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ENDURING
2022 ANNUAL REPORT
Growing. Enduring. Responsible.
Vancouver-based First Majestic Silver Corp. is one of the world’s largest and fastest-growing silver producers. With three mines
in Mexico and one in Nevada, U.S.A., we produce approximately 30 million ounces of silver-equivalent precious metal per year.
We employ more than 4,300 workers, representing one of Mexico’s leading employers as a diverse and inclusive organization,
committed to socially responsible mining and striving to become the world’s largest primary silver producer. Our Mexican
operations have been recognized for 15 consecutive years as Socially Responsible by Centro Mexicano Para La Filantropia and
Empresa Socialmente Responsible (Cemefi). In October 2022, our Santa Elena operation was awarded the prestigious “Silver
Helmet Award” from the Mining Chamber of Mexico for its outstanding performance in occupational safety and health.
Our Mines and Projects
NEVADA, USA
JERRITT CANYON GOLD MINE
IN PRODUCTION MEXICO
SANTA ELENA SILVER/GOLD MINE
LA ENCANTADA SILVER MINE
SAN DIMAS SILVER/GOLD MINE
PROJECTS MEXICO
LA PARRILLA SILVER MINE
DEL TORO SILVER MINE
SAN MARTIN SILVER MINE
LA GUITARRA SILVER MINE
Table of Contents
02 Our Vision, Our Mission, Our Values
04 Milestones in 2022
06 Looking Ahead
08 Silver’s Enduring Role in a Green Future
10 Message from the President and CEO
12 Letter from the Chief Operating Officer
14 Letter from the Chief Financial Officer
16 Our Senior Leadership
18 Community, Health and Safety
20 Environmental Review
22 First Majestic’s Silver Bullion Store
24 San Dimas Silver/Gold Mine
26 Santa Elena Silver/Gold Mine
28 La Encantada Silver Mine
30 Jerritt Canyon Gold Mine
32 Exploration Overview
34 Reserves & Resources
37 Audited Consolidated Financial Statements
89 Management Discussion & Analysis
Capturing the Essence
of First Majestic
Once again, our annual report proudly features
photography from our employees in Mexico and Nevada.
Every year, I’m inspired by the creativity and spirit our
teams put into these images. They really do capture the
essence of our operations, especially the personal side of
what it means to work together and be part of the
First Majestic Family.
These photos help make the annual report a document for
everyone in the company, and I’m so pleased to see the
enthusiasm and participation year after year.
Thanks to all who submitted photos for consideration.
Jill Anne Arias
Vice President of Marketing
& Corporate Communications
Our Vision
Our Mission
FIRST MAJESTIC’S VISION
OUR MISSION IS TO PRODUCE
IS TO BECOME THE
PROFITABLE OUNCES AND
WORLD’S LARGEST PRIMARY
TO OPTIMIZE AND GROW
SILVER PRODUCER WHILE
OUR MINER AL RESOURCES
IMPROVING LIVES AND
WHILE CONDUCTING
COMMUNITIES IN OUR HOST
ETHICAL, INNOVATIVE AND
REGIONS AND INCREASING
SUSTAINABLE PR ACTICES.
SHAREHOLDER VALUE.
WE ARE COMMITTED TO
EMPOWERING OUR WORK
FORCE, ENCOUR AGING
CONTINUOUS IMPROVEMENT
AND PERMANENCE OF THE
ORGANIZATION.
WE WILL ACHIEVE OUR VISION BY:
Continuing to hire the industry’s
best talent.
Aggressively pursuing the development
of our existing property assets.
Maximizing margins and minimizing
risk through company-wide R&D,
optimization and modernization.
Ongoing investment in exploration
to extend life of mines and find new
discoveries.
Acquiring strategic mineral assets
focused on silver and gold.
02
Our Values
TRUST Act and firmly believe in
commitment and dedication for each other.
ATTITUDE Maintain a strong
positive disposition and commit 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
DIVERSITY, EQUITY AND INCLUSION VALUE STATEMENT
At First Majestic Silver Corp., we value the diversity of our people, our partners, and
communities. We believe a successful organization is built on our commitment in providing
a respectful, equitable, diverse and inclusive work environment that promotes trust and
encourages innovation, agility and sustainability
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
03
Milestones in 2022
Record Silver Equivalent (AgEq) production
of 31.3 million ounces, an increase of 16%
over 2021
Our online Bullion Store sold a record
444,576 ounces, a 27% increase
compared to 2021 and approximately
4.2% of the Company's silver production
Bullion store revenues of $11.6 million,
selling silver at an average price of $26.20
per ounce
Santa Elena produced a record
9.1 million AgEq oz in 2022, an 81%
increase over 2021
Santa Elena awarded the prestigious
"Silver Helmet Award" for safety in the
category of "Underground Mining of More
Than 500 Workers”
Expanded Santa Elena's liquid natural gas
("LNG") powerplant from 12MW to 24MW
to supply low-cost, clean power to the
Ermitaño mine and expanded Santa Elena
plant facilities
Resolved key legacy environmental issues
from previous operations at Jerritt Canyon
Record gold production of 248,394 ounces,
up 29% from 2021
Record annual revenues of $624.2 million,
7% higher than 2021
Ended the year with a cash and
restricted cash balance of $276.6 million
consisting of $151.4 million of cash and
cash equivalents and $125.2 million of
restricted cash.
Sold our royalty interest portfolio to
Metalla Royalty & Streaming Ltd. for
approximately US$20.0 million in
Metalla shares
Announced the sale of our La Guitarra
Silver Mine to Sierra Madre Gold & Silver
for total consideration of US$35 million
Announced the sale of our La Parrilla
Silver Mine to Golden Tag Resources Ltd.
for total consideration of up to US$33.5
million
04
“ A KEY MILESTONE FOR US WAS
COMPLETING THE NEW LNG PLANT
AT SANTA ELENA, DRAMATICALLY
CUTTING CARBON EMISSIONS AND
POWER COSTS.”
— Steve Holmes, COO
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
05
Looking Ahead
For 2023, we expect another year of strong silver and gold production, powered by
continued strong production from Ermitaño, while higher throughputs and efficiencies
are forecast for San Dimas resulting in lower costs. We also expect reductions in power
costs and overall emissions due to expanding LNG use and energy generation.
6/ Utilize the Ermitano mine
for 100% of Santa Elena ore
deliveries while exploring the
Silvanna vein in the Santa Elena
mine. Explore for new orebodies
at Jerritt Canyon through
increased regional focus
7/ Dual-circuit commissioning at the
Santa Elena processing plant to
allow finer grinding and increase
metallurgical recoveries from
Ermitaño
8/ Continued resource expansion
potential at Ermitaño
KEY GOALS FOR 2023
1/ Silver production of over
10 million ounces
2/ Gold production of over
195,000 ounces
3/ Silver equivalent production of
over 27 million ounces
4/ Aggressive exploration
investment, both brownfield and
greenfield, of approximately $30
million, including 160,450 metres
of exploration drilling
5/ Capital investments will focus
on underground development,
property, plant and equipment
and exploration, and corporate
innovation
06
“ HIGHER THROUGHPUTS AND
EFFICIENCIES, ALONG WITH
EXPANSION OF LNG POWER,
ARE EXPECTED TO RESULT IN
LOWER COSTS FOR 2023.”
—David Soares, CFO
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
07
silver’s
enduring role
in a green
future
We remain focused on silver because it’s a crucial metal for
today and even more crucial for the future. Without silver,
the world cannot make the shift to green energy and cleaner
modes of transportation. The unstoppable shift to solar
power and electric vehicles means that silver demand will
continue its steady rise. Silver supplies, meanwhile, have
declined steadily since 2016.
SILVER IS ESSENTIAL AND INDISPENSABLE
Silver’s unique properties make it indispensable, even
irreplaceable, for many applications. It’s one of the best
conductors of heat and electricity. It’s the most reflective
metal, is malleable, it resists oxidation and corrosion, kills
microbes and bacteria and is non-toxic to humans.
2022 Silver Demand Forecast by Sector
Investment
25.3%
37.5%
Industrial
Silverware
4.8%
Jewelry
18.3%
11.5%
Solar Panels
2.6%
Photography
Source: Metals Focus
08
SILVER IS TRANSPORTATION
Automobile production for electric, hybrid and combustion
vehicles required about 60 million ounces of silver in
2021, with usage conservatively estimated to exceed 80
million ounces by 2025. Silver is essential across a wide
and growing array of automotive applications, many of
those being critical in terms of safety and ever-increasing
environmental pressures.
Electric vehicle sales are soaring. There were
approximately 11 million EVs on the road in 2021
compared to a worldwide fuel combustion vehicle fleet
exceeding 1.3 billion vehicles. The International Energy
Agency expects the EV numbers to hit 145 million by 2030,
with Bloomberg predicting over 400 million by 2040
Silver Automotive Forecast
2016 - 2025 | Silver Ounces (Millions)
Mine Production Forecast
2013 - 2022 | Silver Ounces (Millions)
Annual Silver Demand
for Solar Panels
2012-2023 | Silver Ounces (MIllions)
100
80
60
40
20
0
16
18
20
22
24
1000
800
600
400
200
0
160
120
80
40
0
12
14
16
18
20
22
Represents ~20% of global
silver mine supply
13
15
17
19
21
N. America
C&S America
Asia
CIS
Europe
Oceania
Africa
Source: Metals Focus
Source: Metals Focus
Source: Metals Focus
SILVER POWERS OUR TECHNOLOGY
SILVER IS CLEAN ENERGY
Silver is essential for all electronics. Every computer,
mobile phone and appliance contains silver, which includes
automobiles, televisions, refrigerators, and all green energy
solutions. The list of critical applications is in the order of
hundreds and hundreds uses.
SILVER IS LIFESAVING
Silver plays life-saving roles in medicine and health. Silver
coatings on medical devices, breathing tubes and catheters
fight infection. Silver purifies water and is used in linens and
paints for its anti-bacterial properties.
SILVER IS VALUE
Like gold, silver is a store of value. Over 25% of silver’s
demand comes from investors in the form of coins and
bars, either in physical form or through exchange-traded
funds. Silver jewelry is also a store of value and remains
in high demand.
Approximately 11% of silver today goes into solar
panels, making it the biggest consumer of industrial
silver. According to the Silver Institute, the solar industry
consumed 140.3 million ounces of silver in 2022, with rapid
growth expected to continue over the next decade. The
global solar PV panel market was valued at USD $146.08
billion in 2021 and is expected to expand at a compound
annual growth rate (CAGR) of 7.8% from 2022 to 2030.*
In short, the world needs a lot of silver, and it will need a
lot more silver as we make the turn to green energy and
electric transportation. As First Majestic grows, our purpose
is to help the world meet that demand.
* Grand View Research, Solar PV Panels Market Size, Share & Trends Analysis.
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
09
Message from the President and CEO
an enduring
team effort
The theme for this annual report marks a year where we met extraordinary challenges while
working to position First Majestic for higher earnings in 2023. Despite setbacks in 2022,
we recorded another year of record silver equivalent production of 31.3 million ounces,
compared with 26.9 million ounces in 2021.
CHALLENGES AT JERRITT CANYON
STEADY PRODUCTION IN MEXICO
Our most daunting challenges came at Jerritt Canyon in
Nevada, where crews faced environmental, infrastructure
and rehabilitation obstacles that raised cash costs per
ounce beyond expectations. Extreme winter weather,
contractor inefficiencies, lower-than-expected head
grades and inflation (particularly for energy) added to
our headwinds. Subsequent to year end, in March, we
temporarily suspended all mining activities and reduced
our workforce at Jerritt Canyon. Positive outcomes of
the suspension include a significant reduction in CAPEX,
expected higher earnings for 2023 and projected silver
purity rising to over 50% of revenues. Exploration at
Jerritt Canyon will now focus on major regional targets,
looking for large-volume deposits, rather than focusing
on near-term ore production to feed the mill.
In Mexico, our three mines reported steady production
and met guidance for the year. We completed
commissioning of the expanded 24MW LNG power plant
at Santa Elena, which significantly reduces power costs
and green-house gas emissions of the operation.
Increased ore shipments and blending higher gold grades
from the Ermitaño Mine enabled Santa Elena to set
another production record of 9.1 million AgEq oz in 2022,
representing an 81% increase compared to 2021.
The Company achieved record revenues of $624 million
in 2022, due primarily to the higher production at the
Ermitaño mine. We also completed several key cost
savings projects at Santa Elena in 2022, including
the dual-circuit project with a new 3,000 tpd tailings
filter press. Despite our ongoing efforts, consolidated
cash costs per ounce increased by 9% in 2022 due to
unforeseen supply chain issues, a slightly stronger
Mexican Peso and persistent inflation pressures felt
across the industry.
10
PHOTO: Jose Pacheco Ochoa
“ INCREASED ORE SHIPMENTS AND
BLENDING OF HIGHER GOLD GRADES
FROM THE ERMITAÑO MINE ENABLED
SANTA ELENA TO SET ANOTHER
PRODUCTION RECORD OF 9.1
MILLION AGEQ OZ IN 2022.”
UNION RELATIONS IN MEXICO
FOCUSED ON SILVER
I’m happy to report we continued building excellent
relations with our Mexican unions and worked throughout
the year to foster positive working environments. I
believe we are in a better position than ever to operate
cooperatively and maintain a healthy corporate culture in
Mexico. This has always been one of our key mandates,
and it will remain even more so as we move ahead.
First Majestic remains a silver-focused company. Our
business model has been, and will continue to be, focused
on increasing our silver leverage. While Ermitaño adds
more gold to our production stream, we benefit from the
stability that gold sales deliver. Silver usually provides
greater leverage in bull markets, but gold offers a valuable
buffer to silvers volatility.
EFFECTS OF THE SILVER MARKET
We were also affected by lower silver prices for much
of the year. From May through November, average
monthly prices remained below $21 per ounce, with July
through October below $20. We are seeing a turnaround
as of early 2023, and we believe this trend will persist
through the year.
Adhering to our long-term business model, we are looking
aggressively for high-quality silver assets to further
strengthen First Majestic’s market leading silver purity.
I want to thank our entire First Majestic Family for
their ongoing focus and hard work in 2022. Despite the
challenges of 2022, we remain one of the world’s premier
silver companies and are very proud of our team. We are
just getting started
Keith Neumeyer
President and CEO
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
11
Message from the Chief Operating Officer
an enduring
focus on
performance
and investment
This past year was dominated by our efforts to increase
underground mining rates at Jerritt Canyon, focusing on
sustainably feeding the processing plant at a planned
3,000 tpd to generate free cash flow. Despite these
efforts, mining rates remained below this threshold. Cash
costs per ounce remained higher than anticipated due
primarily to ongoing challenges with contractors, high
costs, inflation, lower than expected head grades and
multiple back-to-back extreme winter weather events—
all of which compounded conditions, resulting in the
temporary shutdown announced in March of 2023.
LAYING THE GROUNDWORK AT JERRITT CANYON
During 2022, we upgraded and modified the roaster and
refinery off-gas handling systems to ensure the operation
remained fully compliant with state and federal air quality
standards. We also addressed many other environmental
issues left by previous mine owners, during which we
worked closely with State and Federal agencies. Not
only will this cooperation benefit local communities and
the environment, it will also help First Majestic and all
stakeholders by fostering a culture of environmental and
social responsibility.
The team at Jerritt Canyon has helped the Company achieve
significant milestones, and we are thankful for their service.
We will focus on exploring prospective regional targets to
12
grow Jerritt Canyon's resources and reserve base, which
we believe will significantly enhance the economics for the
eventual restart of operations.
ENVIRONMENTAL COMPLIANCE
I want to note that First Majestic is a company that complies
with all laws & regulations. Period. We have built an excellent
track record in environmental compliance in Mexico, and we
work under the same commitment in Nevada. Over the past
year, we have expanded our ESG outreach in both Mexico
and Nevada, and our efforts at Jerritt Canyon in northern
Nevada align solidly with these initiatives.
MEXICO: CLEANER POWER, LOWER COSTS
Our Mexico operations continued to produce consistently
with relatively low costs, helping offset the lower
production and higher costs experienced at Jerritt Canyon.
At Santa Elena, we completed the installation of four
additional LNG generators to the existing powerplant and
a new power line from the plant to provide lower-cost and
much cleaner power to the Ermitaño mine. This important
project allows the mine to run entirely on LNG power with
just two generators, keeping two generators in reserve as
spares for needed unit maintenance. The generators also
eliminating the use of, and dependence on, more expensive
and carbon intensive diesel fuel.
Operating and Financial Highlights
All dollar amounts in this report US$ unless otherwise indicated
OPERATING
2022
2021
2020
2019
2018
Silver equivalent ounces produced
31,252,921
26,855,783
20,379,010
25,554,288
22,243,071
Silver ounces produced
Gold ounces produced
10,522,052
12,842,944
11,598,380
13,241,118
11,679,452
248,394
192,353
100,081
134,580
111,084
Cash costs per silver equivalent ounce1
All-in Sustaining Costs per silver equivalent ounce1
FINANCIAL (Millions except per share amounts)
Revenues
Mine 0perating earnings
Net (loss) earnings
(Loss) earnings per share (“EPS”) - basic
Free Cash Flow (2021,2020,2019)2, 3
$
$
$
$
$
$
$
14.39
19.74
2022
624.2
16.8
(114.3)
(0.43)
(64.9)
$
$
$
$
$
$
$
13.23
18.84
2021
584.1
101.4
(4.9)
(0.02)
(16.9)
$
$
$
$
$
$
$
9.00
14.03
2020
363.9
105.1
23.1
0.11
30.7
$
$
$
$
$
$
$
8.74
12.62
2019
363.9
66.2
(40.5)
(0.20)
91.0
$
$
$
$
N/A1
N/A1
2018
300.9
(11.9)
(204.2)
(1.11)
N/A
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 free cash flow. These measures are widely used in the mining industry as a benchmark for performance, but do not have a standardized meaning under
the Company’s financial reporting framework 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 page 121 for further details on each measure and a reconciliation of non-GAAP to GAAP measures.
2. N/A: “Not applicable.” The Company transitioned its cost reporting from Cost per Payable Silver Ounce to a Cost per Payable Silver Equivalent Ounce (“AgEq” Oz) basis effective January 1, 2021.
Costs for 2020 and 2019 have been retrospectively adjusted to Payable Silver Equivalent Ounces while figures shown for 2018 and earlier are reported on a Cost per Payable Silver Ounce 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.
AWARD OF EXCELLENCE AT SANTA ELENA
I’m very proud to note that in October, the Santa Elena operation was awarded the
prestigious “Silver Helmet Award” for safety excellence in the category of Underground
Mining of more than 500 Workers. This distinguished annual award of excellence is
awarded to only a handful of mines in Mexico.
Steven Holmes,
Chief Operating Officer
“ OUR MEXICO OPERATIONS
CONTINUED TO PRODUCE
CONSISTENTLY WITH
RELATIVELY LOW COSTS.”
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
13
Message from the Chief Financial Officer
an enduring legacy
of improvement and
efficiency
The past year, a transition period for us financially, was
marked by higher costs, lower margins, lower metals
prices and unexpected challenges while still generating
record annual revenues. The key driver behind the
financial headwinds was the year-long effort to turn Jerritt
Canyon around. Our Mexico operations, which still provide
about 80% of our production, remained largely on target
financially. Cost-cutting measures and efficiencies there
provided balance against the highest inflation rate the
industry has seen in decades.
INVESTING IN EXPLORATION
A key focus for 2023 will be finding new orebodies at all
our mines. With an exploration budget currently planned at
approximately $30 million, Gonzalo Mercado, First Majestic’s
VP Exploration and Technical Services, has developed an
expansive, company-wide exploration strategy tailored to
the production needs and mine life of each of the Company’s
projects. You can find more information on our proposed
exploration on Page 30.
INVESTING FOR IMPROVED FINANCIAL
PERFORMANCE
With the temporary shutdown at Jerritt Canyon, along with
greater LNG energy use in Mexico and higher grades at both
San Dimas and Santa Elena, we expect improvements to
our financial performance in 2023 and beyond. In addition,
higher prices for both gold and silver may enhance revenue
and margins, as well.
Overall, our costs at Jerritt Canyon were far above what was
anticipated without higher ore tonnages and grade to offset
them. Inflation was also a major factor, along with added
environmental compliance and investment to rehabilitate
underground workings, both for safety and access to new ore.
“ OUR MEXICO OPERATIONS,
WHICH PROVIDE ABOUT 80% OF
OUR PRODUCTION, REMAINED
ON TARGET FOR PRODUCTION
AND COSTS.”
ASSET SALES IN 2022
In May, we sold the past producing La Guitarra Silver Mine
to Sierra Madre Gold & Silver Ltd. for a total consideration
of US$35.0 million. Upon closing of the transaction, First
Majestic will receive 69,063,076 Sierra Madre shares at a
deemed price of CDN$0.65 per share making First Majestic
an approximate 47% shareholder in Sierra Madre.
In November, we sold our portfolio of royalty interests to
Metalla Royalty & Streaming Ltd. for a total consideration of
US$20.0 million in common shares of Metalla, consisting of
4,168,056 Metalla shares at a deemed price of US$4.7984
per share. In December it was announced that the
transaction had closed making First Majestic the largest
shareholder of Metalla.
In December, we sold the past producing La Parrilla Silver
Mine to Golden Tag Resources Ltd. for total consideration of
up to US$33.5 million. Upon closing of the transaction, First
Majestic will receive 143,673,684 Golden Tag shares at a
deemed price of CDN$0.19 per share, having an aggregate
value of US$20.0 million. First Majestic will receive up to
US$13.5 million in the form of three milestone payments
in either cash or shares in Golden Tag with the share
price and number of shares to be determined upon the
anniversary date.
14
These three sales represent exceptional value for First Majestic, as the share prices received were well below their
respective 52-week trading averages. Sales of the shares could provide future non-dilutive capital for the company.
LOOKING AHEAD
Management has developed a series of cost reduction initiatives across the organization to improve efficiencies,
lower production costs, capital spending, care and maintenance holding costs and corporate G&A costs while also
increasing production. These initiatives include renegotiating certain contracts and reducing the use of external
consultants, restructuring to optimize the workforce to reduce labour costs and continuing to optimize the business
as opportunities arise.
Financial Review
REVENUES AND CASH
CASH COSTS
First Majestic generated record annual revenues of
$624.2 million in 2022, a 7% increase over 2021, due
primarily to completing our first full year of production from
the Ermitaño mine at Santa Elena. Annual mine operating
earnings totalled $16.8 million compared to $101.4
million in 2021, a decrease driven by lower-than-expected
production at Jerritt Canyon resulting in higher production
costs per ounce, the decrease in the average realized silver
price during the year as well as an increase in depreciation
and depletion. The Company also saw an increase in the cost
of sales resulting from supply chain challenges, inflationary
cost pressures and a slightly stronger Mexican Peso.
We completed 2022 with a strong treasury of $151.4
million in cash and cash equivalents as well as restricted
cash of $125.2 million for a total of $276.6 million. The
Company also ended the year with strong working capital
of $202.9 million.
NET EARNINGS
The challenges noted above resulted in net earnings of
($114.3) million (EPS of ($0.43)) compared to ($4.9) million
(EPS of ($0.02) in 2021. Adjusted net earnings for the year,
normalized for non-cash or non-recurring items such
as impairment charges, tax settlements, share-based
payments, unrealized losses on marketable securities
and non-recurring write-downs on mineral inventory was
($55.4) million, or ($0.21) per share, compared to $6.0
million, or $0.02 per share in 2021.
The cash cost per AgEq ounce for 2022 was $14.39
compared to $13.23 in 2021. The increase in costs per ounce
was primarily due to the lower-than-expected production
and lower grades at Jerritt Canyon and San Dimas as well
an overall increase in costs due to inflation.
AISC
The All-in Sustaining Cost (AISC) per AgEq ounce in 2022
was $19.74, compared to $18.85 in the previous year. The
increase in AISC per ounce was due to higher cash costs and
intensive mine development activities at Jerritt Canyon.
DIVIDENDS
First Majestic paid $6.9 million in dividends to shareholders
in 2022, as summarized in the table below:
Declaration Date
Record Date
May 12, 2022
May 25, 2022
August 4, 2022
August 16, 2022
November 9, 2022
November 22, 2022
February 23, 2023(1)
March 10, 2023
Dividend per
Common Share
$0.0060
$0.0061
$0.0061
$0.0054
(1) These dividends were declared subsequent to the period end and have not been recognized as
distributions to owners during the period presented.
“ FIRST MAJESTIC GENERATED
RECORD ANNUAL REVENUES OF
$624.2 MILLION IN 2022, A 7%
INCREASE OVER 2021.”
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
15
Our Senior Leadership
PHOTO (LEFT TO RIGHT):
Colin Bower
Vice President Operations - Mexico
Gonzalo Mercado
Vice President Exploration and
Technical Services
Connie Lillico
Corporate Secretary
1216
Mani Alkhafaji
Vice President Business Planning
and Procurement
Steve Holmes
Chief Operating Officer
David Smith
Vice President Human Resources
Keith Neumeyer
President and Chief Executive Officer
Todd Anthony
Vice President Corporate
Development
First Majestic has earned an industry reputation for fostering a positive work
culture focused on attracting top talent. We encourage independent thinking,
innovation, creativity, work/life balance and teamwork. We actively celebrate our
team’s successes and have established a solid supportive relationship with our
local communities.
Persio Rosario
Vice President Processing,
Metallurgy, and Innovation
(Past)
David Soares
Chief Financial Officer
Michael Deal
Vice President Metallurgy and
Innovation
Sophie Hsia
General Counsel
Jill Arias
Vice President Corporate
Communications and Marketing
Karen Liu
Vice President Treasury
Amar Parmar
Vice President of Taxation
Ramon Mendoza
Vice President Technical Services
(Past)
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
17
Community, Health & Safety
enduring
engagement and
accountability
One of our core values—and a key building block of
First Majestic’s vision—is to work towards sustainability
through exceptional corporate citizenship. Sustainability
provides a guide for our major business decisions and
capital allocation.
OUR SUSTAINABILITY MANDATE
As noted in our latest ESG Report, we are acutely aware
of the need to do our part, to demonstrate our dedication
to solving serious, interconnected global issues and drive
more socially and environmentally responsible ways of
doing business. This is why we make sustainability a key
priority, a foundational value and a strategic imperative.
PUTTING OUR SKILLS AND RESOURCES TO WORK
We are striving to help solve basic, universal issues that
communities face such as water quality, infrastructure,
medical access and education. There are many
opportunities where we can put our skills and resources
to work, to help establish local businesses, to promote
environmental health and to strengthen communities.
Our approach to sustainability covers a broad range of ESG
initiatives, including:
• Governance, Conduct and Culture
• Human Rights
• Supply Chain Management
• Equity, Diversion and Inclusion
• Health, Safety and Wellness
• Community Engagement and Development
• Mine Closure and Reclamation
18
For a comprehensive and in-depth review of each of
these initiatives, please see our latest Sustainability
Report, available for viewing and downloading on
our website.
COMMUNITY OUTREACH AND INTERACTION
Our CSR initiatives continue to focus on community
outreach, close interaction and transparency with internal
and external stakeholders, seeking constant feedback
to direct our CSR strategy. We follow a basic, boots-on-
the-ground approach, getting out in the field, meeting
face-to-face with residents and the communities we
impact. We’re building strategic alliances with government
agencies while enhancing relationships with local leaders
and representatives. By understanding our stakeholders’
insights and needs, we all benefit.
“ WE FOLLOW A BASIC,
BOOTS-ON-THE-GROUND
APPROACH, GETTING OUT IN
THE FIELD, MEETING FACE-TO-
FACE WITH LOCAL RESIDENTS
AND THE COMMUNITIES WE
IMPACT.”
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
19
Environmental Review
enduring
efficiency with
clean power
First Majestic has an important role to play in the
transition to a greener, net-zero economy. We continue
to decarbonize our operations, contribute to global
climate goals and keep stakeholders informed about our
efforts. Our initiatives combine environmentally friendly
technologies with cost reduction, creating value to the
environment and to our stakeholders.
Our latest Sustainability Report, available on the First
Majestic website, provides a detailed look at all our
environmental initiatives, strategies and objectives.
MITIGATION
Reducing our carbon footprint by transitioning to Liquified
Natural Gas (LNG) generated power and hydropower,
while continually upgrading operations to more energy-
efficient processes.
ADAPTATION
Adapting our operations to improve resiliency against
climate risks (such as extreme weather events) at our
sites, offices and facilities.
Our environmental strategy includes focus on:
SUPPORTING CLIMATE OPPORTUNITIES
Optimizing business opportunities to meet the growing
global demand for precious metals needed for low-
carbon technologies and solutions.
20
“ OVER THE PAST FIVE YEARS, FIRST MAJESTIC HAS
INVESTED OVER US$65 MILLION TO IMPLEMENT
ECO-EFFICIENCY INITIATIVES AND DECARBONIZE
OUR ENERGY CONSUMPTION.”
CONVERSION TO LNG
PROTECTING 20,000 HECTARES OF WILDERNESS
One of our priorities has been reducing our dependency
on diesel fuel and converting to LNG. La Encantada
transitioned to LNG five years ago. In 2021, Santa Elena
completed its full conversion to LNG as its primary source
of fuel for power generation. The plant was further
expanded in 2022.
CARBON REDUCTION AND EFFICIENCY
Parallel to improving our energy sources, we have
implemented carbon-reduction technologies in our
processing and recovery operations, which has helped
increase metals recovery without expanding energy
consumption. Combined, these key actions have helped us
reduce processing costs, energy consumption and carbon
emissions, while increasing silver and gold recoveries.
Over the past five years, First Majestic has invested over
US$65 million to implement eco-efficiency initiatives
and decarbonize our energy consumption. In the coming
years, we are well positioned to further reduce our
carbon footprint.
One of our important environmental achievements is the
voluntary allocation of nearly 20,000 hectares of First
Majestic’s Cielo Norteño property near our La Encantada
mine, where we are restoring, protecting and conserving
the semi-desert ecosystem. This rich area hosts many
native wild plants, including iconic species of cacti such
as the agave. It supports a diversity of wildlife including
coyotes, wild cats, wild boars, and protected species
such as hawks, cranes, owls, lizards, and rattlesnakes.
Threatened species include the northern fox, collared
lizards, long-nosed leopard lizards, Texas banded gecko,
black-necked garter snakes and leopard frogs. There is
also an endangered species, the black bear for which
special measures have been implemented, including a
management program.
Our efforts include setting up camera traps in key areas
to monitor wildlife and poaching. To reduce survival
threats to native plant and animal populations, we
reforested approximately 50 hectares with plants from
the region, mainly candelilla, achieving a survival rate
of 90%. Within the perimeter of the conservation area,
soil and water conservation works are carried out.
Water capture tanks and animal feeders were installed
throughout the project area
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
21
Buy Silver from the Source at First Majestic’s
Silver Bullion Store
FIRST MAJESTIC REMAINS THE ONLY MINING
COMPANY OFFERING THEIR OWN PRODUCTION IN
THE FORM OF SILVER BULLION FOR SALE SECURELY,
ONLINE, 24/7. OUR UNIQUE SILVER BULLION
STORE, NOW IN ITS 14TH YEAR, OFFERS INVESTORS
AND SILVER ENTHUSIASTS THE OPPORTUNITY TO
PURCHASE PHYSICAL SILVER MINED FROM OUR
MEXICO OPERATIONS.
22
In 2022 the store sold a record 444,576 ounces of silver bullion,
representing a 27% increase compared to 2021 and approximately
4.2% of the Company's silver production.
The Bullion Store offers high quality 0.999-fine silver rounds, ingots, bars and
medallions at one of the lowest premiums on per-ounce silver prices on the
internet. Worldwide secure shipping and the ability to track your order is available.
A maker's mark and statement of weight and fineness is stamped directly onto
all products. In addition, each item purchased will be shipped with a Certificate of
Authenticity stating this information.
Yet again, with a record year of sales this year, you can anticipate seeing a few
exciting things to come for 2024. We appreciate the happy shareholders and bullion
fans that continue to support and purchase our beautiful metal.
You can access the Bullion Store at
www.store.firstmajestic.com
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
23
San Dimas Silver/Gold Mine
Durango State, México
HIGHLIGHTS
Ownership
2022 Silver Production (ounces)
2022 Silver Equivalent Production (ounces)
2022 Cash Costs per Ounce
2022 All-In Sustaining Costs per Ounce
2023 Projected Cash Costs per AgEq Ounce
2023 Projected All-In Sustaining Costs per AgEq Ounce
2023 Projected Silver Production (ounces)
2023 Projected Silver Equivalent Production (ounces)
24
100%
6,201,090
12,957,826
$9.81
$13.76
$9.62 - $10.19
$13.02 – 13.91
6,400,000 - 7,200,000
12,500,000 – 14,000,000
DURANGO’S LARGEST PRODUCING MINE
San Dimas, one of Mexico’s most important silver and gold
mines, is First Majestic’s largest and lowest-cost silver
producer and the largest producing underground mine in
the state of Durango. The mine has a long and productive
history, with the first production recorded in 1757. San
Dimas is considered one of the most significant precious
metal mining districts in Mexico. 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 property covers 71,868 hectares located approximately
130 kilometres northwest of the city of Durango, population
655,000. The mine employs about 1,900 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
processes to expand the dam to supply up to 100% of the
power for both the mine and the town of Tayoltita.
San Dimas consists of five ore zones, or blocks: Central,
Sinaloa Graben, Tayoltita, Arana Hanging Wall and San
Antonio West. All are contained within the property’s
71,839 contiguous hectares. The operation uses long-
hole stoping and mechanized cut-and-fill underground
mining methods, with all mined production processed at
the Tayoltita mill. After milling, cyanidation, precipitation
and smelting, doré bars are poured and transported to
refineries in Mexico and the United States.
The Tayoltita mill has a nameplate capacity of 2,500 tonnes
per day. The facility uses conventional crushing/grinding
coupled with cyanidation and zinc precipitation for recovery
of gold and silver.
Underground development at San Dimas totaled 20,521
metres in 2022, compared with 25,220 metres in 2021.
Exploration drilling totaled 64,790 metres, compared with
99,825 metres in 2021.
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
25
Santa Elena Silver/Gold Mine
Sonora State, México
HIGHLIGHTS
Ownership
2022 Silver Production (ounces)
2022 Silver Equivalent Production (ounces)
2022 Cash Costs per Ounce
2022 All-In Sustaining Costs per Ounce
2023 Projected Cash Costs per Ounce
2023 Projected All-In Sustaining Costs per Ounce
2023 Projected Silver Production (ounces)
100%
1,229,612
9,147,215
$11.59
$13.97
$11.59 – $12.21
$14.60 – $15.53
700,000
2023 Projected Silver Equivalent Production (ounces)
7,800,000 – 8,700,000
26
A NEW PRODUCTION RECORD IN 2022
The Santa Elena operation consists of the Santa Elena
and Ermitaño underground mines. The facility is located
approximately 150 kilometres northeast of the city of
Hermosillo in Sonora State, México. Santa Elena covers
102,244 hectares, encompassing major geological
structures that appear to be controlling some of the region’s
mineralized systems. The operating plan for Santa Elena
involves the processing of ore in a 3,000 tpd cyanidation
circuit from a combination of underground reserves.
Santa Elena’s 9.1 million ounces of silver equivalent
production in 2022 represents a new mine record and
an 81% increase over 2021, due primarily to exceptional
gold grades at Ermitaño.
The Ermitaño mine produces primarily gold, and it
dominated Santa Elena’s production in 2022. For 2023,
strong gold production is expected to continue as
development will focus primarily on Ermitaño, and the
plant will only process Ermitaño ores.
First Majestic identified a new vein in the Santa Elena
mine, called Silvanna, and plans to aggressively drill test
the area in 2023 with the goal of finding and defining
mineralization of economic grade along the new vein.
The dual-circuit processing plant was completed in Q4 of
2022, which includes the new 3,000 tpd day filter press,
designed to allow finer grinding resulting in improved
leaching performance and reduced operating costs.
We also ssuccessfully upgraded Santa Elena's LNG
powerplant with four additional generators, increasing
capacity from 12MW to 24MW, to supply low-cost, clean
power to the Ermitaño mine and the new dual-circuit plant.
Santa Elena operation was awarded the prestigious "Silver
Helmet Award" in 2022, in the category of "Underground
Mining of More Than 500 Workers" by the Mining Chamber
of Mexico for its outstanding performance in occupational
safety and health. The distinguished annual award of
excellence is only awarded to a select handful of mining
operations in Mexico.
Underground development at Santa Elena totaled 12,924
metres in 2022, compared with 18,119 metres in 2021.
Exploration drilling totaled 42,990 metres, compared with
63,977 metres in 2021.
