficult year. We have
come through this adversity stronger and more innovative,
and I’m confident these advantages will serve us well as
we continue to grow.
Keith Neumeyer
President and CEO
“ remark ably—and despite
the Q1 and Q2 setbacks—we
gener ated record quarterly
revenues, cash flows and
earnings in Q3-Q4 along with
significant reductions in
oper ating costs.”
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
09
Letter from the Chief Operating Officer
strength
in responsiveness
I joined First Majestic in February of 2020, eager to
help build this company into a leading, mid-tier silver
producer. By mid-March, however, our energy was
directed at management of the pandemic. This was new
ground for all of us, and it became our focus for the
second and third quarters
We’ve invested millions in our measures to deal with
COVID-19, and our pandemic-related budget for next year
is over $5 million. Company-wide sanitary testing and
screening processes remain in place. These measures
have been successful in keeping operations producing
safely, and we continue to provide support and testing in
our local communities. Our intent is to keep our workers,
the municipalities in which we operate, and our assets
clean and safe.
Due to the pandemic, much of the capital investment
planned for 2020 was delayed. However, with support
from major investors, At-the-Market offerings and higher
margins from stronger metals prices, we ended the year
with record cash to carry out renewed capital investments
in 2021 and 2022.
Key projects for 2021 include development of Santa Elena’s
Ermitaño mine, along with processing improvements
and a new LNG power plant. At San Dimas, we will
continue developing the High Intensity Grinding (HIG)
circuit and modernizing the plant. We are also working
on improvements to de-bottleneck San Dimas production
through increased mine development. At all three mines,
we will invest heavily in brownfield exploration in 2021
under a budget set currently at $28 million.
10
In late Q1 2020, First Majestic’s three operating mines
were ordered by the Mexican government to suspend
operations due to the emerging pandemic. Thanks to smart
work and communication between the teams at each mine,
we experienced an orderly and safe suspension of La
Encantada first, then Santa Elena. San Dimas operations
were fully suspended by early May.
We worked closely with the states of Sonora and
Durango to fast-track a controlled restart. Various
agencies reviewed our mitigation and operating
procedures, which included the establishment of a camp
at Santa Elena. By the end of May, we were given the green
light to resume operations.
As we move into 2021, I’m happy to report we are again
focused on modernization, production growth and
resource expansion. We continue to mitigate the spread of
the virus and deal with its effects on operations. Vaccines
may play an important role in our recovery, but currently
we cannot plan effectively around vaccine availability.
As we manage the virus, ensuring our communities
are safe and continuing to keep our assets healthy,
shareholders will benefit from what we see as another
year of strong metals markets. Our budgets and plans for
the coming year are designed to leverage that premise.
I look forward to a much better year in 2021.
Steven Holmes,
Chief Operating Officer
Letter from the Chief Financial Officer
strength
in resilience
First Majestic closed out 2020 in the best financial
condition of its history, representing a remarkable
recovery considering the headwinds we faced for much
of the year. This is a story of company-wide resilience and
teamwork in the face of adversity.
Accordingly, in late 2020, First Majestic’s Board of
Directors adopted a dividend policy under which the
Company intends to pay quarterly dividends of 1% of net
revenues. Dividend payments will be paid quarterly and
will begin after Q1 2021 financial results are released.
From Q1 forward, the pandemic set us back while we
kept forging ahead with mitigating measures, a return to
production, strategic financings and ongoing efficiency
efforts. We invested nearly $4 million in pandemic
mitigation and protection for our workers and local
communities. This was an expense for which we obviously
had not budgeted, and it impacted our bottom line along
with lost revenue from shutdowns.
I’m happy to report, however, that our safe resumption
of production, combined with stronger metals markets,
helped us close out the year with net income of $23.1 million
and $363.9 million in cash. Thanks to modernization of
operations over the past several years, the higher prices
for both silver and gold sent an increasing portion of our
revenues directly to the bottom line.
Our cash position—the largest in our history—highlights
a notable shift for the Company. First Majestic celebrated
its 18th year in operation in 2020. We have grown and
matured. During years of strong cash flow and balance
sheets, we invested heavily in acquisitions, operations and
exploration. In an industry that favors size of operations,
this focus on growth was the right strategy for an aspiring
company. Looking ahead, we will continue to grow, but
we will focus increasingly on solidifying First Majestic’s
financial health.
Dividends, possible only through sustained revenues and
profitability, represent a major milestone for First Majestic
and a key step in our evolution. This decision reinforces
our confidence in the strength of our assets and strategies
for achieving our vision. As dividends are tied to company
revenues, they can give shareholders even greater
leverage to silver prices in the future.
Looking ahead to 2021, we have some catching up to do
with our capital investments. Because of pandemic-related
setbacks, capital investments in 2020 totaled $125 million—
less than budgeted but still higher than in 2019. We have
budgeted a total of $168.4 million in capital expenditures for
2021, including $75.9 million for underground development,
$27.6 million for exploration, $49.8 million in property, plant
and equipment, and $15.1 million in innovation projects.
Within this capital budget is $42.2 million of development
and exploration earmarked for the new Ermitaño mine
expected to come online toward the end of the year.
As we move past a most unusual and challenging year,
I’m confident the resilience demonstrated in 2020 will
translate into continued success and advancement for
years to come.
Raymond Polman, B.Sc., CPA, CA
Chief Financial Officer
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
11
Community, Health and Safety
strength
in accountability
We began 2020 focused on maximizing our positive
impact across communities where First Majestic
operates. Our sustainability agenda, aligned with First
Majestic’s vision, was designed to expand opportunities
through education and skills development, local
hiring, local purchasing, infrastructure and economic
diversification. The unprecedented COVID pandemic
early in the year required company-wide adaptability and
challenged our entire organization.
PANDEMIC RESPONSE
Since the pandemic began, we have adhered to
Mexican Government regulations including strict
health protocols to protect our workforce’s health and
safety. The pandemic demanded a more expanded
effort and unprecedented collaboration to protect our
workforce’s families and neighboring communities. In
2020, we allocated close to $500,000 in direct support to
community members across eighteen municipalities, 20
ejidos and ranches, 16 hospitals and medical centers.
We supported local efforts by providing food boxes,
known locally as “Despensas,” to the most vulnerable
families. We offered medical and protective equipment
for health workers and sanitary supplies for community
members. Our emergency response plan pursued
maximizing local economic impact through local
purchases. By purchasing locally made reusable masks,
products and services, we helped small businesses
survive and generated a multiplied economic effect
throughout the communities.
PROVIDING KEY EQUIPMENT FOR LOCAL HEALTH
The pandemic pressured health services, requiring an
urgent response to upgrade the capacity of hospitals and
medical centers. First Majestic provided key equipment,
including infrared thermometers, oxygen tanks, stretcher
trolleys, defibrillators, ultrasound machines, laryngoscopes
and an ambulance. Community medical centers in La
Encantada, Santa Elena and a state-of-the-art COVID test
lab launched operations to support local efforts.
First Majestic also contributed funds to hire health care
professionals in our surrounding communities, especially in
remote areas. As result, our intervention provided doctors
and nurses in areas without previous medical coverage.
COMMUNITY INVESTMENT AND SUPPORT
INCREASES BY 20%
Beyond the pandemic response, our community and
infrastructure budget for 2020 increased investments
allocated during the previous year by 20%. Access
to clean water, irrigation, health services, education
programs, solid waste management and economic
diversification initiatives continued as local stakeholders’
priorities, and we were proud of supporting them during
a challenging year.
For more information on our Community, Health
and Safety policies, please see our ESG Report on
the Corporate Responsibility section of our website.
12
PHOTO: Ricardo Javier Martinez Diaz
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
13
Environmental Review
strength
in responsibility
First Majestic is committed to socially responsible mining, and we believe that taking responsibility for our impacts on
the environment is a critical aspect of social responsibility.
Access to a healthy environment is not only a fundamental human right, it also provides a foundation for long-term,
sustainable relations with our community and government partners. Our commitment to responsible environmental
management is an essential focus for our operating mines and new projects, and it impacts all our internal and
external stakeholders.
The First Majestic Environmental Management System (EMS), applied across all operations and projects, is designed
to establish a culture focused on preventing, minimizing and mitigating environmental impacts. Our EMS is based on
international standards and best practices, including alignment with ISO14001:2015 and all requirements to obtain the
Mexican Clean Industry Accreditation.
All our operations have implemented an annual compliance program to manage all the obligations and conditions that
must be fulfilled under our environmental permits. External EMS audits are conducted regularly and as part of the Clean
Industry Accreditation process to review the performance of each mining operation.
Important environmental indicators such as water consumption and environmental incidents are recorded and updated
in real time in our internal Production Status database used Company-wide.
14
FOR 2020: ADDRESSING CLIMATE CHANGE
AND ENVIRONMENTAL INITIATIVES
Despite the disruptions of 2020, we continued to
confront climate change risk and critical environmental
issues in our operations. These initiatives included
energy consumption and emissions, water consumption,
mine waste, and land regeneration. Our program to
reduce diesel fuel consumption continued with the
explicit goal to increase hydroelectric supply at San
Dimas and a complete transition from diesel to Liquid
Natural Gas (LNG) at Santa Elena during 2021.
Beyond the pandemic, we know that climate change is an
important issue for our stakeholders and investors. We
will continue to optimize and innovate environmentally with
each investment and operational decision. Not only is this
the responsible course, it’s crucial to our environmental,
financial, and social bottom lines.
For more information on our Environmental
Management System, please see First Majestic’s
ESG Report in the Corporate Responsibility section
of our website.
PHOTO (TOP LEFT): Alan Keinth Dueñez Ayala
PHOTO (TOP RIGHT): Isselth Urbina Guzman
PHOTO (BOTTOM RIGHT): Fabian Pulido
PHOTO: Jose Hernandez Rodriguez
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
15
San Dimas Silver/Gold Mine
Durango State, México
HIGHLIGHTS
Ownership
2020 Silver Production (ounces)
2020 Silver Equivalent Production (ounces)
2020 Cash Costs per Ounce
2020 All-In Sustaining Costs per Ounce
2021 Projected Cash Costs per Ounce
2021 Projected All-In Sustaining Costs per Ounce
2021 Projected Silver Production (ounces)
2021 Projected Silver Equivalent Production (ounces)
100%
6,399,667
12,670,526
$2.04
$8.75
$7.94 – $8.43
$11.36 – $12.23
7,100,000 - 8,000,000
12,900,000 – 14,400,000
ONGOING IMPROVEMENTS ENHANCE OUR CORNERSTONE ASSET
Since its acquisition in 2018 through the purchase of
Primero Mining Corp., San Dimas has become First
Majestic’s premier asset and the company’s leading
producer of both silver and gold. The mine employs about
1,800 people, many from the nearby town of Tayoltita.
San Dimas is exceptionally efficient with some of the
industry’s lowest cash costs and All-in Sustaining Costs
(AISC). Over 50% of the mine’s power is provided by
environmentally clean, low-cost hydroelectric generation.
First Majestic has begun engineering and permitting to
expand the dam to supply up to 100% of the power for
both the mine and the town of Tayoltita.
San Dimas uses long-hole stoping and mechanized cut-
and-fill underground mining methods, with all mined
production processed at the 2500 tpd capacity milling
operation. After milling, cyanidation, precipitation, and
smelting, doré bars are poured and transported to
refineries in México and the United States.
Since acquiring San Dimas, First Majestic has
implemented numerous upgrades to modernize the
project, bringing costs down and production up. A key
improvement is installation of a HIG (High Intensity
Grinding) mill, which is expected to provide significantly
higher recoveries, lower energy consumption and lower
maintenance costs. Due to current COVID-19 restrictions,
the phase 1 HIG project completion date has been
extended into the second half of 2021.
A new contractor camp for over 100 workers was
completed late in 2020 to support the HIG mill installation
and other plant modernization programs.
Underground development at San Dimas totaled 26,154
metres in 2020 compared with 24,021 metres in 2019.
Exploration drilling totaled 87,659 metres, compared with
76,467 metres in 2019.
16
PHOTO: Jose Dominguez Santillan
PHOTO: Paulino Montiel Ochoa
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
17
La Encantada Silver Mine
Coahuila State, México
HIGHLIGHTS
Ownership
2020 Silver Production (ounces)
2020 Silver Equivalent Production (ounces)
2020 Cash Costs per Ounce
2020 All-In Sustaining Costs per Ounce
2021 Projected Cash Costs per Ounce
2021 Projected All-In Sustaining Costs per Ounce
2021 Projected Silver Production (ounces)
2021 Projected Silver Equivalent Production (ounces)
100%
3,505,953
3,526,776
$10.27
$12.43
$11.20 - $11.89
$13.72 - $14.70
3,400,000 – 3,700,000
3,400,000 – 3,700,000
ONE OF OUR ORIGINAL MINES ACHIEVES RECORD SILVER PRODUCTION
The La Encantada Silver Mine, producing almost
entirely silver, is located in northern México, 708
kilometres northeast of Torreon, Coahuila. The project
includes a 4,000 tpd cyanidation mill, and the site
encompasses 4,076 hectares of mining rights and
1,343 hectares of surface rights.
In 2020, First Majestic focused on upgrading internal
power distribution, agitator mechanisms, settling tanks,
filter presses and management of the refinery air quality.
The major equipment needed to support these activities
was acquired or will be acquired in Q2 2021. Installation
of the HIG mill was delayed due to pandemic protocols.
La Encantada has remained a key asset in First
Majestic’s portfolio since 2006. Over the past three
years, the company has focused on upgrading
and modernizing mining and milling operations to
improve recoveries and throughput. As a result, the
mine achieved record silver production in 2020 due
mostly to higher recoveries (88%) and improved ore
production from changeover to block caving. Block
cave mining is an underground method that often
reduces costs by increasing production rates through
bulk mining methods.
New natural gas generators, now supplying about 90%
of the mine’s power requirements, are assisting in
lowering costs and providing lower carbon emissions.
Underground development at La Encantada totaled
3,674 metres in 2020, compared with 5,444 metres
developed in 2019. Exploration drilling totaled 18,611
metres, exceeding the 17,739 metres drilled in 2019.