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
27
La Encantada Silver Mine
Coahuila State, México
HIGHLIGHTS
Ownership
2022 Silver Production (ounces)
2022 Silver Equivalent Production (ounces)
2022 Cash Costs per Ounce
2022 All-in Sustaining Costs per Ounce
2023 Projected Cash Costs per Ounce
2023 Projected All-In Sustaining Costs per Ounce
2023 Projected Silver Production (ounces)
2023 Projected Silver Equivalent Production (ounces)
28
100%
3,091,349
3,125,761
$15.30
$18.48
$16.73 - $17.69
$19.86 - $21.14
2,900,000 – 3,200,000
2,900,000 – 3,200,000
A STEADY AND KEY SILVER PRODUCER
The La Encantada Silver Mine has been in First
Majestic's asset portfolio since 2006, and it remains a
steady and key silver producer. The mine is located in
northern México, 708 kilometres northeast of Torreon,
Coahuila. The facility includes a 4,000 tpd cyanidation
mill, and the site encompasses 4,076 hectares of mining
rights and 1,343 hectares of surface rights.
La Encantada includes a camp with 120 houses as well
as administrative offices, laboratory, general store,
hospital, airstrip and all the necessary 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 an improved
road from the closest city, Muzquiz, Coahuila State,
which is 225 kilometers away.
Natural gas generators currently supply approximately
90% of power requirements, providing significant
cost savings over diesel generation and producing
considerably less greenhouse gas emissions.
A land access agreement with the Tenochtitlan Ejido in
2021 opened a significant area of new, unexplored land
that is now the focus of exploration at La Encantada.
Development in 2022 focused on the second levels of
both the Ojuelas and Milagros orebodies. These deposits
contain higher silver grades and will contribute to
production in 2023. Recent changes to milling operations
improved ore throughput capacity and are expected to
generate higher recoveries.
Underground development at La Encantada totaled
2,555 metres in 2022, compared with 3,305 metres
in 2021. Exploration drilling totaled 10,021 metres,
compared with 15,373 metres in 2021.
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
29
Jerritt Canyon Gold Mine
Elko County, Nevada
HIGHLIGHTS
Ownership
2022 Gold Production (ounces)
2022 Silver Equivalent Production (ounces)
2022 Cash Costs per AuEq Ounce
2022 All-In Sustaining Costs per AuEq Ounce
30
100%
72,483
6,022,118
$2,326
$2,748
2023/24 EXPLORATION TO FOCUS ON LARGE, REGIONAL TARGETS
Jerritt Canyon, acquired by First Majestic in 2021, is an
underground mining complex covering 30,821 hectares
(119 square miles) of mining claims in Elko County,
northern Nevada. Mining activities were placed on
temporary suspension in March 2023 due to ongoing
challenges such as contractor inefficiencies, high costs,
inflationary cost pressures, lower than expected head
grades and multiple extreme weather events that limited
plant throughput.
Jerritt Canyon was discovered in 1972 and has been in
production since 1981. Over its 40-year history, the mine
has produced in excess of 9.5 million ounces of gold with
an approximate average grade of 6.7 grams per tonne.
The mine contains one of only three permitted refractory
roasters in Nevada. When in operation, the plant produces
high quality gold doré bars, which are then shipped for
commercial refining and sale. Jerritt Canyon has an
operating capacity of 4,000 tons per day (tpd).
Production in 2022 came from three underground areas:
SSX, Smith and West Generator. Throughout the year, First
Majestic also rehabilitated the underground mines of West
Generator and Saval II and brought the roaster into full
environmental compliance. Over $13 million was invested
to modernize the refractory roaster off-gas handling
systems for the collection of mercury.
One of the most attractive features at Jerritt Canyon is its
vast exploration potential. Approximately 28,000 metres of
exploration drilling are planned for 2023 to test dozens of
high-priority targets.
Underground development at Jerritt Canyon totaled 9,614
metres in 2022, compared with 3,915 metres in 2021.
Exploration drilling totalled 130,322 metres, compared
with 48,670 metres in 2021.
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
31
Exploration Overview
SANTA ELENA SILVER/GOLD MINE
Exploration for 2023, currently budgeted at approximately
$39.8 million, will focus on finding new orebodies to
expand life-of-mine at each of our sites. First Majestic’s
VP Exploration and Technical Services, Gonzalo Mercado,
has developed a comprehensive exploration strategy
tailored to the specific production needs for Santa Elena,
San Dimas, La Encantada and Jerritt Canyon. With each
site, we have factored in the current life-of-mine, existing
resources and geologic conditions of the orebodies to
develop exploration plans.
Exploration activities in 2023 will expand across
brownfield and greenfield properties, including drilling,
geophysics and surface mapping. At our four core assets,
we plan to explore highly-prospective areas that have
received very limited work or have never been tested.
Following are summaries of site-specific exploration
strategies.
Santa Elena’s large land package of 102,244 hectares
offers many prospective areas for exploration. Drilling is
currently focused on multiple prospective veins within a
five-kilometer radius of the processing plant to support cost
efficient ore feed. Our objective is to find additional veins
like Santa Elena and/or Ermitaño. Exploration work has
identified prospective surface occurrences with evidence of
mineralization, many of which have never been drilled.
In addition to brownfield exploration, we will conduct
a greenfield prospect generation program consisting
of prospecting, soil and rock sampling, mapping, and
geophysical surveys.
SAN DIMAS SILVER/GOLD MINE
San Dimas is known for its long history of production in
its world class epithermal system. Our focus continues
to be finding the next large Tier 1 vein system to support
additional life-of-mine. Drill plan includes programs aiming
to increase Inferred Resources as well as to upgrade
Inferred to Indicated classification.
32
ERMITAÑO
We plan to drill areas with "post mineral cover," where
the combination of rugged topography with the lack of
surface exposure of mineralization (per the quoted cover)
have prevented exploration efforts in the past. Work will
also include greenfield prospect generation, consisting
of prospecting, soil and rock sampling, mapping and
geophysical surveys.
LA ENCANTADA SILVER MINE
In 2022, surface access to prospective areas was
negotiated and granted by local Ejido. These new areas
will become part of the La Encantada exploration
program for 2023 and 2024. Most of the exploration
at La Encantada is early stage in nature, focused on
searching for a new breccia body similar to Milagros or
La Prieta (the two main ore bodies in the district). The
work will include a combination of surface mapping,
sampling and drilling.
JERRITT CANYON GOLD MINE
One of Jerritt Canyon’s most attractive attributes is the
property’s exploration potential. When in production, the
focus at Jerritt Canyon was finding minable, near active
development, above-water-table resources through
drilling. With mining temporarily suspended, exploration
can now shift to investigating high-quality, high volume
targets that were deferred in prior years due to the need
identify immediate ore to feed the plant.
Over the last decade exploration work at Jerritt Canyon
appears to have been focused on outcropping favorable
host rock and following known mineralized zones in
existing underground mines. Large areas of outcropping
Upper Plate (non favorable rock structurally above the
favorable host rocks) have received little to no work and
drilling. Targeting these areas will include geophysics and
surface mapping in addition to drilling.
The overall exploration goal at Jerritt Canyon is to add
resources, searching for higher grades and enhanced
continuity of mineralization. These added resources
would drive updated mine plans, to build a profitable and
sustainable operation.
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
33
ERMITAÑO
Measured and Indicated Mineral Resource Estimates for the Material Properties,
With an Effective Date of December 31, 2022
Mineral Resource Statement prepared under the supervision of Ramon Mendoza Reyes, P.Eng., QP for First Majestic
Mine / Project Category / Area
Mineral Type
Tonnage
k tonnes
Grades
Metal Content
Ag (g/t)
Au (g/t)
Ag-Eq (g/t)
Ag (k Oz)
Au (k Oz)
Ag-Eq (k Oz)
MATERIAL PROPERTIES
SAN DIMAS
SANTA ELENA
Measured (UG)
Indicated (UG)
Total Measured and Indicated (UG)
Sulphides
Sulphides
Sulphides
Measured Ermitaño (UG)
Measured Santa Elena (UG)
Indicated Ermitaño (UG)
Indicated Santa Elena (UG)
Indicated (Leach Pad)
Total Measured and Indicated (UG+Pad)
Sulphides
Sulphides
Sulphides
Sulphides
Oxides Spent Ore
All Mineral Types
LA ENCANTADA
Indicated (UG)
Indicated Tailings Deposit No. 4
Total Measured and Indicated (UG+Tailings)
Oxides
Oxides
All Mineral Types
JERRITT CANYON
Measured (UG)
Indicated (UG)
Indicated (OP)
Total Measured and Indicated (UG+OP)
Sulphides
Sulphides
Sulphides
All Mineral Types
SUBTOTAL MATERIAL PROPERTIES
2,391
1,895
4,285
354
483
2,501
1,490
190
5,018
4,176
2,459
6,635
4,988
4,171
180
9,339
Total Measured
Total Indicated
Total Measured and Indicated
All mineral types
All mineral types
All mineral types
8,215
17,061
25,277
444
334
395
40
135
67
157
34
97
165
119
148
-
-
-
-
139
119
125
5.85
3.79
4.94
4.11
1.52
4.01
1.47
0.61
2.89
-
-
-
5.61
5.58
4.00
5.57
5.38
2.55
3.47
940
654
813
552
263
566
280
85
433
165
119
148
463
461
330
460
594
355
433
34,160
20,320
54,480
460
2,090
5,370
7,510
210
15,640
22,200
9,410
31,610
-
-
-
-
36,710
65,020
101,730
450
231
681
47
24
322
70
4
467
-
-
-
900
748
23
1,671
1,420
1,398
2,818
72,220
39,840
112,060
6,280
4,080
45,510
13,440
520
69,830
22,200
9,410
31,610
74,320
61,790
1,910
138,020
156,900
194,620
351,520
Inferred Mineral Resource Estimates for the Material Properties,
With an Effective Date of December 31, 2022
Mineral Resource Statement prepared under the supervision of Ramon Mendoza Reyes, P.Eng., QP for First Majestic
Mine / Project Category / Area
Mineral Type
Tonnage
k tonnes
Grades
Metal Content
Ag (g/t)
Au (g/t)
Ag-Eq (g/t)
Ag (k Oz)
Au (k Oz)
Ag-Eq (k Oz)
MATERIAL PROPERTIES
SAN DIMAS
Inferred Total (UG)
Sulphides
4,256
SANTA ELENA
Inferred Ermitaño (UG)
Inferred Santa Elena (UG)
Inferred Total (UG)
LA ENCANTADA
Inferred Total (UG)
Inferred Tailings Deposit No. 4
Inferred Total (UG + Tailings)
JERRITT CANYON
Inferred Total (UG)
Inferred Total (OP)
Inferred Total (UG & OP)
Total Inferred Material Properties
Sulphides
Sulphides
Sulphides
Oxides
Oxides
All Mineral Types
Sulphides
Sulphides
Sulphides
All mineral types
2,851
1,005
3,856
3,071
428
3,499
9,398
150
9,547
21,159
306
84
146
100
179
118
171
-
-
-
108
3.57
609
41,930
489
83,300
2.93
1.36
2.52
-
-
-
5.09
3.89
5.07
3.47
449
261
400
179
118
171
421
322
419
413
7,720
4,710
12,430
17,660
1,620
19,280
-
-
-
73,640
269
44
313
-
-
-
1,538
19
1,557
2,359
41,190
8,420
49,610
17,660
1,620
19,280
127,080
1,550
128,630
280,820
1. 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.
2. The Mineral Resource estimates provided above have an effective date of December 31, 2022. The estimates 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, P.Eng., Internal QP for First Majestic.
3. Sample data was collected through a cut-off date of December 31, 2022, for the Material Properties. All properties account for relevant technical information and mining depletion through December 31, 2022.
4. Metal prices considered for Mineral Resources estimates were $23.00/oz Ag and $1,900/oz Au.
5. 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).
6. The cut-off grades and cut-off values used to report Mineral Resources are different for all mines. The cut-off grades, values and economic parameters are listed in the applicable section describing each
mine section of the 2022 AIF.
7. Measured and Indicated Mineral Resource estimates are reported inclusive of the Mineral Reserve estimates.
8. Tonnage is expressed in thousands of tonnes, metal content is expressed in thousands of ounces. Totals may not add up due to rounding.
9. The technical reports from which the above-mentioned information for the material properties is derived are cited under the heading “Technical Reports for Material Properties” of the 2022 AIF.
34
Measured and Indicated Mineral Resource Estimates for the Non-Material Properties,
With an Effective Date of December 31, 2020
Prepared under the supervision of Ramon Mendoza Reyes, P.Eng., QP for First Majestic
Mine / Project Category / Area
Mineral Type
Tonnage
k tonnes
Ag (g/t)
Au (g/t)
Grades
Pb (%)
Zn (%) Ag-Eq (g/t) Ag (k Oz)
Au (k Oz) Pb (M lb)
Zn (M lb) Ag-Eq (k Oz)
Metal Content
NON-MATERIAL PROPERTIES
SAN MARTIN
Oxides
Measured (UG)
Indicated (UG)
Oxides
Total Measured and Indicated (UG) Oxides
LA PARRILLA
DEL TORO
Measured (UG)
Indicated (UG)
Indicated (UG)
Total Measured and Indicated (UG) Oxides + Sulphides
Sulphides
Sulphides
Oxides
Indicated (UG)
Indicated (UG)
Total Measured and Indicated (UG) All Mineral Types
Sulphides
Oxides + Transition
TOTAL NON-MATERIAL PROPERTIES
Total Measured
Total Indicated
Total Measured and Indicated
All mineral types
All mineral types
All mineral types
70
958
1,028
15
1,028
76
1,119
440
153
592
85
2,654
2,739
221
277
273
193
193
270
198
193
226
201
216
227
227
0.40
0.53
0.52
-
0.07
0.09
0.07
0.53
0.15
0.43
0.33
0.32
0.32
-
-
-
1.27
1.78
-
1.65
3.52
4.97
3.90
0.22
0.69
0.67
-
-
-
1.27
1.62
-
1.50
5.75
-
4.27
0.22
0.63
0.62
255
321
317
250
277
278
277
414
351
398
254
320
318
500
8,520
9,020
90
6,370
660
7,120
2,720
1,110
3,830
0.9
16.3
17.2
-
2.4
0.2
2.6
7.4
0.7
8.1
590
19,380
19,970
0.9
27.0
27.9
-
-
-
0.4
40.3
-
40.7
34.2
16.7
50.9
0.4
91.1
91.5
-
-
-
580
9,890
10,470
0.4
36.6
-
37.0
55.7
-
55.7
0.4
92.4
92.8
120
9,160
680
9,960
5,850
1,720
7,570
700
27,300
28,000
Inferred Mineral Resource Estimates for the Non-Material Properties,
With an Effective Date of December 31, 2020
Prepared under the supervision of Ramon Mendoza Reyes, P.Eng., QP for First Majestic
Mine / Project
Mineral Type
Category / Area
NON-MATERIAL PROPERTIES
Tonnage
k tonnes Ag (g/t)
Au (g/t)
Grades
Pb (%)
Zn (%)
Ag-Eq (g/t) Ag (k Oz)
Au (k Oz) Pb (M lb)
Zn (M lb) Ag-Eq (k Oz)
Metal Content
SAN MARTIN
LA PARRILLA
DEL TORO
Inferred Total (UG)
Oxides
2,533
226
0.36
-
-
256
18,400
29.3
-
-
20,870
Inferred (UG)
Inferred (UG)
Inferred Total (UG)
Sulphides
Oxides
Oxides + Sulphides
Sulphides
Inferred (UG)
Oxides + Transition
Inferred (UG)
Inferred Total (UG)
All Mineral Types
Total Inferred Non-Material Properties All mineral types
393
1,028
1,421
496
690
1,186
5,140
200
215
211
185
182
183
212
0.08
0.09
0.09
0.25
0.08
0.15
0.24
-
1.56
1.13
3.08
3.74
3.46
1.11
-
1.91
1.38
2.73
-
1.15
0.65
207
299
274
322
273
293
270
2,530
7,090
9,620
2,950
4,030
6,970
34,990
1.0
3.1
4.1
4.0
1.7
5.7
39.1
-
35.4
35.4
33.7
56.8
90.5
125.9
-
43.3
43.3
29.8
-
30.1
73.4
2,610
9,890
12,500
5,130
6,050
11,180
44,550
1. 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.
2. The Mineral Resource estimates for the non-material properties were updated December 31, 2020. The estimates 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, P.Eng., Internal
QP for First Majestic.
3. Sample data was collected through a cut-off date of December 31, 2020, for non-material properties.
4. Metal prices considered for Mineral Resources estimates on December 31, 2020 were $22.50/oz Ag, $1,850/oz Au, $0.90/lb Pb and $1.05/lb Zn.
5. 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.
6. The cut-off grades and cut-off values used to report Mineral Resources are different for all mines. The cut-off grades, values and economic parameters are listed in the applicable section describing each
mine section of the Annual Information Form.
7. Tonnage is expressed in thousands of tonnes, metal content is expressed in thousands of ounces. Totals may not add up due to rounding.
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
35
Proven and Probable Mineral Reserves,
With an Effective Date of December 31, 2022
Summary consolidated by Ramon Mendoza Reyes, P.Eng., QP Mining for First Majestic Silver Corp.
Mine Category
SAN DIMAS
Proven (UG)
Probable (UG)
Total Proven and Probable (UG)
Sulphides
Sulphides
Sulphides
SANTA ELENA
Proven (UG - Ermitaño)
Proven (UG - Santa Elena)
Probable (UG - Ermitaño)
Probable (UG - Santa Elena)
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
Oxides
Oxides + Sulphides
Oxides
Oxides
All mineral types
All mineral types
All mineral types
Mineral
Type
Tonnage
k tonnes
Grades
Metal Content
Ag (g/t)
Au (g/t)
Ag-Eq (g/t)
Ag (k Oz)
Au (k Oz)
Ag-Eq (k Oz)
2,612
1,699
4,311
274
222
2,265
890
188
3,839
3,192
3,192
3,107
8,235
11,342
278
265
273
36
134
59
152
31
82
133
133
246
139
169
3.51
3.03
3.32
3.40
1.31
3.35
1.17
0.55
2.59
-
-
3.35
1.69
2.14
571
518
550
453
228
470
235
70
381
133
133
536
314
375
23,330
14,470
37,800
310
960
4,280
4,350
190
10,090
13,610
13,610
24,600
36,900
61,500
295
166
460
30
9
244
34
3
320
-
-
334
446
781
47,910
28,270
76,180
3,990
1,620
34,200
6,730
420
46,960
13,610
13,610
53,520
83,230
136,750
1. Mineral Reserves have been classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards on Mineral Resources and Mineral Reserves, whose
definitions are incorporated by reference into NI 43-101.
2. The Mineral Reserve statement provided in the table above has an effective date of December 31, 2022. The Mineral Reserve estimates were prepared under the supervision of Ramón Mendoza Reyes,
PEng, and a Qualified Person (“QP”) for the purposes of NI 43-101 who has the appropriate relevant qualifications, and experience in mining and mineral reserves estimation.
3. The Mineral Reserves were estimated from the Measured and Indicated portions of the Mineral Resource estimates. Inferred Mineral Resources were not considered to be converted into Mineral Reserves.
4. 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 $21.50/oz Ag and $1,750/oz Au for all sites.
(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 assumed and are presented in each mine section of the 2022 AIF.
5. A two-step constraining approach has been implemented to estimate reserves for each mining method in use: A General Cut-Off Grade (GC) was used to delimit new mining areas that will require
development of access, infrastructure and all sustaining costs. A second Incremental Cut-Off Grade (IC) 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 GC grade.
6. 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 2022 AIF.
7. Modifying factors for conversion of resources to reserves include consideration for planned dilution which is based on spatial and geotechnical aspects of the designed stopes and economic zones,
additional dilution consideration due to unplanned events, materials handling and other operating aspects, and mining recovery factors. Mineable shapes were used as geometric constraints.
8. Tonnage is expressed in thousands of tonnes; metal content is expressed in thousands of ounces. Metal prices and costs are expressed in USD.
9. Numbers have been rounded as required by reporting guidelines. Totals may not sum due to rounding.
10. The technical reports from which the above-mentioned information is derived are cited under the heading “Technical Reports for Material Properties” in the 2022 AIF.
Production 2022
Ore Processed
Material from Reserves Mined and Processed
Material Mined from Areas Not In Reserves
Silver Produced
Gold Produced
Silver-Equivalent Produced from Gold(1)
Silver-Equivalent Produced
Units
Tonnes
Tonnes
Tonnes
Ounces
Ounces
Ounces
Ounces
SAN DIMAS
SANTA ELENA
LA ENCANTADA
JERRITT CANYON
TOTAL
787,636
671,888
115,748
851,973
851,720
253
6,201,090
1,229,612
80,814
6,756,736
12,957,826
94,684
7,917,603
9,147,215
1,025,172
11,377
1,013,795
3,091,349
413
34,412
804,206
587,106
217,100
3,468,987
2,122,091
1,346,896
0
10,522,051
72,483
248,394
6,022,118
20,730,869
3,125,761
6,022,118
31,252,920
(1) Silver-equivalent ounces are 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. Details as to the method of calculation can be found in the applicable tables in each mine section of the 2022 Annual Information Form.
36
Management’s Responsibilities
for Financial Reporting
The consolidated financial statements of First Majestic Silver Corp. (the
“Company”) have been prepared and 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 22, 2023
David Soares, CPA, CA
Chief Financial Officer
February 22, 2023
37
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting.
The Company’s management assessed the effectiveness of the Company’s Internal control over financial reporting as of the year ended December 31,
2022, in accordance with the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, management concluded that, as of the year ended December 31, 2022, the Company’s internal
control over financial reporting was effective.
Deloitte LLP, an Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements for the year ended
December 31, 2022, and as stated in the Report of Independent Registered Public Accounting Firm, they have expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting as of the year ended December 31, 2022.
38
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 at
December 31, 2022 and 2021, 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, 2022, 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 at December 31, 2022 and 2021, and its financial
performance and its cash flows for each of the two years in the period ended December 31, 2022, in accordance 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, 2022, 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 23, 2023, 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 matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that (1) relate 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 matters below, providing a separate opinion on the
critical audit matters or on the accounts or disclosures to which they relate.
Impairment – Assessment of Whether Indicators of Impairment or Impairment Reversal Exist Within Non-Current Assets – Refer to Note 3 to the
financial statements
Critical Audit Matter Description
The Company’s determination of whether or not an indication of impairment or impairment reversal exists at the cash generating unit (“CGU”) level
requires significant management judgment pertaining to mining interests and property, plant and equipment. Management considers both external and
internal sources of information in assessing whether there are any indications that the Company’s mining interests and property, plant and equipment
are impaired or previous impairments should be reversed.
While there are several factors that are required to determine whether or not an indicator of impairment or impairment reversal exists, the judgements
with the highest subjectivity are future metal prices and the in-situ value of reserves, resources and exploration potential. Auditing these assumptions
required a high degree of subjectivity in applying audit procedures and in evaluating the results of those procedures. This resulted in an increased extent
of audit effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to future metal prices and the in-situ value of reserves, resources and exploration potential in the assessment of whether
indicators of impairment or impairment reversal exists included the following, among others:
• Evaluated the effectiveness of controls over management’s assessment of whether there are indicators of impairment or impairment reversal;
• Evaluated management’s assumptions by:
- Comparing management’s future metal price forecasts to third party forecasts; and
- Comparing management’s determination of the in-situ value of reserves, resources and exploration potential to independent market data.
39
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT Primero Tax Rulings — Refer to Note 28(b) 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 reexamine 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 - 2019 would be approximately $257.3 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 23, 2023
We have served as the Company’s auditor since 2005.
40
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, 2022,
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, 2022, 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 at and for the year ended December 31, 2022, of the Company and our report dated February 23, 2023, 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 23, 2023
41
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (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
Depletion, depreciation and amortization
Mine operating earnings
General and administrative expenses
Share-based payments
Mine holding costs
Reversal of impairment
Gain on sale of royalty portfolio
Acquisition costs
Foreign exchange loss (gain)
Operating (loss) earnings
Investment and other loss
Finance costs
(Loss) earnings before income taxes
Income taxes
Current income tax expense
Deferred income tax recovery
Net loss for the year
Loss per common share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
Year Ended December 31,
Note
2022
2021
6
7
8
9
15
15
10
11
24
24
12
12
12
12
$624,221
$584,117
471,687
135,782
607,469
366,085
116,613
482,698
16,752
101,419
36,372
13,958
11,930
(2,651)
(4,301)
—
637
(39,193)
(1,888)
(20,323)
(61,404)
56,250
(3,378)
52,872
27,063
12,290
12,056
—
—
1,973
(1,165)
49,202
(2,948)
(21,004)
25,250
49,283
(19,110)
30,173
($114,276)
($4,923)
($0.43)
($0.43)
($0.02)
($0.02)
263,122,252
244,749,772
263,122,252
244,749,772
Approved and authorized by the Board of Directors for issuance on February 22, 2023
Keith Neumeyer, Director
Colette Rustad, Director
The accompanying notes are an integral part of the audited consolidated financial statements
42
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (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 loss for the year
Other comprehensive loss
Items that will not be subsequently reclassified to net loss:
Unrealized loss on fair value of investments in marketable securities, net of tax
Realized gain (loss) on investments in marketable securities, net of tax
Remeasurement of retirement benefit plan
Other comprehensive loss
Total comprehensive loss
Note
Year Ended December 31,
2022
($114,276)
2021
($4,923)
14(b)
14(b)
(10,333)
482
312
(12,456)
(1,439)
95
(9,539)
(13,800)
($123,815)
($18,723)
The accompanying notes are an integral part of the audited consolidated financial statements
43
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (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 loss for the year
Adjustments for:
Depletion, depreciation and amortization
Share-based payments
Income tax expense
Finance costs
Acquisition costs
Loss on write-down of plant and equipment
Unrealized loss from marketable securities and silver futures derivatives
Gain on sale of royalty portfolio
Reversal of Impairment
Other
Operating cash flows before non-cash working capital and taxes
Net change in non-cash working capital items
Income taxes paid
Cash provided by operating activities
Investing Activities
Restricted cash acquired on the acquisition of Jerritt Canyon
Reclassification to restricted cash related to the acquisition of Jerritt Canyon
Expenditures on mining interests
Acquisition of property, plant and equipment
Deposits paid for acquisition of non-current assets
Jerritt Canyon acquisition costs, net of cash acquired
Other
Cash used in investing activities
Financing Activities
Proceeds from prospectus offering, net of share issue costs
Proceeds from 2021 convertible debenture, net of transaction costs
Payment for redemption of 2018 convertible debenture
Proceeds from exercise of stock options
Repayment of lease liabilities
Finance costs paid
Proceeds from debt facilities
Repayment of debt facilities
Dividends declared and paid
Shares repurchased and cancelled
Cash provided by financing activities
Effect of exchange rate on cash and cash equivalents held in foreign currencies
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalent reclassified as held for sale
Cash and cash equivalents, end of year
Supplemental cash flow information
The accompanying notes are an integral part of the audited consolidated financial statements
44
Year Ended December 31,
Note
2022
2021
($114,276)
($4,923)
137,411
13,958
52,872
20,323
—
—
4,242
(4,301)
(2,651)
1,843
109,421
(27,686)
(62,747)
18,988
—
—
(157,975)
(59,705)
(1,135)
—
5,018
118,283
12,290
30,173
21,004
1,973
2,501
1,521
—
—
(6,067)
176,755
(31,504)
(76,528)
68,723
30,000
(12,574)
(132,409)
(56,558)
(7,839)
(948)
(425)
(213,797)
(180,753)
113,395
—
—
4,664
(13,469)
(3,172)
50,000
(30,000)
(6,867)
(665)
66,674
222,776
(171,841)
21,793
(9,287)
(4,326)
30,000
(40,000)
(3,930)
(42)
113,886
111,817
(346)
(80,923)
237,926
(5,219)
(439)
(213)
238,578
—
$151,438
$237,926
11
4
10
15
15
27
4
19
27
25(a)
21(a)
21(a)
22
21(b)
21(b)
25(g)
25(f)
27
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT DECEMBER 31, 2022 AND 2021 (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, 2022
December 31, 2021
Assets
Current assets
Cash and cash equivalents
Restricted cash
Trade and other receivables
Value added taxes receivable
Inventories
Other financial assets
Prepaid expenses and other
Assets held-for-sale
Total current assets
Non-current assets
Mining interests
Property, plant and equipment
Right-of-use assets
Deposits on non-current assets
Non-current restricted cash
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
Liabilities relating to assets held-for-sale
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 16); Contingencies (Note 28); Subsequent event (Note 31)
The accompanying notes are an integral part of the audited consolidated financial statements
19
26(c)
13
14
15
16
17
18
19
26(c)
24
20
6
21
22
15
24
21
22
23
24
24
$151,438
$237,926
—
8,598
32,618
64,761
34,528
5,617
72,729
12,570
7,729
46,531
60,613
26,486
5,352
—
370,289
397,207
1,061,124
451,335
26,649
6,003
125,193
12,354
57,062
1,048,530
449,237
29,225
10,949
115,012
572
74,257
$2,110,009
$2,124,989
$115,120
$120,666
3,383
551
13,827
16,278
18,240
167,399
209,811
23,756
149,017
5,655
20,605
122,468
$698,711
1,781,280
98,914
(468,896)
$1,411,298
$2,110,009
12,226
125
11,825
—
27,980
172,822
181,108
28,036
153,607
5,797
21,812
150,836
$714,018
1,659,781
98,943
(347,753)
$1,410,971
$2,124,989
45
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31 2022 AND 2021 (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
Balance at December 31, 2020
221,965,011
$1,087,139
$75,420
$7,413
$19,164
$101,997
($338,900)
$850,236
Net loss for the period
Other comprehensive loss
Total comprehensive loss
Share-based payments
Shares issued for:
Acquisition of Jerritt Canyon
(Note 4)
—
—
—
—
—
—
—
—
—
—
—
12,421
26,719,727
416,561
23,150
Sprott Private Placement
1,705,514
Prospectus offerings (Note 25(a))
4,225,000
26,589
66,674
27,733
—
—
—
2,579,093
Debt settlement (Note 21)
Exercise of stock options (Note
25(b))
Acquisition of Springpole Silver
Stream (Note 16(d))
Settlement of restricted share
units (Note 25(c))
Equity component of convertible
notes net of tax (Note 21)
Shares repurchased and cancelled
(Note 25(f))
Dividend declared and paid
(Note 25(g))
2,502,234
30,436
(8,643)
287,300
3,750
73,692
—
(6,913)
—
941
—
(42)
—
—
(963)
—
—
—
—
(13,800)
(13,800)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(13,800)
(13,800)
12,421
23,150
—
—
(46,127)
(46,127)
—
—
—
(8,643)
—
(963)
30,908
30,908
—
—
—
—
—
(4,923)
(4,923)
(13,800)
—
(4,923)
(18,723)
—
—
—
—
—
—
—
—
—
—
12,421
439,711
26,589
66,674
(18,394)
21,793
3,750
(22)
30,908
(42)
(3,930)
(3,930)
Balance at December 31, 2021
260,050,658
$1,659,781
$101,385
($6,387)
$3,945
$98,943
($347,753)
$1,410,971
Net loss for the period
Other comprehensive loss
Total comprehensive loss
Share-based payments
Shares issued for:
Prospectus offerings (Note 25(a))
Exercise of stock options (Note
25(b))
Settlement of restricted and
deferred share units (Note 25(c)
and 25(e))
Shares repurchased and cancelled
(Note 25(f))
Dividend declared (Note 25(g))
—
—
—
—
—
—
—
—
—
—
—
13,615
11,869,145
113,395
—
609,623
6,872
(2,208)
148,553
1,897
(1,897)
(100,000)
—
(665)
—
—
—
—
(9,539)
(9,539)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(114,276)
(114,276)
(9,539)
—
(9,539)
(9,539)
(114,276)
(123,815)
13,615
—
(2,208)
(1,897)
—
—
—
—
—
—
—
(6,867)
13,615
113,395
4,664
—
(665)
(6,867)
Balance at December 31, 2022
272,577,979
$1,781,280
$110,895
($15,926)
$3,945
$98,914
($468,896)
$1,411,298
(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,
deferred 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”) of
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 $42.3 million, net of deferred tax effect of $11.4 million.
This amount is not subsequently remeasured and will remain in equity until th e 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
46
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts are expressed in thousands of US dollars)
1. NATURE OF OPERATIONS
First Majestic Silver Corp. (the “Company” or “First Majestic”) is in the
business of production, development, exploration, and acquisition of
mineral properties with a focus on silver and gold production in North
America. The Company owns four producing mines, three mines in Mexico
consisting of the San Dimas Silver/Gold Mine, the Santa Elena Silver/Gold
Mine and the La Encantada Silver Mine and the Jerritt Canyon Gold Mine
in Nevada, USA. In addition, the Company owns 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. As at December 31, 2022 the La Guitarra Silver/Gold Mine and
the La Parrilla Silver Mines were classified as assets held-for-sale (Note
15).
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 such as other financial assets (Note 14). 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 29). 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, 2022 and 2021 were approved
and authorized for issue by the Board of Directors on February 22, 2023.
3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The Company’s management makes judgments in its process of applying
the Company’s accounting policies in the preparation of its audited
annual consolidated financial statements. In addition, the preparation
of the financial data requires that the Company’s management to make
assumptions and estimates of the impacts of uncertain future events on
the carrying amounts of the Company’s assets and liabilities at the end of
the reporting period, and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates
as the estimation process is inherently uncertain. Estimates are reviewed
on an ongoing basis based on historical experience and other factors
that are considered to be relevant under the circumstances. Revisions
to estimates and the resulting impacts on the carrying amounts of the
Company’s assets and liabilities are accounted for prospectively.
New and 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, 2022. Their adoption has not had any material
impact on the disclosures or on the amounts reported in these financial
statements.
Property, Plant and Equipment — Proceeds before
(Amendments to IAS 16)
Intended Use
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 recognizes the proceeds from selling such items, and the cost of
producing those items, in profit or loss.
The amendments were applied effective January 1, 2022 and did not have
a material impact on the Company’s consolidated financial statements.
Provisions, Contingent Liabilities and Contingent Assets (Amendment to
IAS 37)
The amendments clarify that the cost of fulfilling a contract when
assessing whether a contract is onerous comprise both the incremental
costs and an allocation of other costs that relate directly to fulfilling the
contract. The amendments apply to contracts existing at the date when the
amendments are first applied. On adoption of this amendment, there was
no impact to the Company’s consolidated financial statements.
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.
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.
Accounting Estimates and Judgments:
Determination of a Business
Determination of whether a set of assets acquired and liabilities assumed
constitute a business may require the Company to make certain judgments,
taking into account all facts and circumstances. A business consists of
inputs, including non-current assets and processes, including operational
processes, that when applied to those inputs have the ability to create
outputs that provide a return to the Company and its shareholders.
47
FIRST MAJESTIC SILVER 2022 ANNUAL REPORT 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
Business Combinations (continued)
Accounting Estimates and Judgments: (continued)
Determination of a Business (continued)
In 2021, the Company concluded that Jerritt Canyon Canada Ltd. (“Jerritt
Canyon”) met the definition of a business and, accordingly, the acquisition
was accounted for as a business combination (Note 4).
Fair Value Estimates
In business combinations, it generally requires time to obtain the information
necessary to identify and measure the following as of the acquisition date:
(i) The identifiable assets acquired and liabilities assumed;
(ii)
The consideration transferred in exchange for an interest in the
acquiree;
(iii) The resulting goodwill.
If the initial accounting for a business combination is incomplete by the
end of the reporting period in which the combination occurs, the Company
reports in its consolidated financial statements provisional amounts
for the items for which the accounting is incomplete. These provisional
amounts are adjusted during the measurement period, or additional
assets or liabilities are recognized, to reflect new information obtained
about facts and circumstances that existed as of the acquisition date and, if
known, would have affected the measurement of the amounts recognized
as of that date. The measurement period ends as soon as the Company
receives the information it was seeking about facts and circumstances
that existed as of the acquisition date or learns that more information is
not obtainable and shall not exceed one year from the acquisition date.
The fair value of assets acquired and liabilities assumed requires
that management make judgments and estimates taking into account
information available at the time of the acquisition about future events
including, but not restricted to, estimates of mineral reserves and resources,
exploration potential, future metal prices, future operating costs and capital
expenditures and discount rates.
the allowable measurement period,
During
the Company will
retrospectively adjust the provisional amounts recognized at the
acquisition date to reflect new information obtained about facts and
circumstances that existed as of the acquisition date and, if known, would
have affected the measurement of the amounts recognized as of that date.
The Company may also recognize additional assets or liabilities if new
information is obtained about facts and circumstances that existed as of
the acquisition date and, if known, would have resulted in the recognition
of those assets and liabilities as of that date. The measurement period
ends as soon as the Company receives the information it was seeking
about facts and circumstances that existed as of the acquisition date or
learns that more information is not obtainable and shall not exceed one
year from the acquisition date.
The fair value of assets acquired and liabilities assumed are subject to
change for up to one year from the Acquisition Date. If new information
arises which would impact management’s assessment of the fair value
at the Acquisition Date, any adjustments to the allocation of the purchase
consideration will be recognized retrospectively and comparative
information will be revised.
Consideration for the acquisition of Jerritt Canyon
Acquisitions of businesses are accounted for using the acquisition
48
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. Management made judgments and estimates in calculating
the value of the shares and warrants transferred, including but not limited
to share price, volatility, rate of quarterly dividends and the discount rate.
Determining what is part of the business combination in the acquisition
of Jerritt Canyon
The Company needs to assess if other arrangement(s) or transaction(s)
shall be recognized as part of applying the acquisition method. To
determine if the arrangement(s) or transaction(s), is(are) part of the
business combination, the Company considers the following factors:
(i) The reasons for the arrangement(s) or transaction(s);
(ii) Who initiated the arrangement(s) or transaction(s); and
(iii) The timing of the arrangement(s) or transaction(s).
Management applied judgment based on the above criteria to determine
if private placement shares included as part of the acquisition of Jerritt
Canyon were a part of the business combination.
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, 2022, the Company
had $nil goodwill (2021 - $nil).
Foreign Currency
Accounting Policy:
The consolidated financial statements are presented in U.S. dollars.
The individual financial statements of each entity are presented in their
functional currency, which is the currency of the primary economic
environment in which the entity operates.
Transactions in foreign currencies are translated into the entities’
functional currencies at the exchange rates at the date of the transactions.
Monetary assets and liabilities of the Company’s operations denominated
in a currency other than the U.S. dollar are translated using exchange
rates prevailing at the date of the statement of financial position. Non-
monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates on the dates of the
transactions. Revenue and expense items are translated at the exchange
rates in effect at the date of the underlying transaction, except for depletion
and depreciation related to non-monetary assets, which are translated
at historical exchange rates. Exchange differences are recognized in the
statements of earnings or loss in the period in which they arise.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 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
entities if there is a change in events and conditions which determined the
primary economic environment.
Revenue Recognition (Note 6)
Accounting Policy:
The Company’s primary product is silver and gold. Other metals, such as
lead and zinc, produced as part of the extraction process are considered
to be by-products arising from the production of silver and gold. 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.
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.
Accounting Estimates and Judgments:
Determination of Performance Obligations
The Company applied judgment to determine if a good or service that
is promised to a customer is distinct based on whether the customer
can benefit from the good or service on its own or together with other
readily available resources and whether the good or service is separately
identifiable. Based on these criteria, the Company determined the primary
performance obligation relating to its sales contracts is the delivery of the
bullion and doré.
Inventories (Note 13)
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.
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 ounce incurred
up to the point of stockpiling the ore and are removed at the weighted
average cost per ounce. Stockpiled ore tonnage and head grades are
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, bullion 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 Potential, Exploration and Evaluation Expenditures (Note 16)
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 accumulated transfers
to producing mineral properties and impairment charges, if applicable. No
amortization is charged during the exploration and evaluation phase as
the asset is not available for use.
Exploration and evaluation assets include exploration potential which
represents the potential additional mineralization beyond the existing
known reserves and resources of a producing mineral property which
the Company gain access through acquiring the mineral rights and/or
concessions. The exploration potential is recorded at cost less accumulated
transfers to producing mineral properties and accumulated impairment
losses, if any. 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:
49
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
prepared on a basis consistent with that used for determining reserves
and resources, for purpose of determining depletion.
Exploration Potential, Exploration and Evaluation Expenditures
(continued)
Accounting Policy: (continued)
• there is sufficient geological certainty of converting the mineral
deposit into proven and probable reserves;
• life of mine plan and economic modeling support the economic
extraction of such reserves and resources;
• for new properties, a scoping study and/or feasibility study
demonstrates that the additional reserves and resources will
generate a positive economic outcome; and
• operating and environmental permits exist or are reasonably
assured as obtainable.
Exploration and evaluation expenditures remain as exploration mining
interests and do not qualify as producing mining interests until the
aforementioned criteria are met. Exploration and evaluation expenditures
are transferred to development or producing mining interests when the
technical feasibility and commercial viability of a mineral resource has
been demonstrated according to the above mentioned factors.
Once the technical feasibility, commercial viability and a development
decision have been established, the value of the exploration and evaluation
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.
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,
exploration plans and results, accessible facilities and existing permits.
Mining Interests (Note 16)
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,
50
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.
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
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 16)
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.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) Property, Plant and Equipment (Note 17)
Accounting Policy:
Borrowing Costs
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
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 reclassified
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. 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:
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, 2022 and 2021, the Company does not have any qualifying
assets under construction.
Right of Use Assets (Note 18) and Lease Liabilities (Note 22)
Accounting Policy:
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.
• 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
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.
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;
• 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.
Depreciation and Amortization Rates for Property, Plant and Equipment
Depreciation and amortization expenses are determined 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.
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.
51
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
CGU not been impaired. A reversal of an impairment loss is recognized as
a gain in the statements of earnings or loss.
Right of Use Assets (Note 18) and Lease Liabilities (Note 22) (continued)
Accounting Estimates and Judgments:
Accounting Policy: (continued)
Indications of Impairment and Reversal of Impairment
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 15)
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.
Where an impairment loss subsequently reverses, the carrying amount
of the asset or CGU is increased to the revised estimate of its recoverable
amount, so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment
been recognized for the asset or CGU in prior periods, adjusted for
additional amortization which would have been recorded had the asset or
52
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 considers includes 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 25(b)(c))
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 2022 LTIP to allow the Company to grant to
its directors, employees and consultants non-transferable Restricted
Share Units (“RSU’s”) based on the value of the Company’s share price
at the date of grant. Unless otherwise stated, the awards typically have
a graded vesting schedule over a three-year period and can be settled
either in cash or equity upon vesting at the discretion of the Company. The
Company intends to settle all RSU’s in equity.
In situations where equity instruments are issued to non-employees, the
share-based payments are measured at the fair value of goods or services
received. If some or all of the goods or services received by the Company
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 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 24)
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.
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.
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 (Note 19)
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.
Accounting Estimates and Judgments:
Determination and classification of current and non-current restricted cash
The Company determines if the funds on hand and held at banks meets
the definition of cash or cash equivalents. When there is a restriction on
those funds, the Company assesses the nature of the restriction and if it is
applicable, excludes the related amounts from the cash and cash equivalents
balance. The Company then assesses the classification of the restricted cash
between current and non-current based on the following factors:
• an asset is cash or a cash equivalent unless the asset is restricted
from being exchanged or used to settle a liability for at least twelve
months after the period; and
• it expects to realize the asset within twelve months after the reporting
period.
The evaluation was performed based on the available information at the
end of the reporting period; if there are changes in the circumstances the
Company will reassess the classification.
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.
53
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
(continued)
Financial Instruments (continued)
Accounting Policy: (continued)
Subsequent measurement of financial assets and liabilities depends on
the classifications of such assets and liabilities.
arise from measuring assets or liabilities or recognizing the gains and
losses on them on different bases.
Financial assets measured at FVTPL are measured at fair value at the end
of each reporting period, with any fair value gains or losses recognized
in profit or loss to the extent they are not part of a designated hedging
relationship. Fair value is determined in the manner described in Note 26.
The Company’s financial assets at FVTPL include its account receivable
arising from sales of metal contained in concentrates.
Amortized cost
Financial liabilities and equity
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.
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 21) and lease liabilities (Note 22).
Provisions (Note 23)
Fair value through other comprehensive income (“FVTOCI”)
Accounting Policy:
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.
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.
The Company has designated certain investments in marketable securities
that are not held for trading as FVTOCI (Note 14).
Accounting Estimates and Judgments:
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”)
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.
By default, all other financial assets, including derivatives, are measured
subsequently at FVTPL.
Earnings or Loss per Share (Note 12)
Accounting Policy:
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
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.
54
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 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, restricted share
units, convertible debt and share purchase warrants. Diluted earnings or loss
per share is calculated using the treasury stock method and assumes the
receipt of proceeds upon exercise of the options with exercise prices below
the average market price to determine the number of shares assumed to be
purchased at the average market price during the period.
Assets Held-for-Sale (Note 15)
Accounting Policy:
A non-current asset or disposal group of assets and liabilities (“disposal
group”) is classified as held-for-sale, if its carrying amount will be
recovered principally through a sale transaction rather than through
continuing use, and when the following criteria are met:
(i) The non-current asset or disposal group is available for immediate
sale in its present condition subject only to terms that are usual and
customary for sales of such assets or disposal groups; and
(ii) The sale of the non-current asset or disposal group is highly probable.
For the sale to be highly probable:
• The appropriate level of management must be committed to a plan to
sell the asset or disposal group;
• An active program to locate a buyer and complete the plan must have
been initiated;
• The non-current asset or disposal group must be actively marketed
for sale at a price that is reasonable in relation to its current fair value;
• The sale should be expected to qualify for recognition as a completed
sale within one year from the date of classification as held for sale
(with certain exceptions); and
• Actions required to complete the plan should indicate that it is
unlikely that significant changes to the plan will be made or that the
plan will be withdrawn.
Non-current assets and disposal groups are classified as held for sale
from the date these criteria are met and are measured at the lower of the
carrying amount and fair value less costs to sell (“FVLCTS”). If the FVLCTS
is lower than the carrying amount, an impairment loss is recognized in net
earnings. Upon classification as held for sale, non-current assets are no
longer depreciated.
Accounting Estimates and Judgments:
Probability of Sale Completion Within One Year
In determining the probability of the sale being completed within a year,
management has considered a number of factors including necessary
approvals from management, the Board of Directors, regulators and
shareholders.
Future Changes in Accounting Policies Not Yet Effective as at December
31, 2022
At the date of authorization of these financial statements, the Group has not
applied the following new and revised IFRS Accounting Standards that have
been issued but are not yet effective. Management does not expect that the
adoption of the Standards listed below will have a material impact on the
financial statements of the Group in future periods, except if indicated.
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.
In addition, the amendment requires entities to disclose information to
enable users of the financial statements to understand the risk that non-
current liabilities with covenants could become repayable within twelve
months. The amendments are applied on or after the first annual reporting
period beginning on or after January 1, 2024, with early application
permitted. This amendment is not expected to have a material impact on
the Company’s financial statements.
Amendments to IAS 1 Presentation of Financial Statements and IFRS
Practice Statement 2 Making Materiality Judgments—Disclosure of
Accounting Policies
The amendments change the requirements in IAS 1 with regard
to disclosure of accounting policies. The amendments replace all
instances of the term “significant accounting policies” with “material
accounting policy
is
material if, when considered together with other information included
in an entity’s financial statements, it can reasonably be expected to
influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements.
information”. Accounting policy
information
The supporting paragraphs in IAS 1 are also amended to clarify that
accounting policy information that relates to immaterial transactions,
other events or conditions is immaterial and need not be disclosed.
Accounting policy information may be material because of the nature
of the related transactions, other events or conditions, even if the
amounts are immaterial. However, not all accounting policy information
relating to material transactions, other events or conditions is itself
material. The International Accounting Standards Board (“IASB”) has
also developed guidance and examples to explain and demonstrate
the application of the ‘four-step materiality process’ described in IFRS
Practice Statement 2.
The amendments to IAS 1 are effective for annual periods beginning
on or after January 1, 2023, with earlier application permitted and are
applied prospectively. The amendments to IFRS Practice Statement
2 do not contain an effective date or transition requirements. This
amendment is not expected to have a material impact on the Company’s
financial statements.
Amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors—Definition of Accounting Estimates
The amendments replace the definition of a change in accounting
estimates with a definition of accounting estimates. Under the new
definition, accounting estimates are “monetary amounts in financial
statements that are subject to measurement uncertainty”.
The definition of a change in accounting estimates was deleted. However,
the Board retained the concept of changes in accounting estimates in the
Standard with the following clarifications:
• A change in accounting estimate that results from new information
or new developments is not the correction of an error
• The effects of a change in an input or a measurement technique used to
develop an accounting estimate are changes in accounting estimates if
they do not result from the correction of prior period errors
Classification of Liabilities as Current or Non-Current with Covenants
(Amendments to IAS 1)
The amendments aim to promote consistency in applying the requirements
by helping companies determine whether, in the statement of financial
The amendments are effective for annual periods beginning on or
after January 1, 2023 to changes in accounting policies and changes in
accounting estimates that occur on or after the beginning of that period,
with earlier application permitted. This amendment is not expected to
have a material impact on the Company’s financial statements.
55
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES 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, 2022 (continued)
Deferred Tax Related to Assets and Liabilities Arising from a Single
Transaction (Amendments to IAS 12)
In May 2021, the International Accounting Standards Board issued
targeted amendments to IAS 12, Income Taxes. The amendments are
effective for annual periods beginning on or after January 1, 2023,
although earlier application is permitted. With a view to reducing diversity
in reporting, the amendments will clarify that companies are required to
recognize deferred taxes on transactions where both assets and liabilities
are recognized, such as with leases and decommissioning liabilities. This
amendment is not expected to have a material impact on the Company’s
financial statements.
Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
The amendments require a seller-lessee to subsequently measure lease
liabilities arising from a leaseback in a way that it does not recognize any
amount of the gain or loss that relates to the right of use it retains. The new
requirements do not prevent a seller-lessee from recognizing in profit or
loss any gain or loss relating to the partial or full termination of a lease. A
seller-lessee applies the amendments retrospectively in accordance with IAS
8 Accounting Policies, Changes in Accounting Estimates and Errors to sale
and leaseback transactions entered into after the date of initial application.
The amendments are effective for annual reporting periods beginning on
or after January 1, 2024 although earlier application is permitted. This
amendment is not expected to have a material impact on the Company’s
financial statements.
4. ACQUISITION OF JERRITT CANYON CANADA LTD.
Description of the Transaction
On April 30, 2021, the Company completed the acquisition of 100% of the
issued and outstanding shares of Jerritt Canyon Canada Ltd. from Sprott
Mining Inc. (“Sprott Mining”) in exchange for 26,719,727 common shares
of First Majestic (the “Consideration Shares”) and five million common
share purchase warrants (the “Consideration Warrants”), each exercisable
for one common share of the Company at a price of $20 per share for a
period of three years from the date of acquisition on April 30, 2021 (the
“Acquisition Date”). Concurrent with closing of the acquisition, Sprott Mining
also completed a private placement consisting of $30.0 million at a price of
$17.59 per share for a total of 1,705,514 common shares of the Company
(the “Private Placement Shares”) (together, the “Acquisition Agreement”).
Pursuant to closing of the Acquisition Agreement, the Company
deposited into escrow an aggregate of $60.0 million (the “Escrowed
Funds”), including $30.0 million from First Majestic and $30.0 million
proceeds from the Private Placement Shares, representing the estimated
tax (“Triggered Tax”) due by Jerritt Canyon Canada as a result of a
reorganization completed prior to the acquisition of the Jerritt Canyon
Gold Mine. Pursuant to the Acquisition Agreement, the Purchase Price
is increased to the extent the Triggered Tax is less than $60 million
(“Triggered Tax Adjustment”) and decreased to the extent the working
capital (the “Working Capital Adjustment”) of Jerritt Canyon is less than
zero. The amount of such tax liability was $45.2 million and has been
paid from the Escrowed Funds. As of April 30, 2021, Jerritt Canyon had
a preliminary negative working capital of $2.8 million. The parties have
agreed to settle the Triggered Tax Adjustment by releasing the Escrow
funds of $12.6 million to Sprott Mining and have agreed to settle the
Working Capital Adjustment to $nil. These funds were released to Sprott
Mining during the three months ended June 30, 2022.
Jerritt Canyon owns and operates the Jerritt Canyon Gold Mine located in
Elko County, Nevada. Jerritt Canyon was discovered in 1972 and has been
in production since 1981 having produced over 9.5 million ounces of gold
over its 40-year production history. The mine currently operates as an
underground mine and has one of three permitted gold processing plants
in Nevada that uses roasting in its treatment of ore. This processing plant
has a capacity of 4,000 tonnes per day (“tpd”) and is currently operating
at an average rate of approximately 2,200 tpd. The property consists of
a large, under explored land package consisting of 30,821 hectares (119
square miles). The acquisition was completed in order to support the
Company’s growth strategy by adding another cornerstone asset within a
world class mining jurisdiction to the Company’s portfolio.
Management has concluded that Jerritt Canyon constitutes a business
and, therefore, the acquisition is accounted for in accordance with IFRS
3 - Business Combinations. Given the delivery of the consideration and
the fulfillment of the covenants as per the Acquisition Agreement, the
transaction was deemed to be completed with First Majestic identified as
the acquirer. Based on the April 30, 2021 opening share price of common
shares, the total consideration of the Jerritt Canyon acquisition is $478.9
million. The Company began consolidating the operating results, cash
flows and net assets of Jerritt Canyon from April 30, 2021 onwards.
The determination of the fair value of assets acquired and liabilities
assumed was previously reported based on preliminary estimates at the
Acquisition Date. The Company has completed a full and detailed valuation
of the fair value of the net assets of Jerritt Canyon acquired using income,
market, and cost valuation methods with the assistance of an independent
third party. As of the date of the audited annual consolidated financial
statements, the allocation of purchase price with respect to the fair value
increment of assets acquired and liabilities assumed was updated to
reflect new information obtained which existed at the Acquisition Date.
The fair value of assets acquired, and liabilities assumed are subject to
change for up to one year from the Acquisition Date. The Company has
finalized its full and detailed assessment of the fair value of the net assets
of Jerritt Canyon acquired. As stated above, the Triggered Tax Adjustment
and the Working Capital Adjustment, as well as any consequential impact
on the deferred tax liabilities, were finalized at March 31, 2022. There
were no changes to management’s assessment of the fair value at the
Acquisition Date that was reported at December 31, 2021. Consequently,
the final allocation of the purchase price consideration did not result in
material adjustments to the amounts shown in the audited consolidated
financial statements for the year ended December 31, 2021.
Total consideration for the acquisition was valued at $478.9 million on the
Acquisition Date. The following table summarizes the consideration paid
as part of the purchase price:
56
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
Total Consideration
26,719,727 Consideration Shares issued to Sprott Mining with an accounting fair value of $15.59 per share(1)
1,705,514 Private Placement Shares issued to Sprott Mining with an accounting fair value of $15.59 per share(1)
5,000,000 Consideration Warrants issued to Sprott Mining with an accounting fair value of $4.63 per warrant(2)
Triggered Tax Adjustment
Total consideration
$416,561
26,589
23,150
12,570
$478,870
(1) Fair values of Consideration Shares and Private Placement Shares were estimated at $15.59 per share based on the opening price of First Majestic’s common share on the New York Stock Exchange on
April 30, 2021, as compared to their deemed price of $17.59 according to the Acquisition Agreement.
(2) The Consideration Warrants have an exercise price of $20 per share for a three-year term expiring on April 30, 2024. The fair value of Consideration Warrants were estimated using the Black-Scholes
method at the Jerritt Canyon Acquisition Date, using the following assumptions:
Stock price (as of opening on April 30, 2021)
Exercise price of Consideration Warrants
Term (years)
Volatility
Annual rate of quarterly dividends
Discount rate - bond equivalent yield
Total fair value of warrants
$15.59
$20.00
3
55%
0%
0.5%
$23,150
The following table summarizes the preliminary and revised purchase price allocated to the identifiable assets and liabilities based on their estimated
fair values on the acquisition date:
Allocation of Purchase Price
Cash and cash equivalents
Inventories
Trade and other receivables
Other financial assets
Prepaid expenses
Restricted cash(1)
Mining interest
Property, plant and equipment
Deposit on non-current assets
Trade and other payables
Lease liabilities(3)
Income taxes payable
Contingent environmental provision(2)
Decommissioning liabilities(2)
Deferred tax liabilities
Net assets acquired
Preliminary as reported
June 30, 2021
Adjustments
As reported
December 31, 2021
$1,025
19,304
135
3,581
1,662
96,985
409,930
224,034
128
(27,159)
(2,194)
(47,185)
(17,900)
(87,705)
(98,186)
$476,455
$—
—
(63)
—
62
—
22,729
(48,307)
—
3,974
—
1,866
17,900
16,570
(12,316)
$2,415
$1,025
19,304
72
3,581
1,724
96,985
432,659
175,727
128
(23,185)
(2,194)
(45,319)
—
(71,135)
(110,502)
$478,870
(1) Restricted cash includes $30.0 million proceeds from the issuance of Private Placement Shares which were deposited into the Escrowed Funds and $67.0 million in non-current environmental
reclamation bonds.
(2) Decommissioning liabilities include funds required to establish a trust agreement with the Nevada Division of Environmental Protection (“NDEP”) to cover post-closure water treatment costs at Jerritt
Canyon, which were previously reported as a contingent environmental provision.
(3) Lease liabilities are defined per Note 22.
The Company used discounted cash flow models to determine the fair value of the depletable mining interest. The expected future cash flows are based
on estimates of future gold prices, estimated quantities of ore reserves and mineral resources, expected future production costs and capital expenditures
based on the life of mine plans at the acquisition date. The discounted future cash flow models used a 5.1% discount rate based on the Company’s
assessment of country risk, project risk, and other potential risks specific to the acquired mining interest.
57
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
4. ACQUISITION OF JERRITT CANYON CANADA LTD. (continued)
Description of the Transaction (continued)
The significant assumptions used in the determination of the fair value of the mining interests were as follows:
Short-term and long-term gold price
Discount rate
Mine life (years)
Average gold grade over life of mine
Average gold recovery rate
$1,750
5.1%
11
6.0 g/t
86%
The Company used a market approach to determine the fair value of exploration potential by comparing the costs of other precedent market transactions
within the industry on a dollar per square kilometres basis. Those amounts were used to determine the range of area-based resources multiples implied
within the value of transactions by other market participants. Management made a significant assumption in the determination of the fair value of
exploration potential by using an implied multiple of $298,524 per square kilometre for a total of $92.0 million. The Company accounted for exploration
potential through inclusion within non-depletable mineral interest.
5. 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. 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, 2022, the Company’s significant reporting segments includes its three operating mines in Mexico, the Jerritt Canyon
Gold Mine in Nevada, United States and its “non-producing properties” in Mexico which include the La Parrilla, Del Toro, San Martin and La Guitarra
mines, which have been placed on suspension. “Others” consists primarily of the Company’s corporate assets including cash and cash equivalents, other
development and exploration properties (Note 16), debt facilities (Note 21), coins and bullion sales, 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.
58
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) Significant information relating to the Company’s reportable operating segments is summarized in the tables below:
Year Ended December 31, 2022 and 2021
Revenue
Cost of sales
Depletion,
depreciation,
and
amortization
Mine
operating
earnings (loss)
Capital
expenditures
Mexico
San Dimas
Santa Elena
La Encantada
Non-producing Properties
United States
Jerritt Canyon
Others(1)
Intercompany elimination
Consolidated
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
$228,701
$141,274
$47,613
$39,814
$47,363
275,463
190,189
117,303
67,721
81,738
—
—
130,219
123,808
11,706
10,882
(4,315)
(25,077)
132,550
106,788
77,126
46,126
45,350
—
—
173,341
117,324
6,747
6,073
(2,589)
(12,338)
44,859
26,819
17,536
8,861
8,123
397
418
49,229
43,511
2,863
2,166
—
—
98,054
56,582
22,641
12,734
28,265
(397)
(418)
(92,351)
(37,027)
2,096
2,643
(1,726)
(12,739)
56,385
47,714
67,453
10,225
11,355
869
1,977
94,776
46,408
28,530
36,190
—
—
$624,221
$584,117
$471,687
$366,085
$135,782
$116,613
$16,752
$101,419
$229,477
$219,768
(1) The “Others” segment includes revenues of $11.6 million from coins and bullion sales of 444,576 silver ounces at an average price of $26.20 per ounce.
During the year ended December 31, 2022, the Company had three (December 31, 2021 - three) customers that accounted for 97% (December 31, 2021 -
99%) of its sales revenue, with one major metal broker accounting for 92% of total revenue (December 31, 2021 - 93%).
At December 31, 2022 and 2021
Producing
Exploration
Mining Interests
Property,
plant and
equipment
Total
mining
assets
Total
assets
Total
liabilities
Mexico
San Dimas
Santa Elena
La Encantada
Non-producing Properties
United States
Jerritt Canyon
Others
Consolidated
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
$211,658
$38,831
$94,377
$344,866
$489,970
213,526
110,094
97,271
23,496
25,827
62,414
106,215
425,158
362,811
—
—
29,186
41,731
31,067
4,935
4,640
13,781
38,752
93,680
104,431
35,346
34,804
105,473
99,979
64,843
24,422
20,680
18,195
27,180
166,778
172,857
47,584
58,204
348,185
251,804
193,181
52,853
51,147
94,390
172,147
685,616
640,099
82,930
93,008
495,479
295,489
257,244
106,008
114,634
206,796
215,725
756,062
733,725
255,684
308,182
$76,835
119,764
79,295
66,795
30,601
35,245
33,391
31,760
226,814
233,484
251,775
226,970
$832,820
$228,304
$451,335
$1,512,459
$2,110,009
$698,711
$805,649
$242,881
$449,237
$1,497,767
$2,124,989
$714,018
59
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
6. REVENUES
The majority of the Company’s revenues are from the sale of precious metals contained in doré form. The Company’s primary products are precious
metals of silver and gold. Revenues from the 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
Gross revenue
Less: smelting and refining costs
Revenues
Year Ended December 31,
2022
38%
62%
$237,107
389,743
2021
52%
48%
$307,304
279,921
626,850
100%
587,225
100%
(2,629)
$624,221
(3,108)
$584,117
As at December 31, 2022, the Company had $3.4 million of unearned revenue (December 31, 2021 - $12.2 million) that has not satisfied performance
obligations.
(a) Gold Stream Agreement with Sandstorm Gold Ltd.
The Santa Elena mine is subject to a gold streaming 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 at the Santa Elena mine. 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,
2022, the Company delivered 2,433 ounces (2021 - 5,327 ounces) of gold to Sandstorm at an average price of $472 per ounce (2021 - $467 per ounce).
(b) Net Smelter Royalty
The Santa Elena mine has a net smelter royalty (“NSR”) agreement with Orogen Royalties Inc. that requires a 2% NSR from the production of the
Ermitaño property. In addition, there is an underlying NSR royalty where Osisko Gold Royalties Ltd. retains a 2% NSR from the sale of mineral products
extracted from the Ermitaño property. For the year ended December 31, 2022 , the Company has incurred $5.8 million (December 31, 2021 - $1
million) in NSR payments from the production of Ermitaño.
(c) 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”), a wholly owned subsidiary of
Wheaton Precious Metals Corp., which entitles WPMI 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 as at
December 31, 2022 was 70:1.
During the year ended December 31, 2022, the Company delivered 41,841 ounces (2021 - 48,015 ounces) of gold to WPM at $623 per ounce (2021 - $617
per ounce).
60
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
7. 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
Maintenance
Assays and labwork
Insurance
Other costs(1)
Production costs
Transportation and other selling costs
Workers participation costs
Environmental duties and royalties
Finished goods inventory changes
Other (2)
Cost of Sales
Year Ended December 31,
2022
$112,620
227,767
55,542
9,595
6,169
4,875
15,792
2021
$78,463
194,846
42,881
7,037
5,348
3,351
11,276
$432,360
$343,201
2,788
17,265
11,063
4,550
3,661
2,739
15,939
5,835
(2,304)
675
$471,687
$366,085
(1) Other costs include inventory write-downs, stockpile and work-in-process inventory changes, land access payments as well as services related to travel and medical testing. The inventory write-downs
during the year totalled $23.8 million.
(2) Other includes $3.1 million in costs that were incurred for the twelve months ended December 31, 2022 as a result of marginal ore material that was processed to keep the mill running at minimum feed
requirements to perform government mandated air compliance test work at the Jerritt Canyon Gold mine during the second quarter of 2022.
8. 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
9. MINE HOLDING COSTS
Year Ended December 31,
2022
$9,001
16,387
7,683
805
867
1,629
2021
$7,806
11,636
4,619
506
826
1,670
$36,372
$27,063
The Company’s mine holding costs are primarily comprised of labour costs associated with care and maintenance staff, electricity, security, environmental
and community support costs for the following mines which are currently under temporary suspension:
La Parrilla(1)
Del Toro
San Martin
La Guitarra(1)
Year Ended December 31,
2022
$3,320
2,347
3,609
2,654
2021
$3,278
3,385
2,597
2,796
$11,930
$12,056
(1) During the year ended December 31, 2022 , there was an announcement for the proposed sale of the La Guitarra and the La Parrilla mines (Note 15), upon which the mines were classified as assets
held-for-sale (“AHFS”).
61
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
10. INVESTMENT AND OTHER INCOME (LOSS)
The Company’s investment and other income (loss) are comprised of the following:
(Loss) gain from investment in silver futures derivatives
Loss from investment in marketable securities (Note 14(a))
Loss on write-down of plant and equipment(1)(2)
Interest income and other
Year Ended December 31,
2022
($376)
(3,865)
—
2,353
2021
$532
(2,054)
(2,501)
1,075
($1,888)
($2,948)
(1) In March 2021, the Company entered into an agreement with Condor Gold PLC (“Condor”) to sell its AG Mill equipment for gross proceeds of $6.5 million, including $3.5 million in cash and $3.0 million
in common shares of Condor. During the year ended December 31, 2021, the Company recognized a loss of $2.1 million, being the difference between the proceeds of disposal and the carrying amount
of the project’s net assets, as loss on write-down of assets held-for-sale.
(2) In May 2021, the Company entered into an agreement with Capstone Mining Corp. to sell certain mill equipment for gross proceeds of $6.4 million in cash. No gain or loss was recognized as part of this
transaction as the equipment was sold at net book value.
11. 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 periods are summarized as follows:
Debt facilities(1) (Note 21)
Accretion of decommissioning liabilities
Lease liabilities (Note 22)
Loss on settlement of senior convertible note (2) (Note 21(a))
Silver sales and other
Year Ended December 31,
2022
$10,810
6,102
2,131
—
1,280
2021
$10,541
3,228
2,013
4,642
580
$20,323
$21,004
(1) During the year ended December 31, 2022, finance costs for debt facilities include non-cash accretion expense of $8.7 million (2021 - $7.2 million).
(2) In December 2021, the Company closed an offering of $200.0 million aggregate principal amount of unsecured senior convertible notes plus an additional over-allotment option of $30 million which it
used to repurchase the outstanding 2018 senior convertible notes. The repurchase generated a loss due to the difference between the cash paid to repurchase and cancel the 2018 senior convertible
notes, compared to the carrying value of the notes on the date of settlement.
12. EARNINGS OR LOSS PER SHARE
Basic earnings or loss per share is the net earnings or loss available to common shareholders divided by the weighted average number of common
shares outstanding during the periods. Diluted net earnings or loss per share adjusts basic net earnings or loss 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, 2022 and 2021 are as follows:
Net loss for the year
Weighted average number of shares on issue - basic
Weighted average number of shares on issue - diluted(1)
Loss per share - basic and diluted
Year Ended December 31,
2022
($114,276)
2021
($4,923)
263,122,252
244,749,772
263,122,252
244,749,772
($0.43)
($0.02)
(1) For the year ended December 31, 2022, diluted weighted average number of shares excluded 5,579,618 (2021 - 2,014,379) options, 5,000,000 (2021 - 5,000,000) warrants, 1,177,594 restricted and
performance share units (2021 - 701,250), nil (2021 - 16,327,598) common shares issuable under the 2018 convertible debentures (Note 21(a)) and 13,888,895 common shares issuable under the 2021
convertible debentures (2021- 13,888,895) (Note 21(a)) that were anti-dilutive.
62
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
13. 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
December 31,
2022
December 31,
2021
$5,561
9,176
4,825
8,001
37,198
$64,761
$3,735
6,409
9,015
10,790
30,664
$60,613
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. As at December 31, 2022, mineral inventories, which consist of stockpile, work-in-process and finished goods includes a $9.3
million write down (December 2021 - $7.5 million) which was recognized in cost of sales during the year.
14. OTHER FINANCIAL ASSETS
As at December 31, 2022, other financial assets consists of the Company’s investment in marketable securities comprised of the following:
FVTPL marketable securities (a)
FVTOCI marketable securities (b)
Total other financial assets
December 31,
2022
December 31,
2021
$6,657
27,871
$34,528
$10,851
15,635
$26,486
(a) Fair Value through Profit or Loss (“FVTPL”) Marketable Securities
Loss in marketable securities designated as FVTPL for the year ended December 31, 2022 was $3.9 million (2021 - loss of $2.1 million), and was
recorded through profit or loss.
(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, 2022 was a loss of $9.9 million (2021 - loss of
$13.9 million), net of tax, and were recorded through other comprehensive income and will not be transferred into earnings or loss upon disposition
or impairment.
15. DIVESTITURES
(a) La Guitarra Silver Mine
On May 24, 2022, the Company announced that it entered into a share purchase agreement with Sierra Madre Gold and Silver Ltd. (“Sierra Madre”), to sell
the the Company’s subsidiary La Guitarra Compañia Minera S.A. de C.V. (“La Guitarra”), which owns the La Guitarra Silver Mine for total consideration of
approximately $35 million, consisting of 69,063,076 Sierra Madre shares at a deemed price of $0.51 per share. The closing of the transaction is subject to
customary closing conditions including approval of the Sierra Madre shareholders (which was obtained in December 2022), regulatory approval and that
Sierra Madre raise a minimum of $7.7 million (CAD $10 million) in a private placement concurrent or prior to the sale.
On June 30, 2022, the sale was considered highly probable; therefore, the assets and liabilities of La Guitarra were classified as assets and liabilities held
for sale and presented separately under current assets and current liabilities, respectively. Immediately prior to the classification to asset and liabilities
held for sale, the carrying amount of La Guitarra was remeasured to its recoverable amount, being its fair value less cost of disposal (“FVLCD”), based on
the expected proceeds from the sale. At December 31, 2022, the sale continues to be considered highly probable; therefore the assets and liabilities are
presented as assets and liabilities held for sale and presented separately under current assets and current liabilities. During the year-ended December
31, 2022, the Company has recorded a reversal of impairment loss related to the La Guitarra assets of $12.3 million based on the recoverable amount
implied by the share purchase agreement.
Out of the impairment reversal of $12.3 million related to La Guitarra, $8.2 million was allocated to depletable mining interest, $1.0 million was allocated
to non-depletable mining interest with the remaining $3.1 million allocated to property, plant and equipment, resulting in an impairment reversal of $8.0
million, net of a $4.4 million adjustment to the deferred tax liability. The recoverable amount of La Guitarra, being its FVLCD, was $34.9 million based on
the expected proceeds from the sale.
63
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
15. DIVESTITURES (continued)
(b) La Parrilla Silver Mine
On December 7, 2022, the Company announced that it had entered into an asset purchase agreement with Golden Tag Resources Ltd. (“Golden Tag”) to
sell the La Parrilla Silver Mine for total consideration of up to $33.5 million, consisting of 143,673,684 Golden Tag shares at a deemed price of $0.14 per
share, having an aggregate value as of the date of the sale agreement of $20 million, and up to $13.5 million in contingent consideration, in the form of
three milestone payments payable in either cash or shares in Golden Tag. The Company has also agreed to purchase $2.7 million of Golden Tag securities
in a future Golden Tag equity financing of up to CAD $9 million. Closing the transaction is pending and remains subject to customary closing conditions,
including completion of such financing and receipt of all necessary regulatory approvals.
At December 31, 2022, the sale was considered highly probable; therefore, the assets of La Parrilla were classified as assets held for sale and presented
separately under current assets. Immediately prior to the classification to assets held for sale, the carrying amount of La Parrilla was remeasured to its
recoverable amount, being its FVLCD, based on the $20 million initial payment, and the first milestone payment of $2.7 million. During the year-ended
December 31, 2022, the Company has recorded an impairment loss related to the La Parrilla assets of $9.6 million based on the recoverable amount
implied by the asset purchase agreement.
Out of the impairment of $9.6 million related to La Parrilla, $5.7 million was allocated to depletable mining interest, $2.1 million was allocated to non-
depletable mining interest with the remaining $1.7 million allocated to property, plant and equipment, resulting in an impairment of $9.6 million, net of a
$nil adjustment to the deferred tax liability. The recoverable amount of La Parrilla, being its FVLCD, was $22.2 million, net of estimated transaction costs,
based on the expected proceeds from the sale.
The components of assets and liabilities held for sale relating to La Guitarra and La Parrilla are as follows:
Assets:
Cash and cash equivalents
Trade and other receivables
Inventory
Prepaid expenses and other
Current assets
Non-Current Assets:
Mineral Interests - depletable
Mineral Interests - non-depletable
Property, plant and equipment
Right of use assets
Deposits on long-term assets
Total assets held-for-sale
Liabilities:
Trade payables and accrued liabilities
Current portion of lease obligations
Current Liabilities
Non-Current Liabilities:
Deferred tax liabilities
Lease obligations
Decommissioning liabilities
Total liabilities relating to assets held-for-sale
Net assets held for sale
As at December 31, 2022
La Guitarra
La Parrilla
$5,218
396
437
51
$6,102
30,193
3,917
4,004
16
26
$—
—
876
—
$876
13,758
5,252
7,821
645
117
$44,258
$28,469
$141
8
$149
6,894
12
2,951
$—
—
$—
1,667
438
4,167
$10,006
$6,272
$34,252
$22,197
The La Guitarra and La Parrilla mines are presented in the non-producing properties reportable segment (Note 5, 16 and 17 ).