18
PHOTO: Elmes Hernandez
PHOTO: Mario Mazatan
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
19
Santa Elena Silver/Gold Mine
Sonora State, México
HIGHLIGHTS
Ownership
2020 Silver Production (ounces)
2020 Silver Equivalent Production (ounces)
2020 Cash Costs per Ounce
2020 All-In Sustaining Costs per Ounce
2021 Projected Cash Costs per Ounce
2021 Projected All-In Sustaining Costs per Ounce
2021 Projected Silver Production (ounces)
2021 Projected Silver Equivalent Production (ounces)
100%
1,692,761
4,181,708
$5.81
$12.78
$12.93 – $13.71
$16.49 – $17.68
2,000,000 – 4,800,000
4,300,000 – 5,800,000
ANTICIPATING GROWTH WITH DEVELOPMENT OF ERMITAÑO
The Santa Elena Silver/Gold Mine is located approximately
150 kilometres northeast of the city of Hermosillo in
Sonora State, México. The large land concessions at
Santa Elena cover 102,244 hectares, encompassing major
geological structures that appear to be controlling some of
the region’s mineralized systems.
Santa Elena is First Majestic’s second-highest silver
and gold producer. The operation involves combined
processing of ore from underground development and
reprocessing of spent ore from the existing heap leach
pad. Conversion from diesel power to liquid natural gas
in 2021 is expected to lower operating costs and reduce
carbon emissions.
The Ermitaño discovery in late 2016, located southeast
of the mine, continues to advance towards production.
The Company anticipates completion of a pre-feasibility
study for Ermitaño in H2 2021. (Refer to page 24 for
more about Ermitaño.)
Santa Elena boasts Latin America’s first successful
HIG mill, a 3,000 tpd facility which processes hard rock,
run-of-mine ore to improve recoveries. This process
can grind and treat particles down to 5 microns, or the
size of a human red blood cell. Generally, the smaller the
particle size, the more metal that can be recovered which
increases production and reduces unit costs.
First Majestic is mining approximately 1,750 tonnes per
day (tpd) from underground and, concurrently, the old
leach pads are being reprocessed to reach throughput
tonnages at 2,750 tpd.
The SAG (semi-autonomous grinding) mill circuit conversion
continues to advance, and the mill is expected to open in the
third quarter of 2021. Lower operating costs are forecast
once the mill is fully commissioned, with lower power
requirements compared to a standard ball mill and reduced
consumption of chemical reagents and steel balls.
Underground development at Santa Elena totaled 5,559
metres in 2020, down from 8,241 metres completed in
2019. Exploration drilling in 2020 totaled 39,450 metres
compared with 56,141 metres in 2019. Reductions were
due primarily to pandemic-related cutbacks.
20
PHOTO: Uriel Huerta
PHOTO: Jorge Ortega
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
21
Ermitaño Project
Sonora State, México
Ownership
100%
OUR PRIMARY DEVELOPMENT PROJECT APPROACHES PRE-FEASIBILITY
Ermitaño, a gold/silver mineral development project located four kilometres southeast of the Santa Elena milling
operation, represents an exceptional growth target for First Majestic. Discovered initially in 2016, Ermitaño is
expected to move into pre-feasibility in 2021.
Although part of the Santa Elena holdings, Ermitaño is not subject to the Sandstorm streaming agreement. Once in
production, Ermitaño ore would be processed at the Santa Elena facility.
Since 2016, First Majestic has completed 72,270 metres of diamond drilling on the property, highlighted by Hole 16-04
which returned 9.9 metres grading 1,209 g/t AgEq, Hole 18-47 with 13.0 metres grading 547 g/t AgEq, and Hole 19-91
with 13.0 metres grading 1,003 g/t AgEq.
First Majestic expects to complete a Preliminary Economic Assessment (PEA) by the end of Q2 2021, followed by a
Pre-Feasibility Study (PFS) in the second half of 2021. It is expected that, by end of year 2021, approximately 30,000 to
50,000 tonnes of stockpiled ore will have been mined, awaiting to be fed into the mill commencing Q1 2022.
Ermitaño’s current Indicated Resource includes 4.7 million ounces of silver and 311,000 ounces of gold, or 30.4 million
silver equivalent ounces grading an average 449 AgEq g/t (70 g/t silver and 4.59 g/t gold).
THE CURRENT ERMITAÑO RESOURCE:
CATEGORY
TONNES (k)
Ag (g/t)
Au (g/t)
Ag-Eq (g/t)
Ag (M oz.)
Au (k oz.)
Ag-Eq (M oz.)
Indicated
Inferred
2,107
3,733
70
58
4,59
3.08
449
312
4.7
7.0
311
370
30.4
37.5
First Majestic is currently conducting hydrogeological and geotechnical drilling which will be used as key study work
for the PFS. The Ermitaño PFS will define initial reserves, production rates, costs and estimated life of mine. A further
13,900 metres of exploration drilling is planned in 2021 with the intent of increasing resource confidence and adding
new mineral resources.
22
Exploration: the Key to Organic Growth
strength
in discovery
Exploration remained a priority for First Majestic through
2020, despite COVID-related cutbacks in drilling through
the first half of the year. Our drilling target for 2020 was
186,000 meters, focused mostly on brownfield drilling
at San Dimas, Santa Elena and La Encantada with some
greenfield drilling on our expansive holdings at both San
Dimas and Santa Elena.
Our objective for exploration and drilling is twofold:
1) replace reserves, and 2) grow resources for mine
expansion. Throughout our history, we have remained
aggressive explorers to feed our mills and increase
production.
2020 DRILLING
By the end of the year, we had completed over 156,000
meters of surface and underground drilling. Considering
the challenges faced by our exploration team, including an
exploration shutdown for over two months, we are pleased
with this result and are preparing for expanded drilling in
2021. At the beginning of Q1 2021, 25 exploration drill rigs
were active across First Majestic’s mines and projects
consisting of 12 rigs at San Dimas, seven rigs at Santa
Elena, four at La Encantada and two at La Parrilla.
EXPLORATION FOR 2021
The 2021 drilling program which is planned to total
200,000 metres, will include approximately 104,000
metres at San Dimas with infill and step out holes
focusing on near mine and brownfield targets. At Santa
Elena, we intend to drill 37,600 metres with near-mine,
brownfield and greenfield holes. Drilling at La Encantada
is expected to total 14,550 metres with infill and step
out holes testing the potential of several near mine and
brownfield targets.
The high-grade Ermitaño project remains a high priority
exploration project for the Company. We have budgeted
for 13,900 metres of drilling at Ermitaño, focused on
increasing resource confidence and adding new mineral
resources. An additional 7,600 metres at Del Toro and
6,500 metres at La Parrilla will test new brownfield
and greenfield targets identified through generative
exploration in 2020.
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
23
Measured and Indicated Mineral Resource Estimates
With an Effective Date of December 31, 2020
Annual Mineral Resource Statement prepared under the supervision of Ramon Mendoza Reyes, PEng, QP for First Majestic
Mine Category
Mineral Type
Tonnage
Grades
Metal Content
k tonnes Ag (g/t) Au (g/t)
Pb (%)
Zn (%)
Ag-Eq (g/t) Ag (k Oz)
Au (k Oz) Pb (M lb)
Zn (M lb) Ag-Eq (k Oz)
MATERIAL PROPERTIES
SAN DIMAS
Measured (UG)
Indicated (UG)
Total Measured and Indicated (UG)
Sulphides
Sulphides
Sulphides
SANTA ELENA
Measured Santa Elena (UG)
Indicated Santa Elena (UG)
Indicated Ermitano (UG)
Indicated (Leach Pad)
Total Measured and Indicated (UG+Pad)
LA ENCANTADA
Indicated Prieta Complex: Ojuelas (UG)
Indicated Veins Systems (UG)
Indicated San Javier Milagros Complex (UG)
Indicated Tailings Deposit No. 4
Indicated Total (UG + Surface)
Sulphides
Sulphides
Sulphides
Oxides Spent Ore
All Mineral Types
Oxides + Mixed
Oxides
Oxides
Oxides Tailings
All Mineral Types
2,075
2,441
4,516
830
2,277
2,452
509
6,069
1,133
975
706
3,210
6,024
MATERIAL PROPERTIES
Total Measured
Total Indicated
Total Measured and Indicated
NON-MATERIAL PROPERTIES
SAN MARTÍN
All mineral types
All mineral types
All mineral types
2,906
13,703
16,608
Measured (UG)
Indicated (UG)
Total Measured and Indicated (UG)
Oxides
Oxides
Oxides
LA PARRILLA
Measured (UG)
Indicated (UG)
Indicated (UG)
Total Measured and Indicated (UG)
DEL TORO
Indicated (UG)
Indicated (UG)
Total Measured and Indicated (UG)
LA GUITARRA
Sulphides
Sulphides
Oxides
Oxides + Sulphides
Sulphides
Oxides + Transition
All Mineral Types
Measured (UG)
Indicated (UG)
Total Measured and Indicated (UG)
Sulphides
Sulphides
Sulphides
70
958
1,028
15
1,028
76
1,119
440
153
592
57
644
701
NON-MATERIAL PROPERTIES
Total Measured
Total Indicated
Total Measured and Indicated
CONSOLIDATED FMS
Total Measured
Total Indicated
Total Measured and Indicated
All mineral types
All mineral types
All mineral types
142
3,298
3,440
All mineral types
All mineral types
All mineral types
3,048
17,001
20,049
489
382
431
163
123
64
24
96
189
286
109
116
156
396
169
209
221
277
273
193
193
270
198
193
226
201
217
228
228
216
227
227
388
181
212
6.60
3.98
5.18
1.94
1.47
4.25
0.56
2.58
-
-
-
-
-
5.27
1.73
2.35
0.40
0.53
0.52
-
0.07
0.09
0.07
0.53
0.15
0.43
1.55
1.19
1.22
0.82
0.49
0.50
5.06
1.49
2.03
-
-
-
-
-
-
-
-
2.31
-
-
-
0.44
-
0.19
0.16
-
-
-
1.27
1.78
-
1.65
3.52
4.97
3.90
-
-
-
0.13
1.25
1.21
0.01
0.40
0.34
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.27
1.62
-
1.50
5.75
-
4.27
-
-
-
0.13
1.27
1.22
0.01
0.25
0.21
1,135
771
939
32,650
29,950
62,600
326
247
458
73
328
257
286
109
116
169
4,350
8,990
5,010
400
18,750
6,870
8,970
2,470
12,010
30,320
440
312
753
52
107
335
9
503
-
-
-
-
-
904
337
437
37,000
74,670
111,670
492
764
1,256
255
321
317
250
277
278
277
414
351
398
347
328
330
291
322
320
500
8,520
9,020
90
6,370
660
7,120
2,720
1,110
3,830
400
4,730
5,130
990
24,110
25,100
1
16
17
-
2
0
3
7
1
8
3
25
28
4
52
55
-
-
-
-
-
-
-
-
57.8
-
-
-
57.8
-
57.8
57.8
-
-
-
0.4
40.3
-
40.7
34.2
16.7
50.9
-
-
-
0.4
91.1
91.5
875
334
417
37,990
98,780
136,770
496
816
1,311
0.4
148.9
149.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.4
36.6
-
37.0
55.7
-
55.7
-
-
-
0.4
92.4
92.8
0.4
92.4
92.8
75,750
60,530
136,280
8,720
18,060
36,080
1,190
64,050
9,370
8,970
2,470
12,010
32,820
84,470
148,680
233,150
580
9,890
10,470
120
9,160
680
9,960
5,850
1,720
7,570
640
6,800
7,440
1,340
34,100
35,440
85,810
182,780
268,590
1.
2.
3.
4.
5.
Mineral Resource estimates have been classified in accordance with the 2014 Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards on Mineral Resources and Mineral Reserves, whose definitions are incorporated
by reference into National Instrument NI 43-101.
The Mineral Resource estimates provided above have an effective date of December 31, 2020 and were prepared by FMS Internal QPs, who have the appropriate relevant qualifications, and experience in geology and resource estimation. The
information provided was compiled by David Rowe, CPG, Internal QP for First Majestic, and reviewed by Ramon Mendoza Reyes, PEng, Internal QP for First Majestic.
Sample data was collected through a cut-off date of June 30, 2020 for San Dimas and December 31, 2020 for all other mines. All properties account for mining depletion through December 31, 2020
Metal prices considered for Mineral Resources estimates at San Dimas were $18.50/oz Ag, and $1,750/oz Au. For all other mines the metal prices considered were $22.50/oz Ag, $1,850/oz Au, 0.90/lb Pb and $1.05/lb Zn.
Silver-equivalent grade is estimated considering: metal price assumptions, metallurgical recovery for the corresponding mineral type/mineral process and the metal payable of the corresponding contract of each mine. Estimation details are
listed in each mine section of the Annual Information Form (AIF).
The cut-off grades used to estimate Mineral Resources are different for all mines. The cut-off grades and economic parameters are listed in the applicable section describing each mine section of the AIF.
Measured and Indicated Mineral Resource estimates are inclusive of the Mineral Reserve estimates.
Tonnage is expressed in thousands of tonnes, metal content is expressed in thousands of ounces. Totals may not add up due to rounding.
The technical reports from which the above-mentioned information for the material properties is derived are cited under the heading “Current Technical Reports for Material Properties” of the AIF.
6.
7.
8.
9.
10. San Martin, La Parrilla, Del Toro and La Guitarra are currently in temporary suspension of production activities and are considered non-material properties.