64
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
(c) Sale of Royalty Portfolio
On December 21, 2022 the Company completed the sale of a portfolio of royalty interests to Metalla Royalty & Streaming Ltd. (“Metalla”), for total
consideration of 4,168,056 Metalla shares with a fair value of $21.5 million based on a share price of $5.16 on the date of closing.
Asset
Owner
La Encantada
First Majestic Silver Corp.
La Parrilla
First Majestic Silver Corp.
Del Toro
First Majestic Silver Corp.
San Martin
La Guitarra
First Majestic Silver Corp.
First Majestic Silver Corp. - undergoing a binding
purchase agreement to Sierra Madre Gold & Silver
Plomosas
GR Silver Mining Ltd.
La Luz
La Joya
First Majestic Silver Corp.
First Majestic Silver Corp. - Optioned to Silver Dollar
Resources
(1) Up to the first 1,000 payable ounces annually
Location
Royalty
Allocated Value Total
Coahuila, Mexico
100% Gold Royalty(1)
Durango, Mexico
2% Net Smelter Return
Zacatecas, Mexico
2% Net Smelter Return
Jalisco, Mexico
2% Net Smelter Return
Mexico, Mexico
2% Net Smelter Return
Sinaloa, Mexico
2% Net Smelter Return
San Luís Potosí, Mexico
2% Net Smelter Return
Durango, Mexico
2% Net Smelter Return
$1,720,574
$3,871,290
$3,226,075
$5,376,792
$3,011,004
$4,301,434
$—
$—
The value of the consideration received was credited to mining interests for each property, resulting in a $4.3 million gain derived from the disposal of the
royalty in the Plomosas property, which had a carrying value of $nil.
With the exception of La Encantada, all mines included within the royalty portfolio are presented in the non-producing properties reportable segment
(Note 5 and 16 ).
16. MINING INTERESTS
Mining interests primarily consist of acquisition, development, exploration and exploration potential 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.
65
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 16. MINING INTERESTS (continued)
The Company’s mining interests are comprised of the following:
Depletable properties
Non-depletable properties (exploration and evaluation costs, exploration potential)
Depletable properties are allocated as follows
Depletable properties
San Dimas
Santa Elena
La Encantada Jerritt Canyon
December 31,
2022
December 31,
2021
$832,820
228,304
$805,649
242,881
$1,061,124
$1,048,530
Non-producing
Properties(1)
Total
Cost
At December 31, 2020
Additions
Acquisition of Jerritt Canyon (Note 4)
Change in decommissioning liabilities
Transfer from non-depletable properties
At December 31, 2021
Additions
Transfer to asset held-for-sale (Note 15)
Change in decommissioning liabilities (Note 23)
Disposal of royalty portfolio (Note 15)
Transfer from non-depletable properties
$250,093
34,894
—
1,209
—
$73,292
16,150
—
2,177
34,302
$118,312
$—
$497,191
$938,888
2,546
—
584
1,293
16,618
340,652
28,799
—
—
—
(2,622)
—
70,208
340,652
30,147
35,595
$286,196
$125,921
$122,735
$386,069
$494,569
$1,415,490
30,733
—
(1,800)
—
—
23,957
—
1,518
—
—
2,507
—
(879)
(1,721)
2,098
58,728
—
1,241
—
30,503
—
115,925
(279,399)
(279,399)
(2,332)
—
—
(2,252)
(1,721)
32,601
At December 31, 2022
$315,129
$151,396
$124,740
$476,541
$212,838
$1,280,644
Accumulated depletion, amortization and impairment reversal
At December 31, 2020
Depletion and amortization
At December 31, 2021
Depletion and amortization
Reversal of impairment (Note 15)
Transfer to asset held-for-sale (Note 15)
Impairment (Note 15)
At December 31, 2022
Carrying values
At December 31, 2021
At December 31, 2022
($45,502)
($20,400)
($92,447)
$—
($388,354)
($546,703)
(27,169)
(8,250)
(4,461)
(23,258)
—
(63,138)
($72,671)
($28,650)
($96,908)
($23,258)
($388,354)
($609,841)
(30,800)
(12,652)
(4,336)
(28,125)
—
—
—
—
—
—
—
—
—
—
—
—
—
8,203
235,448
(5,721)
(75,913)
8,203
235,448
(5,721)
($103,471)
($41,302)
($101,244)
($51,383)
($150,424)
($447,824)
$213,526
$211,658
$97,271
$110,094
$25,827
$23,496
$362,811
$425,158
$106,215
$62,414
$805,649
$832,820
(1) Non-producing properties include the San Martin, Del Toro, La Parrilla and La Guitarra mines. The net book value of depletable mining interests for La Guitarra and La Parrilla that have been classified
as assets held-for-sale are $30.2 million and $13.8 million, respectively.
66
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
Non-depletable properties costs are allocated as follows:
Non-depletable
properties
At December 31, 2020
Exploration and
evaluation expenditures
Change in
decommissioning
liabilities (Note 23)
Acquisition of Jerritt
Canyon (Note 4)
Transfer to depletable
properties
At December 31, 2021
Exploration and
evaluation expenditures
Change in
decommissioning
liabilities
Impairment (Note 15)
Reversal of impairment
(Note 15)
Disposal of royalty
portfolio (Note 15)
Transfer to asset held-
for-sale (Note 15)
Transfer to depletable
properties
San Dimas(a) Santa Elena(b) La Encantada
Jerritt
Canyon(c)
Non-
producing
Properties(1)
Exploration
Projects(2)
Springpole
Stream(d)
Total
$17,179
$33,951
$2,955
$—
$37,004
$22,099
$4,356
$117,545
12,007
31,418
2,978
12,424
1,748
985
7,500
69,060
—
—
—
$29,186
—
—
—
—
(34,302)
$31,067
(1,293)
$4,640
—
92,007
—
—
—
—
(136)
—
—
—
—
—
(136)
92,007
(35,595)
$104,431
$38,752
$22,948
$11,856
$242,881
9,645
10,664
2,393
19,752
771
694
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,098)
$4,935
(30,503)
$93,680
—
(2,132)
1,044
(15,485)
(9,169)
—
(153)
—
—
—
—
—
—
—
—
—
—
—
43,919
(153)
(2,132)
1,044
(15,485)
(9,169)
(32,601)
At December 31, 2022
$38,831
$41,731
$13,781
$23,489
$11,856
$228,304
(1) Non-producing properties include the San Martin, Del Toro, La Parrilla and La Guitarra mines. The net book value of non-depletable mining interest for La Guitarra and La Parrilla that have been
classified as assets held-for-sale are $3.9 million and $5.3 million, respectively.
(2) Exploration projects include the La Luz, La Joya, Los Amoles, Jalisco Group of Properties and Jimenez del Tuel projects.
(a) San Dimas Silver/Gold Mine, Durango State, Mexico
The San Dimas Mine is subject to a gold and silver streaming agreement with WPMI which entitles WPMI 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 as at December 31, 2022 was 70:1.
(b) Santa Elena Silver/Gold Mine, Sonora State, Mexico
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 of the Santa Elena mine 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.
The Santa Elena mine has a net smelter royalty (“NSR”) agreement with Orogen Royalties Inc. that requires a 2% NSR from the production of the
Ermitaño property. In addition, there is an underlying NSR royalty where Osisko Gold Royalties Ltd. retains a 2% NSR from the sale of mineral products
extracted from the Ermitaño property. During the year ended December 31, 2022, the Company has incurred $5.8 million (December 31, 2021 - $1
million) in NSR payments from the production of Ermitaño.
(c) Jerritt Canyon Gold Mine, Nevada, United States
The Jerritt Canyon Mine is subject to a 0.75% NSR royalty on production of gold and silver from the Jerritt Canyon mines and processing plant.
The royalty is applied, at a fixed rate of 0.75%, against proceeds from gold and silver products after deducting treatment, refining, transportation,
insurance, taxes and levies charges.
The Jerritt Canyon Mine is also subject to a 2.5% to 5% NSR royalty relating to the production of gold and silver within specific boundary lines at
certain mining areas. The royalty is applied, at a fixed rate of 2.5% to 5.0%, against proceeds from gold and silver products.
As at December 31, 2022, total NSR royalty accrual outstanding was $0.8 million (2021 - $0.1 million).
67
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 16. MINING INTERESTS (continued)
(d) Springpole Silver Stream, Ontario, Canada
In July 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. 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, which has not yet been received.
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 option pricing 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.
First Mining is a related party with two independent board members who are also directors and/or officers of First Majestic.
68
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 17. 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, 2020
Additions
Acquisition of Jerritt Canyon (Note 4)
Transfers and disposals
At December 31, 2021
Additions
Reclassification to asset held-for-sale (Note 15)
Transfers and disposals
At December 31, 2022
Land and
Buildings(1)
Machinery and
Equipment
Assets under
Construction(2)(3)
Other
Total
$199,329
$468,624
$55,669
$28,651
$752,273
34
32,992
12,602
2,974
137,219
15,645
$244,957
$624,462
—
(30,903)
23,192
5,038
(82,275)
47,783
$237,246
$595,008
77,151
4,337
(46,706)
$90,451
64,088
(176)
(80,436)
$73,927
341
1,179
3,412
$33,583
507
(2,111)
4,772
80,500
175,727
(15,047)
$993,453
69,633
(115,465)
(4,689)
$36,751
$942,932
Accumulated depreciation, amortization and impairment reversal
At December 31, 2020
Depreciation and amortization
Transfers and disposals
Loss on disposal of equipment
At December 31, 2021
Depreciation and amortization
Impairment (Note 15)
Impairment reversal (Note 15)
Reclassification to asset held-for-sale (Note 15)
Transfers and disposals
At December 31, 2022
Carrying values
At December 31, 2021
At December 31, 2022
($133,156)
($343,379)
(13,923)
(33,137)
—
—
1,637
—
($147,079)
($374,879)
(12,016)
(1,742)
3,076
20,774
—
(40,419)
—
—
80,964
3,606
$—
—
—
—
$—
—
—
—
—
—
($17,518)
($494,053)
(2,899)
240
(2,081)
(49,959)
1,877
(2,081)
($22,258)
($544,216)
(3,793)
—
—
1,902
267
(56,228)
(1,742)
3,076
103,640
3,873
($136,987)
($330,728)
$—
($23,882)
($491,597)
$97,878
$100,259
$249,583
$264,280
$90,451
$73,927
$11,325
$12,869
$449,237
$451,335
(1) Included in land and buildings is $11.2 million (2021 - $11.2 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, the Santa Elena dual circuit project, plant improvements, other
mine infrastructures and equipment overhauls.
(3) Transfers and disposals in construction in progress during 2021 includes the sale of the AG mill and certain mill equipment to Condor Gold PLC and Capstone Mining Corp. as disclosed in Note 10.
69
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
17. PROPERTY, PLANT AND EQUIPMENT (continued)
Property, plant and equipment, including land and buildings, machinery and equipment, assets under construction and other assets above are allocated
by mine as follow:
San Dimas
Santa Elena
La Encantada Jerritt Canyon
Non-producing
Properties(1)
Other
Total
Cost
At December 31, 2020
$146,728
Additions
Acquisition of Jerritt Canyon
(Note 4)
Transfers and disposals
9,484
—
2,316
$97,331
19,885
—
5,381
$143,510
$—
$293,761
5,831
—
1,377
17,366
175,727
229
—
$70,943
27,705
—
$752,273
80,500
175,727
(15,047)
(8)
(8,184)
(15,929)
At December 31, 2021
$158,528
$122,597
$150,718
$193,085
$285,806
Additions(2)
Reclassification to asset held-
for-sale (Note 15)
Transfers and disposals
6,985
—
(717)
13,093
—
31,852
5,325
—
1,880
16,297
98
$82,719
27,835
$993,453
69,633
—
367
(115,465)
—
(115,465)
(5,421)
(32,650)
(4,689)
At December 31, 2022
$164,796
$167,542
$157,923
$209,749
$165,018
$77,904
$942,932
Accumulated depreciation, amortization and impairment
At December 31, 2020
($34,623)
($48,086)
($126,955)
$—
($263,873)
($20,516)
($494,053)
Depreciation and amortization
Transfers and disposals
Write-down on assets held-
for-sale
(17,801)
(631)
—
(6,997)
(2,671)
—
(2,259)
(824)
—
(20,228)
—
—
(266)
5,513
—
(2,408)
490
(2,081)
(49,959)
1,877
(2,081)
At December 31, 2021
($53,055)
($57,754)
($130,038)
($20,228)
($258,626)
($24,515)
($544,216)
Depreciation and amortization
(17,554)
(10,058)
(2,809)
(22,747)
Impairment (Note 15)
Impairment reversal (Note 15)
Reclassification to asset held-
for-sale (Note 15)
Transfers and disposals
—
—
—
190
—
—
—
—
—
—
249
(654)
—
—
—
4
(222)
(1,742)
3,076
103,640
7,051
(2,838)
(56,228)
—
—
—
(2,967)
(1,742)
3,076
103,640
3,873
At December 31, 2022
($70,419)
($67,563)
($133,501)
($42,971)
($146,823)
($30,320)
($491,597)
Carrying values
At December 31, 2021
At December 31, 2022
$105,473
$94,377
$64,843
$99,979
$20,680
$24,422
$172,857
$166,778
$27,180
$18,195
$58,204
$47,584
$449,237
$451,335
(1) Non-producing properties include the San Martin, Del Toro, La Parrilla and La Guitarra mines. The net book value of of PPE for La Guitarra and La Parrilla classified as assets held-for-sale are $4.0
million and $7.8 million, respectively.
(2) Additions classified in “Other” primarily consist of innovation projects and construction-in-progress.
70
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
18. 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 assets are 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, 2020
Additions
Remeasurements
Depreciation and amortization
Disposals
At December 31, 2021
Additions
Remeasurements
Depreciation and amortization
Transfer to asset held-for-sale (Note 15)
At December 31, 2022
19. RESTRICTED CASH
Restricted cash is comprised of the following:
Escrowed Funds for the acquisition of Jerritt Canyon
Current Restricted Cash
Nevada Division of Environmental Protection(1)
Chartis Commutation Account(2)
SAT Primero tax dispute(3)
Non-Current Restricted Cash
Total Restricted Cash
Land
and Buildings
Machinery
and Equipment
Other
$8,087
1,294
363
(1,325)
(117)
$8,302
1,786
578
(1,608)
(634)
$8,424
$6,234
17,560
1,668
(4,520)
(23)
$20,921
1,514
2,239
(6,431)
(27)
$18,216
$8
—
—
(7)
—
$2
14
(2)
(5)
—
$9
Total
$14,330
18,854
2,031
(5,851)
(139)
$29,225
3,314
2,815
(8,044)
(661)
$26,649
December 31,
2022
December 31,
2021
$—
$—
$17,702
28,365
79,126
$12,570
$12,570
$39,727
27,275
48,010
$125,193
$115,012
$125,193
$127,582
(1) During the second quarter of 2022, cash bonds held with the Nevada Division of Environmental Protection (“NDEP”) and the US Forestry Service (“USFS”) were replaced with surety bonds to fund ongoing
reclamation and mine closure obligations, with a $5 million letter of credit provided as collateral for these bonds (Note 21). These funds were previously classified as non-current restricted cash until returned
to the Company by the NDEP and USFS. During the third quarter of 2022, the NDEP and USFS have returned the cash bonds totaling $44.1 million and these amounts have been re-classified to cash and cash
equivalents as at December 31, 2022. Additionally, on November 2, 2021, the Company executed an agreement with the NDEP relating to funds required to establish a trust agreement to cover post-closure
water treatment cost at Jerritt Canyon. During the year, the Company funded $17.7 million into a trust; these amounts are included within non-current restricted cash as at December 31, 2022.
(2) The Company owns an environmental risk transfer program (the “ERTP”) for Jerritt Canyon from American Insurance Group (“AIG”). As part of the ERTP, $28.4 million is on deposit in an interest-bearing
account with AIG (the “Commutation Account”). The Commutation Account principal plus interest earned on the principal is used to fund ongoing reclamation and mine closure obligations. The Company
can elect to extinguish all rights under the policy, which would release AIG from reclamation cost and financial assurance liabilities, and substitute with replacement bonds. AIG would pay Jerritt Canyon
the remaining balance in the Commutation Account.
(3) In connection with the dispute between Primero Empresa Minera, S.A. de C.V. (“PEM”) and the Servicio de Admistracion Tributaria (“SAT”) in relation to the advanced pricing agreement (Note 28), the
tax authority has frozen a PEM bank account with funds of $79.1 million (1,532 million MXN) as a guarantee against certain disputed tax assessments. This balance consists of Value Added Tax (“VAT”)
refunds that the Company has received which were previously withheld by the tax authority. The Company does not agree with SAT’s position and has challenged it through the relevant legal channels.
71
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
20. 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
Estimated Triggered Tax Adjustment and Working Capital Adjustment payable, net (Note 4)
NSR royalty liabilities (Notes 16(b)(c))
Environmental duty and net mineral sales proceeds tax
Other accrued liabilities
December 31,
2022
December 31,
2021
$40,782
30,312
31,797
—
1,518
3,570
7,141
$41,827
30,621
28,162
12,570
1,147
3,281
3,058
$115,120
$120,666
21. DEBT FACILITIES
The movement in debt facilities during the year ended December 31, 2022 and year ended December 31, 2021, respectively, are comprised of the following:
Balance at December 31, 2020
Gross proceeds from debt financing
Portion allocated to equity reserves from debt financing
Finance costs
Interest expense
Accretion
Proceeds from drawdown of revolving credit facility
Repayments of principal
Conversion of senior convertible notes to common shares
Transaction costs
Payments of finance costs
Balance at December 31, 2021
Finance costs
Interest expense
Accretion
Proceeds from drawdown of revolving credit facility
Repayments of principal
Payments of finance costs
Balance at December 31, 2022
Statements of Financial Position Presentation
Current portion of debt facilities
Non-current portion of debt facilities
Balance at December 31, 2021
Current portion of debt facilities
Non-current portion of debt facilities
Balance at December 31, 2022
72
Convertible
Debentures
(a)
Revolving
Credit Facility
(b)
$142,825
$230,000
(42,340)
2,846
6,809
—
(125,576)
(23,230)
(7,224)
(2,932)
$181,178
896
8,673
—
—
(505)
$9,883
$—
—
537
349
30,000
(40,000)
—
(101)
(612)
$56
1,241
—
50,000
(30,000)
(1,177)
Total
$152,708
$230,000
(42,340)
3,383
7,158
30,000
(165,576)
(23,230)
(7,325)
(3,544)
$181,234
2,137
8,673
50,000
(30,000)
(1,682)
$190,242
$20,120
$210,362
$69
181,108
$181,178
$431
189,811
$190,242
$56
—
$56
$120
20,000
$20,120
$125
181,108
$181,234
$551
209,811
$210,362
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
(a) Convertible Debentures
Senior Convertible Debentures
On December 2, 2021, the Company issued $230 million of unsecured senior convertible debentures (the “Notes”). The Company received net proceeds
of $222.8 million after transaction costs of $7.2 million. The Notes mature on January 15, 2027 and bear an interest rate of 0.375% per annum, payable
semi-annually in arrears in January and July of each year.
The Notes are convertible into common shares of the Company at any time prior to maturity at a conversion rate of 60.3865 common shares per $1,000
principal amount of Notes converted, representing an initial conversion price of $16.56 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 January 20, 2025 except in the event of certain changes in Canadian tax law. At any time on or after January
20, 2025 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 in effect on each such trading day. 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 $222.8 million from the Notes were allocated into its debt and equity components. The fair value of the debt portion
was estimated at $180.4 million using a discounted cash flow model method with an expected life of five years and a discount rate of 4.75%. This amount
is recorded as a financial liability on an amortized cost basis using the effective interest method using an effective interest rate of 5.09% 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 $42.3 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 $11.4 million related to taxable temporary difference arising from the equity portion of the convertible debenture was recognized in equity reserves.
Transaction costs of $7.2 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.
A portion of the Notes proceeds received were used to redeem 125,231 of the 2018 Senior Convertible Notes (“Existing Notes”) for total costs of $164.9
million. The total proceeds were allocated to the carrying value of the debt by $118.9 million and $41.8 million to equity reserves of these Existing Notes,
resulting with a loss on the settlement of debt of $4.6 million. 24,219 of the remaining Existing Notes were converted to common shares by note holders at
an adjusted conversion rate of 106.0528 common shares per $1,000 face value note, where $23.2 million were allocated to the carrying value of the debt
and $4.1 million were transferred to share capital from equity reserves. Finally, 6,950 of the remaining notes were settled at par value with a payment
in cash of $6.95 million; the cash paid was allocated to the carrying value of the debt by $6.6 million and $0.2 million to equity reserves. At December 31,
2022, the Existing Notes have been fully settled, with a remaining carrying value of $nil.
(b) Revolving Credit Facility
On March 31, 2022, the Company amended its senior secured revolving credit facility (the “Revolving Credit Facility”) with the Bank of Nova Scotia, Bank of
Montreal and Toronto Dominion Bank (“syndicate”) by extending the maturity date from November 30, 2022 to March 31, 2025 and increasing the credit limit
from $50.0 million to $100.0 million. Interest on the drawn balance will accrue at the Secured Overnight Financing Rate (“SOFR”) plus an applicable range
of 2.25% to 3.5% per annum while the undrawn portion is subject to a standby fee with an applicable range of 0.563% to 0.875% per annum, dependent on
certain financial parameters of First Majestic. As at December 31, 2022, the applicable rates were 2.25% and 0.56250% per annum, 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 net indebtedness to rolling four quarters adjusted EBITDA of not more than 3.00 to 1.00; and (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. The debt facilities also provide for negative
covenants customary for these types of facilities and allows the Company to enter into finance leases, excluding any leases that would have been
classified as operating leases in effect immediately prior to the implementation of IFRS 16 - Leases, of up to $50.0 million. As at December 31, 2022 and
December 31, 2021, the Company was in compliance with these covenants.
During the year ended December 31, 2022, the Company replaced cash bonds held with the NDEP and USFS with surety bonds to fund ongoing reclamation
and mine closure obligations (Note 19). The Company has provided the bond issuer with a $5 million letter of credit using the Revolving Credit Facility as
collateral for these bonds. As at December 31, 2022 the undrawn portion of the Revolving Credit Facility totals $75.0 million (December 2021- nil).
73
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 22. 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 years ended December 31, 2022 and December 31, 2021 are comprised of the following:
Balance at December 31, 2020
Acquisition of Jerritt Canyon
Additions
Remeasurements
Disposals
Finance costs
Repayments of principal
Payments of finance costs
Foreign exchange gain
Balance at December 31, 2021
Additions
Remeasurements
Finance costs
Repayment of principals
Repayments of finance costs
Transfer to asset held-for-sale (Note 15)
Foreign Exchange
Balance at December 31, 2022
Statements of Financial Position Presentation
Current portion of lease liabilities
Non-current portion of lease liabilities
Balance at December 31, 2021
Current portion of lease liabilities
Non-current portion of lease liabilities
Balance at December 31, 2022
(a) Operating leases
Operating
Leases(a)
$19,986
Equipment
Financing(b)
$589
Finance Leases
$—
2,194
4,001
—
—
89
(942)
(89)
—
$5,253
3,109
—
237
(2,446)
(210)
—
—
—
18,854
2,031
(150)
1,915
(7,824)
—
(268)
$34,544
3,314
2,815
1,894
(10,959)
—
(458)
490
$5,943
$31,640
$2,165
3,088
$5,253
$2,801
3,142
$5,943
$9,596
24,948
$34,544
$11,026
20,614
$31,640
Total
$20,575
2,194
22,855
2,031
(150)
2,013
(9,287)
(102)
(268)
$39,861
6,423
2,815
2,131
(13,469)
(210)
(458)
490
$37,583
$11,825
28,036
$39,861
$13,827
23,756
$37,583
—
—
—
—
9
(521)
(13)
—
$64
—
—
—
(64)
—
—
—
$—
$64
—
$64
$—
—
$—
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 2.5% to 11.2% per annum.
74
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) During the year ended December 31, 2022 and 2021, 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
(b) Equipment financing
Year Ended
December 31,
2022
Year Ended
December 31,
2021
$132,101
$109,565
35,913
760
41,283
5
$168,774
$150,853
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 of
December 31, 2022 and December 31, 2021, the Company was in compliance with these covenants.
As at December 31, 2022, the net book value of property, plant and equipment includes $nil (December 31, 2021 - $2.0 million) equipment pledged as
security for the equipment financing.
23. 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,
2022 and 2021 are allocated as follows:
Balance at December 31, 2020
Movements during the year:
Acquisition of Jerritt Canyon
Change in rehabilitation provision
Reclamation costs incurred
Interest or accretion expense
Foreign exchange loss
San Dimas
Santa Elena
La Encantada Jerritt Canyon
Non-Operating
Properties(1)
Total
$14,059
$6,150
$10,223
$—
$21,039
$51,471
—
1,209
—
715
(454)
—
2,177
—
313
(199)
—
584
—
521
(333)
71,135
28,799
(186)
642
—
—
(2,759)
(420)
1,037
(645)
71,135
30,010
(606)
3,228
(1,631)
Balance at December 31, 2021
$15,529
$8,441
$10,995
$100,390
$18,252
$153,607
Movements during the year:
Transfer to liability held-for-sale
(Note 15)
Change in rehabilitation provision
Reclamation costs incurred
Interest or accretion expense
Foreign exchange gain
—
(1,800)
—
1,190
504
—
1,518
(31)
650
261
—
(879)
—
848
342
—
1,240
(2,704)
2,053
—
(7,118)
(2,488)
(223)
1,361
686
(7,118)
(2,409)
(2,958)
6,102
1,793
Balance at December 31, 2022
$15,423
$10,839
$11,306
$100,979
$10,470
$149,017
(1) Non-operating properties include the San Martin, Del Toro, La Parrilla and La Guitarra mines, along with the La Luz project. The net book value of decommissioning liabilities for La Guitarra and La Parrilla
that have been classified as assets held-for-sale are $3.0 million and $4.2 million, respectively.
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 used
is 9.5% (2021 - 7.4% to 7.5%), while the inflation rate used is based on long-term expected inflation rate of 3.7% (2021 - 4.2%).
At the Jerritt Canyon Gold Mine, the discount rate used is 3.8% (2021 - 1.5% to 1.6%), while the inflation rate is based on the long-term expected inflation
rate of 2.8% in the U.S (2021 - 2.15%).
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.
75
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 23. DECOMMISSIONING LIABILITIES (continued)
At December 31, 2022, the reclamation and closure cost obligation for the Jerritt Canyon Gold Mine totaled $101.0 million. This obligation is secured
through long-term restricted cash of $28.4 million, and a surety bond held with the NDEP and the USFS, with a $5 million letter of credit as collateral for
these bonds, to support various reclamation obligation bonding requirements (Note 19(b)).
Additionally, on November 2, 2021, the Company executed an agreement with the NDEP relating to funds required to establish a trust agreement to cover
post-closure water treatment cost at Jerritt Canyon. The estimated costs are $17.6 million which are included in the decommissioning liabilities provision
and were funded into a trust on October 31, 2022.
24. 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, 2022 and 2021:
Year Ended December 31,
(Loss) earnings before tax
Combined statutory tax rate
Income tax (recovery) expense 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
Value of losses forgone due to tax settlement
Tax settlement
Other
Income tax expense
Statements of Earnings Presentation
Current income tax expense
Deferred income tax recovery
Income tax expense
Effective tax rate
As at December 31, 2022 and 2021, the Company has the following income tax payable balances:
Current income tax payable
Non-current income tax payable
76
2022
($61,404)
27%
(16,579)
1,052
(20,238)
2,097
11,345
16,941
(18,015)
(2,127)
—
55,657
24,033
(1,294)
$52,872
$56,250
(3,378)
$52,872
(86%)
2021
$25,250
27%
6,818
4,962
(1,419)
14,100
13,389
15,491
(13,504)
(945)
102
—
—
(8,821)
$30,173
$49,283
(19,110)
$30,173
119%
Year Ended December 31,
2022
$18,240
20,605
$38,845
2021
$27,980
21,812
$49,792
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
During the years ended December 31, 2022 and 2021, the movement in deferred tax assets and deferred tax liabilities is shown as follows:
Deferred tax assets
At December 31, 2020
Benefit (expense) to statement of earnings
Acquired from Jerritt Canyon
At December 31, 2021
Losses
Provisions
$147,799
29,196
10,275
$25,276
16,467
—
Deferred
tax asset not
recognized
($88,716)
(12,891)
—
Other
$9,301
4,667
2,801
Total
$93,660
37,439
13,076
$187,270
$41,743
($101,607)
$16,769
$144,175
(Expense) benefit to statement of earnings
(5,451)
3,217
(5,449)
Charge to equity
Re-class to liabilities held-for-sale
(34,189)
(2,283)
36,340
1,082
(1,458)
(399)
(6,601)
(1,458)
(531)
At December 31, 2022
$147,630
$42,677
($70,716)
$15,994
$135,585
Deferred tax liabilities
At December 31, 2020
Expense to statement of earnings
Reclassed to current income taxes payable
Acquired from Jerritt Canyon
Benefit to equity
Translation and other
At December 31, 2021
Benefit to statement of earnings
Reclassed to current income taxes payable
Translation and other
Re-class to liabilities held-for-sale
At December 31, 2022
Statements of Financial Position Presentation
Deferred tax assets
Deferred tax liabilities
At December 31, 2021
Deferred tax assets
Deferred tax liabilities
At December 31, 2022
Property, plant
and equipment
and mining
interests
Effect of
Mexican tax
deconsolidation
$56,884
12,186
—
123,578
—
—
$192,648
(4,884)
—
—
(8,773)
$178,991
$2,071
84
(1,549)
—
—
—
$606
—
(606)
—
—
$—
Other
$13,790
6,059
—
—
9,843
(2,192)
Total
$72,745
18,329
(1,549)
123,578
9,843
(2,192)
$27,500
$220,754
(5,095)
—
(393)
(12)
(9,979)
(606)
(393)
(8,785)
$22,000
$200,991
$74,257
150,836
$76,579
$57,062
122,468
$65,406
At December 31, 2022, the Company recognized $57.1 million (2021 - $74.3 million) of net deferred tax assets in entities that have had a loss for tax
purposes in either 2022 or 2021, 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, 2022 was $187.2 million (2021 - $334.0 million).
77
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 24. INCOME TAXES (continued)
Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been recognized are attributable to
the following:
Non-capital losses
Capital losses
Accrued expenses
Mineral properties, plant and equipment
Other
Year Ended December 31,
2022
2021
$277,067
$239,175
26,592
888
45,264
30,769
10,619
78,754
44,300
17,578
$380,580
$390,426
As at December 31, 2022 and 2021, the Company has available Canadian, US and Mexican non-capital tax losses, which if not utilized will expire as follows:
Year of expiry
Canadian
non-capital losses
US
non-capital losses
Mexican
non-capital losses
December 31, 2022
December 31, 2021
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032 and after
No expiry
Total
Unrecognized losses
25. SHARE CAPITAL
(a) Authorized and issued capital
$—
$—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
19,954
—
$19,954
$19,954
14,334
161,662
$175,996
$—
$2,298
31,322
21,785
4,158
12,739
49,174
82,358
74,040
73,648
80,114
—
$431,636
$257,113
$2,298
31,322
21,785
4,158
12,739
49,174
82,358
74,040
73,648
114,402
161,662
$627,586
$277,067
$2,052
37,355
41,286
108,513
11,579
55,852
75,381
153,152
57,889
25,447
66,578
$635,084
$254,293
The Company has unlimited authorized common shares with no par value.
The movement in the Company’s issued and outstanding capital during the periods is summarized in the consolidated statements of changes in equity.
ATM program(1)
Year Ended December 31, 2022
Year Ended December 31, 2021
Number of
Shares
11,869,145
11,869,145
Net Proceeds
$113,395
$113,395
Number of
Shares
4,225,000
4,225,000
Net Proceeds
$ 66,674
$ 66,674
(1) In May 2021, 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 $100.0 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, 2022, the Company completed $100 million of the May 2021 ATM program.
In July 2022, 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 $100.0 million through this ATM program. During the year ended December 31, 2022, the Company sold 11,869,145 (2021 - 4,225,000) common shares of the
Company under the ATM program at an average price of $9.8 per common share (2021 - $16.24) for gross proceeds of $116.3 million (2021 - $68.6 million), or net proceeds of $113.4 million (2021 - $66.7
million) after costs. At December 31, 2022, the Company incurred $2.9 million (2021- $1.9 million) in transaction costs in relation to the ATM.
78
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
(b) Stock options
On May 26, 2022, a new Long-Term Incentive Plan was adopted (“LTIP”). Under the terms of the Company’s LTIP, the maximum number of shares reserved
for issuance under the LTIP is 6% of the issued shares on a rolling basis. Options may be exercisable over periods of up to ten years as determined by
the Board of Directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date,
subject to regulatory approval. All stock options granted are subject to vesting with 25% vesting on first anniversary from the date of grant, and 25%
vesting each six months thereafter. Any options granted prior to May 26, 2022 will be governed by the 2017 Option Plan and the 2019 Long-Term Incentive
Plans, respectively (“2017 Plan” and “2019 LTIP”).
The following table summarizes information about stock options outstanding as at December 31, 2022:
Exercise prices (CAD$)
5.01 - 10.00
10.01 - 15.00
15.01 - 20.00
20.01 - 250.00
Options Outstanding
Options Exercisable
Weighted
Average
Exercise Price
(CAD $/Share)
Weighted
Average
Remaining Life
(Years)
8.70
13.03
16.36
21.46
13.19
6.12
8.87
7.79
8.40
7.92
Number of
Options
1,903,045
3,489,921
1,265,840
616,938
7,275,744
Weighted
Average
Exercise Price
(CAD $/Share)
Weighted
Average
Remaining Life
(Years)
8.63
13.72
16.14
21.44
12.38
5.84
7.31
7.12
8.40
6.66
Number of
Options
1,648,045
825,296
648,524
291,622
3,413,487
The movements in stock options issued for the year ended December 31, 2022 and year ended December 31, 2021 are summarized as follows:
Balance, beginning of the period
Granted
Exercised
Cancelled or expired
Balance, end of the period
Year Ended
December 31, 2022
Year Ended
December 31, 2021
Weighted
Average
Exercise Price
(CAD $/Share)
13.29
12.96
9.76
15.44
13.19
Number of
Options
5,638,383
3,107,500
(609,623)
(860,516)
7,275,744
Weighted
Average
Exercise Price
(CAD $/Share)
12.07
18.98
10.87
29.45
13.29
Number of
Options
7,074,092
1,400,000
(2,502,234)
(333,475)
5,638,383
During the year ended December 31, 2022, the aggregate fair value of stock options granted was $14.7 million (December 31, 2021 - $9.9 million), or a
weighted average fair value of $4.73 per stock option granted (December 31, 2021 - $7.04).
During the year ended December 31, 2022, total share-based payments expense related to stock options was $9.0 million (December 31, 2021 - $8.8 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
Year Ended
December 31, 2022
Year Ended
December 31, 2021
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
2.16
5.91
49.00
1.64%
1.04
5.93
49.00
0.10%
The weighted average closing share price at date of exercise for the year ended December 31, 2022 was CAD$14.70 (December 31, 2021 - CAD$18.94).
79
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
25. SHARE CAPITAL(continued)
(c) Restricted Share units
On May 26, 2022, a new LTIP was adopted. The Company adopted the LTIP to allow the Company to grant to its directors, employees and consultants non-
transferable Restricted Share Units (“RSU’s”) based on the value of the Company’s share price at the date of grant. Unless otherwise stated, the awards
typically have a graded vesting schedule over a three-year period and can be settled either in cash or equity upon vesting at the discretion of the Company.
The Company intends to settle all RSU’s in equity. Any RSU’s granted prior to May 26, 2022 will be governed by the 2019 LTIP.
The associated compensation cost is recorded as share-based payments expense against equity reserves.
The following table summarizes the changes in RSU’s for the year ended December 31, 2022 and the year ended December 31, 2021:
Outstanding, beginning of the period
Granted
Settled
Forfeited
Outstanding, end of the period
Year Ended December 31, 2022
Year Ended December 31, 2021
Number of
shares
400,549
498,740
(159,016)
(87,934)
652,339
Weighted
Average
Fair Value
(CAD$)
16.77
13.18
16.57
14.74
14.35
Number of
shares
184,483
312,991
(69,504)
(27,421)
400,549
Weighted
Average
Fair Value
(CAD$)
15.66
17.19
15.79
16.56
16.77
During the year ended December 31, 2022, total share-based payments expense related to RSU’s was $2.9 million (December 31, 2021 - $1.9 million).