24
Inferred Mineral Resource Estimates
With an Effective Date of December 31, 2020
Annual Mineral Resource Statement prepared under the supervision of Ramon Mendoza Reyes, PEng, QP for First Majestic
Mine Category
Mineral Type
Tonnage
Grades
Metal Content
k tonnes Ag (g/t) Au (g/t)
Pb (%)
Zn (%) Ag-Eq (g/t) Ag (k Oz)
Au (k Oz) Pb (M lb)
Zn (M lb) Ag-Eq (k Oz)
MATERIAL PROPERTIES
SAN DIMAS
Inferred Total (UG)
SANTA ELENA
Inferred Santa Elena (UG)
Inferred Ermitaño (UG)
Inferred Total (UG)
LA ENCANTADA
Inferred Prieta Complex: Ojuelas (UG)
Inferred Prieta Complex: Other (UG)
Inferred Veins Systems (UG)
Inferred San Javier Milagros Complex (UG)
Inferred Tailings Deposit No. 4
Inferred Total (UG + Surface)
Total Inferred Material Properties
NON-MATERIAL PROPERTIES
SAN MARTÍN
Inferred Total (UG)
LA PARRILLA
Inferred (UG)
Inferred (UG)
Inferred Total (UG)
DEL TORO
Inferred (UG)
Inferred (UG)
Inferred Total (UG)
LA GUITARRA
Sulphides
5,501
341
3.63
Sulphides
Sulphides
Sulphides
Oxides + Mixed
Oxides
Oxides
Oxides
Oxides Tailings
All Mineral Types
All mineral types
1,519
6,022
7,541
404
495
1,629
394
488
3,410
16,453
134
57
73
123
166
231
153
117
183
185
1.15
2.69
2.38
-
-
-
-
-
-
2.31
-
-
-
-
1.35
0.80
-
-
-
0.28
0.06
Oxides
2,533
226
0.36
-
-
-
-
-
-
-
-
-
-
-
-
-
Oxides
Sulphides
All Mineral Types
Sulphides
Oxides + Transition
All Mineral Types
393
1,028
1,421
496
690
1,186
200
215
211
185
182
183
240
216
194
0.08
0.09
0.09
0.25
0.08
0.15
0.71
0.32
1.76
-
1.56
1.13
3.08
3.74
3.46
-
0.92
0.29
-
1.91
1.38
2.73
-
1.15
-
0.54
0.15
696
60,260
642
231
307
292
163
190
231
153
117
192
406
6,540
11,090
17,630
1,600
2,650
12,090
1,930
1,830
20,100
97,990
56
522
578
-
-
-
-
-
-
1,220
-
-
-
-
12.1
8.7
-
-
-
20.8
20.8
-
-
-
-
-
-
-
-
-
-
-
123,120
11,260
59,450
70,710
2,120
3,020
12,090
1,930
1,830
21,000
214,830
256
18,400
29
-
-
20,870
207
299
274
322
273
293
2,530
7,090
9,620
2,950
4,030
6,970
1
3
4
4
2
6
-
35.4
35.4
33.7
56.8
90.5
299
275
370
8,040
43,030
141,020
24
63
1,283
-
125.9
146.7
-
43.3
43.3
29.8
-
30.1
-
73.4
73.4
2,610
9,890
12,500
5,130
6,050
11,180
10,030
54,580
269,410
Inferred Total (UG)
Total Inferred Non-Material Properties
Total Inferred Consolidated FMS
Sulphides
All mineral types
All mineral types
1,044
6,184
22,636
Proven and Probable Mineral Reserves
With an Effective Date of December 31, 2020
Update prepared under the supervision of Ramon Mendoza Reyes, PEng, QP Mining for First Majestic
Mine Category
Mineral Type
SAN DIMAS
Proven (UG)
Probable (UG)
Total Proven and Probable (UG)
SANTA ELENA
Proven (UG)
Probable (UG)
Probable (Pad)
Total Proven and Probable (UG+Pad)
LA ENCANTADA
Probable (UG)
Total Probable (UG)
Consolidated FMS
Proven (UG)
Probable (UG)
Total Proven and Probable
Sulphides
Sulphides
Sulphides
Sulphides
Sulphides
Oxides
Oxides + Sulphides
Oxides
Oxides
All mineral types
All mineral types
All mineral types
Tonnage
k tonnes
1,887
2,108
3,995
826
1,606
509
2,941
1,485
1,485
2,714
5,708
8,421
Grades
Metal Content
Ag (g/t)
Au (g/t)
Ag-Eq (g/t)
Ag (k Oz)
Au (k Oz)
Ag-Eq (k Oz)
368
296
330
141
118
24
108
201
201
299
197
230
4.52
3.09
3.77
1.62
1.35
0.56
1.29
-
-
3.64
1.57
2.24
822
606
708
283
236
73
221
201
201
658
349
449
22,320
20,030
42,350
3,760
6,080
400
10,240
9,610
9,610
26,080
36,120
62,200
274
210
484
43
70
9
122
-
-
318
289
606
49,890
41,090
90,980
7,510
12,170
1,190
20,870
9,610
9,610
57,400
64,060
121,460
1. Mineral Reserves have been classified in accordance with the 2014 Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards on Mineral Resources and Mineral Reserves, whose definitions are incorporated by reference into NI 43-101.
2. The Mineral Reserves statement provided in the table above is based on internal estimates prepared as of December 31, 2020. The information provided was prepared and reviewed under the supervision of Ramon Mendoza Reyes, PEng, and
a Qualified Person (“QP”) for the purposes of NI 43-101.
3. Silver-equivalent grade (Ag-Eq) is estimated considering metal price assumptions, metallurgical recovery for the corresponding mineral type/mineral process and the metal payable of the selling contract.
(a) The Ag-Eq grade formula used was: Ag-Eq Grade = Ag Grade + Au Grade * (Au Recovery * Au Payable * Au Price) / (Ag Recovery * Ag Payable * Ag Price).
(b) Metal prices considered for Mineral Reserves estimates were $17.50/oz Ag and $1,700/oz Au for San Dimas; and $20.00/oz Ag and $1,700/oz Au for Santa Elena and La Encantada.
(c) Other key assumptions and parameters include: metallurgical recoveries; metal payable terms; direct mining costs, processing costs, indirect and G&A costs and sustaining costs. These parameters are different for each mine and mining
method and are presented in each mine section in the AIF.
4. A two-step constraining approach was implemented to estimate reserves for each mining method in use. A general cut-off grade was used to delimit new mining areas that will require development of access, infrastructure and all sustaining
costs. A second incremental cut-off grade was considered to include adjacent mineralized material which recoverable value pays for all associated costs, including but not limited to the variable cost of mining and processing, indirect costs,
treatment, administration costs and plant sustaining costs but excludes the access development assumed to be covered by the block above the general cut-off grade.
The cut-off grades, metallurgical recoveries, payable terms and modifying factors used to convert Mineral Reserves from Mineral Resources are different for all mines and are presented in each mine section in the AIF.
5. Modifying factors for conversion of resources to reserves include incorporation of planned dilution due to geometrical aspects of the designed stopes and economic zones, and additional dilution considerations due to unplanned events, and
materials handling and other operating aspects. Mineable shapes were used as geometric constraints.
6. Tonnage is expressed in thousands of tonnes; metal content is expressed in thousands of ounces. Metal prices and costs are expressed in USD.
7. Numbers have been rounded as required by reporting guidelines. Totals may not sum due to rounding.
8. The technical reports from which the above-mentioned information is derived are cited under the heading “Technical Reports for Material Properties” in the AIF.
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
25
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.
Keith Neumeyer
President & CEO
February 18, 2021
Raymond Polman, CA
Chief Financial Officer
February 18, 2021
27
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT 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
28
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
29
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In thousands of US dollars, except share and per share amounts)
The Consolidated Statements of Earnings (Loss) provide a summary of the Company’s financial performance and net earnings or loss over the
reporting periods.
Revenues
Mine operating costs
Cost of sales
Cost of sales - standby costs
Depletion, depreciation and amortization
Mine operating earnings
General and administrative expenses
Share-based payments
Mine holding costs
Loss on divestiture of exploration projects
Impairment of non-current assets
Foreign exchange loss (gain)
Operating earnings (loss)
Fair value adjustment on foreign currency derivatives
Investment and other income
Finance costs
Earnings (loss) before income taxes
Income taxes
Current income tax expense
Deferred income tax recovery
Net earnings (loss) for the year
Earnings (loss) per common share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
Approved by the Board of Directors
Year Ended December 31,
Note
2020
2019
5
6
6
7
8
14
17
9
10
11
11
11
11
$363,876
$363,944
194,305
10,112
54,405
258,822
105,054
24,855
8,255
21,583
3,685
—
6,319
40,357
(982)
5,127
(14,773)
29,729
9,966
(3,324)
6,642
232,146
—
65,584
297,730
66,214
26,800
8,325
7,579
—
58,739
(3,243)
(31,986)
—
8,109
(15,147)
(39,024)
16,423
(14,973)
1,450
$23,087
($40,474)
$0.11
$0.11
($0.20)
($0.20)
213,879,622
201,615,489
215,878,829
201,615,489
Keith Neumeyer, Director
Douglas Penrose, Director
The accompanying notes are an integral part of the audited consolidated financial statements
30
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In thousands of US dollars)
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.
Net earnings (loss) for the year
Other comprehensive income
Year Ended December 31,
Note
2020
2019
$23,087
($40,474)
Items that will not be subsequently reclassified to net earnings (loss):
Unrealized gain (loss) on fair value of investments in marketable securities, net of tax
Realized gain on investments in marketable securities, net of tax
Remeasurement of retirement benefit plan
Other comprehensive income
Total comprehensive income (loss)
13(b)
13(b)
10,249
211
(515)
9,945
(255)
572
—
317
$33,032
($40,157)
The accompanying notes are an integral part of the audited consolidated financial statements
31
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In thousands of US dollars)
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.
Operating Activities
Net earnings (loss) for the year
Adjustments for:
Depletion, depreciation and amortization
Share-based payments
Income tax expense
Finance costs
Loss on divestiture of exploration projects
Fair value adjustment on foreign currency derivatives
Impairment of non-current assets
Unrealized gains from marketable securities and silver futures derivatives
Unrealized foreign exchange (gain) loss
Operating cash flows before movements in working capital and taxes
Net change in non-cash working capital items
Income taxes paid
Cash generated by operating activities
Investing Activities
Expenditures on mining interests
Acquisition of property, plant and equipment
Deposits paid for acquisition of non-current assets
Acquisition of Springpole Silver Stream
Other
Cash used in investing activities
Financing Activities
Year Ended December 31,
Note
2020
2019
$23,087
($40,474)
56,283
8,255
6,642
14,773
3,894
982
—
(4,051)
(2,522)
67,220
8,325
1,450
15,147
—
—
58,739
(1,765)
273
107,343
108,915
(22,831)
(4,799)
79,713
(68,647)
(43,322)
(13,846)
(2,521)
1,221
37,327
(6,217)
140,025
(76,983)
(41,625)
(1,748)
—
3,422
(127,115)
(116,934)
10
14
17
25
14(c)
25
Proceeds from prospectus offerings, net of share issue costs
23(a)
126,132
Proceeds from exercise of stock options
Repayment of lease liabilities
Finance costs paid
Proceeds from debt facility
Repayment of debt facility
Shares repurchased and cancelled
Cash provided by financing activities
Effect of exchange rate on cash and cash equivalents held in foreign currencies
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of year
Cash
Short-term investments
Cash and cash equivalents, end of year
Supplemental cash flow information
20
19
19
23(e)
25
The accompanying notes are an integral part of the audited consolidated financial statements
32
14,011
(7,706)
(4,200)
10,000
(19,969)
(1,694)
116,574
397
69,172
169,009
$238,578
$207,132
31,446
81,916
16,663
(5,213)
(5,686)
—
—
—
87,680
1,225
110,771
57,013
$169,009
$161,268
7,741
$238,578
$169,009
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT DECEMBER 31, 2020 AND 2019 (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
Trade and other receivables
Value added taxes receivable
Inventories
Other financial assets
Prepaid expenses and other
Total current assets
Non-current assets
Mining interests
Property, plant and equipment
Right-of-use assets
Deposits on non-current assets
Non-current income taxes receivable
Non-current value added taxes receivable
Deferred tax assets
Total assets
Liabilities and Equity
Current liabilities
Trade and other payables
Unearned revenue
Current portion of debt facilities
Current portion of lease liabilities
Income taxes payable
Total current liabilities
Non-current liabilities
Debt facilities
Lease liabilities
Decommissioning liabilities
Other liabilities
Non-current income taxes payable
Deferred tax liabilities
Total liabilities
Equity
Share capital
Equity reserves
Accumulated deficit
Total equity
Total liabilities and equity
Commitments (Note 14; Note 24(c)); Subsequent event (Note 29)
The accompanying notes are an integral part of the audited consolidated financial statements
24(c)
12
13
14
15
16
22
24(c)
22
18
5
19
20
22
19
20
21
22
22
$238,578
$169,009
4,271
41,641
32,512
36,319
2,725
4,295
29,637
30,517
7,488
2,033
356,046
242,979
509,730
258,220
14,330
14,246
—
15,301
69,644
463,391
236,639
12,034
2,189
4,579
—
51,141
$1,237,517
$1,012,952
$76,002
2,717
10,975
5,358
6,574
101,626
141,733
15,217
51,471
5,406
23,099
48,729
$387,281
1,087,139
101,997
(338,900)
$850,236
$59,123
4,486
1,175
6,920
149
71,853
154,643
15,016
40,528
4,675
—
63,916
$350,631
933,182
90,692
(361,553)
$662,321
$1,237,517
$1,012,952
33
FIRST MAJESTIC SILVER 2020 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31 2020 AND 2019 (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
Shares
Amount
Share-based
payments(a)
Other
comprehensive
income(loss)(b)
Equity
component of
convertible
debenture(c)
Total equity
reserves
Accumulated
deficit
Total equity
193,873,335
$827,622
$71,715
($2,849)
$19,164
$88,030
($321,079)
$594,573
—
—
—
—
—
—
—
—
—
—
—
9,319
11,172,982
81,916
—
2,918,518
22,649
(5,986)
145,576
1,661
988
7
(988)
—
—
317
317
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(40,474)
(40,474)
317
317
9,319
—
(5,986)
(988)
—
—
317
(40,474)
(40,157)
—
—
—
—
—
9,319
81,916
16,663
—
7
208,112,072
$933,182
$74,060
($2,532)
$19,164
$90,692
($361,553)
$662,321
—
—
—
—
—
—
—
—
—
—
—
8,255
10,654,338
126,132
—
2,473,926
19,914
(5,903)
805,698
7,479
66,997
127,000
700
992
(275,000)
(1,260)
—
—
(992)
—
—
9,945
9,945
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
23,087
23,087
9,945
9,945
8,255
—
(5,903)
—
—
(992)
—
—
9,945
23,087
—
—
—
—
—
—
33,032
8,255
126,132
14,011
7,479
700
—
(434)
(1,694)
221,965,031
$1,087,139
$75,420
$7,413
$19,164
$101,997
($338,900)
$850,236
Balance at
December 31, 2018
Net loss for the year
Other comprehensive
income
Total comprehensive loss
Share-based payments
Shares issued for:
Prospectus offerings
(Note 23(a))
Exercise of stock options
(Note 23(b))
Settlement of restricted
share units (Note 23(c))
Shares cancelled
Balance at
December 31, 2019
Net earnings for the year
Other comprehensive
income
Total
comprehensive income
Share-based payments
Shares issued for:
Prospectus offerings
(Note 23(a))
Exercise of stock options
(Note 23(b))
Acquisition of Springpole
Silver Stream (Note 14(c))
Acquisition of mining
interests
Settlement of restricted
share units (Note 23(c))
Shares repurchased and
cancelled (Note 23(e))
Balance at
December 31, 2020
(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
34
1. NATURE OF OPERATIONS
Interest Rate Benchmark Reform
(Amendments to IFRS 9, IAS 39 and IFRS 7)
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.
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.
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
Accounting Policy:
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.
35
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
entities if there is a change in events and conditions which determined the
primary economic environment.
Business Combinations (continued)
Revenue Recognition (Note 5)
Accounting Policy: (continued)
Accounting Policy:
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.
Goodwill
Accounting Policy:
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).
Foreign Currency
Accounting Policy:
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.
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.
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.
Accounting Estimates and Judgments:
Determination of Performance Obligations
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.
Accounting Estimates and Judgments:
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
36
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.
Inventories (Note 12)
Accounting Policy:
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.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
Inventories (Note 12) (continued)
Accounting Policy: (continued)
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.
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.
Exploration and Evaluation Expenditures (Note 14)
Accounting Policy:
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
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.
Accounting Estimates and Judgments:
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.
Mining Interests (Note 14)
Accounting Policy:
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.
Accounting Estimates and Judgments:
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.
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.
37
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
Mining Interests (Note 14) (continued)
Accounting Estimates and Judgments:
Mineral Reserve and Resource Estimates (continued)
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
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.
inherent
Accounting Estimates and Judgments:
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.
Stream Asset (Note 14)
Accounting Policy:
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.
Property, Plant and Equipment (Note 15)
Accounting Policy:
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
38
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.
Accounting Estimates and Judgments:
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
Accounting Estimates and Judgments:
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.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
Property, Plant and Equipment (Note 15) (continued)
Borrowing Costs
Accounting Policy:
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.
Right of Use Assets (Note 16) and Lease Liabilities (Note 20)
Accounting Policy:
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.
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.
Impairment of Non-Current Assets (Note 17)
Accounting Policy:
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.
39
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 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.
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.
Taxation (Note 22)
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.
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
Impairment of Non-Current Assets (Note 17) (continued)
Accounting Estimates and Judgments:
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.
Share-based Payment Transactions (Note 23(b))
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.
40
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
Taxation (Note 22) (continued)
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.
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
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.
Financial Instruments
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.
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.
41
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
Earnings or Loss per Share (Note 11)
(continued)
Financial Instruments (continued)
Accounting Policy:
Financial assets measured subsequently at fair value through profit or
loss (“FVTPL”) (continued)
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.
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.
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.
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).
Provisions (Note 21)
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.
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.
42
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.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS (continued)
Future Changes in Accounting Policies Not Yet Effective as at December 31, 2020 (continued)
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) (continued
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.
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:
Year Ended December 31, 2020 and 2019
Revenue
Cost of sales
Depletion,
depreciation, and
amortization
Mine
operating
earnings (loss)
Capital
expenditures
Mexico
San Dimas
Santa Elena
La Encantada
Non-producing Properties
Others
Consolidated
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
$211,759
$110,782
$33,738
$67,239
$43,772
185,999
100,120
76,051
94,378
73,632
50,867
183
32,204
2,251
496
52,990
53,605
37,794
36,609
1,362
40,910
1,489
902
28,491
10,472
12,204
8,265
11,648
848
12,162
1,082
1,079
57,388
12,589
28,569
27,573
2,610
(2,027)
(20,868)
(320)
(1,485)
42,511
33,739
23,004
10,733
13,225
4,338
20,258
32,453
25,196
$363,876
$363,944
$204,417
$232,146
$54,405
$65,584
$105,054
$66,214
$125,035
$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%).
43
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
4. SEGMENTED INFORMATION (continued)
Mining Interests
At December 31, 2020 and 2019
Producing
Exploration
Property, plant
and equipment
Total
mining assets
Total assets
Total liabilities
Mexico
San Dimas
Santa Elena
La Encantada
Non-producing Properties
Others
Consolidated
5. REVENUES
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
$204,592
$17,179
$112,105
$333,876
$439,145
$105,462
193,433
52,892
45,046
25,865
23,091
108,837
105,778
—
—
8,699
33,951
18,592
2,955
1,104
37,004
32,938
26,456
34,710
116,556
49,245
47,787
16,555
14,736
29,888
31,050
50,427
26,510
318,688
136,088
111,425
45,375
38,931
175,729
169,766
76,883
61,220
360,387
166,525
134,666
99,185
71,255
219,109
213,061
313,553
233,583
46,504
33,467
23,867
29,354
21,563
40,274
36,261
178,724
222,436
$392,185
$117,545
$258,220
$767,950
$1,237,517
$387,281
$367,348
$96,043
$236,639
$700,030
$1,012,952
$350,631
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:
Gross revenue from payable metals:
Silver
Gold
Lead
Zinc
Gross revenue
Less: smelting and refining costs
Revenues
Year Ended December 31,
2020
2019
$242,338
124,264
74
—
66%
34%
— %
— %
$215,301
143,029
6,988
3,517
58%
39%
2%
1%
366,676
100%
368,835
100%
(2,800)
$363,876
(4,891)
$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.
44
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:
Consumables and materials
Labour costs
Energy
Other costs
Production costs
Transportation and other selling costs
Workers participation costs
Environmental duties and royalties
Inventory changes
Cost recovery related to Republic Metals Refining Corp. bankruptcy(1)
Standby Costs(2)
Restructuring costs(3)
Cost of Sales
Cost of Sales - Standby Costs(4)
Year Ended December 31,
2020
$36,760
103,075
25,075
11,275
2019
$45,947
118,229
35,135
13,243
$176,185
$212,554
2,288
14,245
2,010
(423)
—
—
—
2,735
9,036
1,438
3,459
(1,600)
2,879
1,645
$194,305
$232,146
$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:
Corporate administration
Salaries and benefits
Audit, legal and professional fees
Filing and listing fees
Directors fees and expenses
Depreciation
Year Ended December 31,
2020
$5,012
11,271
5,353
499
842
1,878
2019
$5,202
13,797
4,943
429
793
1,636
$24,855
$26,800
45
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
8. MINE HOLDING COSTS
11. EARNINGS OR LOSS PER SHARE
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:
Del Toro
La Parrilla
San Martin
La Guitarra
Year Ended December 31,
2020
$7,999
5,563
5,265
2,757
$21,583
2019
$—
5,010
—
2,569
$7,579
9. INVESTMENT AND OTHER INCOME
The Company’s investment and other income (loss) are comprised of the
following:
Gain from investment in marketable
securities (Note 13(a))
Gain from investment in silver futures
derivatives
Interest income and other
Year Ended December 31,
2020
2019
$1,973
2,079
1,075
$528
1,237
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:
Debt facilities(1) (Note 19)
Lease liabilities (Note 20)
Accretion of decommissioning liabilities
Silver sales and other
Year Ended December 31,
2020
2019
$10,593
$10,885
1,479
2,362
339
1,142
2,410
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).
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
Impact of effect on dilutive securities:
213,879,622
201,615,489
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.
Finished goods - doré
Work-in-process
Stockpile
Silver coins and bullion
Materials and supplies
Year Ended December 31,
2020
$2,812
2,780
1,336
956
2019
$1,965
3,229
2,130
291
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.
46
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:
FVTPL marketable securities (a)
FVTOCI marketable securities (b)
Total marketable securities
Foreign currency derivatives (Note 24)
Total other financial assets
Year Ended December 31,
2020
$13,876
22,444
$36,319
—
$36,319
2019
$5,626
880
$6,506
982
$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.
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:
Depletable properties
Non-depletable properties (exploration and evaluation costs)
Year Ended December 31,
2020
$392,185
117,545
2019
$367,348
96,043
$509,730
$463,391
47
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
14. MINING INTERESTS (continued)
Depletable properties are allocated as follows:
Depletable properties
Cost
At December 31, 2018
Additions
Change in decommissioning liabilities (Note 21)
Transfer from exploration properties
At December 31, 2019
Additions
Change in decommissioning liabilities (Note 21)
Transfer from exploration properties
At December 31, 2020
Accumulated depletion, amortization and impairment
At December 31, 2018
Depletion and amortization
Impairment
At December 31, 2019
Depletion and amortization
At December 31, 2020
Carrying values
At December 31, 2019
At December 31, 2020
San Dimas
Santa Elena
La Encantada
Non-producing
Properties(1)
Total
$193,305
$45,041
$99,436
$478,883
$816,665
24,596
301
2,456
6,813
2,338
7,462
5,995
500
5,659
9,088
6,161
—
46,492
9,300
15,577
$220,658
$61,654
$111,590
$494,132
$888,034
21,263
4,527
3,645
6,218
1,191
4,229
4,201
2,049
472
—
3,059
—
31,682
10,826
8,346
$250,093
$73,292
$118,312
$497,191
$938,888
($10,871)
(16,354)
—
($27,225)
(18,277)
($45,502)
($11,594)
($59,872)
($380,677)
($463,014)
(5,014)
—
(6,025)
(22,602)
(7,677)
—
(35,070)
(22,602)
($16,608)
($88,499)
($388,354)
($520,686)
(3,792)
(3,948)
—
(26,017)
($20,400)
($92,447)
($388,354)
($546,703)
$193,433
$204,592
$45,046
$52,892
$23,091
$25,865
$105,778
$108,837
$367,348
$392,185
(1) Non-producing properties include the San Martin, Del Toro, La Parrilla and La Guitarra mines.
Non-depletable properties costs are allocated as follows:
Non-depletable properties
At December 31, 2018
San Dimas(a) Santa Elena(b)
La Encantada
Non-
producing
Properties(1)
Exploration
Projects(2)
Springpole
Stream(c)
Total
$3,705
$14,316
$5,660
$24,841
$33,440
$—
$81,962
Exploration and evaluation expenditures
7,450
11,738
Change in decommissioning liabilities (Note 21)
Impairment
Transfer to producing properties
At December 31, 2019
Exploration and evaluation expenditures
Change in decommissioning liabilities (Note 21)
Sale of exploration project
—
—
(2,456)
$8,699
12,125
—
—
—
—
(7,462)
2,164
—
(1,061)
(5,659)
8,097
—
—
—
1,032
238
—
—
—
—
—
—
30,481
238
(1,061)
(15,577)
$18,592
$1,104
$32,938
$34,710
$—
$96,043
19,588
2,323
4,066
—
—
—
—
1,142
59
(13,812)
—
4,356
43,601
—
—
—
59
(13,812)
(8,346)
—
—
—
Transfer to producing properties
(3,645)
(4,229)
(472)
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.
48
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
14. MINING INTERESTS (continued)
(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.
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.
49
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 14. MINING INTERESTS (continued)
(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.
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:
Cost
At December 31, 2018
Additions
Transfers and disposals
At December 31, 2019
Additions
Transfers and disposals
At December 31, 2020
Accumulated depreciation, amortization and impairment
At December 31, 2018
Depreciation and amortization
Transfers and disposals
Impairment
At December 31, 2019
Depreciation and amortization
Transfers and disposals
At December 31, 2020
Carrying values
At December 31, 2019
At December 31, 2020
Land and
Buildings(1)
Machinery and
Equipment
Assets under
Construction(2)
Other
Total
$177,864
$430,862
$35,673
$23,410
$667,809
—
20,548
1,991
23,802
44,709
(52,737)
521
507
47,221
(7,880)
$198,412
$456,655
$27,645
$24,438
$707,150
—
917
2,096
9,873
47,266
(19,242)
391
3,822
49,753
(4,630)
$199,329
$468,624
$55,669
$28,651
$752,273
($111,258)
($291,959)
$—
($13,508)
($416,725)
(4,980)
271
(13,073)
(23,829)
5,189
(15,701)
($129,040)
($326,300)
(4,188)
72
(19,833)
2,754
($133,156)
($343,379)
—
—
—
$—
—
—
$—
(2,122)
459
—
(30,931)
5,919
(28,774)
($15,171)
($470,511)
(2,555)
208
(26,576)
3,034
($17,518)
($494,053)
$69,372
$66,173
$130,355
$125,245
$27,645
$55,669
$9,267
$236,639
$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.
50
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:
Cost
At December 31, 2018
Additions
Transfers and disposals
At December 31, 2019
Additions(2)
Transfers and disposals
At December 31, 2020
Accumulated depreciation,
amortization and impairment
At December 31, 2018
Depreciation and amortization
Transfers and disposals
Impairment
At December 31, 2019
Depreciation and amortization
Transfers and disposals
At December 31, 2020
Carrying values
At December 31, 2019
At December 31, 2020
San Dimas
Santa Elena
La Encantada
Non-producing
Properties(1)
Other
Total
$127,763
$76,671
$132,146
$299,037
$32,192
$667,809
10,465
(1,925)
4,453
9,638
5,066
90
3,073
(4,870)
24,164
(10,813)
47,221
(7,880)
$136,303
$90,762
$137,302
$297,240
$45,543
$707,150
10,384
41
7,933
(1,364)
4,209
1,999
272
(3,751)
26,955
(1,555)
49,753
(4,630)
$146,728
$97,331
$143,510
$293,761
$70,943
$752,273
($7,545)
(12,355)
153
—
($37,007)
($89,086)
($265,811)
($17,276)
($416,725)
(6,989)
1,021
(5,278)
572
—
(28,774)
(4,378)
3,999
—
(1,931)
174
—
(30,931)
5,919
(28,774)
($19,747)
($42,975)
($122,566)
($266,190)
($19,033)
($470,511)
(15,032)
156
(6,451)
1,340
(2,646)
(1,743)
(592)
2,909
(1,855)
372
(26,576)
3,034
($34,623)
($48,086)
($126,955)
($263,873)
($20,516)
($494,053)
$116,556
$112,105
$47,787
$49,245
$14,736
$16,555
$31,050
$29,888
$26,510
$50,427
$236,639
$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.