(d) Performance Share Units
On May 26, 2022, a new LTIP was adopted. The Company adopted the LTIP to allow the Company to grant to its directors, employees and consultants non-
transferable Performance Share Units (“PSU’s”). The amount of units to be issued on the vesting date will vary from 0% to 200% of the number of PSU’s
granted, depending on the Company’s total shareholder return compared to the return of a selected group of peer companies. Unless otherwise stated,
the awards typically vest three years from the grant date. The fair value of a PSU is based on the value of the Company’s share price at the date of grant
and will be adjusted based on actual units issued on the vesting date. The Company intends to settle all PSU’s in equity. Any PSU’s granted prior to May
26, 2022 will be governed by the 2019 LTIP.
The following table summarizes the changes in PSU’s granted to employees and consultants for the year ended December 31, 2022 and the year ended
December 31, 2021:
Outstanding, beginning of the period
Granted
Forfeited
Outstanding, end of the period
Year Ended December 31, 2022
Year Ended December 31, 2021
Number of
shares
275,516
268,955
(69,817)
474,654
Weighted
Average
Fair Value
(CAD$)
16.58
13.21
15.55
14.82
Number of
shares
109,035
184,050
(17,569)
275,516
Weighted
Average
Fair Value
(CAD$)
15.62
17.15
16.56
16.58
During the year ended December 31, 2022, total share-based payments expense related to PSU’s was $1.5 million (year ended December 31, 2021 - $1.2 million).
(e) Deferred Share Units
The Company adopted the 2019 LTIP to allow the Company to grant to its directors, employees and consultants non-transferrable Deferred Share Units
(“DSU’s”), in addition to options, RSU’s and PSU’s. Unless otherwise stated, the DSU awards typically vest immediately at the grant date. The fair value
of a DSU is based on the value of the Company’s share price at the date of grant. The Company intends to settle all DSU’s under the 2019 LTIP in equity.
On March 23, 2022, a new DSU plan was adopted (“2022 DSU Plan”). All DSU’s issued under the 2022 DSU Plan will be settled in cash. There were two
grants made during the year ended December 31, 2022 resulting with a total expense of $0.1 million.
80
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) (e) Deferred Share Units (continued)
The following table summarizes the changes in DSU’s granted to directors for the year ended December 31, 2022 and the year ended December 31, 2021:
Outstanding, beginning of the year
Granted
Settled
Outstanding, end of the year
Year Ended December 31, 2022
Year Ended December 31, 2021
Number of
shares
25,185
37,312
(11,896)
50,601
Weighted
Average
Fair Value
(CAD$)
18.31
14.07
15.55
15.83
Number of
shares
—
31,040
(5,855)
25,185
Weighted
Average
Fair Value
(CAD$)
—
18.08
17.08
18.31
During the year ended December 31, 2022, total share-based payments expense related to DSU’s was $0.3 million (year ended December 31, 2021 - $0.4
million).
(f) Share Repurchase Program and Share Cancellation
The Company has an ongoing share repurchase program to repurchase up to 10,000,000 of the Company’s issued and outstanding shares. The normal
course issuer bid will be carried out through the facilities of the Toronto Stock Exchange and alternative Canadian marketplaces. All common shares,
if any, purchased pursuant to the Share Repurchase will be cancelled. The Company believes that from time to time, the market price of its common
shares may not fully reflect the underlying value of the Company’s business and its future business prospects. The Company believes that at such times,
the purchase of common share would be in the best interest of the Company. During the year ended December 31, 2022, the Company repurchased an
aggregate of 100,000 common shares at an average price of CDN $8.52 per share as part of the Share Repurchase Program (December 2021 - nil) for
total proceeds of $0.7 million, net of transaction costs.
During the year ended December 31, 2021, the Company cancelled 6,913 shares pursuant to section 4.4 of the plan of arrangement between Primero Mining
Corp. (“Primero”) and the Company with an effective date of May 10, 2018 that states that any former shareholder of Primero who does not surrender their
shares on the third anniversary of the effective date would cease the right to any of the Company’s shares and as such would automatically be cancelled.
(g) Dividends
The Company declared the following dividends during the year ended December 31, 2022:
Declaration Date
March 10, 2022
May 12, 2022
August 4, 2022
November 9, 2022
February 23, 2023(1)
Record Date
March 21, 2022
May 25, 2022
August 16, 2022
November 22, 2022
March 10, 2023
Dividend per Common Share
$0.0079
$0.0060
$0.0061
$0.0061
$0.0054
(1) These dividends were declared subsequent to the period end and have not been recognized as distributions to owners during the period presented.
26. 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.
81
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) 26. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)
There were no transfers between levels 1, 2 and 3 during the year ended December 31, 2022 and year ended December 31, 2021.
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
Marketable securities - common shares
Marketable securities - stock warrants
Silver futures derivatives
Marketable securities and silver future derivatives are valued based on
quoted market prices for identical assets in an active market (Level 1)
as at the date of statements of financial position. Marketable securities
- stock warrants are valued using the Black-Scholes model based on the
observable market inputs (Level 2).
Financial Instruments Measured at Amortized Cost
Valuation Method
Cash and cash equivalents
Restricted cash
Trade and other receivables
Trade and other payables
Debt facilities
Approximated carrying value due to their short-term nature
Approximated carrying value as discount rate on these instruments
approximate the Company’s credit risk.
The following table presents the Company’s fair value hierarchy for financial assets and financial liabilities that are measured at fair value:
December 31, 2022
December 31, 2021
Fair value measurement
Fair value measurement
Carrying
value
Level 1
Level 2
Carrying
value
Level 1
Level 2
Financial assets
Marketable securities (Note 14)
$34,528
$33,426
$1,102
$26,486
$22,531
$3,955
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.
In addition to the table above, during the period ended December 31, 2022, an impairment reversal and impairment was recorded for the La Guitarra and
La Parrilla mines, respectively, bringing the carrying value of the asset to its recoverable amount, being its FVLCD. The valuation technique used in the
calculation of this fair value is categorized as Level 2 as it is based on the implied selling price within the purchase agreement (Note 15).
(b) Capital risk management
The Company monitors its capital structure and, based on changes in operations and economic conditions, may adjust the structure by repurchasing
shares, issuing new shares, issuing new debt or retiring existing debt. The Company prepares annual budget and quarterly forecasts to facilitate the
management of its capital requirements. The annual budget is approved by the Company’s Board of Directors.
The 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,
2022
December 31,
2021
$1,411,298
$1,410,971
210,362
37,583
181,233
39,861
(151,438)
(237,926)
$1,507,805
$1,394,139
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
21(b)) and lease liabilities (Note 22(b)). As at December 31, 2022 and December 31, 2021, the Company was in compliance with these covenants.
82
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
(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, 2022, VAT receivable was $44.9 million (December 31, 2021 - $47.1 million), of which $21.6 million (December 31, 2021 - $22.2 million)
relates to Minera La Encantada S.A. de C.V. (“MLE”) and $17.7 million (December 31, 2021 - $22.0 million) relates to PEM.
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, 2022 based on the undiscounted contractual cash flows:
Trade and other payables
$115,120
$115,120
$115,120
Carrying
Amount
Contractual
Cash Flows
Less than
1 year
Debt facilities
Lease liabilities
Other liabilities
Commitments
210,362
254,838
37,583
41,896
5,655
1,355
6,956
1,355
1,847
13,966
—
1,355
2 to 3
years
$—
22,955
21,337
—
—
4 to 5
years
$—
230,036
5,668
—
—
After
5 years
$—
—
925
6,956
—
$370,075
$420,165
$132,288
$44,292
$235,704
$7,881
At December 31, 2022, the Company had working capital of $202.9 million (December 31, 2021 – $224.4 million). Total available liquidity at December 31,
2022 was $277.9 million (December 31, 2021 - $274.4 million), including $75.0 million of undrawn revolving credit facility (December 31, 2021 - $50.0 million).
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
Restricted
cash
Value
added taxes
receivable
Other financial
assets
Trade and
other payables
December 31, 2022
Net assets
(liabilities)
exposure
Effect of +/-
10% change in
currency
Canadian dollar
Mexican peso
$29,956
24,036
$—
$—
$3,365
79,126
41,152
—
($1,887)
(55,629)
$31,434
88,685
$3,143
8,869
$53,992
$79,126
$41,152
$3,365
($57,516)
$120,119
$12,012
83
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
26. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)
Currency Risk (continued)
The Company utilizes certain derivatives to manage its foreign exchange exposures to the Mexican Peso. During the year ended December 31, 2022, the
Company did not have any gain or loss (2021 - $nil) on fair value adjustments to its foreign currency derivatives. As at December 31, 2022, the Company
does not hold any foreign currency derivatives (2021 - $nil).
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 long-term derivative instruments to hedge its commodity price risk to silver or gold.
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, 2022
Effect of +/- 10% change in metal prices
Silver
$2,630
$2,630
Gold
$859
$859
Total
$3,489
$3,489
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, 2022, 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, 2022, a change of 100 basis points increase or decrease of market interest rate does not
have a significant impact on net earnings or loss.
84
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
27. SUPPLEMENTAL CASH FLOW INFORMATION
Other adjustments to investing activities:
Purchase of marketable securities
Proceeds from disposal of marketable securities
Cash received on settlement of silver futures
Net change in non-cash working capital items:
(Increase) in trade and other receivables
Decrease in value added taxes receivable
(Increase) in inventories
(Increase) in prepaid expenses and other
(Decrease) increase in income taxes payable
(Decrease) increase in trade and other payables
Decrease (increase) in restricted cash (Note 19)
Non-cash investing and financing activities:
Shares received from disposition of royalty portfolio
Disposition of mining claims in relation to sale of royalty portfolio
Acquisition of Jerritt Canyon
Transfer of share-based payments reserve upon settlement of RSU’s
Transfer of share-based payments reserve upon exercise of options
Acquisition of mining interests
Assets acquired by finance lease
Conversion to common shares upon settlement of the convertible note
Year Ended December 31,
2022
2021
($1,728)
($3,522)
2,739
4,007
$5,018
($870)
1,732
(3,447)
(316)
(4,426)
(22,748)
2,389
2,564
533
($425)
($3,386)
9,839
(8,956)
(903)
3,332
16,580
(48,010)
($27,686)
($31,504)
$21,507
(17,206)
—
1,897
2,208
—
(3,109)
$—
—
466,300
963
8,643
(3,750)
(4,001)
—
(23,230)
$5,297
$444,925
As at December 31, 2022, cash and cash equivalents include $1.4 million (December 31, 2021 - $6.4 million) that are held in-trust as bonds for tax audits
in Mexico.
28. 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.
(a) 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.
Each of these matters is subject to various uncertainties and it is possible that some of these other matters may be resolved in a manner that is
unfavourable to the Company which may result in a material adverse impact on the Company’s financial performance, cash flow or results of operations.
First Majestic carries liability insurance coverage and establishes provisions for matters that are probable and can be reasonably estimated, however
there can be no guarantee that the amount of such coverage is sufficient to protect against all potential liabilities. In addition, the Company may in the
future be subjected to regulatory investigations or other proceedings and 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.
(b) Primero Tax Rulings
When Primero, the previous owner of San Dimas acquired the San Dimas Mine in August 2010, it assumed the obligations under a Silver Purchase
Agreement (“Old Stream Agreement”) that required its subsidiary PEM to sell exclusively to Wheaton Precious Metals (“WPMI”) up to 6 million ounces
silver produced from the San Dimas Mine, and 50% of silver produced thereafter, at the lower of: (i) the spot market price and (ii) $4.014 per ounce plus
an annual increase of 1% (“PEM Realized Price”).
In order to reflect the commercial terms and the effects of the Old Stream Agreement, for Mexican income tax purposes, PEM recognized the revenue on
these silver sales based on the PEM Realized Price instead of at spot market prices.
FIRST MAJESTIC SILVER 2021 ANNUAL REPORT
8585
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
28. CONTINGENCIES AND OTHER MATTERS (continued)
(b) Primero Tax Rulings (continued)
To obtain tax and legal assurance that the SAT would accept the PEM Realized Price as the transfer price to calculate Mexican income taxes payable by
PEM, a mutually binding Advance Pricing Agreement (“APA”) was entered into with the SAT for taxation years 2010 to 2014. On October 4, 2012, the SAT
confirmed that based on the terms of the APA, the PEM Realized Price could be used as PEM’s basis for calculating taxes owed for the silver sold under
the Old Stream Agreement.
In February 2016, the SAT initiated a legal process seeking to retroactively nullify the APA.
In 2019, the SAT issued reassessments for the 2010 to 2012 tax years in the total amount of $253.4 million (4,919 million MXN) inclusive of interest,
inflation, and penalties. In 2021, the SAT also issued a reassessment against PEM for the 2013 tax year in the total amount of $139.7 million (2,723
million MXN) (collectively, the “Reassessments”). The Company believes that the Reassessments violate the terms of the APA. The major items in the
Reassessments include determination of revenue based on silver spot market prices, denial of the deductibility of interest expense and service fees, SAT
technical error related to double counting of taxes, and interest and penalties.
The Company continues to defend the APA in the Mexican legal proceedings, and also requested resolution of the transfer price dispute pursuant to the
Mutual Agreement Procedure (“MAP”), under the relevant avoidance of double taxation treaties, between the competent tax authorities of Mexico, Canada,
Luxembourg and Barbados. The SAT has refused to take the necessary steps under the MAP process contained in the three treaties. The Company believes
that by its refusal, Mexico is in breach of its international obligations regarding double taxation treaties. Furthermore, the Company continues to believe
that the APA remains valid and legally binding on the SAT.
The Company continues to pursue all available domestic and international remedies under the laws of Mexico and under the relevant tax treaties.
Furthermore, as discussed further below, it has also made claims against Mexico under Chapter 11 of the North American Free Trade Agreement
(“NAFTA”) for violation of its international law obligations.
Domestic Remedies
In September 2020, the Company was served with a decision of the Federal Court seeking 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 filed an appeal of the decision to the Mexican Circuit Courts on November 30, 2020. Since two writs of certiorari were filed before the
Mexican Supreme Court of Justice, on April 15, 2021, the Plenary of the Supreme Court i) admitted one of those writs, ii) requested the Circuit Court to send
the appeal file and iii) assigned such writ to the Second Chamber of the Supreme Court for issuing the corresponding decision. Both writs of certiorari
were withdrawn in December 2022. The challenge filed by the Company has been returned to the Mexican Circuit Courts and a decision may be issued
within the first quarter of 2023.
The Company, in addition to challenging the SAT’s actions in the Mexican courts, is also pursuing resolution of its dispute through Mexico’s Federal
Taxpayer Defense Attorney’s Office (known as “PRODECON”).
International Remedies
On March 2, 2021, the Company submitted a Request for Arbitration to the International Centre for Settlement of Investment Disputes (“ICSID”), on its own
behalf and on behalf of PEM, based on Chapter 11 of NAFTA. On March 31, 2021, the Notice of Registration of the Request for Arbitration was issued by
the ICSID Secretariat. Once the NAFTA Arbitration Panel (the “Tribunal”) was fully constituted on August 20, 2021 by the appointment of all three panel
members, the NAFTA Arbitration Proceedings (the “NAFTA Proceedings”) were deemed to have been fully commenced. The first session of the Tribunal
was held by videoconference on September 24, 2021 to decide upon the procedural rules which will govern the NAFTA Proceedings. The Tribunal issued
Procedural Order No. 1 on October 21, 2021. Thereafter, on April 26, 2022, the Company submitted its Claimant’s Memorial including expert reports and
witness statements to the Tribunal, and on November 26, 2022, Mexico submitted its Counter-Memorial.
If the SAT’s attempts to retroactively nullifying the APA are successful, the SAT can be expected to enforce its Reassessments for 2010 through 2014
against PEM in respect of its sales of silver pursuant to the Old Stream Agreement. Such an outcome 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 spot market prices without any mitigating adjustments, the incremental income tax for the years 2010-2019 would be approximately $257.3 million
(4,995 million MXN), before taking into consideration interest or penalties.
Based on the Company’s consultation with third party advisors, the Company believes PEM filed its tax returns in compliance with applicable Mexican law
and, therefore, at this time no liability has been recognized in the financial statements.
To the extent it is ultimately determined that the pricing for 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 materially adverse effect on the Company’s
business, financial position and results of operations.
86
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars) (c) 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. and Corporacion First Majestic S.A. de C.V.,
the SAT issued tax assessments for fiscal 2013 for corporate income tax in the amount of $4.9 million (95.5 million MXN) and $15.6 million (302 million
MXN), respectively including interest, inflation and penalties. In December 2022, the SAT issued tax assessments to Minera La Encantada, S.A. de C.V.
for fiscal years 2014 and 2015 for corporate income tax in the amount of $15.7 million (305.2 million MXN) and $204.4 million (3,968.0 million MXN).
The major 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.
(d) Corporación First Majestic and First Majestic Plata Back-to-Back Loans
In June 2022, following the completion of tax audits, conclusive agreements with the SAT were signed by Corporación First Majestic S.A. de C.V. (“CFM”)
and First Majestic Plata S.A. de C.V. (“FMP”) through Mexico’s Office of the Taxpayer Ombudsman (“PRODECON”) to settle an uncertain tax position
concerning Mexican back-to-back loan provisions. The provisions were originally conceived from an anti-avoidance rule and a literal interpretation of
the rules would convert most debt financing in Mexico into back-to-back loans. The back-to-back loan provisions establish that interest expense derived
from back-to-back loans can be recharacterized as dividends resulting in significant changes to the tax treatment of interest, including withholding taxes.
As a result of this recharacterization and in accordance with the conclusive agreement, CFM and FMP made one-time payments of approximately $21.3
million and $6.3 million in fiscal 2022 which have been recognized as current tax expense during the year. In addition to the payment made, CFM agreed
to surrender certain tax loss carry forwards resulting in a deferred tax expense of approximately $55.7 million.
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 $64.3 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. Although the Company is taking additional actions in Mexico and/or elsewhere to recover the balance, there can
be no guarantee that the remainder of the judgment amount will be collected. Therefore, as at December 31, 2022, the Company has not accrued any of
the remaining $64.3 million (CAD$81.5 million) unrecovered judgment in favour of the Company.
29. SUBSIDIARIES
The consolidated financial statements of the Company include the following significant subsidiaries as at December 31, 2022 and 2021 as follows:
Name of subsidiary
Operations and Projects
First Majestic Silver Corp.
Parent company and bullion sales
Corporación First Majestic, S.A. de C.V.
Holding company
Primero Empresa Minera, S.A de C.V.
Nusantara de Mexico, S.A. de C.V.
Minera La Encantada, S.A. de C.V.
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 Guitarra Compañia Minera, S.A. de C.V.
Majestic Services, S.A. de C.V.
Jerritt Canyon Canada Ltd.
Jerritt Canyon Gold LLC
FM Metal Trading (Barbados) Inc.
FMS Trading AG
San Dimas Silver/Gold Mine
Santa Elena Silver/Gold Mine
La Encantada Silver Mine
La Parrilla Silver Mine
San Martin Silver Mine
Del Toro Silver Mine
La Guitarra Silver Mine
Service company
Holding company
Location
Canada
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Canada
Jerritt Canyon Gold Mine
United States
Metals trading company
Metals trading company
Barbados
Switzerland
2022
% Ownership
2021
% 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%
100%
100%
100%
100%
87
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
30. 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
31. SUBSEQUENT EVENTS
Declaration of Quarterly Dividend
Year Ended December 31,
2022
2021
$837
4,983
713
4,059
$10,592
$868
3,790
769
3,661
$9,088
On February 23, 2023, the Company’s board of directors approved the declaration of its quarterly common share dividend of $0.0054 per share, payable
on or after March 24 2023, to common shareholders of record at the close of business on March 10, 2023. These dividends were declared subsequent to
the year-end and have not been recognized as distributions to owners during the year ended December 31, 2022.
At-the-Market Distributions (“ATM”) Program
On July 20, 2022, the Company entered into an equity distribution agreement and 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
$100.0 million. The sale of common shares is to be made through ATM distributions, as defined in Canadian Securities Administrator’s National Instrument
44-102 Shelf Distributions, directly on the New York Stock Exchange. Subsequent to year-end, the Company sold a total of 1,719,634 common shares
at an average price of $8.76 per share, for gross proceeds of $15.0 million. The Company completed distributions under the ATM on January 13, 2023.
88
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts are expressed in thousands of US dollars)
Management’s Discussion and Analysis
FOR THE YEAR AND QUARTER ENDED DECEMBER 31, 2022
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”) as at and for the year ended December 31, 2022 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 22, 2023 unless otherwise
stated.
COMPANY OVERVIEW
First Majestic is a multinational mining company headquartered in Vancouver, Canada, focused on primary silver and gold production in North America,
pursuing the exploration and development of its existing mineral properties and acquiring new assets. The Company owns one producing mine in the USA,
the Jerritt Canyon Gold Mine, three producing mines in Mexico: 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 in Mexico: the San Martin Silver Mine, the Del Toro Silver Mine, the La Parrilla Silver Mine and the
La Guitarra Silver/Gold Mine. The Company has entered into agreements to sell each of the La Guitarra and the La Parrilla mines. As at December 31,
2022, the La Guitarra and the La Parrilla mines were classified as assets held-for-sale.
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”.
NEVADA, USA
JERRITT CANYON GOLD MINE
IN PRODUCTION MEXICO
SANTA ELENA SILVER/GOLD MINE
LA ENCANTADA SILVER MINE
SAN DIMAS SILVER/GOLD MINE
PROJECTS MEXICO
LA PARRILLA SILVER MINE
DEL TORO SILVER MINE
SAN MARTIN SILVER MINE
LA GUITARRA SILVER MINE
90
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 2022 ANNUAL HIGHLIGHTS
Key Performance Metrics
Operational
Ore Processed / Tonnes Milled
Silver Ounces Produced
Gold Ounces Produced
Silver Equivalent Ounces Produced
Cash Costs per Silver Equivalent Ounce (1)
All-in Sustaining Cost per Silver Equivalent Ounce (1)
Total Production Cost per Tonne (1)
Average Realized Silver Price per Ounce (1)
Financial (in $millions)
Revenues
Mine Operating Earnings
(Loss) Earnings before Income Taxes
Net (Loss) Earnings
Operating Cash Flows before Working Capital and Taxes
Cash and Cash Equivalents
Working Capital (1)
Free Cash Flow (1)
Shareholders
(Loss) Earnings per Share (“EPS”) - Basic
Adjusted EPS (1)
NM - Not meaningful
2022
2021
2020
Change
‘22 vs ‘21
3,468,987
3,339,394
2,213,954
10,522,051
12,842,945
11,598,380
248,394
192,353
100,081
31,252,920
26,855,783
20,379,010
$14.39
$19.74
$124.64
$22.49
$624.2
$16.8
($61.4)
($114.3)
$109.4
$151.4
$202.9
($64.9)
$13.23
$18.84
$102.77
$25.16
$584.1
$101.4
$25.3
($4.9)
$176.8
$237.9
$224.4
($16.9)
$9.00
$14.03
$79.59
$21.15
$363.9
$105.1
$29.7
$23.1
$107.3
$238.6
$254.4
$30.7
($0.43)
($0.21)
($0.02)
$0.02
$0.11
$0.18
4%
(18%)
16%
16%
9%
5%
21%
(11%)
7%
(83%)
NM
NM
(38%)
(36%)
(10%)
NM
NM
NM
(1) The Company reports non-GAAP measures which include cash costs per ounce produced, all-in sustaining cost per ounce, total production cost per tonne, average realized silver price per ounce sold, working
capital, adjusted EPS and free cash flow. These measures are widely used in the mining industry as a benchmark for performance, but do not have a standardized meaning under the Company’s financial
reporting framework and the methods used by the Company to calculate such measures may differ from methods used by other companies with similar descriptions. See “Non-GAAP Measures” on pages
42 to 51 for further details on each measure and a reconciliation of non-GAAP to GAAP measures.
Silver
Production (M Oz)
Silver Equivalent
Production (M Oz)
Cash Cost
per Eq Ounce ($/Oz)
AISC
per Eq Ounce ($/Oz)
12.8
11.6
10.5
31.3
26.9
$14.39
$13.23
$19.74
$18.84
20.4
$9.00
$14.03
2022
2021
2020
2022
2021
2020
2022
2021
2020
2022
2021
2020
91
FIRST MAJESTIC SILVER 2022 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
San Dimas
Santa Elena
La Encantada
Jerritt Canyon
Consolidated
787,636
851,973
1,025,172
804,206
3,468,987
6,201,090
1,229,612
3,091,349
—
10,522,051
80,814
94,684
413
72,483
248,394
Silver Equivalent Ounces Produced
12,957,826
9,147,215
3,125,761
6,022,118
31,252,920
Cash Costs per Silver Equivalent Ounce(1)
All-in Sustaining Cost per Silver Equivalent Ounce(1)
Cash Cost per Gold Equivalent Ounce(1)
All-in Sustaining Costs per Gold Equivalent Ounce(1)
$9.81
$13.76
N/A
N/A
$11.59
$13.97
N/A
N/A
$15.30
$18.48
N/A
N/A
$27.99
$33.07
$2,323
$2,745
$14.39
$19.74
N/A
N/A
Total Production Cost per Tonne(1)
$155.76
$114.99
$45.01
$205.87
$124.64
(1) See “Non-GAAP Measures” for further details of these measures.
• Annual silver production of 10.5 million ounces compared to 12.8 million ounces in 2021, which was below the lower end of the Company’s revised
guidance range of between 11.2 to 11.9 million ounces of silver primarily due to prioritizing higher gold grade ores from the Ermitaño mine at Santa
Elena and lower-than-expected silver grades at San Dimas.
• Annual gold production reached a new Company record of 248,394 ounces compared to 192,353 in 2021 but slightly below the lower end of the
Company’s revised guidance range of between 256,000 to 273,000 ounces primarily due to lower-than-expected gold grades and throughput at Jerritt
Canyon.
• Santa Elena produced a new annual record of 9.1 million silver equivalent (“AgEq”) ounces in 2022, representing an 81% increase compared to 2021.
• The Santa Elena operation was awarded the prestigious “Silver Helmet Award” in the category of “Underground Mining of More Than 500 Workers”
by the Mining Chamber of Mexico for its outstanding performance in occupational safety and health. The distinguished annual award of excellence is
only awarded to a select handful of mining operations in Mexico.
• Received the 2022 Distinctive ESR Award in Mexico: The Mexican Center for Philanthropy (CEMEFI) and the Alliance for Corporate Social Responsibility
(AliaRSE) awarded First Majestic’s San Dimas, Santa Elena and La Encantada mining units with the Socially Responsible Business Distinction for
2022 (Distintivo Empressa Socialmente Responsable 2022). This annual award of distinction was accomplished after having demonstrated continued
responsibility, transparency and sustainability at its operations in Mexico.
• Successfully expanded Santa Elena’s liquid natural gas (“LNG”) powerplant from 12 MW to 24 MW to supply lower-cost, cleaner power to the Santa
Elena operation which includes the Ermitaño mine and the recently completed dual-circuit plant.
• Sold a record 444,576 ounces of silver bullion, representing a 27% increase compared to 2021 and approximately 4.2% of the Company’s silver
production, on First Majestic’s online bullion store at an average silver price of $26.20 per ounce for total proceeds of $11.6 million.
• Cash cost per AgEq ounce in the year was $14.39, compared to $13.23 in the previous year. The increase in cash cost per AgEq ounce was primarily
due to lower than expected production at Jerritt Canyon and lower production at San Dimas in addition to increased costs due to inflation. These
decreases in production were primarily attributed to lower head grade at both Jerritt Canyon and San Dimas. The increase in costs were partially offset
by increased production from the Santa Elena operation driven by higher-grade ore from the Ermitaño mine and cost savings measures implemented
throughout the Company in an effort to combat the impact of inflationary pressures on costs.
• All-in sustaining cost (“AISC”) per AgEq ounce in the year was $19.74, compared to $18.85 in the previous year. The increase in AISC per AgEq ounce
was primarily attributed to higher cash costs.
Financial Highlights
• Cash position and liquidity: The Company ended the year with cash and cash equivalents of $151.4 million compared to $237.9 million at the end of
the previous year, while working capital decreased to $202.9 million compared to $224.4 million. Cash and cash equivalents exclude $125.2 million
that is held in restricted cash.
• Revenue: The Company generated record annual revenues of $624.2 million in 2022, or 7% higher than the previous year primarily related to a full year of
production from Ermitaño as the mine went into production in the fourth quarter of 2021. Additionally, there was a 17% increase in payable silver equivalent
ounces sold despite an 11% decrease in the average realized silver price per ounce which averaged $22.49 per ounce compared to $25.16 per ounce in 2021.
• Mine operating earnings: During the year, the Company recognized mine operating earnings of $16.8 million compared to $101.4 million in 2021. The
decrease in mine operating earnings was primarily driven by lower than expected production at Jerritt Canyon resulting in higher production costs per
ounce, a decrease in the average realized silver price per ounce during the year as well as an increase in depreciation and depletion during the year.
The Company also saw an increase in cost of sales due to higher consumables, materials, energy, labour and maintenance costs during the first half of
the year as a result of inflationary pressures. However, cost cutting initiatives implemented by management helped combat the impact of inflationary
pressures on costs during the second half of the year.
• Net loss: The Company recognized a net loss of $114.3 million (EPS of $(0.43)) in 2022 compared to a net loss of $4.9 million (EPS of $(0.02)) in 2021.
The increase in net loss was primarily attributable to an increase in income tax expense during the year, lower than expected production at Jerritt
Canyon, along with an impairment related to the La Parrilla mine ($9.6 million) as it was classified as an asset held-for-sale during the year. This was
partially offset by an impairment reversal related to the agreed upon sale of the La Guitarra mine, which was classified as an asset held-for-sale along
with a gain on the sale of the Company’s royalty portfolio. During the year, the Company has recorded non-recurring severance costs of $2.7 million
relating to restructuring efforts to optimize the workforce.
• Adjusted net loss: Adjusted net loss (see “Non-GAAP Measures”), normalized for non-cash or non-recurring items such as tax settlements, impairment
and impairment reversals, write-down of mineral inventory, share-based payments and deferred income taxes for the year ended December 31, 2022
was $55.4 million ($0.21 per share), compared to adjusted earnings of $6.0 million ($0.02 per share) in 2021.
92
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION • Cash flow from operations: During the year, cash flow from operations before changes in working capital and income taxes was $109.4 million
compared to $176.8 million in 2021.
Corporate Development and Other:
• During the year, the Company announced that it had entered into agreements to sell the La Guitarra and La Parrilla mines in Mexico to Sierra Madre Gold
and Silver Ltd. (“Sierra Madre”) and Golden Tag Resources Ltd. (“Golden Tag”), respectively. The La Guitarra mine will be sold for a total consideration
of $35 million, made up of 69,063,077 Sierra Madre shares. The La Parrilla mine will be sold for total consideration of up to $33.5 million, made up
of 143,673,684 Golden Tag shares with a deemed value as of the date of the sale agreement of $20 million, and up to $13.5 million in the form of
three milestone payments in either cash or shares in Golden Tag. Closing of both transactions is pending and remains subject to customary closing
conditions, including receipt of all necessary regulatory approvals.
• During the year, the Company announced and closed an agreement to sell a portfolio of royalty interests to Metalla Royalty and Streaming Ltd. (“Metalla”)
for total consideration of $20 million in common shares of Metalla. The royalty portfolio includes a 2% net smelter royalty on six of the Company’s
non-producing properties, a 2% net smelter royalty on the Plomosas Silver Project (owned by GR Silver Mining Ltd.) and a 100% gross value royalty
(“GVR”) on gold produced at the La Encantada Silver Mine. The GVR is limited to the first 1,000 ounces of gold produced at La Encantada annually. On
the closing date, the Company received 4,168,056 Metalla shares, that had a fair value as of such date of $21.5 million. The Company recorded a gain
of $4.3 million related to the disposition of the underlying mining interests that made up each royalty.
• During the year, following the completion of tax audits, conclusive agreements with the SAT were signed by Corporación First Majestic S.A. de
C.V. (“CFM”) and First Majestic Plata S.A. de C.V. (“FMP”) through Mexico’s Office of the Taxpayer Ombudsman (“PRODECON”) to settle an uncertain
tax position concerning Mexican back-to-back loan provisions. The provisions were originally conceived from an anti-avoidance rule and a literal
interpretation of the rules would convert most debt financing in Mexico into back-to-back loans. The back-to-back loan provisions establish that
interest expense derived from back-to-back loans can be recharacterized as dividends resulting in significant changes to the tax treatment of interest,
including withholding taxes. As a result of this recharacterization and in accordance with the conclusive agreement, CFM and FMP made one-time
payments of approximately $21.3 million and $6.3 million in fiscal 2022 which have been recognized as current tax expense during the year. In addition
to the payment made, CFM agreed to surrender certain tax loss carry forwards resulting in a deferred tax expense of approximately $55.7 million.
2022 FOURTH QUARTER HIGHLIGHTS
Key Performance Metrics
Operational
Ore Processed / Tonnes Milled
Silver Ounces Produced
Gold Ounces Produced
Silver Equivalent Ounces Produced
Cash Costs per Silver Equivalent Ounce (1)
All-in Sustaining Cost per Silver Equivalent Ounce (1)
Total Production Cost per Tonne(1)
Average Realized Silver Price per Silver Equivalent Ounce (1)
Financial (in $millions)
Revenues
Mine Operating Earnings
Net loss
Operating Cash Flows before Movements in Working Capital and Taxes
Cash and Cash Equivalents
Working Capital (1)
Free Cash Flow (1)
Shareholders
Loss per Share (“EPS”) - Basic
Adjusted EPS (1)
NM - Not meaningful
2022-Q4
2022-Q3
Change
Q4 vs Q3
2021-Q4
Change
Q4 vs Q4
851,564
836,514
2%
955,810
2,396,696
2,736,100
(12%)
3,358,809
63,039
67,072
(6%)
67,411
7,558,791
8,766,192
(14%)
8,561,023
$15.36
$20.69
$13.34
$17.83
$131.41
$135.07
$23.24
$19.74
$148.2
$159.8
($13.3)
($16.8)
$13.4
$151.4
$202.9
($32.3)
$3.3
($20.7)
$27.7
$148.8
$148.2
$45.3
15%
16%
(3%)
18%
(7%)
NM
(19%)
(52%)
2%
37%
NM
$12.32
$17.26
$105.37
$24.18
$204.9
$40.4
($4.0)
$71.8
$237.9
$224.4
$66.4
(11%)
(29%)
(6%)
(12%)
25%
20%
25%
(4%)
(28%)
(133%)
NM
(81%)
(36%)
(10%)
(149%)
($0.06)
($0.07)
($0.08)
($0.09)
(25%)
(22%)
($0.02)
$0.02
NM
NM
(1) The Company reports non-GAAP measures which include cash costs per silver equivalent ounce produced, all-in sustaining cost per silver equivalent ounce produced, total production cost per tonne,
averagerealized silver price per silver equivalent ounce sold, average realized gold price per ounce sold, working capital, adjusted EPS and free cash flow. These measures are widely used in the mining industry
as a benchmark for performance, but do not have a standardized meaning under the Company’s financial reporting framework 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 42 to 51 for further details on each measure and a reconciliation of non-GAAP to GAAP measures.
93
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fourth Quarter Production Summary
San Dimas
Santa Elena
La Encantada
Jerritt Canyon
Consolidated
Ore Processed / Tonnes Milled
Silver Ounces Produced
Gold Ounces Produced
Silver Equivalent Ounces Produced
Cash Costs per Silver Equivalent Ounce
All-in Sustaining Cost per Silver Equivalent Ounce
Cash Cost per Gold Equivalent Ounce
All-In Sustaining Costs per Gold Equivalent Ounce
210,108
1,392,506
20,257
207,188
199,388
25,830
254,766
804,802
179,502
851,564
—
2,396,696
107
16,845
63,039
3,054,098
2,302,904
813,649
1,388,140
7,558,791
$11.54
$16.79
N/A
N/A
$11.20
$12.75
N/A
N/A
$15.48
$19.39
N/A
N/A
$30.56
$34.75
$2,519
$2,865
$15.36
$20.69
N/A
N/A
Total Production Cost per Tonne
$162.68
$114.29
$47.69
$233.39
$131.41
Operational Highlights
• After an all-time record third quarter, production decreased by 14% in the fourth quarter: The Company produced 7.6 million AgEq ounces, consisting
of 2.4 million ounces of silver and 63,039 ounces of gold representing a 14% decrease when compared to the record production of 8.8 million AgEq
ounces in the previous quarter. The production decrease was primarily due to lower production at San Dimas and Santa Elena, partially offset by higher
gold production at Jerritt Canyon and higher silver production at La Encantada. Silver and gold grades decreased 13% and 6%, respectively versus
the prior quarter. During the quarter, AgEq production at San Dimas decreased 19% compared to the prior quarter, as a result of lower ore grades and
higher dilution, combined with maintenance issues in the filtration plant during the month of December, which reduced planned throughput. Further, a
9% decrease in the AgEq conversion ratio compared to the prior quarter, contributed to a quarter-over-quarter decrease in the AgEq ounces produced.
• Transitioning to 100% Ermitaño ores at Santa Elena: Continued strong metal production from the Ermitaño mine, having achieved its second highest
quarter of production, enabled Santa Elena to produce 2.3 million AgEq ounces in the fourth quarter, or 16% below the record 2.7 million AgEq in the
prior quarter. In 2023, Santa Elena is expected to produce between 7.8 and 8.7 million AgEq ounces as it transitions to full production from Ermitaño
while exploration continues at the recently discovered Silvanna vein within the Santa Elena mine.
• Increase in Production Guidance at Jerritt Canyon in 2023: The secondary escapeway in the West Generator mine was completed in November
allowing for improved ore production although a severe cold weather disturbance in December limited haulage and deliveries to the plant. With the
additional ramp up of Smith Zone 10 and the restart of the Saval II mine, gold production at Jerritt Canyon is expected to be between 119,000 to 133,000
ounces in 2023, representing a mid-point increase of 74% as it relates to guidance compared to 2022 actual production.
• Santa Elena’s Dual-Circuit Completed: The Company successfully completed the commissioning of the dual-circuit processing plant at Santa Elena during
the quarter which includes the new 3,000 tonne per day (“tpd”) filter press, designed to improve the leaching performance and reduce operating costs.
• Cash Cost per AgEq Ounce for the quarter was $15.36 per ounce, compared to $13.34 per ounce in the previous quarter. The increase in cash costs
per AgEq ounce was primarily attributed to a decrease in gold and silver ore grades and AgEq ounces produced at San Dimas and Santa Elena.
This was partially offset by lower cash costs per ounce at Jerritt Canyon during the quarter, driven by higher gold production as the completion of
the rehabilitation and restart at the West Generator mine at Jerritt Canyon allowed for improved ore production as well as cost saving measures
implemented throughout the Company in an effort to combat the higher costs due to inflation.
• AISC per AgEq Ounce in the fourth quarter was $20.69 per ounce compared to $17.83 per ounce in the previous quarter. The increase in AISC per AgEq
ounce was primarily attributed to an increase in cash costs per AgEq ounce.
• 10 Drill Rigs Active: The Company concluded its 2022 exploration program during the quarter by completing a total of 16,086 metres of exploration
drilling across the Company’s mines. Throughout the quarter a total of 10 drill rigs were active consisting of four rigs at San Dimas, two rigs at Jerritt
Canyon, three rigs at Santa Elena and one rig at La Encantada.
Financial Highlights
• In the fourth quarter, the Company generated revenues of $148.2 million compared to $204.9 million representing a 28% decrease compared to the
fourth quarter of 2021. The decrease in revenues was primarily attributed to a decrease in production at San Dimas and Jerritt Canyon of 24% per
mine site, a lower average realized silver price which averaged $23.24 per ounce during the quarter, representing a 4% decrease compared to $24.18
in the fourth quarter of 2021.
• The Company realized mine operating losses of $13.3 million compared to mine operating earnings of $40.4 million in the fourth quarter of 2021. The
decrease in mine operating earnings was primarily attributed to lower production and metal prices and an increase in cost of sales and depreciation
and depletion from La Encantada and Jerritt Canyon.
• Net loss for the quarter was $16.8 million (EPS of ($0.06)) compared to net loss of $4.0 million (EPS of ($0.02)) in the fourth quarter of 2021.
• During the quarter, the Company recorded non-recurring severance costs of $2.1 million relating to restructuring efforts to optimize the workforce.
• Adjusted net loss (a non-GAAP measure)1 for the quarter, normalized for non-cash or non-recurring items such as tax settlements, impairment and
impairment reversal, share-based payments, unrealized gains on marketable securities and write-downs on mineral inventory for the quarter ended
December 31, 2022, was $17.4 million (Adjusted EPS of ($0.07)) compared to an adjusted net earnings of $4.1 million (Adjusted EPS of $0.02) in the
fourth quarter of 2021.
• Operating cash flow before movements in working capital and taxes in the quarter was an inflow of $13.4 million compared to a cash inflow of $71.8
million in the fourth quarter of 2021.
• As of December 31, 2022, the Company had cash and cash equivalents of $151.4 million and working capital of $202.9 million. Cash and cash
equivalents excludes $125.2 million that is held in restricted cash.
1 This measure does not have a standardized meaning under the Company’s financial reporting framework and the methods used by the Company to calculate this measure may differ from methods used
by other companies with similar descriptions. See “Non-GAAP Measures” on pages 42 to 51 for further details on each measure and a reconciliation of non-GAAP to GAAP measures.
94
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 2023 PRODUCTION OUTLOOK AND COST GUIDANCE UPDATE
This section provides management’s revised production outlook and cost guidance for 2023. 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 throughputs, grades, recoveries and changes in economic circumstances.
The Company expects 2023 total production from its four operating mines to reach a new Company record of between 33.2 to 37.1 million AgEq ounces
consisting of 10.0 to 11.1 million ounces of silver and 277,000 to 310,000 ounces of gold. Based on the midpoint of the guidance range the Company
expects AgEq ounces to increase 12% when compared to 2022. Silver production is expected to remain consistent with 2022 rates whereas gold production
is expected to increase by 18% year-over-year. The increase in forecast gold production is primarily due to improvements in mine production at Jerritt
Canyon resulting in an expected 74% increase in gold ounces in 2023 when compared to the prior year. In addition, strong gold production is expected
to continue at Santa Elena as the plant will only process Ermitaño ores in 2023. The Company has identified a new vein in the Santa Elena mine, called
Silvanna, and plans to drill test the area in 2023 with the goal of developing a mine plan to bring the vein into production by 2024.
A mine-by-mine breakdown of the 2023 production guidance is included in the table below. The Company reports cost guidance to reflect cash costs and
AISC on a per AgEq payable ounce. For 2023, the Company is using an 84:1 silver to gold ratio compared to an 85:1 silver to gold ratio in its revised 2022
guidance. Metal price and foreign currency assumptions for calculating equivalents are silver: $21.50/oz, gold: $1,800/oz, MXN:USD 20:1.
GUIDANCE FOR FULL YEAR 2023
Silver:
San Dimas, Mexico
Santa Elena, Mexico
La Encantada, Mexico
Mexico Consolidated:
Gold:
Jerritt Canyon, USA
Total Production
Consolidated*
Silver Oz (M)
Gold Oz (k)
Silver Eqv Oz (M)
Cash Cost
AISC
($ per AgEq oz)
($ per AgEq oz)
6.4 – 7.2
0.7 – 0.7
2.9 – 3.2
72 – 81
86 – 95
–
12.5 – 14.0
9.62 – 10.19
13.02 – 13.91
7.8 – 8.7
2.9 – 3.2
11.59 – 12.21
14.60 – 15.53
16.73 – 17.69
19.86 – 21.14
10.0 – 11.1
158 – 176
23.2 – 25.9
12.12 – 12.77
16.69 – 17.83
–
119 – 133
10.0 – 11.2
1,502 – 1,592
1,733 – 1,842
($ per AuEq oz)
($ per AuEq oz)
10.0 – 11.1
277 - 310
33.2 – 37.1
13.88 – 14.66
18.47 – 19.72
($ per AgEq oz)
($ per AgEq oz)
*Certain amounts shown may not add exactly to the total amount due to rounding differences.
* Cash Costs and AISC are non-GAAP measures and are not standardized financial measures under the Company’s financial reporting framework. The Company calculates cash costs and consolidated AISC in
the manner set out in the table below. These measures have been calculated on a basis consistent with historical periods. See “Non-GAAP Measures” on pages 42 to 51 for further details on each measure and
a reconciliation of non-GAAP to GAAP measures.
The Company is projecting its 2023 AISC to be within a range of $18.47 to $19.72 on a per consolidated payable AgEq ounce basis. Excluding non-cash items,
the Company anticipates its 2023 AISC to be within a range of $17.92 to $19.10 per payable AgEq ounce. An itemized AISC cost table is provided below:
All-In Sustaining Cost Calculation
Total Cash Costs per Payable Silver Ounce
General and Administrative Costs
Sustaining Development Costs
Sustaining Property, Plant and Equipment Costs
Profit Sharing
Share-based Payments (non-cash)
Lease Payments
Accretion and Reclamation Costs (non-cash)
All-In Sustaining Costs (Ag Eq Oz)
All-In Sustaining Costs: (Ag Eq Oz excluding non-cash items)
FY 2023
($ per AgEq oz)
13.88 – 14.66
0.98 – 1.09
1.36 – 1.45
0.73 – 0.82
0.57 – 0.63
0.39 – 0.43
0.41 – 0.45
0.16 – 0.18
18.47 – 19.72
17.92 – 19.10
(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. See “Non-GAAP Measures” on pages 42 to 51 for further details on each
measure and a reconciliation of non-GAAP to GAAP measures.
(2) Total cash cost per payable AgEq ounce includes estimated royalties and 0.5% Mexico mining environmental fee of $0.40 to $0.44 per payable AgEq ounce.
CAPITAL INVESTMENTS IN 2023
In 2023, the Company plans to invest a total of $187.8 million on capital expenditures consisting of $78.4 million for sustaining activities and $109.5
million for expansionary projects. This represents a 6% decrease compared to the 2022 revised capital expenditures and is aligned with the Company’s
95
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
future growth strategy of increasing underground and plant processing rates at Jerritt Canyon, San Dimas and Santa Elena.
2023 Capital Guidance ($millions)
Underground Development
Exploration
Property, Plant and Equipment
Corporate Projects
Total*
Sustaining
Expansionary
$51.2
0.0
25.4
1.7
$78.4
$43.6
39.8
19.9
6.2
Total
$94.8
39.8
45.3
7.9
$109.5
$187.8
*Certain amounts shown may not add exactly to the total amount due to rounding differences.
The 2023 annual guidance includes total capital investments of $94.8 million to be spent on underground development; $45.3 million towards property,
plant and equipment; $39.8 million in exploration; and $7.9 million towards corporate innovation projects. Management may revise the guidance during
the year to reflect actual and anticipated changes in metal prices or to the business.
The Company plans to complete approximately 40,700 metres of underground development in 2023 compared to 45,614 metres completed in 2022. The
2023 development program consists of approximately 17,900 metres at San Dimas; 9,000 metres at Jerritt Canyon; 10,500 metres at Santa Elena and
3,300 metres at La Encantada. At San Dimas, the Company is planning to concentrate development metres in the Perez Vein, located in the Sinaloa Graben
block, and continue development activities in the Noche Buena sector. At Santa Elena, underground development will focus exclusively in the Ermitaño
mine to achieve 2,500 tonnes per day of underground ore extraction throughout all of 2023. At Jerritt Canyon, development activities will be focused in
newly discovered areas within the Smith and SSX mines while also ramping up production at West Generator and Saval II mines. At La Encantada, the
Company is developing the second levels of both the Ojuelas and Milagros orebodies for 2023 production.
The Company is planning approximately 245,350 metres of exploration drilling in 2023 compared to 248,124 metres completed in 2022. The 2023 drilling
program is expected to consist of:
• At San Dimas, approximately 77,450 metres of drilling are planned with infill, step-out and exploratory holes focused on near mine and brownfield
targets including major ore controlling structures in the West, Central, Sinaloa and Tayoltita blocks. Exploration efforts will focus on adding Inferred
Resources along known veins and identifying new veins in locations where post mineral cover has deferred work to date.
• At Jerritt Canyon, approximately 112,900 metres are planned to drill a mixture of surface and underground infill, step-out, and exploratory holes to
support the life of mine and test the presence of new ore bodies. Surface exploration will aim to test newly identified targets on the property, including
follow up drilling from recent positive drill intercepts at Winters Creek and Waterpipe II. Underground drilling is planned for SSX, Smith and West
Generator where the focus is to replicate the Smith Zone 10 success by targeting above the water table, near active development mineralization to
facilitate a fast turnaround to mining.
• At Santa Elena, approximately 47,000 metres are planned with near mine drilling to continue testing the newly identified Silvanna vein in Santa
Elena and infill drilling at the Ermitaño vein to convert Inferred Resources to Indicated Resources. Greenfield drilling at Santa Elena will focus on
several targets within a 5-kilometre radius around the processing plant where the goal is to find a new mineralized vein. The Company is also
planning to return to the Los Hernandez property, nearby to the Las Chispas mine, to test updated targets and projections of mineralized structures.
• Finally, at La Encantada the Company has planned approximately 8,000 metres to continue searching for a new mineralized breccia body as well as
extend and de-risk some of the known veins and vein systems.
96
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
Jerritt Canyon
Consolidated
Silver equivalent ounces produced
San Dimas
Santa Elena
La Encantada
Jerritt Canyon
Consolidated
Silver ounces produced
San Dimas
Santa Elena
La Encantada
Consolidated
Gold ounces produced
San Dimas
Santa Elena
Jerritt Canyon
Consolidated
Cash cost per Ounce(1)
San Dimas (per AgEq Ounce)
Santa Elena (per AgEq Ounce)
La Encantada (per AgEq Ounce)
Jerritt Canyon (per Au Ounce)
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2(2)
Q1
210,108
185,126
197,102
195,300
206,738
214,205
202,382
199,466
207,188
214,387
228,487
201,911
224,459
234,862
234,381
185,358
254,766
255,945
264,555
249,906
268,239
263,645
242,839
229,421
179,502
181,056
213,647
230,001
256,374
230,415
146,611
—
851,564
836,514
903,791
877,118
955,810
943,126
826,213
614,245
3,054,098
3,776,124
3,046,664
3,080,940
4,015,346
3,422,032
3,176,725
2,910,946
2,302,904
2,733,761
2,241,763
1,868,787
1,955,550
1,061,657
1,140,398
884,332
813,649
788,872
871,365
651,875
768,796
913,481
847,502
745,018
1,388,140
1,467,435
1,546,143
1,620,400
1,821,331
1,922,270
1,270,398
—
7,558,791
8,766,192
7,705,935
7,222,002
8,561,023
7,319,441
6,435,023
4,540,296
1,392,506
1,649,002
1,527,465
1,632,117
2,174,353
1,888,371
1,868,031
1,716,143
199,388
308,070
384,953
337,201
426,870
508,641
565,453
453,528
804,802
779,028
863,510
644,009
757,586
905,074
840,541
738,354
2,396,696
2,736,100
2,775,928
2,613,327
3,358,809
3,302,086
3,274,026
2,908,024
20,257
25,830
16,845
23,675
26,989
16,299
18,354
22,309
18,632
18,528
19,556
20,707
23,795
19,810
23,660
20,767
19,227
17,448
7,498
8,453
6,327
26,145
18,762
—
62,932
66,963
59,295
58,791
67,265
54,410
46,442
23,775
$ 11.54
$ 11.20
$ 15.48
$ 2,519
$ 8.25
$ 10.37
$ 15.55
$ 2,767
$ 10.41
$ 12.34
$ 14.09
$ 1,989
$ 9.41
$ 12.96
$ 16.41
$ 2,120
$ 7.98
$ 11.56
$ 14.51
$ 1,674
$ 8.29
$ 10.17
$ 10.00
$ 17.09
$ 12.25
$ 1,735
$ 16.70
$ 20.18
$ 13.66
$ 1,407
$ 13.77
$ —
Consolidated (per AgEq Ounce)
$ 15.36
$ 13.34
$ 14.12
$ 14.94
$ 12.32
$ 14.09
$ 13.89
$ 12.61
All-in sustaining cost per Ounce(1)
San Dimas (per AgEq Ounce)
Santa Elena (per AgEq Ounce)
La Encantada (per AgEq Ounce)
Jerritt Canyon (per Au Ounce)
$ 16.79
$ 12.75
$ 19.39
$ 2,865
$ 10.97
$ 12.29
$ 18.61
$ 3,317
$ 14.97
$ 15.34
$ 16.65
$ 2,429
$ 12.98
$ 16.31
$ 19.63
$ 2,488
$ 11.29
$ 14.02
$ 19.41
$ 2,077
$ 11.58
$ 21.10
$ 15.28
$ 2,286
$ 14.22
$ 14.31
$ 21.31
$ 25.66
$ 15.97
$ 16.30
$ 1,679
$ —
Consolidated (per AgEq Ounce)
$ 20.69
$ 17.83
$ 19.91
$ 20.87
$ 17.26
$ 19.93
$ 19.42
$ 19.35
Production cost per tonne
San Dimas
Santa Elena
La Encantada
Jerritt Canyon
Consolidated
$ 162.68
$ 161.41
$ 155.09
$ 143.66
$ 146.30
$ 128.67
$ 153.43
$ 140.29
$ 114.29
$ 124.94
$ 109.50
$ 111.36
$ 47.69
$ 46.29
$ 44.58
$ 41.43
$ 93.78
$ 39.70
$ 75.76
$ 41.08
$ 79.17
$ 94.15
$ 45.71
$ 42.99
$ 233.39
$ 245.66
$ 169.16
$ 187.15
$ 151.23
$ 192.17
$ 177.30
$ —
$ 131.41
$ 135.07
$ 114.55
$ 118.51
$ 105.37
$ 106.52
$ 104.94
$ 90.03
(1) Effective January 1, 2021, the Company is reporting its cash costs and all-in sustaining costs on a per silver equivalent (“AgEq”) ounce basis. Cash cost and AISC per AgEq Ounce for previous comparative
periods were updated based on the new metric. See “Non-GAAP Measures” on pages 42 to 51 for further details on each measure and a reconciliation of non-GAAP to GAAP measures.
(2) Jerritt Canyon quarterly production was from April 30, 2021 to June 30, 2021, or 62 days.
97
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Operating Results – Consolidated Operations
CONSOLIDATED
2022-Q4
2022-Q3
2022-Q2
2022-Q1
2022-YTD
2021-YTD
Change
Q4 vs Q3
Change
‘22 vs ‘21
Ore processed/tonnes milled
851,564
836,514
903,791
877,118
3,468,987
3,339,394
2%
4%
Production
Silver ounces produced
Gold ounces produced
2,396,696
2,736,100
2,775,928
2,613,327
10,522,051 12,842,945
63,039
67,072
59,391
58,891
248,394
192,353
Silver equivalent ounces produced
7,558,791
8,766,192
7,705,935
7,222,002
31,252,920 26,855,783
(12%)
(6%)
(14%)
(18%)
29%
16%
Cost
Cash cost per AgEq Ounce
All-in sustaining costs per AgEq ounce
$15.36
$20.69
$13.34
$17.83
$14.12
$19.91
$14.94
$20.87
$14.39
$19.74
$13.23
$18.85
Total production cost per tonne
$131.41
$135.07
$114.55
$118.51
$124.64
$102.77
15%
16%
(3%)
9%
5%
21%
Underground development (m)
Exploration drilling (m)
9,815
16,086
11,242
80,370
13,404
76,444
11,153
75,225
45,614
50,558
248,123
227,845
(13%)
(80%)
(10%)
9%
Production
During the year, the Company produced 31.3 million silver equivalent ounces, consisting of 10.5 million ounces of silver and 248,394 ounces of gold, representing
a decrease of 18% and an increase of 29% respectively, compared to the prior year. The decrease in silver production and increase in gold production was
primarily due to lower-than-expected silver grades at San Dimas and prioritizing higher gold grade ores from the Ermitaño mine at Santa Elena.
Total production in the fourth quarter was 7.6 million silver equivalent ounces consisting of 2.4 million ounces of silver and 63,039 ounces of gold
representing a 14% decrease when compared to the record production of 8.8 million AgEq ounces in the previous quarter. The production decrease was
primarily due to lower production at San Dimas and Santa Elena, partially offset by higher gold production at Jerritt Canyon and higher silver production
at La Encantada. During the quarter, AgEq production at San Dimas decreased 19% compared to the prior quarter, as a result of lower ore grades and
higher dilution, combined with maintenance issues in the filtration plant during the month of December, which reduced planned throughput. Further, a
9% decrease in the AgEq conversion ratio compared to the prior quarter, contributed to a quarter-over-quarter decrease in the AgEq ounces produced.
Total ore processed amounted to 3.5 million tonnes during the year and 851,564 tonnes during the quarter, representing a 4% and 2% increase compared
to the prior year and quarter, respectively. The Company completed the Dual Circuit project at the Santa Elena processing plant which includes an additional
leaching tank, a fourth CCD thickener and the new 3,000 tpd tailings filter-press. Going forward, the Dual Circuit will be able to treat a higher volume of finer
grind sized material which is expected to improve metallurgical recoveries, reduce moisture in the tailings and reduce material handling costs.
Cash Cost and All-In Sustaining Cost per Ounce
Cash cost per AgEq ounce for the year was $14.39 per ounce, compared to $13.23 per ounce in the previous year. The increase in cash cost per AgEq
ounce was primarily due to lower than expected production at Jerritt Canyon and lower production at San Dimas in addition to increased costs due to
inflation. These decreases in production were primarily attributed to lower head grade at both Jerritt Canyon and San Dimas. The increase in costs were
partially offset by increased production from the Santa Elena operation driven by higher-grade ore from the Ermitaño mine and cost savings measures
implemented throughout the Company in an effort to combat the impact of inflationary pressures on costs.
Cash cost per AgEq ounce for the quarter was $15.36 per ounce, compared to $13.34 per ounce in the previous quarter. The increase in cash costs per
AgEq ounce was primarily attributed to a decrease in gold and silver ore grades and AgEq ounces produced at San Dimas and Santa Elena. This was
partially offset by lower cash costs per ounce at Jerritt Canyon during the quarter, driven by higher gold production as the completion of the rehabilitation
and restart at the West Generator mine at Jerritt Canyon allowed for improved ore production as well as cost saving measures implemented throughout
the Company in an effort to combat the higher costs due to inflation.
All-in Sustaining Cost per AgEq ounce in the year was $19.74 per ounce compared to $18.84 per ounce in the previous year. The increase in AISC per AgEq
ounce was primarily attributed to higher cash costs.
All-in Sustaining Cost per AgEq ounce in the fourth quarter was $20.69 per ounce compared to $17.83 per ounce in the previous quarter. The increase in
AISC per AgEq ounce was primarily attributed to an increase in cash costs per AgEq ounce.
98
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management has developed a series of cost reduction initiatives across the organization to improve efficiencies, lower production costs, capital spending,
care and maintenance holding costs and corporate G&A costs while also increasing production which includes:
• Renegotiating certain contracts and reducing the use of external consultants;
• Restructuring to optimize workforce and reduce labour costs;
• Optimizing use of reagent consumption;
• Conversion to LNG power versus diesel power with long-term contracts;
• Increasing metal production at Santa Elena by leveraging the higher grade of the Ermitaño ore while exploration activities continue in the Santa
Elena mine to better define mineralized structures like Silvanna;
• Completing the Dual Circuit project at Santa Elena to improve metal recovery rates and allow higher plant throughput;
• Improving dilution controls at San Dimas and prioritizing long hole stoping of the Jessica and Regina veins which is expected to improve ore grade
and production and continue developing the Perez vein;
• Continue developing the newly identified Zone 10 in the Smith mine and increasing throughput from the rehabilitation and restart of the West
Generator and Saval II mines at Jerritt Canyon which is expected to increase ore volume and improve ore grades while reducing the planned
maintenance downtime at the plant; and
• Advancing mining at La Encantada towards the Ojuelas and Beca-Zone orebodies to extract higher-grade ores.
Development and Exploration
During the year, the Company completed 45,614 metres of underground development and 248,123 metres of exploration drilling, compared to 50,558
metres and 227,845 metres, respectively, in the previous year.
During the quarter, the Company completed 9,815 metres of underground development and 16,086 metres of exploration drilling, compared to 11,242
metres and 80,370 metres, respectively, in the previous quarter. Throughout the quarter a total of 10 drill rigs were active consisting of four rigs at San
Dimas, two rigs at Jerritt Canyon, three rigs at Santa Elena and one rig at La Encantada.
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 and gold 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, or by improved roadway. The Company owns 100%
of the San Dimas mine.
San Dimas
2022-Q4
2022-Q3
2022-Q2
2022-Q1
2022-YTD
2021 YTD
Total ore processed/tonnes milled
210,108
185,126
197,102
195,300
787,636
822,791
Average silver grade (g/t)
Average gold grade (g/t)
Silver recovery (%)
Gold recovery (%)
Production
Silver ounces produced
Gold ounces produced
220
3.12
94%
96%
289
4.10
96%
97%
257
3.01
94%
96%
282
3.09
92%
96%
261
3.31
94%
96%
305
3.19
95%
96%
1,392,506
1,649,002
1,527,465
1,632,117
6,201,090
7,646,898
20,257
23,675
18,354
18,528
80,814
81,237
Silver equivalent ounces produced
3,054,098
3,776,124
3,046,664
3,080,940 12,957,826 13,525,049
Change
Q4 vs Q3
Change
‘22 vs ‘21
13%
(24%)
(24%)
(2%)
(1%)
(4%)
(14%)
4%
(1%)
0%
(16%)
(14%)
(19%)
(19%)
(1%)
(4%)
Cost
Cash cost per AgEq Ounce
All-In sustaining costs per AgEq Ounce
$11.54
$16.79
$8.25
$10.97
$10.41
$14.97
$9.41
$12.98
$9.81
$13.76
$9.01
$12.70
Total production cost per tonne
$162.68
$161.41
$155.09
$143.66
$155.76
$142.00
40%
53%
1%
9%
8%
10%
Underground development (m)
Exploration drilling (m)
4,451
8,799
4,209
14,292
5,856
22,356
6,005
19,344
20,521
64,791
25,220
99,825
6%
(38%)
(19%)
(35%)
99
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 2022 vs. 2021
In 2022, San Dimas produced 6,201,090 ounces of silver and 80,814 ounces of gold for a total production of 12,957,826 silver equivalent ounces, a 4%
decrease compared to 13,525,049 silver equivalent ounces in 2021. The mill processed a total of 787,636 tonnes, a 4% decrease compared to 822,791
tonnes processed in the previous year.
During the year, silver and gold grades averaged 261 g/t and 3.31 g/t, respectively, compared to 305 g/t and 3.19 g/t in the previous year. Silver recoveries
averaged 94% compared to 95% in 2021, while gold recoveries averaged 96%, which was consistent with 2021. Silver and gold grades were lower in
2022 compared to 2021 due to higher dilution from the long hole stopes in the Jessica Vein during the first half of the year. The Company has developed
a series of initiatives in San Dimas to improve dilution controls and prioritizing long hole stoping of the Jessica and Regina veins to improve ore grade
and production.
During the year, cash cost per AgEq ounce averaged $9.81 compared to $9.01 per ounce in 2021. AISC averaged $13.76 per ounce in 2022 compared to
$12.70 per ounce in 2021. The increase in cash costs and AISC during the year was primarily due to a 4% decrease in silver equivalent ounces produced.
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 as at December 31, 2022 was 70:1. During the year
ended December 31, 2022, the Company delivered 41,841 ounces (2021 - 48,015 ounces) of gold to WPM at $623 per ounce (2021 - $617 per ounce).
During the year, a total of 20,521 metres of underground development and 64,791 metres of exploration drilling were completed compared to 25,220
metres and 99,825 metres, respectively, in the prior year.
2022 Q4 vs. 2022 Q3
During the fourth quarter, San Dimas produced 3,054,098 silver equivalent ounces consisting of 1,392,506 ounces of silver and 20,257 ounces of gold,
representing decreases of 16% and 14%, respectively, when compared to the prior quarter.
The mill processed a total of 210,108 tonnes of ore with average silver and gold grades of 220 g/t and 3.12 g/t, respectively, compared to 185,126 tonnes
milled with average silver and gold grades of 289 g/t and 4.10 g/t, in the previous quarter. Silver and gold grades were lower in the fourth quarter
primarily due to the processing of lower grade development ores from the Perez vein and higher tonnages from underground areas with challenging
ground conditions within the Jessica and Regina veins in the Noche Buena area.
Silver and gold recoveries averaged 94% and 96%, respectively, compared to 96% and 97% in the prior quarter.
The Central Block and Sinaloa Graben areas contributed approximately 75% and 25%, respectively, of the total production during the quarter.
In the fourth quarter, cash cost per AgEq ounce was $11.54 per ounce compared to $8.25 per ounce in the prior quarter. The increase in cash costs during
the quarter was primarily due to a 19% decrease in silver equivalent ounces produced, which was partially offset by lower operating expenses during
the quarter.
AISC per AgEq ounce for the quarter was $16.79 per ounce compared to $10.97 per ounce in the prior quarter. The increase was primarily due to an
increase in cash costs per AgEq ounce along with an increase in worker participation costs in the fourth quarter of the year.
A total of 4,451 metres of underground development was completed in the fourth quarter, compared to 4,209 metres in the prior quarter. During the fourth
quarter, a total of four underground drill rigs were active on the property and completed 8,799 metres of exploration drilling compared to 14,292 metres
in the prior quarter.
100
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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. The operating plan for
Santa Elena involves the processing of ore in a 3,000 tpd cyanidation circuit from a combination of underground reserves. The Company owns 100% of the
Santa Elena mine including mining concessions totaling over 102,244 hectares.
SANTA ELENA
2022-Q4
2022-Q3
2022-Q2
2022-Q1
2022-YTD
2021-YTD
Change
Q4 vs Q3
Change
‘22 vs ‘21
Total ore processed/tonnes milled
207,188
214,387
228,487
201,911
851,973
879,060
Average silver grade (g/t)
Average gold grade (g/t)
Silver recovery (%)
Gold recovery (%)
Production
Silver ounces produced
Gold ounces produced
47
4.33
64%
90%
62
4.26
72%
92%
67
3.26
78%
93%
69
3.18
76%
95%
61
3.75
73%
92%
77
1.58
90%
94%
199,388
308,070
384,953
337,201
1,229,612
1,954,492
25,830
26,989
22,309
19,556
94,684
42,088
Silver equivalent ounces produced
2,302,904
2,733,761
2,241,763
1,868,787
9,147,215
5,041,937
Cost
Cash cost per AgEq Ounce
All-In sustaining costs per AgEq Ounce
$11.20
$12.75
$10.37
$12.29
$12.34
$15.34
$12.96
$16.31
$11.59
$13.97
Total production cost per tonne
$114.29
$124.94
$109.50
$111.36
$114.99
Underground development (m)
Exploration drilling (m)
2022 vs. 2021
2,299
2,232
3,201
8,438
4,381
19,079
3,043
13,241
12,924
42,990
$15.40
$19.20
$85.15
18,119
63,977
(3%)
(24%)
2%
(11%)
(2%)
(35%)
(4%)
(16%)
8%
4%
(9%)
(28%)
(74%)
(3%)
(21%)
137%
(19%)
(2%)
(37%)
125%
81%
(25%)
(27%)
35%
(29%)
(33%)
In 2022, Santa Elena produced 1,229,612 ounces of silver and 94,684 ounces of gold for a total production of 9,147,215 AgEq ounces, a 81% increase
compared to 5,041,937 AgEq ounces in 2021. The mill processed a total of 851,973 tonnes of ore compared to 879,060 tonnes in the previous year,
representing a 3% decrease compared to 2021. Overall metal production in 2022 increased compared to the prior year primary due to ore from the
Ermitaño mine contributing more than 60% of the 2022 plant feed, as the Ermitaño mine went into production in the fourth quarter of 2021.
Silver and gold grades from Santa Elena averaged 61 g/t and 3.75 g/t, respectively, compared to 77 g/t and 1.58 g/t in the previous year as higher volume
of ore was processed from the Ermitaño mine which contains lower silver grades but much higher gold grades than ore from other deposits at Santa
Elena. Silver recoveries decreased from 90% in 2021 to 73% in 2022 while gold recoveries decreased from 94% to 92% in the current year. The Company
completed the dual-circuit project at the Santa Elena processing plant during the fourth quarter which includes an additional leaching tank, a fourth CCD
thickener and the new 3,000 tpd tailings filter-press. Going forward, the Dual Circuit will be able to treat higher volumes of finer grind sized material which
is expected to improve metallurgical recoveries, reduce moisture in the tailings and reduce material handling costs.
During the year, the Company successfully expanded Santa Elena’s liquid natural gas (“LNG”) powerplant from 12 MW to 24 MW to supply lower-cost and
cleaner power to the Ermitaño mine. The connection, which joined Ermitaño to Santa Elena’s LNG powerplant was completed in September allowing the
mine to run on 100% LNG power for the first time and eliminated the use of temporary diesel generators.
During the year, cash cost per AgEq ounce averaged $11.59 compared to $15.40 per ounce in 2021, representing a decrease of 25% while AISC averaged
$13.97 per AgEq ounce compared to $19.20 per AgEq ounce in the previous year, a decrease of 27%. The decrease in cash costs and AISC was primarily
attributed to an 81% increase in AgEq ounces produced compared to the previous year, along with cost savings measures implemented in an effort to
combat the impact of inflationary pressures on 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, 2022, the Company delivered 2,433 ounces of gold (2021 - 5,327 ounces) to Sandstorm at an average price of $472 per ounce (2021 - $467
per ounce).
Orogen Royalties Inc., formerly Evrim Resource Corp., retains a 2% net smelter return (“NSR”) royalty from the sale of mineral products extracted from the
Ermitaño mining concessions. In addition, there is an underlying NSR royalty where Osisko Gold Royalties Ltd. retains a 2% NSR from the sale of mineral
101
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION products extracted from the Ermitaño mining concessions. During the year ended December 31, 2022, the Company has incurred $5.8 million (December
31, 2021 - $1 million) in NSR payments from the production of Ermitaño.
During the year, a total of 12,924 metres of underground development and 42,990 metres of exploration drilling were completed compared to 18,119
metres of underground development and 63,977 metres of exploration drilling in the prior year.
2022 Q4 vs. 2022 Q3
During the fourth quarter, Santa Elena produced 2,302,904 AgEq ounces consisting of 199,388 ounces of silver and 25,830 ounces of gold representing
a 35% decrease in silver ounces and a 4% decrease in gold ounces when compared to the prior quarter. The decrease in silver production was primarily
due to processing a higher percentage of ore from the Ermitaño mine with higher gold grades than the Santa Elena mine.
The mill processed 207,188 tonnes of ore during the quarter consisting of 41,953 tonnes (20% of total) from Santa Elena and 165,235 tonnes (80% of total)
from Ermitaño, compared to 214,387 tonnes in the prior quarter.
Silver and gold grades from Santa Elena averaged 47 g/t and 4.33 g/t, respectively, compared to 62 g/t and 4.26 g/t in the previous quarter.
Silver and gold recoveries in the fourth quarter averaged 64% and 90%, respectively, compared to 72% and 92%, respectively, in the prior quarter. The
Company completed the dual-circuit project at the Santa Elena processing plant which includes an additional leaching tank, a fourth CCD thickener
and the new 3,000 tpd tailings filter-press. Going forward, the Dual Circuit will be able to treat finer grind sized material which is expected to improve
metallurgical recoveries, reduce moisture in the tailings and reduce material handling costs.
Cash cost per AgEq ounce in the fourth quarter was $11.20 per ounce compared to $10.37 per ounce in the previous quarter. The increase in cash cost
was primarily attributed to a 16% decrease in AgEq ounces produced compared to the previous quarter.
AISC per AgEq ounce for the quarter was $12.75 per ounce compared to $12.29 per ounce in the prior quarter. The increase in AISC was primarily driven
by the increase in cash costs per AgEq ounce.
In October 2022, the Santa Elena operation has been awarded the prestigious “Silver Helmet Award” in the category of “Underground Mining of More Than
500 Workers” by the Mining Chamber of Mexico for its outstanding performance in occupational safety and health. The distinguished annual award of
excellence is only awarded to a select handful of miners in Mexico.
In the fourth quarter, Santa Elena completed a total of 2,299 metres of underground development, compared to 3,201 metres in the previous quarter.
A total of three drill rigs consisting of two surface rigs and one underground rig, were active at the end of the quarter, completing 2,232 metres of
exploration drilling compared to 8,438 metres in the prior quarter.
102
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 120 houses as well as administrative offices, laboratory, general store, hospital, airstrip and all the necessary 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 an improved 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
2022-Q4
2022-Q3
2022-Q2
2022-Q1
2022-YTD
2021-YTD
Ore processed/tonnes milled
254,766
255,945
264,555
249,906
1,025,172
1,004,144
Average silver grade (g/t)
Silver recovery (%)
Production
Silver ounces produced
Gold ounces produced
120
82%
121
78%
141
72%
108
74%
123
76%
130
77%
804,802
779,028
863,510
644,009
3,091,349
3,241,555
107
109
96
100
413
460
Silver equivalent ounces produced
813,649
788,872
871,365
651,875
3,125,761
3,274,798
Change
Q4 vs Q3
Change
‘22 vs ‘21
0%
0%
4%
2%
(5%)
(1%)
3%
(2%)
3%
(5%)
(10%)
(5%)
Cost
Cash cost per AgEq Ounce
All-In sustaining costs per AgEq Ounce
Total production cost per tonne
Underground development (m)
Exploration drilling (m)
2022 vs. 2021
$15.48
$19.39
$47.69
903
870
$15.55
$18.61
$46.29
552
3,926
$14.09
$16.65
$44.58
590
3,942
$16.41
$19.63
$41.43
510
1,284
$15.30
$18.48
$45.01
2,555
10,020
$13.49
$16.66
$42.25
3,304
15,373
0%
4%
3%
13%
11%
7%
64%
(78%)
(23%)
(35%)
In 2022, La Encantada produced 3,091,349 ounces of silver and 413 ounces of gold for a total of 3,125,761 AgEq ounces, a decrease of 5% compared to
3,274,798 AgEq ounces in 2021. The decrease was primarily due to a 5% decrease in silver head grade and a 1% decrease in silver recovery, partially
offset by a 2% increase in tonnes milled.