51
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES 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:
At December 31, 2018
Initial adoption
Additions
Remeasurements
Depreciation and amortization
Impairment
At December 31, 2019
Additions
Remeasurements
Depreciation and amortization
Disposals
At December 31, 2020
Land and Buildings
Machinery and
Equipment
$—
2,624
571
1,686
(674)
—
$4,207
1,939
2,789
(848)
—
$8,087
$—
1,036
14,132
232
(1,286)
(6,302)
$7,812
554
(10)
(2,106)
(16)
$6,234
Other
$—
22
—
—
(7)
—
Total
$—
3,682
14,703
1,918
(1,967)
(6,302)
$15
$12,034
—
—
(7)
—
$8
2,494
2,779
(2,961)
(16)
$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:
Impairment of non-current assets
Deferred income tax recovery
Impairment of non-current assets, net of tax
Year Ended December 31, 2019
$58,739
(6,300)
$52,439
The impairment charge recognized for the year ended December 31, 2019 in respect of La Encantada was allocated as follows:
Mining interests
Producing
Exploration
Right of use
assets
Property, plant
and equipment
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.
Metal price assumptions used to determine the recoverable amounts for the year ended December 31, 2019 are summarized in the following table:
Commodity Prices
Silver (per ounce)
Gold (per ounce)
December 31, 2019
2020-2023 Average
Long-term
$18.84
$1,536
$19.50
$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.
52
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 17. IMPAIRMENT OF NON-CURRENT ASSETS (continued)
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:
Trade payables
Trade related accruals
Payroll and related benefits
Environmental duty
Other accrued liabilities
19. DEBT FACILITIES
December 31, 2020
December 31, 2019
$31,262
18,635
21,427
2,156
2,522
$76,002
$23,984
12,314
19,059
1,483
2,283
$59,123
The movement in debt facilities during the year ended December 31, 2020 and year ended December 31, 2019, respectively, are comprised of the following:
Balance at December 31, 2018
Finance costs
Interest expense
Accretion
Payments of finance costs
Balance at December 31, 2019
Finance costs
Interest expense
Accretion
Proceeds from drawdown of Revolving Credit Facility
Repayments of principal
Payments of finance costs
At December 31, 2020
Statements of Financial Position Presentation
Current portion of debt facilities
Non-current portion of debt facilities
Balance at December 31, 2019
Current portion of debt facilities
Non-current portion of debt facilities
At December 31, 2020
Convertible
Debentures
(a)
$130,807
2,975
5,758
(2,933)
Revolving
Credit Facility
(b)
Total
$18,705
$149,512
1,498
654
(1,646)
4,473
6,412
(4,579)
$136,607
$19,211
$155,818
2,984
6,168
—
—
(2,934)
$142,825
$1,043
135,564
$136,607
$1,092
141,733
$142,825
763
678
10,000
(19,969)
(801)
$9,882
$132
19,079
$19,211
$9,882
—
$9,882
3,747
6,846
10,000
(19,969)
(3,735)
$152,707
$1,175
154,643
$155,818
$10,975
141,733
$152,707
53
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
19. DEBT FACILITIES (continued)
(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 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.
54
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(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:
Balance at December 31, 2018
Initial adoption of IFRS 16
Additions
Remeasurements
Finance costs
Repayments of principal
Payments of finance costs
Foreign exchange loss
Balance at December 31, 2019
Additions
Remeasurements
Finance costs
Repayments of principal
Payments of finance costs
Foreign exchange gain
At December 31, 2020
Statements of Financial Position Presentation
Current portion of lease liabilities
Non-current portion of lease liabilities
Balance at December 31, 2019
Current portion of lease liabilities
Non-current portion of lease liabilities
At December 31, 2020
(a) Finance Leases
Finance Leases (a)
Operating Leases (b) Equipment Financing (c)
$409
—
—
—
18
(359)
(18)
—
$50
—
—
—
(50)
—
—
$—
$50
—
$50
$—
—
$—
$—
3,682
14,706
1,918
789
(2,395)
—
251
$18,951
2,494
2,779
1,396
(5,353)
—
(281)
$19,986
$4,518
14,433
$18,951
$4,820
15,166
$19,986
$5,438
—
—
—
335
(2,459)
(379)
—
$2,935
—
—
83
(2,303)
(126)
—
$589
$2,352
583
$2,935
$538
51
$589
Total
$5,847
3,682
14,706
1,918
1,142
(5,213)
(397)
251
$21,936
2,494
2,779
1,479
(7,706)
(126)
(281)
$20,575
$6,920
15,016
$21,936
$5,358
15,217
$20,575
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.
55
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(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:
Expenses relating to variable lease payments not included in the measurement of lease liability
Expenses relating to short-term leases
Expenses relating to low value leases
(c) Equipment Financing
Year Ended
December 31, 2020
Year Ended
December 31, 2019
$25,560
19,607
81
$45,248
$14,241
42,994
—
$57,235
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:
Balance at December 31, 2018
$8,412
$2,321
$6,709
$2,694
$3,245
$2,498
$1,615
$302
$27,796
San Dimas Santa Elena La Encantada
San Martin
La Parrilla
Del Toro
La Guitarra
La Luz
Total
Movements during the year:
Change in rehabilitation
provision
Reclamation costs incurred
Interest or accretion expense
Foreign exchange loss
301
—
744
(15)
2,338
—
207
105
500
—
592
311
4,051
—
237
121
696
—
282
114
945
—
219
107
469
(104)
129
69
238
—
—
76
9,538
(104)
2,410
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
Change in rehabilitation
provision
Reclamation costs incurred
Interest or accretion expense
Foreign exchange loss
—
—
—
—
4,527
1,191
2,049
1,240
—
565
(476)
(55)
295
(252)
—
477
(415)
(81)
418
(359)
—
830
(20)
259
(216)
—
(153)
772
—
226
(190)
217
—
122
(86)
—
59
—
—
(2)
(153)
10,885
(156)
2,362
(1,995)
Balance at December 31, 2020
$14,059
$6,150
$10,223
$8,321
$5,190
$4,577
$2,278
$673
$51,471
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.
56
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 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:
Earnings (loss) before tax
Combined statutory tax rate
Income tax expense (recovery) computed at statutory tax rate
Reconciling items:
Effect of different foreign statutory tax rates on earnings of subsidiaries
Impact of foreign exchange on deferred income tax assets and liabilities
Change in unrecognized deferred income tax asset
7.5% mining royalty in Mexico
Other non-deductible expenses
Impact of inflationary adjustments
Change in tax provision estimates
Impact of divestitures and restructurings
Other
Income tax expense
Statements of Earnings (Loss) Presentation
Current income tax expense
Deferred income tax recovery
Income tax expense
Effective tax rate
As at December 31, 2020 and 2019, the Company has the following income tax receivable and payable balances:
Current income tax receivable
Non-current income tax receivable
Current income tax payable
Non-current income tax payable
Year Ended December 31,
2020
2019
$29,729
($39,024)
27.00%
8,027
27.00%
(10,536)
(4,760)
15,688
(4,596)
7,415
758
(1,317)
10,387
(16,724)
(8,236)
$6,642
$9,966
(3,324)
$6,642
(24,320)
(10,194)
30,399
(814)
3,256
(2,412)
23,987
—
(7,916)
$1,450
$16,423
(14,973)
$1,450
22%
(4%)
Year Ended December 31,
2020
$—
—
$—
$6,574
23,099
$29,673
2019
$—
4,579
$4,579
$149
—
$149
57
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES 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
At December 31, 2018
Benefit (expense) to income statement
Charged to equity
At December 31, 2019
Benefit to income statement
At December 31, 2020
Deferred tax liabilities
At December 31, 2018
(Benefit) expense to income statement
Reclassed to current income taxes payable
At December 31, 2019
(Benefit) expense to income statement
Reclassed to current income taxes payable
Charged to OCI
Divestiture of exploration projects
At December 31, 2020
Statements of Financial Position Presentation
Deferred tax assets
Deferred tax liabilities
At December 31, 2019
Deferred tax assets
Deferred tax liabilities
At December 31, 2020
Losses
Provisions
$118,393
$16,508
8,079
—
6,379
—
Deferred
tax asset not
recognized
($68,348)
(32,156)
—
$126,472
$22,887
($100,504)
21,327
2,389
11,788
$147,799
$25,276
($88,716)
Property, plant
and equipment
and mining
interests
Effect of
Mexican tax
deconsolidation
$65,382
(32,381)
—
$33,001
23,883
—
—
—
$6,744
498
(2,813)
$4,429
(113)
(2,245)
—
—
Other
$3,556
4,295
994
$8,845
456
$9,301
Other
$37,688
(4,643)
—
$33,045
(18,311)
—
1,633
(2,577)
Total
$70,109
(13,403)
994
$57,700
35,960
$93,660
Total
$109,814
(36,526)
(2,813)
$70,475
5,459
(2,245)
1,633
(2,577)
$56,884
$2,071
$13,790
$72,745
$51,141
63,916
$12,775
$69,644
48,729
($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).
58
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
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030 and after
Total
Unrecognized losses
23. SHARE CAPITAL
$—
—
—
—
—
—
—
—
—
—
3,141
$3,141
$—
$—
3,835
3,878
2,071
34,964
38,901
104,044
21,040
57,809
68,074
149,721
$484,337
$199,775
$—
3,835
3,878
2,071
34,964
38,901
104,044
21,040
57,809
68,074
152,862
$487,478
$199,775
$544
7,825
4,060
2,213
39,319
51,911
113,630
56,760
99,315
89,754
22,209
$487,540
$208,253
(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.
ATM program(1)
Prospectus offering(2)
Year Ended December 31, 2020
Year Ended December 31, 2019
Number of Shares
Net Proceeds
Number of Shares
Net Proceeds
5,654,338
5,000,000
$67,892
58,240
11,172,982
—
10,654,338
$126,132
11,172,982
$81,916
—
$81,916
(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 $58.2 million after costs.
59
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
23. SHARE CAPITAL (continued)
(b) Stock options
Under the terms of the Company’s 2020 Long-Term Incentive Plan (“LTIP”), the maximum number of shares reserved for issuance under the LTIP
is 8% of the issued shares on a rolling basis. Options may be exercisable over periods of up to ten years as determined by the Board of Directors of
the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory
approval. All stock options granted are subject to vesting with 25% vesting on first anniversary from the date of grant, and 25% vesting each six
months thereafter.
The following table summarizes information about stock options outstanding as at December 31, 2020:
Exercise prices (CAD$)
4.80 - 10.00
10.01 - 15.00
15.01 - 20.00
20.01 - 126.01
Options Outstanding
Options Exercisable
Number of
Options
2,821,206
3,276,063
831,928
144,895
7,074,092
Weighted Average
Exercise Price
(CAD $/Share)
Weighted Average
Remaining Life
(Years)
8.60
12.23
15.95
53.85
12.07
7.70
4.96
7.59
0.68
6.27
Number of
Options
1,323,015
1,833,567
117,232
144,895
3,418,709
Weighted Average
Exercise Price
(CAD $/Share)
Weighted Average
Remaining Life
(Years)
8.67
11.12
16.04
53.85
12.15
7.07
1.46
1.14
0.68
3.59
The movements in stock options issued during the years ended December 31, 2020 and 2019 are summarized as follows:
Balance, beginning of the year
Granted
Exercised
Cancelled or expired
Balance, end of the year
Year Ended December 31, 2020
Year Ended December 31, 2019
Number of
Options
7,583,439
2,621,924
(2,473,926)
(657,345)
7,074,092
Weighted Average
Exercise Price
(CAD $/Share)
10.70
13.46
7.50
18.96
12.07
Number of
Options
9,266,098
2,601,680
(2,918,518)
(1,365,821)
7,583,439
Weighted Average
Exercise Price
(CAD $/Share)
10.76
8.83
7.54
14.31
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 following weighted average assumptions were used in estimating the fair value of stock options granted using the Black-Scholes Option Pricing
Model:
Assumption
Based on
Risk-free interest rate (%)
Yield curves on Canadian government zero- coupon bonds with a
remaining term equal to the stock options’ expected life
Expected life (years)
Average of the expected vesting term and expiry term of the option
Expected volatility (%)
Historical and implied volatility of the precious metals mining sector
Expected dividend yield (%)
Annualized dividend rate as of the date of grant
Year Ended
December 31, 2020
Year Ended
December 31, 2019
1.03
5.83
49.00
—
2.01
5.80
51.29
—
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$12.81).
(c) Restricted Share Units
The Company adopted the 2019 LTIP to allow the Company to grant to its directors, employees and consultants non-transferable Restricted Share
Units (“RSU’s”) based on the value of the Company’s share price at the date of grant. Unless otherwise stated, the awards typically have a graded
vesting schedule over a three-year period and can be settled either in cash or equity upon vesting at the discretion of the Company. The Company
intends to settle all RSU’s in equity.
The associated compensation cost is recorded as share-based payments expense against equity reserves.
60
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
23. SHARE CAPITAL (continued)
(c) Restricted Share Units (continued)
The following table summarizes the changes in RSU’s for the years ended December 31, 2020 and 2019:
Outstanding, beginning of the year
Granted
Settled
Forfeited
Outstanding, end of the year
Year Ended December 31, 2020
Year Ended December 31, 2019
Number of shares
128,944
211,192
(127,000)
(28,653)
184,483
Weighted
Average
Fair Value
(CAD$)
10.36
15.72
10.32
15.93
15.66
Number of shares
—
274,520
(145,576)
—
128,944
Weighted
Average
Fair Value
(CAD$)
—
9.67
9.06
—
10.36
During the year ended December 31, 2020, total share-based payments expense related to RSUs was $0.8 million (2019 - $1.8 million).
(d) Performance Share Units
The Company adopted the 2019 LTIP to allow the Company to grant to its directors, employees and consultants non-transferable Performance Share
Units (“PSU’s”). The amount of units to be issued on the vesting date will vary from 0% to 200% of the number of PSU’s granted, depending on the
Company’s total shareholder return compared to the return of a selected group of peer companies. Unless otherwise stated, the awards typically vest
three years from the grant date. The fair value of a PSU based on the value of the Company’s share price at the date of grant and will be adjusted based
on actual units issued on the vesting date. The Company intends to settle all PSU’s in equity.
The following table summarizes the changes in PSU’s granted to employees and consultants for the year ended December 31, 2020:
Outstanding, beginning of the year
Granted
Forfeited
Outstanding, end of the year
Year Ended December 31, 2020
Number of shares
—
122,575
(13,540)
109,035
Weighted
Average
Fair Value
(CAD$)
—
15.65
(15.93)
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.
61
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 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 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
Silver futures derivatives
Foreign currency derivatives
Based on quoted market prices for identical assets in an active market (Level 1) as at the
date of statements of financial position
Financial Instruments Measured at Amortized Cost
Valuation Method
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Debt facilities
Approximated carrying value due to their short-term nature
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:
Financial assets
Trade receivables
Marketable securities (Note 13)
Foreign currency derivatives (Note 13)
December 31, 2020
Fair value measurement
December 31, 2019
Fair value measurement
Carrying value
Level 1
Level 2
Carrying value
Level 1
Level 2
$—
$—
36,319
30,996
—
—
$—
5,323
—
$1,182
6,506
982
$—
6,506
982
$1,182
—
—
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.
62
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:
Equity
Debt facilities
Lease liabilities
Less: cash and cash equivalents
December 31, 2020
December 31, 2019
$850,236
152,708
20,575
(238,578)
$784,941
$662,321
155,818
21,936
(169,009)
$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.
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:
Trade and other payables
Debt facilities
Lease liabilities
Other liabilities
Carrying Amount
$76,002
152,708
20,575
5,406
Contractual
Cash Flows
$76,002
174,082
16,520
5,406
Less than
1 year
$76,002
13,180
4,557
—
$—
160,902
6,562
—
$254,691
$272,010
$93,739
$167,464
2 to 3 years
4 to 5 years
After 5 years
$—
—
4,692
—
$4,692
$—
—
709
5,406
$6,115
63
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES 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 (continued)
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:
Cash and cash
equivalents
Trade and other
receivables
Value added
taxes receivable
Other
inancial assets
Trade and
other payables
December 31, 2020
Net assets
(liabilities)
exposure
Effect of +/-
10% change in
currency
Canadian dollar
Mexican peso
$75,958
8,369
$84,327
$74
—
$74
53,201
$53,201
$—
$10,140
($3,133)
(42,763)
$83,039
18,807
$8,304
1,881
—
$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).
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:
Metals in doré inventory
Interest Rate Risk
December 31, 2020
Effect of +/- 10% change in metal prices
Silver
$104
$104
Gold
$226
$226
Total
$330
$330
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.
64
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
25. SUPPLEMENTAL CASH FLOW INFORMATION
Other adjustments to investing activities:
Purchase of marketable securities
Proceeds from disposal of marketable securities
Cash received on settlement of derivatives
Net change in non-cash working capital items:
Decrease in trade and other receivables
(Increase) decrease in value added taxes receivable
(Increase) decrease in inventories
(Increase) decrease in prepaid expenses and other
Decrease in income taxes payable
Increase in trade and other payables
Non-cash investing and financing activities:
Transfer of share-based payments reserve upon settlement of RSUs
Transfer of share-based payments reserve upon exercise of options
Acquisition of mining interests
Year Ended December 31,
2020
2019
($1,522)
664
2,079
$1,221
$24
(27,525)
(4,288)
(692)
(1,115)
10,765
$—
867
2,555
$3,422
$1,304
30,028
2,829
776
(6,569)
8,959
($22,831)
$37,327
$992
5,903
(8,179)
$988
5,986
—
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.
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.
65
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
26. CONTINGENCIES AND OTHER MATTERS (continued)
Primero Tax Rulings (continued)
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.
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-assessment
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.
66
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 26. CONTINGENCIES AND OTHER MATTERS (continued)
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.
27. SUBSIDIARIES
The consolidated financial statements of the Company include the following significant subsidiaries as at December 31, 2020 and 2019 as follows:
Name of subsidiary
First Majestic Silver Corp.
Operations and Projects
Parent company and bullion sales
Corporación First Majestic, S.A. de C.V.
Holding company
Primero Empresa Minera, S.A de C.V.
San Dimas Silver/Gold Mine
Nusantara de Mexico, S.A. de C.V.
Santa Elena Silver/Gold Mine
Minera La Encantada, S.A. de C.V.
La Encantada Silver Mine
First Majestic Plata, S.A. de C.V.
Minera El Pilón, S.A. de C.V.
First Majestic Del Toro, S.A. de C.V.
La Parrilla Silver Mine
San Martin Silver Mine
Del Toro Silver Mine
La Guitarra Compañia Minera, S.A. de C.V.
La Guitarra Silver Mine
Majestic Services, S.A. de C.V.
FM Metal Trading (Barbados) Ltd.
FMS Trading AG
Service company
Metals trading company
Metals trading company
Location
Canada
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Barbados
Switzerland
28. KEY MANAGEMENT COMPENSATION
Salaries, bonuses, fees and benefits
Independent members of the Board of Directors
Other members of key management
Share-based payments
Independent members of the Board of Directors
Other members of key management
2020
% Ownership
2019
% Ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Year Ended December 31,
2020
2019
$803
3,937
402
2,646
$7,788
$790
4,267
439
2,975
$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.
67
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 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.
Company Overview
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”.
SANTA ELENA SILVER/GOLD MINE
LA ENCANTADA SILVER MINE
SAN DIMAS SILVER/GOLD MINE
LA PARRILLA SILVER MINE
DEL TORO SILVER MINE
SAN MARTIN SILVER MINE
LA GUITARRA SILVER MINE
68
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 2020 Annual Highlights
Key Performance Metrics
Operational
Ore Processed / Tonnes Milled
Silver Ounces Produced
Silver Equivalent Ounces Produced
Cash Costs per Ounce (1)
All-in Sustaining Cost per Ounce (1)
Total Production Cost per Tonne (1)
Average Realized Silver Price per Ounce (1)
Financial (in $millions)
Revenues
Mine Operating Earnings (Loss)
Earnings (Loss) before Income Taxes
Net Earnings (Loss)
Operating Cash Flows before Working Capital and Taxes
Cash and Cash Equivalents
Working Capital (1)
Shareholders
Earnings (Loss) per Share (“EPS”) - Basic
Adjusted EPS (1)
Cash Flow per Share (1)
NM - Not meaningful
2020
2019
2018
Change
‘20 vs ‘19
2,213,954
2,831,999
3,375,452
11,598,380
13,241,118
11,679,452
20,379,010
25,554,288
22,243,071
$5.09
$13.92
$79.59
$21.15
$363.9
$105.1
$29.7
$23.1
$107.3
$238.6
$254.4
$0.11
$0.18
$0.50
$5.16
$12.64
$75.05
$16.40
$363.9
$66.2
($39.0)
($40.5)
$108.9
$169.0
$171.1
($0.20)
$0.04
$0.54
$6.98
$14.95
$60.71
$15.53
$300.9
($11.9)
($263.0)
($204.2)
$61.6
$57.0
$108.1
($1.11)
($0.21)
$0.34
(22%)
(12%)
(20%)
(1%)
10%
6%
29%
0%
59%
176%
157%
(1%)
41%
49%
154%
NM
(7%)
(1) The Company reports non-GAAP measures which include cash costs per ounce produced, all-in sustaining cost per ounce, total production cost per
tonne, average realized silver price per ounce sold, working capital, adjusted EPS and cash flow per share. These measures are widely used in
the mining industry as a benchmark for performance, but do not have a standardized meaning and the methods used by the Company to calculate
such measures may differ from methods used by other companies with similar descriptions. See “Non-GAAP Measures” on pages 39 to 45 for a
reconciliation of non-GAAP to GAAP measures.
Silver
Production (M Oz)
Silver Equivalent
Production (M Oz)
Cash Cost
per Ounce ($/Oz)
AISC
per Ounce ($/Oz)
$6.98
13.2
11.6
11.7
25.6
22.2
20.4
$5.09
$5.16
$14.95
$13.92
$12.64
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
69
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operational Highlights
Annual Production Summary
Ore Processed / Tonnes Milled
Silver Ounces Produced
Gold Ounces Produced
Silver Equivalent Ounces Produced
Cash Costs per Ounce(1)
All-in Sustaining Cost per Ounce(1)
Total Production Cost per Tonne(1)
(1) See “Non-GAAP measures”
San Dimas
Santa Elena
La Encantada
Consolidated
713,064
640,276
860,613
2,213,954
6,399,667
1,692,761
3,505,953
11,598,380
71,598
28,242
241
100,081
12,670,526
4,181,708
3,526,776
20,379,010
$2.04
$8.75
$127.91
$5.81
$12.78
$78.44
$10.27
$12.43
$40.37
$5.09
$13.92
$79.59
• 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.
• 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.
70
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
2020 Fourth Quarter Highlights
Key Performance Metrics
Operational
Ore Processed / Tonnes Milled
Silver Ounces Produced
Silver Equivalent Ounces Produced
Cash Costs per Ounce (1)
All-in Sustaining Cost per Ounce (1)
Total Production Cost per Tonne (1)
Average Realized Silver Price per Ounce (1)
Financial (in $millions)
Revenues
Mine Operating Earnings
Net Earnings (Loss)
Operating Cash Flows before Movements in Working Capital and Taxes
Cash and Cash Equivalents
Working Capital (1)
Shareholders
Earnings (Loss) per Share (“EPS”) - Basic
Adjusted EPS (1)
Cash Flow per Share (1)
NM - Not meaningful
(1) See “Non-GAAP Measures”
2020-Q4
2020-Q3
Change
Q4 vs Q3
2019-Q4
Change
Q4 vs Q4
625,332
655,920
(5%)
626,482
3,452,959
3,158,866
5,477,492
5,201,085
$6.53
$15.92
$85.68
$24.88
$2.49
$9.94
$71.56
$22.58
$117.1
$125.9
$43.7
$34.5
$48.2
$238.6
$254.4
$0.16
$0.11
$0.22
$48.0
$30.9
$52.2
$232.4
$266.7
$0.14
$0.12
$0.24
9%
5%
162%
60%
20%
10%
(7%)
(9%)
12%
(8%)
3%
(5%)
8%
(9%)
(10%)
3,348,424
6,233,412
$3.73
$12.25
$78.62
$17.46
$96.5
$23.9
($39.9)
$32.9
$169.0
$171.1
($0.19)
$0.00
$0.16
0%
3%
(12%)
75%
30%
9%
43%
21%
82%
NM
47%
41%
49%
NM
NM
36%
71
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fourth Quarter Production Summary
Ore Processed / Tonnes Milled
Silver Ounces Produced
Gold Ounces Produced
Silver Equivalent Ounces Produced
Cash Costs per Ounce
All-in Sustaining Cost per Ounce
Total Production Cost per Tonne
Operational Highlights
San Dimas
Santa Elena
La Encantada
Consolidated
208,648
1,941,286
19,980
168,276
418,153
6,294
248,408
625,332
1,093,521
3,452,959
69
26,343
3,477,061
901,630
1,098,800
5,477,492
$3.23
$10.09
$135.13
$11.69
$23.02
$86.32
$10.39
$12.37
$43.72
$6.53
$15.92
$85.68
• 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.
• 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.
72
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 $1,800/oz, USD:MXN 20:1.
Guidance for 2021
Mine
San Dimas
Santa Elena
La Encantada
Consolidated
Silver Oz (M)
Gold Oz (K)
Silver Eqv Oz (M)
Cash Costs
per AgEq Oz ($)
AISC per
AgEq Oz ($)*
7.1 – 8.0
2.0 – 2.2
3.4 – 3.7
72 – 80
29 – 32
–
12.9 – 14.4
7.94 – 8.43
11.36 – 12.23
4.3 – 4.8
3.4 – 3.7
12.93 – 13.71
16.49 – 17.68
11.20 – 11.89
13.72 – 14.70
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 $15.29 per payable silver equivalent ounce. An itemized AISC
cost table is provided below:
All-In Sustaining Cost Calculations (1)
Total Cash Costs per Payable Silver Equivalent Ounce (2)
General and Administrative Costs
Sustaining Development Costs
Sustaining Property, Plant and Equipment Costs
Sustaining Exploration Costs
Workers Participation Costs
Lease Payments
Share-based Payments (non-cash)
Accretion of Reclamation Costs (non-cash)
All-In Sustaining Costs:
All-In Sustaining Costs: (excluding non-cash items)
FY 2021
($/AgEq oz)
9.52 – 10.10
1.10 – 1.23
1.37 – 1.53
1.04 – 1.16
0.02 – 0.03
0.74 – 0.82
0.37 – 0.42
0.52 – 0.58
0.12 – 0.13
$14.81 – $15.99
$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.
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.