Silver recoveries averaged 76% during the year, compared to 77% in 2021. Silver grades during the year averaged 123 g/t, a decrease of 5% compared
to 130 g/t in 2021. The Company began processing development ores from the Beca-Zone orebody in the fourth quarter and expects to begin stope
production to access higher grade ore in the second quarter of 2023.
During the year, cash cost per AgEq ounce averaged $15.30 compared to $13.49 per ounce in 2021, and AISC averaged $18.48 per ounce in 2022 compared
to $16.66 per ounce in 2021. The increase in cash costs per AgEq ounce during the year was primarily due to the 5% decrease in silver equivalent ounces
produced driven by a 5% decrease in recovery. The increase in AISC per AgEq ounce for the year was due to higher cash costs incurred during the year.
A total of 2,555 metres of underground development and 10,020 metres of exploration drilling were completed in 2022 compared to 3,304 metres of
underground development and 15,373 metres of exploration drilling in the prior year.
On November 28, 2022, the Company announced that it had agreed to sell a portfolio of royalty interests to Metalla Royalty & Streaming Ltd. (“Metalla”)
in exchange for common shares of Metalla having an aggregate value of US$20 million. The royalty portfolio includes a 100% gross value royalty (“GVR”)
on gold produced at the La Encantada Silver Mine. The GVR is limited to the first 1,000 ounces of gold produced at La Encantada annually. Pursuant to the
GVR, the Company has agreed to pay Metalla an amount equal to the fair market value of the first 1,000 ounces of gold produced from La Encantada each
year (determined using the average London Bullion Market Association’s LBMA Gold Price during the applicable payment period) less the amount of any
refining costs, which may not exceed 5% of the fair market value of the gold. The transaction completed on December 21, 2022 and, during the year ended
December 31, 2022, the Company paid a total of $nil on account of the GVR (2021 - $nil).
2022 Q4 vs. 2022 Q3
During the quarter, La Encantada produced 804,802 silver ounces compared to 779,028 silver ounces in the previous quarter, representing a 3% increase
in production primarily due to a 4% increase in silver recoveries.
The mill processed a total of 254,766 tonnes of ore with an average silver grade and recovery during the quarter of 120 g/t and 82%, respectively,
compared to 255,945 tonnes, 121 g/t and 78%, respectively, in the previous quarter. The Company began processing development ores from the Beca-
103
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Zone orebody in the quarter and expects to begin stope production to access higher grade ore in the second quarter of 2023.
Cash cost per AgEq ounce for the quarter was $15.48, which was consistent with the prior quarter. AISC per AgEq ounce for the quarter was $19.39 per
ounce compared to $18.61 per ounce in the previous quarter. The 4% increase in AISC per AgEq ounce during the quarter was primarily due to an increase
in sustaining capital expenditures during the quarter.
During the quarter, one underground rig completed 870 metres of drilling compared to 3,926 metres in the previous quarter. A total of 903 metres of
underground development was completed in the fourth quarter compared to 552 metres in the prior quarter.
Jerritt Canyon Gold Mine, Nevada, United States
The Jerritt Canyon Gold mine is an underground mine located in Northern Nevada, United States. Jerritt Canyon was discovered in 1972 and has been in
production since 1981 having produced over 9.5 million ounces of gold over its 40-year production history. The mine was purchased by the Company on
April 30, 2021, and currently operates as an underground mine and has one of three permitted gold processing plants in Nevada that uses roasting in
its treatment of ore. This processing plant has a capacity of 4,000 tonnes per day (“tpd”). The property consists of a large, under explored land package
consisting of 30,821 hectares (119 square miles). Jerritt Canyon is 100% owned by the Company.
Jerritt Canyon
2022-Q4
2022-Q3
2022-Q2
2022-Q1
2022-YTD
2021-YTD
Ore processed/tonnes milled
179,502
181,056
213,647
230,001
804,206
633,400
Average gold grade (g/t)
Gold recovery (%)
Production
3.51
83%
3.41
82%
3.40
80%
3.39
83%
3.42
82%
3.84
84%
Gold ounces produced
16,845
16,299
18,632
20,707
72,483
68,567
Silver equivalent ounces produced
1,388,140
1,467,435
1,546,143
1,620,400
6,022,118
5,013,999
Cost
Cash cost per Au Ounce
All-In sustaining costs per Au Ounce
$2,519
$2,865
$2,764
$3,314
$1,989
$2,428
$2,120
$2,488
$2,326
$2,748
$1,624
$2,048
Total production cost per tonne
$233.39
$245.66
$169.16
$187.15
$205.87
$172.20
Underground development (m)
Exploration drilling (m)
2022 vs. 2021
2,162
4,185
3,280
53,714
2,577
31,067
1,595
9,614
41,356
130,322
3,915
48,670
Change
Q4 vs Q3
Change
‘22 vs ‘21
(1%)
3%
1%
27%
(11%)
(2%)
3%
(5%)
6%
20%
(9%)
(14%)
(5%)
(34%)
(92%)
43%
34%
20%
146%
168%
In 2022, Jerritt Canyon produced 72,483 ounces of gold, an increase of 3% compared to 68,567 gold ounces in 2021. Although production at Jerritt Canyon
increased compared to the prior year, overall performance was lower than expected. This was primarily due to severe weather conditions during both
the first and the fourth quarter of the year which significantly impacted ore haulage and delivery of ore to the plant. Furthermore, the processing plant
experienced multiple maintenance issues throughout the year including a major failure in the oxygen plant, a 14-day shutdown for its annual maintenance
overhaul of the dual roasters in September and a ball mill motor failure in the fourth quarter, in addition to weather related shutdowns in the fourth
quarter. The Company has taken steps to improve reliability of the plant through improved maintenance planning and execution going forward.
The mill processed a total of 804,206 tonnes of ore compared to 633,400 in the previous year, with an average gold grade of 3.42 g/t, or a decrease of 11%
compared to 3.84 g/t in 2021. Gold recoveries averaged 82% during the year, compared to 84% in 2021. The Company processed lower grade ore from
SSX and surface material during the year which resulted in a decrease in grades compared to 2021.
To increase mine production, the Company completed the rehabilitation and restart of the West Generator and the Saval II mines in November which is
now allowing for improved ore deliveries. In addition, the discovery and development of Smith Zone 10 and other recent exploration activities are expected
to increase the development of new ore zones and fresh ore feed to the plant in 2023.
During the fourth quarter, an ore purchase agreement was signed with a third-party to provide up to 32,000 tonnes of sulphide gold ore by the end of 2023.
Limited initial ore deliveries were received and processed in the month of December. Furthermore, improvements in blend optimization are expected to
result in a reduction of coal consumption in the roasters due to the higher sulphur content of the purchased material.
During the year, cash cost per Au ounce averaged $2,326 per ounce, a 43% increase compared to $1,624 per ounce in 2021. AISC per Au ounce averaged
$2,748 in 2022, a 34% increase compared to $2,048 per ounce in 2021. The increase in cash costs per Au ounce was due to lower-than-expected production
during the year, driven by an 11% decrease in grade and a 2% decrease in recovery along with higher costs associated with energy, reagents, consumables
and maintenance. The increase in AISC per Au ounce was primarily due to higher cash costs along with a 146% increase in sustaining development metres.
104
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Cost reduction initiatives along with amended contracts with the main mining contractor has resulted in the transfer of control of mine planning, technical
services, geology, mine engineering and ore controls in the SSX and Smith mines from the contractor to First Majestic which is expected to increase
efficiencies and lower costs going forward.
Since the acquisition, First Majestic has been developing a long-term mine and exploration plan for the future of the operation. The Company has
identified numerous projects that have been implemented or will be implemented which are expected to improve production, reduce costs at the mine
and processing plant and environmental compliance, including:
1.
2.
3.
4.
5.
6.
7.
8.
Rebuild a Leadership Team and add technical expertise to the operation (Completed)
Complete the remodeling of all resources inclusive of all available drilling data and mapping (Completed)
Execute a roaster expansion capacity study for future growth (Completed)
Optimize the water treatment plant for mine dewatering prioritization (Completed)
Complete the lift upgrade for TSF2 (Completed)
Establish a Special Environmental Trust to manage the Reclamation and Closure of four waste rock stockpiles (Completed)
Complete a site-wide Environmental Audit (Completed)
Connect the two underground Smith and SSX producing mines with an underground development drift which will be used for future ore haulage
and exploration activities (Completed)
9.
Develop a mercury remediation plan for improved capture of off-gas from the roasters and refinery (Completed)
10. Obtain permits for potential pushbacks of past-producing open pits for future mill feed (Ongoing)
11. Test over 25 high-priority exploration targets, both near-mine and greenfield (Ongoing)
12. Evaluate and complete ore purchase opportunities with third parties to fill roaster excess capacity (Ongoing)
13. Optimize the underground mining plan and execution of mining with the mine contractors (Ongoing)
14. Develop additional ore resources from the West Gen and Saval II underground mines (Ongoing)
15. Converting to more efficient and lower cost long-hole stoping methods where practical (Ongoing)
16. Evaluate and competitively bid all major procurement contracts for services and consumables (Ongoing)
17. Evaluate the QA/QC processes on ore tonnage and grade reconciliation from mine to mill (Ongoing)
It should be noted that a number of the anticipated benefits from these modifications are not yet reflected in the forecasted operating results and are
expected to materialize in the coming year.
A total of 9,614 metres of underground development and 130,322 metres of exploration drilling were completed in 2022 compared to 3,915 metres of
underground development and 48,670 metres of exploration drilling in the prior year.
2022Q4 vs. 2022Q3
During the quarter, Jerritt Canyon produced 16,845 ounces of gold, representing a 3% increase compared to the prior quarter. The increase was primarily
due to a 3% increase in gold grades offset by lower-than-expected throughput due to severe weather in December which significantly impacted ore
haulage and deliveries from the SSX, Smith and West Generator mines. In addition, ore feed to the processing plant was limited by drying capacity of cold,
frozen ore which impacted the conveying and crushing systems.
The mill processed a total of 179,502 tonnes with an average gold grade and recovery of 3.51 g/t and 83%, respectively, compared to 181,056 tonnes
with an average grade and recovery of 3.41 g/t and 82%, respectively, in the prior quarter. In addition to weather related issues in the fourth quarter, the
processing plant experienced multiple maintenance issues during the quarter including a ball mill motor failure which led to significant downtime.
The Company completed the secondary escapeway in the West Generator mine in November which has resulted in improved ore deliveries and gold
production. The Company expects ore volumes to continue to improve in the first half of 2023 as new development ore pods from the Smith Zone 10, West
Generator and Saval II areas are processed at the mill. Cash cost per Au ounce for the quarter was $2,519 per ounce, a decrease of 9% compared to
$2,764 in the prior quarter. This decrease in cash cost per ounce was primarily due to a 3% increase in production as restart of the West Generator mine
allowed for improved production in the fourth quarter. AISC per Au ounce for the quarter was $2,865 per ounce, a decrease of 14%, compared to $3,314
per ounce in the prior quarter, primarily due to lower cash costs during the quarter.
During the quarter, two underground drill rigs completed a total of 4,185 exploration drilling metres and 2,162 metres of underground development
compared to 3,280 metres and 53,714 metres, respectively, in the prior quarter.
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 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, metallurgical pilot plant, buildings, offices and associated
infrastructure. The Company owns 100% of the La Parrilla Silver Mine.
105
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operations at the La Parrilla mine have been placed on care and maintenance since September 2019.
On December 7, 2022, the Company announced that it had entered into an asset purchase agreement with Golden Tag Resources Ltd. (“Golden Tag”) to
sell the La Parrilla Silver Mine for total consideration of up to $33.5 million, consisting of 143,673,684 Golden Tag shares at a deemed price of $0.14 per
share, having an aggregate value as of the date of the sale agreement of $20 million, and up to $13.5 million in contingent consideration, in the form of
three milestone payments payable in either cash or shares in Golden Tag. The Company has also agreed to purchase $2.7 million of Golden Tag securities
in a future Golden Tag equity financing of up to CAD $9 million. Closing the transaction is pending and remains subject to customary closing conditions,
including completion of such financing and receipt of all necessary regulatory approvals.
At December 31, 2022, the sale was considered highly probable; therefore, the assets of La Parrilla were classified as assets held for sale and presented
separately under current assets. Immediately prior to the classification to assets held for sale, the carrying amount of La Parrilla was remeasured to its
recoverable amount, being its FVLCD, based on the $20 million initial payment, and the first milestone payment of $2.7 million. During the year-ended
December 31, 2022, the Company has recorded an impairment loss related to the La Parrilla assets of $9.6 million based on the recoverable amount
implied by the asset purchase agreement.
Out of the impairment of $9.6 million related to La Parrilla, $5.7 million was allocated to depletable mining interest, $2.1 million was allocated to non-
depletable mining interest with the remaining $1.7 million allocated to property, plant and equipment, resulting in an impairment of $9.6 million, net of a
$nil adjustment to the deferred tax liability. The recoverable amount of La Parrilla, being its FVLCD, was $22.2 million, net of estimated transaction costs,
based on the expected proceeds from the sale.
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 3,815 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.
Operations at the Del Toro mine has been placed on care and maintenance since January 2020.
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 of a new mining concession covering 24,723 hectares to be granted. In addition, the mine includes 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 suspended all mining and processing activities at the San Martin operation due to marginal economics and growing insecurity
in the area. Due to continued insecurity in the area, the Company is requesting assistance from government authorities to secure the area and to ensure
the mine and plant facilities are properly maintained while it is in care and maintenance.
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.
On May 24, 2022, the Company announced that it entered into a share purchase agreement with Sierra Madre Gold and Silver Ltd. (“Sierra Madre”), to sell
the the Company’s subsidiary La Guitarra Compañia Minera S.A. de C.V. (“La Guitarra”), which owns the La Guitarra Silver Mine for total consideration of
approximately $35 million, consisting of 69,063,076 Sierra Madre shares at a deemed price of $0.51 per share. The closing of the transaction is subject to
customary closing conditions including approval of the Sierra Madre shareholders (which was obtained in December 2022), regulatory approval and that
Sierra Madre raise a minimum of $7.7 million (CAD $10 million) in a private placement concurrent or prior to the sale.
On June 30, 2022, the sale was considered highly probable; therefore, the assets and liabilities of La Guitarra were classified as assets and liabilities held
for sale and presented separately under current assets and current liabilities, respectively. Immediately prior to the classification to asset and liabilities
held for sale, the carrying amount of La Guitarra was remeasured to its recoverable amount, being its fair value less cost of disposal (“FVLCD”), based on
the expected proceeds from the sale. At December 31, 2022, the sale continues to be considered highly probable; therefore the assets and liabilities are
presented as assets and liabilities held for sale and presented separately under current assets and current liabilities. During the year-ended December
31, 2022, the Company has recorded a reversal of impairment loss related to the La Guitarra assets of $12.3 million based on the recoverable amount
implied by the share purchase agreement.
Out of the impairment reversal of $12.3 million related to La Guitarra, $8.2 million was allocated to depletable mining interest, $1.0 million was allocated
to non-depletable mining interest with the remaining $3.1 million allocated to property, plant and equipment, resulting in an impairment reversal of $8.0
106
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION million, net of a $4.4 million adjustment to the deferred tax liability. The recoverable amount of La Guitarra, being its FVLCD, was $34.9 million based on
the expected proceeds from the sale.
Springpole Silver Stream, Ontario, Canada
In July 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. 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, which has not yet been received.
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 option pricing 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.
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 also directors and/or officers of First Majestic.
107
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW OF FINANCIAL PERFORMANCE
For the quarters ended December 31, 2022 and 2021 (in thousands of dollars, except for per share amounts):
Revenues
Mine operating costs
Cost of sales
Depletion, depreciation and amortization
Fourth Quarter
2022
Fourth Quarter
2021
Variance %
$148,189
$204,876
(28%) (1)
126,148
35,307
161,455
121,236
43,278
164,514
4% (2)
(18%) (3)
(2%)
Mine operating (loss) earnings
(13,266)
40,362
(133%)
General and administrative expenses
Share-based payments
Mine holding costs
Gain on sale of royalty portfolio
Reversal of impairment
Acquisition costs
Foreign exchange gain
Operating (loss) earnings
Investment and other (loss) income
Finance costs
(Loss) earnings before income taxes
Current income tax expense
Deferred income tax (recovery) expense
Income tax (recovery) expense
Net loss for the year
Loss per share (basic and diluted)
NM - Not meaningful
8,165
2,845
2,645
(4,301)
4,934
—
(2,716)
(24,838)
(962)
(5,662)
(31,462)
5,038
(19,681)
(14,643)
6,988
2,859
2,485
—
—
23
(262)
28,269
736
(9,077)
19,928
23,743
156
23,899
($16,819)
($3,971)
17% (4)
0%
6%
(100%) (5)
100% (6)
(100%)
NM
(188%)
NM (7)
(38%) (8)
NM
(79%) (9)
NM
(161%) (9)
NM (10)
($0.06)
($0.02)
200% (10)
1.
Revenues in the quarter decreased $56.7 million compared to the same quarter of the previous year primarily attributed to:
• a 25% decrease in payable silver equivalent ounces sold compared to the same quarter of the previous year which resulted in a decrease in
revenues of $48.8 million. This was primarily due to a 37% decrease in silver grades at the San Dimas mine along with a 24% decrease in
production at the Jerritt Canyon mine due to lower than expected grades and severe weather in December which significantly impacted ore
haulage and deliveries from the SSX and West Generator mines; and
• a decrease in realized silver price per ounce sold, which averaged $23.24 during the quarter compared to $24.18 per ounce in the fourth quarter
of 2021, resulting in an $8.5 million decrease in revenues.
2. Cost of sales in the quarter increased $4.9 million compared to the same quarter of the previous year primarily due to:
• an increase in labour, consumables, energy, insurance and maintenance costs due to inflationary pressures during the year, which led to an
increase in cost of sales of $11.3 million compared to the same quarter of 2021;
• an increase in worker participation costs in Mexico of $2.1 million; and
• a stronger Mexican Peso against the U.S. Dollar, which averaged 5% higher compared to the same period of 2021.
Partially offset by:
• an $8.5 million decrease in change in inventory expense compared to the same quarter of 2021. This was primarily due to the sale of 1.4 million
silver ounces of inventory in the fourth quarter of 2021, that was withheld as inventory during the third quarter of 2021.
108
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
3.
Depletion, depreciation and amortization in the quarter decreased $8.0 million compared to the same quarter of the previous year, primarily as a result of:
• a decrease of $1.8 million related to depletion at the San Dimas, Santa Elena and La Encantada mines due to a decrease in depletable reserves
and resources and lower production from San Dimas in the current quarter, which was partially offset by higher depreciation due to the addition
of new equipment including the LNG facility at Santa Elena; and
• a decrease of $6.3 million related to lower depletion at the Jerritt Canyon Gold mine due to a lower depletable balance following the finalization
of the purchase price allocation in the fourth quarter of 2021.
4.
General and administrative expenses increased by $1.2 million compared to the same quarter of 2021, primarily due to growth initiatives from
the addition of Jerritt Canyon as well as an increase in salaries, legal and audit fees compared to the same quarter of 2021. During the quarter, the
Company has recorded non-recurring severance costs of $2.1 million relating to restructuring efforts to optimize the workforce.
5.
6.
7.
8.
9.
Gain on sale of royalty portfolio for the quarter increased by $4.3 million compared to the fourth quarter of the prior year. The gain was related to
the sale of a portfolio of royalty interests to Metalla Royalty & Streaming Ltd. (“Metalla”), for a total consideration of 4,168,056 Metalla shares with a
fair value of $21.5 million based on a share price of $5.16 on the date of closing.
Reversal of impairment for the quarter increased by $4.9 million compared to the fourth quarter of the prior year, attributed to the announcement
of the sale of the La Guitarra and the La Parrilla mines in Mexico. At December 31, 2022, the sales were considered highly probable; therefore, the
assets and liabilities were classified as assets and liabilities held-for-sale based on its recoverable amount, being its fair value less cost of disposal.
During the fourth quarter, the Company recorded a reversal of impairment loss related to the La Guitarra asset of $4.7 million, along with a $9.6
million impairment loss related to La Parrilla, based on the recoverable amount implied by the purchase agreements.
Investment and other income for the quarter decreased by $1.7 million compared to the fourth quarter of the prior year, primarily due to an
unrealized loss of $3.6 million in the current quarter on the Company’s silver futures, compared to an unrealized loss on the Company’s silver futures
of $0.1 million in the same quarter of the prior year. This was partially offset by interest income of $2.2 million, compared to $0.4 million in the same
quarter of the prior year.
Finance costs in the quarter decreased by $3.4 million compared to the fourth quarter of the prior year primarily due to a loss of $4.6 million on the
settlement of the Company’s 2018 senior convertible notes, which was recorded in the fourth quarter of 2021. This was partially offset by an increase
in the accretion expense for decommissioning liabilities resulting from changes in the asset retirement obligations as well as an increase in interest
expense as a result of drawn down amounts from the revolving credit facility during the quarter.
During the quarter, the Company recorded an income tax recovery of $14.6 million compared to an expense of $23.9 million in the fourth quarter
of 2021. The decrease in income tax expense was primarily due to an increase in the non-deductible expense, changes in valuations allowance, the
foreign exchange impact on the Company’s Mexican Peso denominated future income tax liability balances and timing differences on the deductibility
of capital expenditures for tax and accounting purposes.
10.
As a result of the foregoing, net loss for the quarter was $16.8 million (EPS of ($0.06)) compared to a net loss of $4.0 million (EPS of ($0.02)) in the
same quarter of the prior year.
109
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION For the years ended December 31, 2022, 2021, and 2020 (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
2022
Annual
2021
Annual
Variance %
2020
22 vs ‘21
$624,221
$584,117
$363,876
471,687
366,085
194,305
—
135,782
607,469
—
116,613
482,698
10,112
54,405
258,822
7% (1)
29% (2)
0%
16% (3)
26%
Mine operating earnings
16,752
101,419
105,054
(83%)
General and administrative
Share-based payments
Reversal of impairment
Acquisition costs
Mine holding costs
(Gain) loss on divestitures
Foreign exchange loss (gain)
Operating (loss) earnings
Fair value adjustment on foreign currency derivatives
Investment and other (loss) income
Finance costs
(Loss) earnings before income taxes
Current income tax expense
Deferred income tax recovery
Income tax expense
Net (loss) income for the year
(Loss) earnings per common share
Basic and diluted
NM - Not meaningful
36,372
13,958
(2,651)
—
11,930
(4,301)
637
(39,193)
—
(1,888)
(20,323)
(61,404)
56,250
(3,378)
52,872
($114,276)
27,063
12,290
—
1,973
12,056
—
(1,165)
49,202
—
(2,948)
(21,004)
25,250
49,283
(19,110)
30,173
($4,923)
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
$23,087
34% (4)
14% (5)
(100%) (6)
(100%) (7)
(1%)
(100%) (8)
(155%)
(180%)
0%
(36%) (9)
(3%)
NM
14%
(82%) (10)
75% (10)
NM (11)
($0.43)
($0.02)
$0.11
NM (11)
1. Revenues in the year ended December 31, 2022 increased $40.1 million or 7% compared to the previous year, primarily attributed to:
• $115.7 million increase due to a 17% increase in payable silver equivalent ounces sold compared to the prior year. This was mainly attributed to
increased production at Santa Elena due to a full year of commercial production at the Ermitaño mine which achieved commercial production in
the fourth quarter of 2021.
Partially offset by:
• $76.0 million decrease due to an 11% decrease in realized silver price per ounce sold, which averaged $22.49 compared to $25.16 in the prior year.
2. Cost of sales in the year increased $105.6 million or 29% compared to 2021 as a result of the following factors:
• a $56.0 million increase due to the addition of the Jerritt Canyon mine;
• an increase of $29.7 million at the Santa Elena mine due to the additional ore tonnage processed from the Ermitaño mine which was added in the
fourth quarter of 2021;
• $3.1 million in abnormal costs that were incurred as a result of marginal ore material that was processed to keep the mill running at minimum
feed requirements to perform mandated air compliance test work at the Jerritt Canyon Gold mine during the second quarter of 2022; and
• an increase in consumables, materials, energy and other costs including insurance, lab work, and service costs, partially due to inflationary
pressures during the year.
110
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
3.
4.
5.
6.
7.
8.
9.
Depletion, depreciation and amortization in the year increased $19.2 million or 16% compared to the previous year primarily as a result of $12.8
million increase from the Mexican operations due to an increase in throughput, higher mining interest and property plant and equipment balances
during the year and a $5.7 million increase from a full year of results from Jerritt Canyon Gold mine, compared to eight months in 2021.
General and administrative expense in the year increased $9.3 million or 34% compared to the prior year, primarily attributed to an increase in
legal and audit fees during the year, higher costs to support growth initiatives from the addition of Jerritt Canyon, as well as an increase in employee
salaries due to a higher headcount and higher benefits including the annual incentive compensation. During the year, the Company has recorded
non-recurring severance costs of $2.7 million relating to restructuring efforts to optimize the workforce.
Share based payments in the year increased $1.7 million primarily attributed to an increase in the fair value of the options granted, restricted and
performance share units granted during the year as well as the introduction of the deferred share units compensation for the independent directors.
Reversal of impairment increased by $2.7 million compared to the prior year, attributed to the announcement of the sale of the La Guitarra and La
Parrilla mines in Mexico. At December 31, 2022, the sales were considered highly probable; therefore, the assets and liabilities were classified as
assets and liabilities held-for-sale based on its recoverable amount, being its fair value less cost of disposal. During the year, the Company recorded
a reversal of impairment loss related to the La Guitarra asset of $12.3 million, offset by a $9.6 million impairment loss related to La Parrilla, based
on the recoverable amount implied by the purchase agreements.
Acquisition costs of $2.0 million in 2021 relates to due diligence costs and closing fees incurred in connection with the acquisition of the Jerritt
Canyon Gold mine which closed on April 30, 2021.
Gain on sale of royalty portfolio for the year increased by $4.3 million compared to the prior year. This gain was related to the sale of a portfolio of
royalty interests to Metalla, for total consideration of 4,168,056 Metalla shares with a fair value of $21.5 million based on a share price of $5.16 on
the date of closing
During the year ended December 31, 2022, the Company recorded an income tax expense of $52.9 million, compared to $30.2 million in 2021. During
the year, following the completion of tax audits, conclusive agreements with the SAT were signed by Corporación First Majestic S.A. de C.V. (“CFM”)
and First Majestic Plata S.A. de C.V. (“FMP”) through Mexico’s Office of the Taxpayer Ombudsman (“PRODECON”) to settle an uncertain tax position
concerning Mexican back-to-back loan provisions. The provisions were originally conceived from an anti-avoidance rule and a literal interpretation
of the rules would convert most debt financing in Mexico into back-to-back loans. The back-to-back loan provisions establish that interest expense
derived from back-to-back loans can be recharacterized as dividends resulting in significant changes to the tax treatment of interest, including
withholding taxes. As a result of this recharacterization and in accordance with the conclusive agreement, CFM and FMP made one-time payments
of approximately $21.3 million and $6.3 million in fiscal 2022 which have been recognized as current tax expense during the year. In addition to the
payment made, CFM agreed to surrender certain tax loss carry forwards resulting in a deferred tax expense of approximately $55.7 million.
10.
As a result of the foregoing, net loss for the year ended December 31, 2022 was $114.3 million (EPS of ($0.43)), compared to the net loss of $4.9
million (EPS of ($0.02)) in the prior year.
SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information for each of the most recent eight quarters:
Selected Financial Information
Revenue
Cost of sales
2022
Q3
Q4
Q2
Q1
Q4
Q3
Q2
Q1
2021
$148,189
$159,751
$159,443
$156,838
$204,876
$124,646
$154,073
$100,522
$126,148
$120,707
$113,619
$111,213
$121,236
$92,006
$95,782
$57,061
Depletion, depreciation and amortization
$35,307
$35,707
$34,212
$30,556
$43,278
$29,122
$28,868
$15,345
Mine operating (loss) earnings
Net (loss) earnings after tax
(Loss) earnings per share - basic
(Loss) earnings per share - diluted
($13,266)
$3,337
$11,612
$15,069
$40,362
$3,518
$29,423
$28,116
($16,819)
($20,692)
($84,050)
$7,285
($3,971)
($18,406)
$15,599
$1,855
($0.06)
($0.08)
($0.32)
($0.06)
($0.08)
($0.32)
$0.03
$0.03
($0.02)
($0.07)
($0.02)
($0.07)
$0.06
$0.06
$0.01
$0.01
During the fourth quarter of 2022, mine operating loss was $13.3 million compared to earnings of $3.3 million in the previous quarter primarily attributed
to a decrease in payable silver equivalent ounces sold resulting from a 19% and 16% decrease in production at San Dimas and Santa Elena, respectively.
This was partially offset by a higher realized silver price of $23.24 compared to $19.74 in the prior quarter. The net loss for the quarter was $16.8
million compared to the net loss of $20.7 million in the prior quarter primarily attributed a decrease in revenues of 7%, higher cost of sales of 5% and
an impairment loss of $4.9 million. This impairment loss was primarily attributed to the classification of La Parrilla as an asset-held-for sale during the
quarter. Finally, there was an income tax recovery of $14.6 million compared to an income tax expense of $0.5 million in the previous quarter.
111
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY, CAPITAL RESOURCES AND CONTRACTUAL OBLIGATIONS
Liquidity
As at December 31, 2022, the Company had cash and cash equivalents of $151.4 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
$1.4 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, 2022 was $202.9 million compared to $224.4 million at December 31, 2021. Total available liquidity at December 31,
2022 was $277.9 million, including working capital and $75.0 million of undrawn revolving credit facility.
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
Decrease in cash and cash equivalents
Effect of exchange rate on cash and cash equivalents held in foreign currencies
Cash and cash equivalent reclassified as held for sale
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of year
Year Ended December 31,
2022
2021
$18,988
$68,723
(213,797)
(180,753)
113,886
($80,923)
(346)
(5,219)
111,817
($213)
(439)
—
237,926
238,578
$151,438
$237,926
The Company’s cash flows from operating, investing and financing activities during the year ended December 31, 2022 are summarized as follows:
Cash generated by operating activities of $19.0 million, primarily due to:
• $109.4 million in cash flows from operating activities before movements in working capital and taxes;
net of:
• $62.7 million in income taxes paid during the period; and
• $27.7 million net change in non-cash working capital items during the period, including a $22.7 million decrease in trade payables primarily due to
the release of $12.6 million held in escrow for the acquisition of Jerritt Canyon and annual profit sharing payments made in Mexico during the second
quarter, $4.4 million decrease in income taxes payable, a $3.4 million increase in inventories, a $0.9 million increase in trade and other receivables
partially offset by a $1.7 million decrease in value added tax (“VAT”) receivables, and $2.4 million decrease in restricted cash.
Cash used in investing activities of $213.8 million, primarily related to:
• $158.0 million spent on mine development and exploration activities;
• $59.7 million spent on purchase of property, plant and equipment;
• $1.7 million spent on the purchase of marketable securities;
• $1.1 million spent on deposits on non-current assets;
net of:
• $4.0 million of net proceeds from the settlement of derivatives; and
• $2.7 million of net proceeds from the disposal of marketable securities.
Cash provided by financing activities of $113.9 million, primarily consists of the following:
• $113.4 million of net proceeds from the issuance of shares through the ATM;
• $50.0 million of proceeds from the revolving credit facility;
• $4.7 million of net proceeds from the exercise of stock options;
net of:
• $30.0 million for repayments towards the revolving credit facility;
• $13.5 million for repayment of lease obligations;
• $6.9 million for the payment of dividends during the year; and
• $3.2 million payment of financing costs.
112
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During the year ended December 31, 2022, the Company received $56.0 million (1,084.2 million MXN) related to value added tax filings. In connection with
the Primero Empresa Minera, S.A. de C.V. (“PEM”) tax ruling, the tax authority has frozen a PEM bank account with cumulative funds of $79.1 million as
a guarantee against certain disputed tax assessments which are currently held within the Company’s restricted cash accounts. This balance consists of
VAT refunds that the Company has received which were previously withheld by the tax authority. The Company does not agree with SAT’s position and is
challenging the freezing of the bank account through the relevant legal channels.
During the year, cash bonds held with the Nevada Division of Environmental Protection (“NDEP”) and the US Forestry Service (“USFS”) were replaced with
surety bonds to fund ongoing reclamation and mine closure obligations, with a $5 million letter of credit provided as collateral for these bonds (Note 21).
These funds were previously classified as non-current restricted cash until returned to the Company by the NDEP and USFS. During the third quarter of
2022, the NDEP and USFS have returned the cash bonds totaling $44.1 million and these amounts have been re-classified to cash and cash equivalents
as at December 31, 2022. Additionally, on November 2, 2021, the Company executed an agreement with the NDEP relating to funds required to establish
a trust agreement to cover post-closure water treatment cost at Jerritt Canyon. During the year, the Company funded $17.7 million into a trust; these
amounts are included within non-current restricted cash as at December 31, 2022.
Reconciliation on Use of Proceeds from ATM Programs
At-the-Market Distributions (“ATM”) Programs
During the year ended December 31, 2022, the Company sold 11,869,145 common shares under the ATM programs at an average price of $9.80 per
common share for gross proceeds of $116.3 million, or net proceeds of $113.4 million after costs. The use of proceeds from the amount raised in the
current year is reconciled as follows:
Gross Proceeds:
Use of Proceeds:
Mine development
General working capital:
NDEP Trust for post-closure water treatment
Settlement of tax disputes
Other
Mine exploration
Offering expenses
Capital Resources
$116,325
60,779
17,600
27,640
4,437
2,939
2,930
$116,325
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 from time to time 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, 2022 and December 31, 2021, the Company was fully in compliance with these covenants.
Contractual Obligations and Commitments
As at December 31, 2022, 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
$115,120
254,838
41,896
6,956
1,355
Less than
1 year
$115,120
1,847
13,966
—
1,355
2 to 3
years
$—
22,955
21,337
—
—
4 to 5
years
$—
230,036
5,668
—
—
$420,165
$132,288
$44,292
$235,704
After 5 years
$—
—
925
6,956
—
$7,881
113
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION At December 31, 2022, the Company had a working capital of $202.9 million (2021 – $224.4 million) and total available liquidity of $277.9 million (2021 –
$274.4 million), including $75.0 million (2021 - $50.0 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.
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, 2022, VAT receivable was $44.9 million (December 31, 2021 - $47.1 million), of which $21.6 million (December 31, 2021 - $22.2 million)
relates to Minera La Encantada S.A. de C.V. (“MLE”) and $17.7 million (December 31, 2021 - $22.0 million) relates to PEM.
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 Restricted cash
Value added
taxes receivable
Other financial
assets
Trade and other
payables
December 31, 2022
Net assets
(liabilities)
exposure
Effect of +/-
10% change in
currency
Canadian dollar
Mexican peso
Commodity Price Risk
$29,956
24,036
$53,992
$—
79,126
$79,126
$—
$3,365
—
($1,887)
(55,629)
$31,434
88,685
$3,143
8,869
$3,365
($57,516)
$120,119
$12,012
41,152
$41,152
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 long-term derivative instruments to hedge its commodity price risk to silver or gold.
114
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table summarizes the Company’s exposure to commodity price risk and their impact on net earnings:
Metals in doré inventory
Political and Country Risk
December 31, 2022
Effect of +/- 10% change in metal prices
Silver
$2,630
$2,630
Gold
$859
$859
Total
$3,489
$3,489
First Majestic currently conducts foreign operations in México and the United States, 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, the conflict between Russia and Ukraine, 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 Estimation of Mineral Resources and Mineral Reserves, and Metal Recovery
There is a degree of uncertainty attributable to the estimation of Mineral Resources and Mineral Reserves (as defined in the Canadian Institute of Mining’s
Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines and included by reference in the Canadian Securities Administrators’ National
Instrument 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, exchange rates assumptions used, underground stability conditions, the ability to maintain constant underground access to all working areas,
geological variability, mining methods assumptions used and operating cost escalation. Any material change in the quantity of Mineral Reserves, Mineral
Resources, grade or dimensions of the geological structures 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
estimated on the basis of economic factors at the time of calculation, including commodity prices and operating costs; 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 metal recoveries in small scale laboratory tests will be
replicated 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 experienced, at various times in the past and potentially in the future, extreme volatility
in response to economic shocks or other events, such as the concern with 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 of the date of this MD&A, the global spread of
COVID-19 appears to have stabilized. The Company has modified its measures to monitor, combat and manage the impact of COVID-19 at its operations.