73
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
74
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Overview Of Operating Results
Selected Production Results for the Past Eight Quarters
PRODUCTION HIGHLIGHTS
Ore processed/tonnes milled
San Dimas
Santa Elena
La Encantada
San Martin
La Parrilla
Del Toro
Consolidated
Silver equivalent ounces produced
San Dimas
Santa Elena
La Encantada
San Martin
La Parrilla
Del Toro
Consolidated
Silver ounces produced
San Dimas
Santa Elena
La Encantada
San Martin
La Parrilla
Del Toro
Consolidated
Cash cost per payable silver ounce
San Dimas
Santa Elena
La Encantada
San Martin
La Parrilla
Del Toro
Consolidated
All-in sustaining cost per payable silver ounce
San Dimas
Santa Elena
La Encantada
San Martin
La Parrilla
Del Toro
Consolidated
Production cost per tonne
San Dimas
Santa Elena
La Encantada
San Martin
La Parrilla
Del Toro
Consolidated
2020
2019
Q4
Q3
Q2(4)
Q1
Q4(3)
Q3(1)(2)
Q2
Q1
208,648
168,276
248,408
189,918
204,577
261,425
114,390
89,590
129,579
200,109
177,834
221,200
—
—
—
—
—
—
—
—
—
—
—
—
182,265
196,640
221,049
—
—
26,528
173,679
229,094
191,926
—
33,439
27,829
172,368
229,761
207,421
39,213
61,544
26,587
163,264
219,941
269,611
62,148
72,551
25,138
625,332
655,920
333,559
599,142
626,482
655,967
736,896
812,654
3,477,061
3,125,662
2,395,633
3,672,169
3,516,117
3,502,102
3,641,139
3,172,270
901,630
1,091,026
595,651
1,593,400
1,592,397
1,859,170
1,461,345
1,403,364
1,098,800
984,397
514,092
929,487
991,856
891,205
—
—
—
—
—
—
—
—
—
—
—
—
—
—
133,042
—
258,683
125,557
492,957
271,450
420,712
122,879
723,699
421,091
441,095
112,158
5,477,492
5,201,085
3,505,376
6,195,057
6,233,412
6,636,716
6,410,483
6,273,677
1,941,286
1,678,075
1,102,931
1,677,376
1,658,721
1,639,481
1,603,016
1,404,454
418,153
1,093,521
502,375
978,416
222,100
509,544
550,133
924,472
—
—
—
—
—
—
—
—
—
—
—
—
619,321
987,630
—
—
82,752
632,216
885,627
—
135,420
74,997
596,872
489,194
224,056
202,698
77,729
587,195
720,959
331,539
219,485
67,757
3,452,959
3,158,866
1,834,575
3,151,980
3,348,424
3,367,740
3,193,566
3,331,388
$3.23
$11.69
$10.39
$—
$—
$—
($1.50)
$0.85
$10.14
$—
$—
$—
$3.77
$15.10
$9.38
$—
$—
$—
$3.08
$2.12
$10.77
$—
$—
$—
$6.53
$2.49
$6.73
$5.16
$10.09
$23.02
$12.37
$—
$—
$—
$4.09
$6.37
$12.11
$—
$—
$—
$13.04
$24.71
$11.60
$—
$—
$—
$9.02
$6.03
$13.31
$—
$—
$—
$15.92
$9.94
$18.57
$12.99
$0.74
($1.40)
$10.12
$—
$—
$28.62
$3.73
$7.41
$3.66
$12.67
$—
$—
$38.84
$12.25
$2.28
($7.24)
$10.72
$—
$16.27
$29.83
$3.83
$7.30
($5.17)
$12.67
$—
$28.81
$39.77
$10.76
$1.64
$4.28
$16.57
$16.52
$14.13
$27.29
$6.84
$8.49
$7.73
$18.87
$21.15
$21.61
$36.33
$14.76
$0.93
$2.81
$12.60
$11.35
$16.58
$27.20
$6.34
$5.65
$6.37
$13.72
$15.67
$25.62
$35.89
$12.91
$135.13
$120.60
$129.67
$126.33
$127.19
$135.71
$142.42
$122.17
$86.32
$43.72
$—
$—
$—
$71.44
$36.04
$—
$—
$—
$74.50
$36.80
$—
$—
$—
$81.04
$43.82
$—
$—
$—
$85.68
$71.56
$78.78
$82.41
$68.77
$43.92
$—
$—
$106.99
$78.62
$57.78
$47.86
$58.88
$38.29
$—
$109.51
$89.40
$98.98
$78.87
$75.96
$91.89
$77.93
$56.53
$32.71
$80.39
$76.78
$95.06
$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.
75
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Operating Results – Consolidated Operations
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
Average silver grade (g/t)
Average gold grade (g/t)
Silver recovery (%)
Gold recovery (%)
Production
Silver ounces produced
Gold ounces produced
Pounds of lead produced
Pounds of zinc produced
194
1.37
89%
96%
170
1.27
88%
96%
193
1.52
89%
96%
185
1.74
89%
96%
184
1.46
88%
96%
169
1.54
86%
96%
3,452,959
3,158,866
1,834,575
3,151,980 11,598,380 13,241,118
26,343
25,771
15,764
32,202
100,081
134,580
—
—
—
—
—
—
—
—
—
—
7,935,566
3,691,100
Silver Equivalent Ounces Produced
5,477,492
5,201,085
3,505,376
6,195,057 20,379,010 25,554,288
Cost
Cash cost per payable silver ounce
All-In sustaining costs per ounce
Total production cost per tonne
Underground development (m)
Diamond drilling (m)
$6.53
$15.92
$85.68
12,004
57,147
$2.49
$9.94
$71.56
9,575
46,516
$6.73
$18.57
$78.78
4,666
10,250
$5.16
$12.99
$82.41
10,888
40,458
$5.09
$13.92
$79.59
$5.16
$12.64
$75.05
38,504
54,517
156,244
204,371
(5%)
14%
7%
1%
0%
9%
2%
0%
0%
5%
162%
60%
20%
25%
23%
(22%)
9%
(5%)
2%
0%
(12%)
(26%)
(100%)
(100%)
(20%)
(1%)
10%
6%
(29%)
(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 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.
76
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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.
77
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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
Average silver grade (g/t)
Average gold grade (g/t)
Silver recovery (%)
Gold recovery (%)
Production
Silver ounces produced
Gold ounces produced
309
3.10
94%
96%
290
3.11
95%
96%
318
3.38
94%
97%
280
3.44
93%
96%
297
3.24
94%
96%
305
4.08
93%
96%
1,941,286
1,678,075
1,102,931
1,677,376
6,399,667
6,305,672
19,980
18,268
12,042
21,308
71,598
87,424
Silver equivalent ounces produced
3,477,061
3,125,662
2,395,633
3,672,169 12,670,526 13,831,627
Cost
Cash cost per ounce
All-In sustaining costs per ounce
$3.23
$10.09
($1.50)
$4.09
$3.77
$13.04
$3.08
$9.02
$2.04
$8.75
$1.41
$7.26
Total production cost per tonne
$135.13
$120.60
$129.67
$126.33
$127.91
$131.90
Underground development (m)
Diamond drilling (m)
8,454
26,537
7,111
30,004
3,488
9,031
7,100
22,087
26,154
87,659
24,021
76,467
10%
7%
0%
(1%)
0%
16%
9%
11%
NM
147%
12%
19%
(12%)
3%
(3%)
(21%)
1%
0%
1%
(18%)
(8%)
45%
21%
(3%)
9%
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 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.
78
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 2020 Q4 vs. 2020 Q3
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.
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
168,276
204,577
89,590
177,834
640,276
875,435
(18%)
(27%)
Total ore processed/tonnes milled
Underground tonnes
Tonnes milled
Average silver grade (g/t)
Average gold grade (g/t)
Heap leach tonnes
Tonnes milled
Average silver grade (g/t)
Average gold grade (g/t)
Silver recovery (%)
Gold recovery (%)
Production
105,591
113
1.58
133,108
109
1.49
62,685
33
0.61
93
96
71,469
34
0.61
93
95
58,223
109
1.70
31,366
32
0.62
92
95
125,529
130
2.48
52,305
36
0.73
94
96
422,451
116
1.84
217,826
34
0.64
93
96
542,085
131
2.31
333,351
37
0.66
91
95
Silver ounces produced
Gold ounces produced
Silver equivalent ounces produced
418,153
6,294
901,630
502,375
7,428
1,091,026
222,100
3,677
595,651
550,133
10,842
1,593,400
1,692,761
28,242
4,181,708
2,435,604
45,119
6,316,277
Cost
Cash cost per ounce
All-In sustaining costs per ounce
Total production cost per tonne
Underground development (m)
Diamond drilling (m)
NM - Not meaningful
$11.69
$23.02
$86.32
2,663
16,994
$0.85
$6.37
$71.44
1,273
10,308
$15.10
$24.71
$74.50
606
802
$2.12
$6.03
$81.04
1,940
9,474
$5.81
$12.78
$78.44
7,851
39,451
($0.51)
$3.02
$60.23
8,241
56,141
(21%)
4%
6%
(12%)
(3%)
0%
0%
1%
(17%)
(15%)
(17%)
NM
NM
21%
109%
65%
(22%)
(11%)
(20%)
(35%)
(8%)
(3%)
2%
1%
(30%)
(37%)
(34%)
NM
NM
30%
(5%)
(30%)
79
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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.
2020 Q4 vs. 2020 Q3
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.
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.
80
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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
Average silver grade (g/t)
Silver recovery (%)
Production
Silver ounces produced
Gold ounces produced
172
80%
152
77%
158
78%
165
79%
162
78%
146
74%
1,093,521
978,416
509,544
924,472
3,505,953
3,083,410
69
76
45
52
241
190
Silver equivalent ounces produced
1,098,800
984,397
514,092
929,487
3,526,776
3,099,717
Cost
Cash cost per ounce
All-In sustaining costs per ounce
Total production cost per tonne
Underground development (m)
Diamond drilling (m)
2020 vs. 2019
$10.39
$12.37
$43.72
888
8,101
$10.14
$12.11
$36.04
1,191
5,528
$9.38
$11.60
$36.80
572
417
$10.77
$13.31
$43.82
1,024
4,565
$10.27
$12.43
$40.37
3,674
18,611
$11.89
$13.90
$40.06
5,444
17,739
(5%)
13%
4%
12%
(9%)
12%
2%
2%
21%
(25%)
47%
(3%)
11%
5%
14%
27%
14%
(14%)
(11%)
1%
(33%)
5%
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.
2020 Q4 vs. 2020 Q3
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 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.
81
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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.
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.
82
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
Overview Of Financial Performance
For the quarters ended December 31, 2020 and 2019 (in thousands of dollars, except for per share amounts):
Revenues
Mine operating costs
Cost of sales
Depletion, depreciation and amortization
Fourth Quarter 2020
Fourth Quarter 2019
Variance %
$117,075
$96,476
58,008
15,399
73,407
55,033
17,502
72,535
21% (1)
5% (2)
(12%) (3)
1%
Mine operating earnings
43,668
23,941
82%
General and administrative expenses
Share-based payments
Mine holding costs
Impairment of non-current assets
Foreign exchange loss
Operating earnings
Fair value adjustment on foreign currency derivatives
Investment and other (loss) income
Finance costs
Earnings (loss) before income taxes
Current income tax expense
Deferred income tax recovery
Income tax recovery
Net earnings (loss) for the period
Earnings (loss) per share (basic)
Earnings (loss) per share (diluted)
NM - Not meaningful
7,205
2,227
7,017
—
(2,424)
29,643
3,880
(2,333)
(3,717)
27,473
4,115
(11,187)
(7,072)
7,644
1,907
4,409
58,739
(1,947)
(46,811)
—
1,475
(3,940)
(49,276)
10,487
(19,817)
(9,330)
$34,545
($39,946)
$0.16
$0.15
($0.19)
($0.19)
(6%)
17%
59% (4)
(100%) (5)
24%
NM
100% (6)
NM (7)
(6%)
NM
61%
44%
24% (8)
NM (9)
NM (9)
NM (9)
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;
83
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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.
84
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION For the years ended December 31, 2020, 2019 and 2018 (in thousands of dollars, except for per share amounts):
Revenues
Mine operating costs
Cost of sales
Cost of sales - standby costs
Depletion, depreciation and amortization
Annual
2020
Annual
2019
Annual
2018
Variance %
20 vs ‘19
$363,876
$363,944
$300,929
194,305
10,112
54,405
258,822
232,146
—
65,584
297,730
219,162
—
93,667
312,829
0% (1)
(16%) (2)
100% (3)
(17%) (4)
(13%)
Mine operating earnings (loss)
105,054
66,214
(11,900)
59%
General and administrative
Share-based payments
Impairment of non-current assets
Acquisition costs
Mine holding costs
Loss on divestiture of exploration projects
Foreign exchange loss (gain)
Operating earnings (loss)
Fair value adjustment on foreign currency derivatives
Investment and other income
Finance costs
Earnings (loss) before income taxes
Current income tax expense
Deferred income tax recovery
Income tax expense (recovery)
Net earnings (loss) for the year
24,855
8,255
—
—
21,583
3,685
6,319
40,357
(982)
5,127
(14,773)
29,729
9,966
(3,324)
6,642
26,800
8,325
58,739
—
7,579
—
(3,243)
(31,986)
—
8,109
(15,147)
(39,024)
16,423
(14,973)
1,450
21,428
7,375
199,688
4,893
2,109
—
1,874
(249,267)
—
(744)
(13,036)
(263,047)
2,148
(61,031)
(58,883)
$23,087
($40,474)
($204,164)
Earnings (loss) per share (basic and diluted)
$0.11
($0.20)
($1.11)
NM - Not meaningful
(7%)
(1%)
(100%) (5)
0%
NM (6)
100% (7)
NM
NM
100%
(37%) (8)
(2%)
NM
(39%)
78%
NM (9)
NM (10)
NM (10)
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
• 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.
85
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
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
Cost of sales
$117,075
$125,881
$34,855
$86,065
$96,476
$96,989
$83,669
$86,810
$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
Earnings (loss) per share - diluted
$0.16
$0.15
$0.14
$0.14
($0.05)
($0.05)
($0.15)
($0.15)
($0.19)
($0.19)
$0.04
$0.04
($0.06)
($0.06)
$0.01
$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.
86
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table summarizes the Company’s cash flow activity during the year:
Cash flow
Cash generated by operating activities
Cash used in investing activities
Cash generated by financing activities
Increase in cash and cash equivalents
Effect of exchange rate on cash and cash equivalents held in foreign currencies
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of year
Year Ended December 31,
2020
2019
$79,713
(127,115)
116,574
$69,172
397
169,009
$140,025
(116,934)
87,680
$110,771
1,225
57,013
$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:
• $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:
Use of Proceeds:
Offering expenses
Mine development
Mine exploration
General working capital
$67,892
1,709
20,487
25,880
19,816
$67,892
87
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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:
Offering expenses
Ermitaño expansion(1)
La Encantada plant upgrades(2)
Santa Elena plant upgrades(3)
San Dimas plant upgrades(4)
Working capital and general purposes
Intended
$742
10,606
2,576
5,833
11,591
27,742
$59,090
Actual
$853
11,335
1,712
4,747
4,331
36,112
$59,090
Variance
$111
729
(864)
(1,086)
(7,260)
8,370
$—
(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:
Trade and other payables
Debt facilities
Lease liabilities
Other liabilities
Purchase obligations and commitments
Contractual Cash Flows
Less than 1 year
2 to 3 years
4 to 5 years
After 5 years
$76,002
174,082
16,520
5,406
50,541
$76,002
13,180
4,557
—
45,541
$—
160,902
6,562
—
5,000
$—
—
4,692
—
—
$322,551
$139,280
$172,464
$4,692
$—
—
709
5,406
—
$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.
88
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management of Risks and Uncertainties
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:
Cash and cash
equivalents
Trade and other
receivables
Value added
taxes receivable
Other financial
assets
Trade and other
payables
December 31, 2020
Net assets
(liabilities)
exposure
Effect of +/-
10% change in
currency
Canadian dollar
Mexican peso
Commodity Price Risk
$75,958
8,369
$84,327
$74
—
$74
$—
$10,140
($3,133)
(42,763)
$83,039
18,807
$8,304
1,881
—
$10,140
($45,896)
$101,846
$10,185
53,201
$53,201
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:
Metals in doré inventory
December 31, 2020
Effect of +/- 10% change in metal prices
Silver
$104
$104
Gold
$226
$226
Total
$330
$330
89
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 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
90
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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
91
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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.
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.
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
92
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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.
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.
Non-GAAP Measures
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
93
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
94
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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)
San Dimas
Santa Elena
La Encantada
Consolidated
Three Months Ended December 31, 2020
Mining cost
Milling cost
Indirect cost
Total production cost (A)
Add: transportation and other selling cost
Add: smelting and refining cost
Add: environmental duty and royalties cost
Total cash cost before by-product credits (B)
Deduct gold by-product credits (C)
Total cash cost (D = B - C)
Workers’ participation
General and administrative expenses
Share-based payments
Accretion of decommissioning liabilities
Sustaining capital expenditures
Operating lease payments
All-In Sustaining Costs (E)
Payable silver ounces produced (F)
Payable silver equivalent ounces produced (G)
Tonnes milled (H)
Cash cost per payable silver ounce, before by-product credits (B/F)
Cash cost per payable silver ounce (D/F)
AISC per payable silver ounce (E/F)
Production cost per tonne (A/H)
Cash cost per payable AgEq Oz (B/G)
AISC per payable AgEq Oz ((E+C)/G)
$12,669
6,028
9,497
$4,461
6,308
3,757
$3,106
4,573
3,183
$20,236
16,909
16,437
$28,194
$14,526
$10,862
$53,582
134
107
97
160
241
141
$14,864
$11,404
($9,981)
$4,883
($93)
$11,311
87
—
—
125
1,298
646
784
819
665
$55,850
($33,328)
$22,522
3,245
6,727
2,227
623
17,507
2,024
433
471
425
$29,523
($23,256)
$6,267
3,103
—
—
149
9,999
58
$19,576
1,940,315
3,475,323
208,648
$15.22
$3.23
$10.09
$135.13
$8.49
$12.32
55
—
—
78
3,636
963
$9,615
417,735
900,729
168,276
$35.58
$11.69
$23.02
$86.32
$16.50
$21.76
$13,467
$54,875
1,089,147
3,447,196
1,094,268
5,470,319
248,408
625,332
$10.47
$10.39
$12.37
$43.72
$10.42
$12.39
$16.20
$6.53
$15.92
$85.68
$10.21
$16.12
95
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (expressed in thousands of U.S. Dollars, except ounce and
per ounce amounts)
San Dimas
Santa Elena
La Encantada
Del Toro
Consolidated
Three Months Ended December 31, 2019
Mining cost
Milling cost
Indirect cost
$9,803
4,664
8,714
$4,410
6,486
2,629
Total production cost (A)
$23,182
$13,524
Add: transportation and other selling cost
Add: smelting and refining cost
Add: environmental duty and royalties cost
317
448
202
81
162
127
$2,653
4,394
2,661
$9,708
83
203
34
$964
705
1,169
$17,830
16,249
15,173
$2,838
$49,252
52
138
7
641
951
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
Lead by-product credits
Zinc by-product credits
Total by-product credits (C)
Total cash cost (D = B - C)
Workers’ participation
General and administrative expenses
Share-based payments
Accretion of decommissioning liabilities
Sustaining capital expenditures
Operating lease payments
All-In Sustaining Costs (E)
Payable silver ounces produced (F)
(22,895)
(14,759)
—
—
—
—
($22,895)
($14,759)
$1,254
1,930
—
—
186
8,879
57
$12,306
1,657,891
($865)
59
—
—
52
2,818
205
$2,269
618,702
Payable silver equivalent ounces produced (G)
3,514,359
1,590,805
Tonnes milled (H)
182,265
196,640
Cash cost per payable silver ounce, before by-product
credits (B/F)
Cash cost per payable silver ounce (D/F)
AISC per payable silver ounce (E/F)
Production cost per tonne (A/H)
Cash cost per payable AgEq Oz (B/G)
AISC per payable AgEq Oz ((E+C)/G)
$14.55
$0.74
$7.41
$127.19
$6.86
$10.01
$22.46
($1.40)
$3.66
$68.77
$8.73
$10.70
(74)
—
—
($74)
$9,954
78
—
—
148
1,645
637
$12,462
983,680
987,779
221,049
$10.19
$10.12
$12.67
$43.92
$10.15
$12.69
3
(788)
—
($785)
$2,250
45
—
—
55
679
25
(37,725)
(795)
(50)
($38,570)
$12,644
2,413
7,230
1,907
603
15,090
1,198
$3,054
78,614
$41,085
3,338,887
123,491
6,216,434
26,528
626,482
$38.60
$28.62
$38.84
$106.99
$24.58
$31.09
$15.33
$3.73
$12.25
$78.62
$8.23
$12.81
96
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (expressed in thousands of U.S. Dollars, except ounce and per ounce amounts)
San Dimas
Santa Elena
La Encantada
Consolidated
Year Ended December 31, 2020
Mining cost
Milling cost
Indirect cost
Total production cost (A)
Add: transportation and other selling cost
Add: smelting and refining cost
Add: environmental duty and royalties cost
Total cash cost before by-product credits (B)
Deduct by-product credits attributed to:
Gold by-product credits
Lead by-product credits
Deduct gold by-product credits (C)
Total cash cost (D = B - C)
Workers’ participation
General and administrative expenses
Share-based payments
Accretion of decommissioning liabilities
Sustaining capital expenditures
Operating lease payments
All-In Sustaining Costs (E)
Payable silver ounces produced (F)
$40,662
19,318
31,232
$15,952
23,187
11,088
$9,597
15,335
9,813
$66,211
57,840
52,133
$91,212
$50,227
$34,746
$176,185
1,224
1,604
1,278
397
434
395
425
749
337
2,288
2,800
2,010
$95,318
$51,453
$36,257
$183,283
(82,252)
(41,630)
—
—
(382)
—
(124,264)
(74)
($82,252)
($41,630)
($382)
($124,338)
$13,066
13,663
—
—
565
28,361
291
$9,823
$35,875
$58,945
206
—
—
295
10,033
1,252
377
—
—
477
4,112
2,573
14,245
22,977
8,255
2,362
49,003
5,349
$55,946
$21,609
$43,414
$161,136
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)
Cash cost per payable silver ounce (D/F)
AISC per payable silver ounce (E/F)
Production cost per tonne (A/H)
Cash cost per payable AgEq Oz (B/G)
AISC per payable AgEq Oz ((E+C)/G)
$14.90
$2.04
$8.75
$127.91
$7.53
$10.91
$30.43
$5.81
$12.78
$78.44
$12.32
$15.14
$10.38
$10.27
$12.43
$40.37
$10.32
$12.47
$15.83
$5.09
$13.92
$79.59
$9.00
$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).
97
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (expressed in thousands of U.S. Dollars, except ounce
and per ounce amounts)
Mining cost
Milling cost
Indirect cost
Twelve Months Ended December 31, 2019
San Dimas
Santa Elena
La Encantada
San Martin
La Parrilla
Del Toro
Consolidated
$39,230
$17,922
20,568
31,420
25,473
9,330
$8,374
18,139
9,141
$3,390
$5,097
$3,621
$77,633
3,210
2,690
4,671
3,467
2,734
4,070
74,796
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
Add: smelting and refining cost
Add: environmental duty and royalties cost
1,138
1,234
739
258
526
472
302
670
102
85
142
52
558
1,812
45
178
508
27
2,737
4,892
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
Lead by-product credits
Zinc by-product credits
Total by-product credits (C)
Total cash cost (D = B - C)
Workers’ participation
General and administrative expenses
Share-based payments
Accretion of decommissioning liabilities
Sustaining capital expenditures
Operating lease payments
All-In Sustaining Costs (E)
(85,468)
(55,211)
(197)
(2,105)
—
—
—
—
—
—
—
—
(42)
(3,997)
(3,517)
(6)
(143,029)
(2,991)
—
(6,988)
(3,517)
($85,468)
($55,211)
($197)
($2,105)
($7,556)
($2,997)
($153,534)
$8,862
($1,230)
$36,531
$7,464
$8,094
$8,141
$68,080
7,552
—
—
744
28,378
221
209
—
—
207
7,842
318
313
—
—
591
4,546
701
489
—
—
237
2,091
112
244
—
—
282
4,937
99
99
—
—
219
2,322
99
9,036
25,164
8,325
2,409
51,203
2,397
$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)
Cash cost per payable silver ounce (D/F)
AISC per payable silver ounce (E/F)
$14.97
$22.19
$1.41
$7.26
($0.51)
$3.02
Production cost per tonne (A/H)
$131.90
$60.23
Cash cost per payable AgEq Oz (B/G)
AISC per payable AgEq Oz ((E+C)/G)
$6.82
$9.49
$8.55
$9.91
$11.96
$11.89
$13.90
$40.06
$11.90
$13.89
$17.24
$13.45
$18.73
$91.65
$13.83
$18.07
$30.14
$15.59
$26.29
$78.99
$15.66
$21.23
$38.66
$28.26
$37.77
$98.29
$24.33
$30.31
$16.83
$5.16
$12.64
$75.05
$8.74
$12.62
98
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
Revenues as reported
Add back: smelting and refining charges
Gross revenues
Less: Sandstorm gold revenues
Less: Wheaton gold revenues
Three Months Ended December 31,
Year Ended December 31,
2020
2019
2020
2019
$117,075
$96,476
$363,876
$363,944
819
117,894
(580)
(7,056)
950
97,426
(1,078)
(6,969)
2,800
366,676
(2,636)
(23,541)
4,891
368,835
(4,200)
(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
Less: Payable equivalent silver ounces sold to Wheaton
Payable equivalent silver ounces sold, excluding
Sandstorm and Wheaton (B)
(81,319)
(807,046)
(200,479)
(804,896)
(499,931)
(789,783)
(3,016,658)
(3,126,715)
4,431,570
5,119,974
16,097,804
20,592,936
Average realized price per ounce of silver sold (A/B)(1)
Average market price per ounce of silver per COMEX
$24.88
$24.44
$17.46
$17.33
$21.15
$21.72
$16.40
$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.
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
Three Months Ended December 31,
Year Ended December 31,
2020
2019
2020
2019
99
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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:
Net earnings (loss) as reported
Adjustments for non-cash or unusual items:
Deferred income tax recovery
Share-based payments
Loss (gain) from investment in derivatives and marketable
securities
Unrealized (gain) loss on foreign currency derivatives
Recovery of mineral inventory
Impairment of non-current assets
Standby costs related to COVID-19 Suspension
Loss on divestiture of exploration projects
Three Months Ended December 31,
Year Ended December 31,
2020
2019
2020
2019
$34,545
($39,946)
$23,087
($40,474)
(11,187)
2,227
2,445
(3,880)
—
—
—
—
(19,817)
1,907
(243)
—
(355)
58,739
—
—
(3,324)
8,255
(1,973)
982
(443)
—
7,162
3,685
(14,973)
8,325
(1,765)
—
(2,578)
58,739
—
—
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.
Current Assets
Less: Current Liabilities
Working Capital
Available Undrawn Revolving Credit Facility
Available Liquidity
December 31, 2020 December 31, 2019
$356,046
(101,626)
$254,420
65,000
$242,979
(71,853)
$171,126
55,031
$319,420
$226,157
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
100
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 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 Statements
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”.
101
FIRST MAJESTIC SILVER 2020 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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.
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.
102
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CORPORATE INFORMATION
BOARD OF DIRECTORS AND OFFICERS
CORPORATE HEADQUARTERS
Keith Neumeyer
President, Chief Executive Officer & Director
@keith_neumeyer
Steven Holmes, MBA, BSc, MNEng.
Chief Operating Officer
Raymond Polman, B.Sc., CPA, CA
Chief Financial Officer
Sophie Hsia, LL.B., B.C.L., LL.M.
General Counsel
Connie Lillico, BA
Corporate Secretary
Douglas Penrose, B.COMM., CPA, CA 1,3
Chairman & Director
Robert McCallum, B.SC., P.ENG. 1,2
Director
Marjorie Co, B.SC., LLB, MBA 1,2,3
Director
Ana Lopez, BA, LLB, CEC 2,3
Director
Thomas Fudge Jr., P.E., P.Eng. (ret)
Director
Jean des Rivières, P.Geo., M.Sc.A.
Director
1. Audit Committee
2. Compensation Committee
3. Corporate Governance and Nominating Committee
ANNUAL GENERAL MEETING
Join: https://web.lumiagm.com/425272217
Password: first2021
Date: Thursday, May 27, 2021
Time: 10:00 am Pacific Standard Time
MARKET INFORMATION TRADING SYMBOLS
TSX: FR
NYSE: AG
FSE: FMV
First Majestic Silver Corp.
#1800 – 925 West Georgia Street
Vancouver, B.C., Canada
V6C 3L2
T: 604.688.3033
F: 604.639.8873
TF: 1.866.529.2807
info@firstmajestic.com | www.firstmajestic.com
Transfer Agent
Computershare Trust Company of Canada
3rd Floor - 510 Burrard Street
Vancouver, B.C. Canada
V6C 3B9
T: 604.661.9400
F: 604.661.9401
Legal Advisors
Bennett Jones LLP
2500 Park Place
666 Burrard Street
Vancouver, B.C.
V6C 2X8
Independent Auditors
Deloitte LLP
939 Granville Street
Vancouver, British Columbia
V6Z 1L3
Investor Relations Contact
info@firstmajestic.com
T: 604.688.3033
TF: 1.866.529.2807 (North America only)
Todd Anthony, MBA
Vice President Corporate Development
Jill Anne Arias
Vice President of Marketing & Corporate Communications
@FMSilverCorp, @JillArias
instagram @firstmajesticsilver
First Majestic Bullion Sales
customersupport@firstmajestic.com
https://store.firstmajestic.com
@FMBullion
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