The Company also continues to provide sanitary support for the local communities in which it operates. Due to the potential for new variants of COVID-19,
future disruptions to business internationally and related financial impact on the Company and the economy in general cannot be estimated with any
degree of certainty at this time.
During 2022, the Company modified its preventative control measures. These measures include continuing education and, where appropriate, voluntary
vaccination campaigns to avoid illnesses related to COVID-19, COVID-19 variants, and the seasonal flu. Monitoring of worker wellness or fitness for duty,
as recommended by the Mexican, US and Canadian Governments health agencies, continues.
There is no guarantee that the Company will not experience disruptions to some of its active mining operations due to COVID-19 restrictions in the
future. Any resurgence of COVID-19 or the spread of other public health crises 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. Any such disruptions could have an adverse effect on the
Company’s production, revenue, net income and business.
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
115
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
in some instances air, water quality, waste disposal, hazardous substances and mine reclamation rules and permits. Although the Company makes
provisions for environmental compliance and 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 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.
On August 26, 2021, the NDEP issued 10 Notices of Alleged Violation (collectively the “NOAV”) that alleged the Company doing business as Jerritt Canyon
Gold, LLC had violated various air permit conditions and regulations applicable to operations at the Jerritt Canyon in Elko County, Nevada. The NOAV are
related to compliance with emission monitoring, testing, recordkeeping requirements, and emission and throughput limits.
The Company filed a Notice of Appeal on September 3, 2021, challenging the NOAV before the Nevada State Environmental Commission (“NSEC”). The
Company raised various defenses to the NOAV, including that the Company is not liable for the violations because it was never the owner/operator of Jerritt
Canyon during the period the alleged violations began (on April 30, 2021, the Company acquired Jerritt Canyon Canada Ltd, which, through subsidiaries, owns
and operates Jerritt Canyon). There is currently no hearing scheduled or any scheduling order in the matter, and the parties have yet to engage in discovery.
On March 8, 2022, NDEP issued an additional four Notices of Alleged Violations to Jerritt Canyon Gold, LLC for alleged exceedances and violations of an
Air Quality Operating permit and Mercury Operating Permit to Construct. The new NOAVs relate to alleged exceedances of a mercury emission limitations,
exceedances of operating parameters, installation of equipment, and recordkeeping requirements. The Company filed a Request for Hearing with the
Nevada State Environmental Commission on March 18, 2022 that challenged the bases for the alleged NOAVs and any potential penalties associated with
the NOAVs. JCG and NDEP agreed to waive the 20-day hearing requirement for the NOAVs and the parties request that the NSEC withhold schedule a
hearing for the NOAVs at this time. At this time the estimated amount cannot be reliably determined.
Climate Related Risks
A number of governments have introduced or are moving to introduce climate change legislation and treaties at the international, national, state/provincial
and local levels. Regulation relating to emission levels (such as carbon taxes) and energy efficiency is becoming more stringent. If the current regulatory
trend continues, this may result in increased costs at some or all of the Company’s operations. In addition, the physical risks of climate change may also
have an adverse effect on the Company’s operations. These risks include the following:
• Changes in sea levels could affect ocean transportation and shipping facilities that are used to transport supplies, equipment and workforce and
products from the Company’s operations to world markets.
• Extreme weather events (such as prolonged drought, flooding or freezing conditions) have the potential to disrupt operations at the Company’s
mines and may require the Company to make additional expenditures to mitigate the impact of such events. Extended disruptions to supply lines
could result in interruption to production.
• The Company’s facilities depend on regular supplies of consumables (diesel, tires, sodium cyanide, etc.) and reagents to operate efficiently. In the
event that the effects of climate change or extreme weather events cause prolonged disruption to the delivery of essential commodities, production
levels at the Company’s operations may be reduced.
There can be no assurance that efforts to mitigate the risks of climate changes will be effective and that the physical risks of climate change will not have
an adverse effect on the Company’s operations and profitability.
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.
Each of these matters is subject to various uncertainties and it is possible that some of these other matters may be resolved in a manner that is
unfavourable to the Company which may result in a material adverse impact on the Company’s financial performance, cash flow or results of operations.
First Majestic carries liability insurance coverage and establishes provisions for matters that are probable and can be reasonably estimated, however
there can be no guarantee that the amount of such coverage is sufficient to protect against all potential liabilities. In addition, the Company may in the
future be subjected to regulatory investigations or other proceedings and 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.
Title to Properties
The validity of mining or exploration titles or claims or rights, which constitute most of the Company’s property holdings, can be uncertain and may
be contested. The Company has used reasonable commercial efforts to investigate the Company’s title or claim to its various properties, however, no
assurance can be given that applicable governments will not revoke or significantly alter the conditions of the applicable exploration and mining titles or
claims and that such exploration and mining titles or claims will not be challenged or impugned by third parties. Mining laws are continually developing
and changes in such laws could materially impact the Company’s rights to its various properties or interests therein. The Company has obtained title
insurance for its Jerritt Canyon Mine but there is a risk that such insurance could be insufficient, or the Company could not be successful in any claim
against its insurer. Accordingly, the Company may have little or no recourse as a result of any successful challenge to title to any of its properties. The
Company’s properties may be subject to prior unregistered liens, agreements or transfers, land claims or undetected title defects which may have a
material adverse effect on the Company’s ability to develop or exploit the properties.
116
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Primero Tax Rulings
When Primero, the previous owner of San Dimas acquired the San Dimas Mine in August 2010, it assumed the obligations under a Silver Purchase
Agreement (“Old Stream Agreement”) that required its subsidiary PEM to sell exclusively to Wheaton Precious Metals (“WPMI”) up to 6 million ounces
silver produced from the San Dimas Mine, and 50% of silver produced thereafter, at the lower of: (i) the spot market price and (ii) $4.014 per ounce plus
an annual increase of 1% (“PEM Realized Price”).
In order to reflect the commercial terms and the effects of the Old Stream Agreement, for Mexican income tax purposes, PEM recognized the revenue on
these silver sales based on the PEM Realized Price instead of at spot market prices.
To obtain tax and legal assurance that the SAT would accept the PEM Realized Price as the transfer price to calculate Mexican income taxes payable by
PEM, a mutually binding Advance Pricing Agreement (“APA”) was entered into with the SAT for taxation years 2010 to 2014. On October 4, 2012, the SAT
confirmed that based on the terms of the APA, the PEM Realized Price could be used as PEM’s basis for calculating taxes owed for the silver sold under
the Old Stream Agreement.
In February 2016, the SAT initiated a legal process seeking to retroactively nullify the APA.
In 2019, the SAT issued reassessments for the 2010 to 2012 tax years in the total amount of $253.4 million (4,919 million MXN) inclusive of interest,
inflation, and penalties. In 2021, the SAT also issued a reassessment against PEM for the 2013 tax year in the total amount of $139.7 million (2,723
million MXN) (collectively, the “Reassessments”). The Company believes that the Reassessments violate the terms of the APA. The major items in the
Reassessments include determination of revenue based on silver spot market prices, denial of the deductibility of interest expense and service fees, SAT
technical error related to double counting of taxes, and interest and penalties.
The Company continues to defend the APA in the Mexican legal proceedings, and also requested resolution of the transfer price dispute pursuant to the
Mutual Agreement Procedure (“MAP”), under the relevant avoidance of double taxation treaties, between the competent tax authorities of Mexico, Canada,
Luxembourg and Barbados. The SAT has refused to take the necessary steps under the MAP process contained in the three treaties. The Company believes
that by its refusal, Mexico is in breach of its international obligations regarding double taxation treaties. Furthermore, the Company continues to believe
that the APA remains valid and legally binding on the SAT.
The Company continues to pursue all available domestic and international remedies under the laws of Mexico and under the relevant tax treaties.
Furthermore, as discussed further below, it has also made claims against Mexico under Chapter 11 of the North American Free Trade Agreement
(“NAFTA”) for violation of its international law obligations.
Domestic Remedies
In September 2020, the Company was served with a decision of the Federal Court seeking 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 filed an appeal of the decision to the Mexican Circuit Courts on November 30, 2020. Since two writs of certiorari were filed before the
Mexican Supreme Court of Justice, on April 15, 2021, the Plenary of the Supreme Court i) admitted one of those writs, ii) requested the Circuit Court to send
the appeal file and iii) assigned such writ to the Second Chamber of the Supreme Court for issuing the corresponding decision. Both writs of certiorari
were withdrawn in December 2022. The challenge filed by the Company has been returned to the Mexican Circuit Courts and a decision may be issued
within the first quarter of 2023.
The Company, in addition to challenging the SAT’s actions in the Mexican courts, is also pursuing resolution of its dispute through Mexico’s Federal
Taxpayer Defense Attorney’s Office (known as “PRODECON”).
International Remedies
On March 2, 2021, the Company submitted a Request for Arbitration to the International Centre for Settlement of Investment Disputes (“ICSID”), on its own
behalf and on behalf of PEM, based on Chapter 11 of NAFTA. On March 31, 2021, the Notice of Registration of the Request for Arbitration was issued by
the ICSID Secretariat. Once the NAFTA Arbitration Panel (the “Tribunal”) was fully constituted on August 20, 2021 by the appointment of all three panel
members, the NAFTA Arbitration Proceedings (the “NAFTA Proceedings”) were deemed to have been fully commenced. The first session of the Tribunal
was held by videoconference on September 24, 2021 to decide upon the procedural rules which will govern the NAFTA Proceedings. The Tribunal issued
Procedural Order No. 1 on October 21, 2021. Thereafter, on April 26, 2022, the Company submitted its Claimant’s Memorial including expert reports and
witness statements to the Tribunal, and on November 26, 2022, Mexico submitted its Counter-Memorial.
If the SAT’s attempts to retroactively nullifying the APA are successful, the SAT can be expected to enforce its Reassessments for 2010 through 2014
against PEM in respect of its sales of silver pursuant to the Old Stream Agreement. Such an outcome 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 spot market prices without any mitigating adjustments, the incremental income tax for the years 2010-2019 would be approximately $257.3 million
(4,995 million MXN), before taking into consideration interest or penalties.
Based on the Company’s consultation with third party advisors, the Company believes PEM filed its tax returns in compliance with applicable Mexican law
and, therefore, at this time no liability has been recognized in the financial statements.
117
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION To the extent it is ultimately determined that the pricing for 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 materially adverse 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. and Corporacion First Majestic S.A. de C.V.,
the SAT issued tax assessments for fiscal 2013 for corporate income tax in the amount of $4.9 million (95.5 million MXN) and $15.6 million (302 million
MXN), respectively including interest, inflation and penalties. In December 2022, the SAT issued tax assessments to Minera La Encantada, S.A. de C.V.
for fiscal years 2014 and 2015 for corporate income tax in the amount of $15.7 million (305.2 million MXN) and $204.4 million (3,968.0 million MXN).
The major 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.
Corporación First Majestic Back-to-Back Loans
In June 2022, following the completion of tax audits, conclusive agreements with the SAT were signed by Corporación First Majestic S.A. de C.V. (“CFM”)
and First Majestic Plata S.A. de C.V. (“FMP”) through Mexico’s Office of the Taxpayer Ombudsman (“PRODECON”) to settle an uncertain tax position
concerning Mexican back-to-back loan provisions. The provisions were originally conceived from an anti-avoidance rule and a literal interpretation of
the rules would convert most debt financing in Mexico into back-to-back loans. The back-to-back loan provisions establish that interest expense derived
from back-to-back loans can be recharacterized as dividends resulting in significant changes to the tax treatment of interest, including withholding taxes.
As a result of this recharacterization and in accordance with the conclusive agreement, CFM and FMP made one-time payments of approximately $21.3
million and $6.3 million in fiscal 2022 which have been recognized as current tax expense during the year. In addition to the payment made, CFM agreed
to surrender certain tax loss carry forwards resulting in a deferred tax expense of approximately $55.7 million.
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 $64.3 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. Although the Company is taking additional actions in Mexico and/or elsewhere to recover the balance, there can
be no guarantee that the remainder of the judgment amount will be collected. Therefore, as at December 31, 2022, the Company has not accrued any of
the remaining $64.3 million (CAD$81.5 million) unrecovered judgment in favour of the Company.
OTHER FINANCIAL INFORMATION
Share Repurchase Program
The Company has an ongoing share repurchase program to repurchase up to 10,000,000 of the Company’s issued and outstanding shares. The normal
course issuer bid will be carried out through the facilities of the Toronto Stock Exchange and alternative Canadian marketplaces. All common shares,
if any, purchased pursuant to the Share Repurchase will be cancelled. The Company believes that from time to time, the market price of its common
shares may not fully reflect the underlying value of the Company’s business and its future business prospects. The Company believes that at such times,
the purchase of common share would be in the best interest of the Company. During the year ended December 31, 2022, the Company repurchased an
aggregate of 100,000 common shares at an average price of CDN $8.52 per share as part of the Share Repurchase Program (December 2021 - nil) for
total proceeds of $0.7 million, net of transaction costs.
Off-Balance Sheet Arrangements
At December 31, 2022, the Company had no material off-balance sheet arrangements such as contingent interest in assets transferred to an entity,
derivative instruments obligations or any obligations that generate financing, liquidity, market or credit risk to the Company, other than contingent
liabilities and vendor liability and interest, as disclosed in this MD&A and the consolidated financial statements and the related notes.
Related Party Disclosures
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon
by the transacting parties and on terms and conditions similar to non-related parties.
In July 2020, the Company completed the agreement with First Mining Gold Corp., to purchase 50% of the payable silver produced from the Springpole
Gold Project for total consideration of $22.5 million in cash and shares, over three payments, for the silver stream which covers the life of the Springpole
project. 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, 2022.
118
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Outstanding Share Data
As at February 22, 2023, the Company has 274,369,973 common shares issued and outstanding.
SUBSEQUENT EVENTS
The following significant events occurred subsequent to December 31, 2022:
Declaration of Quarterly Dividend
On February 23, 2023, the Company’s board of directors approved the declaration of its quarterly common share dividend of $0.0054 per share, payable
on or after March 24 2023, to common shareholders of record at the close of business on March 10, 2023. These dividends were declared subsequent to
the year-end and have not been recognized as distributions to owners during the year ended December 31, 2022.
At-the-Market Distributions (“ATM”) Program
On July 20, 2022, the Company entered into an equity distribution agreement and 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
$100.0 million. The sale of common shares is to be made through ATM distributions, as defined in Canadian Securities Administrator’s National Instrument
44-102 Shelf Distributions, directly on the New York Stock Exchange. Subsequent to year-end, the Company sold a total of 1,719,634 common shares
at an average price of $8.76 per share, for gross proceeds of $15.0 million. The Company completed distributions under the ATM on January 13, 2023.
ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Critical Accounting Judgments and Estimates
The preparation of consolidated financial statements in conformity with IFRS as issued by the International Accounting Standards Board (“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.
Assets and Liabilities Held-for-Sale:
Accounting Policy:
A non-current asset or disposal group of assets and liabilities (“disposal group”) is classified as held-for-sale, if its carrying amount will be recovered
principally through a sale transaction rather than through continuing use, and when the following criteria are met:
(i) The non-current asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for
sales of such assets or disposal groups; and
(ii) The sale of the non-current asset or disposal group is highly probable. For the sale to be highly probable:
• The appropriate level of management must be committed to a plan to sell the asset or disposal group;
• An active program to locate a buyer and complete the plan must have been initiated;
• The non-current asset or disposal group must be actively marketed for sale at a price that is reasonable in relation to its current fair value;
• The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification as held for sale (with certain
exceptions); and
• Actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Non-current assets and disposal groups are classified as held for sale from the date these criteria are met and are measured at the lower of the carrying
amount and fair value less costs to sell (“FVLCTS”). If the FVLCTS is lower than the carrying amount, an impairment loss is recognized in net earnings.
Upon classification as held for sale, non-current assets are no longer depreciated.
Significant estimates and judgements:
In determining the probability of the sale being completed within a year, management has considered a number of factors including necessary approvals
from management, the Board of Directors, regulators and shareholders.
Determination and classification of current and non-current restricted cash
The Company determines if the funds on hand and held at banks meets the definition of cash or cash equivalents. When there is a restriction on those
funds, the Company assesses the nature of the restriction and if it is applicable, excludes the related amounts from the cash and cash equivalents balance.
The Company then assesses the classification of the restricted cash between current and non-current based on the following factors:
• an asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after
the period; and
• it expects to realize the asset within twelve months after the reporting period.
119
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The evaluation was performed based on the available information at the end of the reporting period; if there are changes in the circumstances the
Company will reassess the classification.
New and 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 IASB that were effective for
annual periods that begin on or after January 1, 2022. Their adoption has not had any material impact on the disclosures or on the amounts reported in
these 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 recognizes
the proceeds from selling such items, and the cost of producing those items, in profit or loss.
The amendments were applied effective January 1, 2022 and did not have a material impact on the Company’s consolidated financial statements.
Provisions, Contingent Liabilities and Contingent Assets (Amendment to IAS 37)
The amendments clarify that the cost of fulfilling a contract when assessing whether a contract is onerous comprise both the incremental costs and an
allocation of other costs that relate directly to fulfilling the contract. The amendments apply to contracts existing at the date when the amendments are
first applied. On adoption of this amendment, there was no impact to the Company’s consolidated financial statements.
Future Changes in Accounting Policies Not Yet Effective as at December 31, 2022:
At the date of authorization of these financial statements, the Group has not applied the following new and revised IFRS Accounting Standards that have
been issued but are not yet effective. Management does not expect that the adoption of the Standards listed below will have a material impact on the
financial statements of the Group in future periods, except if indicated.
Classification of Liabilities as Current or Non-Current with Covenants (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.
In addition, the amendment requires entities to disclose information to enable users of the financial statements to understand the risk that non-current
liabilities with covenants could become repayable within twelve months. The amendments are applied on or after the first annual reporting period
beginning on or after January 1, 2024, with early application permitted. This amendment is not expected to have a material impact on the Company’s
financial statements.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgments—Disclosure of Accounting Policies
The amendments change the requirements in IAS 1 with regard to disclosure of accounting policies. The amendments replace all instances of the term
“significant accounting policies” with “material accounting policy information”. Accounting policy information is material if, when considered together
with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general
purpose financial statements make on the basis of those financial statements.
The supporting paragraphs in IAS 1 are also amended to clarify that accounting policy information that relates to immaterial transactions, other events
or conditions is immaterial and need not be disclosed. Accounting policy information may be material because of the nature of the related transactions,
other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other
events or conditions is itself material. The International Accounting Standards Board (“IASB”) has also developed guidance and examples to explain and
demonstrate the application of the ‘four-step materiality process’ described in IFRS Practice Statement 2.
The amendments to IAS 1 are effective for annual periods beginning on or after January 1, 2023, with earlier application permitted and are applied
prospectively. The amendments to IFRS Practice Statement 2 do not contain an effective date or transition requirements. This amendment is not expected
to have a material impact on the Company’s financial statements.
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors—Definition of Accounting Estimates
The amendments replace the definition of a change in accounting estimates with a definition of accounting estimates. Under the new definition, accounting
estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”.
The definition of a change in accounting estimates was deleted. However, the Board retained the concept of changes in accounting estimates in the
Standard with the following clarifications:
• A change in accounting estimate that results from new information or new developments is not the correction of an error
• The effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if they
do not result from the correction of prior period errors
120
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The amendments are effective for annual periods beginning on or after January 1, 2023 to changes in accounting policies and changes in accounting
estimates that occur on or after the beginning of that period, with earlier application permitted. This amendment is not expected to have a material impact
on the Company’s financial statements.
Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12)
In May 2021, the International Accounting Standards Board issued targeted amendments to IAS 12, Income Taxes. The amendments are effective for annual
periods beginning on or after January 1, 2023, although earlier application is permitted. With a view to reducing diversity in reporting, the amendments
will clarify that companies are required to recognize deferred taxes on transactions where both assets and liabilities are recognized, such as with leases
and decommissioning liabilities. This amendment is not expected to have a material impact on the Company’s financial statements.
Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
The amendments require a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognize any
amount of the gain or loss that relates to the right of use it retains. The new requirements do not prevent a seller-lessee from recognizing in profit or
loss any gain or loss relating to the partial or full termination of a lease. A seller-lessee applies the amendments retrospectively in accordance with IAS
8 Accounting Policies, Changes in Accounting Estimates and Errors to sale and leaseback transactions entered into after the date of initial application.
The amendments are effective for annual reporting periods beginning on or after January 1, 2024 although earlier application is 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 silver equivalents ounce”, “All-in sustaining cost per silver equivalent
ounce”, “Production cost per tonne”, “Average realized silver equivalent price”, “Average realized gold price”, “Adjusted earnings per share”, “Free cash
flow” 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 the
methods used by the Company to calculate such measures may differ from methods used by other companies with similar descriptions, therefore they
may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be
considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Effective January 1, 2021, the Company transitioned its cost reporting from Cost per Silver Ounce to Cost per Silver Equivalent (“AqEq”) Ounce basis.
Management believes the change to using silver equivalent ounce 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. Prior period comparatives of Cash Cost and AISC per ounce have been updated to be consistent with the new AgEq ounce metric.
Cash Cost per AgEq Ounce, All-In Sustaining Cost per AgEq Ounce and Production Cost per Tonne
Cash costs per AgEq ounce and total production cost per tonne are non-GAAP performance measures used by the Company to manage and evaluate
operating performance at each of the Company’s operating mining units, in conjunction with the related GAAP amounts. These metrics 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.
Management and investors use these metrics for comparing the costs against peers in the industry and for assessing the performance of each mine
within the portfolio.
Management calculates the cash costs per ounce and production costs per tonne by:
• starting with the production costs (GAAP) from the income statement;
• adding back duties and royalties, smelting and refining costs as well as transportation and selling costs, which form a part of the cost of sales on the
financial statements and provide a better representation of total costs incurred;
• cash costs are divided by the payable silver equivalent ounces produced; and
• production costs are divided by the total tonnes milled.
AISC is a non-GAAP performance 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 and is useful for investors and management to
assess the Company’s operating performance by providing greater visibility, comparability and representation of the total costs associated with producing
silver from its current operations, in conjunction with related GAAP amounts. AISC helps investors to assess costs against peers in the industry and help
management assess the performance of each mine within the portfolio in a standardized manner.
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.”
121
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 costs (GAAP measure) 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.
The following tables provide detailed reconciliations of these measures to cost of sales, as reported in notes to our condensed interim consolidated
financial statements.
(expressed in thousands of U.S. Dollars,
except ounce and per ounce amounts)
Mining cost
Milling cost
Indirect cost
Three Months Ended December 31, 2022
San Dimas
Santa Elena
La Encantada
Jerritt Canyon
Consolidated
$14,529
8,249
11,401
$9,782
8,974
4,923
$3,855
$23,336
$51,502
5,292
3,004
13,341
5,218
35,856
24,546
Total production cost (A)
$34,179
$23,679
$12,151
$41,894
$111,903
Add: transportation and other selling cost
Add: smelting and refining cost
Add: environmental duty and royalties cost
Total cash cost (B)
Workers’ participation
General and administrative expenses
Share-based payments
Accretion of decommissioning liabilities
Sustaining capital expenditures
Operating lease payments
All-In Sustaining Costs (C)
326
330
311
207
72
1,797
139
173
76
14
26
457
743
601
2,641
$35,146
$25,755
$12,539
$42,391
$115,888
8,522
(763)
—
—
306
7,007
175
—
—
167
2,884
1,285
(75)
—
—
218
2,144
882
—
—
—
514
5,298
—
7,684
7,768
2,845
1,554
17,521
2,814
$51,156
$29,328
$15,708
$48,203
$156,074
Payable silver equivalent ounces produced (D)
3,046,462
2,299,400
810,165
1,387,134
7,543,161
Payable gold equivalent ounces produced (E)
N/A
N/A
N/A
Tonnes milled (F)
210,108
207,188
254,766
16,827
179,502
N/A
851,564
Cash cost per AgEq ounce (B/D)
AISC per AgEq ounce (C/D)
Cash cost per Au ounce (B/E)
AISC per Au ounce (C/E)
$11.54
$16.79
N/A
N/A
$11.20
$12.75
N/A
N/A
$15.48
$19.39
N/A
N/A
$30.56
$34.75
$2,519
$2,865
$15.36
$20.69
N/A
N/A
Production cost per tonne (A/F)
$162.68
$114.29
$47.69
$233.39
$131.41
122
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)
Mining cost
Milling cost
Indirect cost
Three Months Ended December 31, 2021
San Dimas
Santa Elena
La Encantada
Jerritt Canyon
Consolidated
$11,232
$10,052
7,162
11,852
7,174
3,824
$3,514
4,290
2,845
$20,480
$45,277
13,296
4,996
31,921
23,517
Total production cost (A)
$30,246
$21,050
$10,649
$38,771
$100,716
Add: transportation and other selling cost
Add: smelting and refining cost
Add: environmental duty and royalties cost
Total cash cost (B)
Workers’ participation
General and administrative expenses
Share-based payments
Accretion of decommissioning liabilities
Sustaining capital expenditures
Operating lease payments
All-In Sustaining Costs (C)
449
755
591
160
165
1,203
103
239
116
14
20
793
780
1,179
2,703
$32,041
$22,578
$11,107
$39,598
$105,378
4,010
—
—
175
8,989
95
54
—
—
76
3,514
1,167
$45,310
$27,389
1,538
—
—
128
1,272
816
$14,861
765,430
N/A
—
—
—
319
8,887
347
5,602
6,591
2,859
951
23,387
2,996
$49,151
$147,764
1,823,950
8,556,257
23,660
256,374
N/A
955,810
Payable silver equivalent ounces produced (D)
4,013,338
1,953,539
Payable gold equivalent ounces produced (E)
N/A
N/A
Tonnes milled (F)
206,738
224,459
268,239
Cash cost per AgEq ounce (B/D)
AISC per AgEq ounce (C/D)
Cash cost per Au ounce (B/E)
AISC per Au ounce (C/E)
Production cost per tonne (A/F)
$7.98
$11.29
N/A
N/A
$11.56
$14.02
N/A
N/A
$14.51
$19.41
N/A
N/A
$21.71
$26.95
$1,674
$2,077
$12.32
$17.26
N/A
N/A
$146.30
$93.78
$39.70
$151.23
$105.37
123
FIRST MAJESTIC SILVER 2022 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
Year Ended December 31, 2022
San Dimas
Santa Elena
La Encantada
Jerritt Canyon
Consolidated
$48,032
$43,382
$14,363
$93,302
$199,080
30,753
43,899
34,605
19,982
19,835
11,948
51,339
20,918
136,533
96,747
Total production cost (A)
$122,684
$97,970
$46,146
$165,559
$432,359
Add: transportation and other selling cost
Add: smelting and refining cost
Add: environmental duty and royalties cost
Total cash cost (B)
Workers’ participation
General and administrative expenses
Share-based payments
Accretion of decommissioning liabilities
Sustaining capital expenditures
Operating lease payments
All-In Sustaining Costs (C)
1,212
1,483
1,380
780
396
6,689
480
664
339
102
87
2,656
2,788
2,630
11,064
$126,759
$105,835
$47,629
$168,404
$448,841
16,106
1,978
(819)
—
—
1,190
33,252
585
—
—
649
13,801
5,369
—
—
847
6,499
3,355
—
—
—
2,054
28,525
—
17,265
34,743
13,958
6,102
83,853
10,911
$177,892
$127,632
$57,511
$198,983
$615,673
Payable silver equivalent ounces produced (D)
12,927,243
9,133,062
3,112,363
6,016,478
31,189,146
Payable gold equivalent ounces produced (E)
N/A
N/A
N/A
72,411
N/A
Tonnes milled (F)
787,636
851,973
1,025,172
804,206
3,468,987
Cash cost per AgEq ounce (B/D)
AISC per AgEq ounce (C/D)
Cash cost per Au ounce (B/E)
AISC per Au ounce (C/E)
$9.81
$13.76
N/A
N/A
$11.59
$13.97
N/A
N/A
$15.30
$18.48
N/A
N/A
$27.99
$33.07
$2,326
$2,748
$14.39
$19.74
N/A
N/A
Production cost per tonne (A/F)
$155.76
$114.99
$45.01
$205.87
$124.64
124
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)
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 (B)
Workers’ participation
General and administrative expenses
Share-based payments
Accretion of decommissioning liabilities
Sustaining capital expenditures
Operating lease payments
All-In Sustaining Costs (C)
Year Ended December 31, 2021
San Dimas
Santa Elena
La Encantada
Jerritt Canyon
Consolidated
$47,270
$32,024
$13,206
$58,689
$151,188
28,258
41,311
28,254
14,576
17,978
11,256
35,551
14,830
110,040
81,973
$116,840
$74,853
$42,440
$109,069
$343,202
1,433
1,819
1,683
618
523
1,559
427
718
406
47
47
2,188
2,738
3,107
5,836
$121,775
$77,553
$43,991
$111,351
$354,883
13,374
—
—
716
35,542
312
269
—
—
313
15,636
2,943
2,296
—
—
521
4,616
2,894
—
—
—
642
27,565
862
15,939
25,393
12,290
3,228
85,664
8,708
$171,719
$96,714
$54,318
$140,420
$506,105
Payable silver equivalent ounces produced (D)
13,518,292
5,036,842
3,260,834
5,013,388
26,829,356
Payable gold equivalent ounces produced (E)
N/A
N/A
N/A
68,567
N/A
Tonnes milled (F)
822,791
879,060
1,004,144
633,400
3,339,394
Cash cost per AgEq ounce (B/D)
AISC per AgEq ounce (C/D)
Cash cost per Au ounce (B/E)
AISC per Au ounce (C/E)
$9.01
$12.70
N/A
N/A
$15.40
$19.20
N/A
N/A
$13.49
$16.66
N/A
N/A
$22.21
$28.01
$1,624
$2,048
$13.23
$18.84
N/A
N/A
Production cost per tonne (A/F)
$142.00
$85.15
$42.25
$172.20
$102.77
Average Realized Silver Price per Silver Equivalent Ounce
Revenues are presented as the net sum of invoiced revenues related to delivered shipments of silver or gold doré bars, including associated metal by-
products of 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 average realized silver price is a non-GAAP performance measure that allows management and investors to assess the Company’s ability to sell
ounces produced, in conjunction with related GAAP amounts. Management calculates this measure by taking total revenue reported under GAAP and
adding back smelting and refining charges to arrive at the gross reportable revenue for the period. Gross revenues are divided into payable silver
equivalent ounces sold to calculate the average realized price per ounce of silver equivalents sold. The streaming and royalty agreements in place
between the Company and Sandstorm as well as Wheaton, impacts the total revenues reported on the financial statements given the reduced prices
provided to these vendors in line with the terms of the agreements. Therefore, management adjusts revenue to exclude smelting and refining charges as
well as revenues earned through agreements with these vendors. This provides management with a better picture regarding its ability to convert ounces
produced to ounces sold and provides the investor with a clear picture of the price that the Company can currently sell the inventory for, excluding pre-
arranged agreements.
125
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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,
2022
2021
2022
2021
$148,189
$204,876
$624,222
$584,117
600
148,789
(220)
(6,832)
1,179
206,055
(461)
(9,385)
2,629
3,108
626,851
587,225
(1,148)
(26,053)
(2,489)
(29,612)
Gross revenues, excluding Sandstorm, Wheaton (A)
$141,737
$196,208
$599,649
$555,124
Payable silver equivalent ounces sold
Less: Payable silver equivalent ounces sold to
Sandstorm
Less: Payable silver equivalent ounces sold to
Wheaton
Payable silver equivalent ounces sold, excluding
Sandstorm and Wheaton (B)
7,007,210
9,378,637
30,320,473
25,954,222
(35,385)
(74,554)
(200,509)
(382,659)
(873,498)
(1,189,362)
(3,462,825)
(3,511,128)
6,098,326
8,114,720
26,657,138
22,060,435
Average realized silver price per silver equivalent ounce (A/B)
Average market price per ounce of silver per COMEX
$23.24
$21.29
$24.18
$23.35
$22.49
$21.80
$25.16
$25.15
Average Realized Gold Price per Ounce
Revenues are presented as the net sum of invoiced revenues related to delivered shipments of silver or gold doré bars, including associated metal by-
products of 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 average realized gold price is a non-GAAP performance measure that allows management and investors to assess the Company’s ability to sell
ounces produced, in conjunction with related GAAP amounts. Management calculates this measure by taking total revenue reported under GAAP and
adding back smelting and refining charges to arrive at the gross reportable revenue for the period. Silver revenues are deducted from the reportable
revenue for the period in order to arrive at the gold revenue for the period. Gross gold revenues are divided into gold ounces sold to calculate the average
realized price per ounce of gold sold. The streaming and royalty agreements in place between the Company and Sandstorm as well as Wheaton, impacts
the total revenues reported on the financial statements given the reduced prices provided to these vendors in line with the terms of the agreements.
Therefore, management adjusts revenue to exclude smelting and refining charges as well as revenues earned through agreements with these vendors.
This provides management with a better picture regarding its ability to convert ounces produced to ounces sold and provides the investor with a clear
picture of the price that the Company can currently sell the inventory for, excluding pre-arranged agreements.
Gross revenue, excluding Sandstorm, Wheaton
$141,737
$196,208
$599,649
$555,124
Less: Silver revenues
Gross gold revenues, excluding Sandstorm, Wheaton (A)
56,119
$85,618
105,387
$90,822
237,107
307,302
$362,541
$247,822
Three Months Ended December 31,
Year Ended December 31,
2022
2021
2022
2021
Gold ounces sold
Less: Gold ounces sold to Wheaton
Less: Gold ounces sold to Sandstorm
Gold ounces sold, excluding Sandstorm and Wheaton (B)
Average realized gold price per ounce (A/B)
Average market price per ounce of gold
Free Cash Flow
59,511
10,943
465
48,103
$1,780
$1,731
65,229
15,182
985
49,062
$1,851
$1,795
246,265
190,450
41,841
2,433
48,015
5,327
201,991
137,108
$1,795
$1,801
$1,807
$1,784
Free cash flow is a non-GAAP liquidity measure which is determined based on operating cash flows less sustaining capital expenditures. Management
uses free cash flow as a critical measure in the evaluation of liquidity in conjunction with related GAAP amounts. It also uses the measure when considering
available cash, including for decision-making purposes related to dividends and discretionary investments. Further, it helps management, the Board of
126
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Directors and investors evaluate a Company’s ability to generate liquidity from operating activities.
Operating cash flows
Less: Sustaining capital expenditures
Free cash flow
Adjusted Earnings per Share (“Adjusted EPS”)
Three Months Ended December 31,
Year Ended December 31,
2022
($14,758)
17,521
($32,279)
2021
$89,812
23,387
$66,425
2022
$18,988
83,853
2021
$68,723
85,664
($64,865)
($16,941)
The Company uses the financial measure “Adjusted EPS” which is a non-GAAP measure, to supplement earnings per share (GAAP) information in its
condensed interim 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.
Management uses adjusted earnings per share as a critical measure operating performance in conjunction with the related GAAP amounts. The only
items considered in the adjusted earnings-per-share calculation are those that management believes (1) may affect trends in underlying performance
from year to year and (2) are not considered normal recurring cash operating expense.
Adjusted earnings per share is used for forecasting, operational and strategic decision making, evaluating current Company and management
performance, and calculating financial covenants. Management believes that excluding certain non-cash and non-recurring items from the calculation
increases comparability of the metric from period to period, which makes it useful for management, the audit committee and investors, to evaluate 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.
To calculate adjusted earnings per share, management adjusts from net earnings (GAAP), the per-share impact, net of the tax effects of adjustments, of
the following:
• share based payments;
• realized and unrealized gains and losses from investment in derivatives and marketable securities; and
• other infrequent or non-recurring losses and gains.
The following table provides a detailed reconciliation of net earnings (losses) as reported in the Company’s condensed interim consolidated financial
statements to adjusted net earnings and Adjusted EPS:
Net (loss) as reported
Adjustments for non-cash or unusual items:
Tax settlement
Impairment (impairment reversal)
Deferred income tax (recovery) expense
Share-based payments
Loss (gain) from investment in marketable securities
Abnormal costs (1)
Write-down on assets held-for-sale
Write-down of mineral inventory
Acquisition costs
Loss on early settlement of senior convertible notes
Gain on divestiture of exploration projects
Adjusted net (loss) earnings
Three Months Ended December 31,
Year Ended December 31,
2022
2021
2022
2021
($16,819)
($3,971)
($114,276)
($4,923)
6,300
4,934
(19,681)
2,845
(425)
436
—
9,314
—
—
(4,301)
($17,397)
—
—
156
2,859
(776)
—
—
1,164
23
4,642
—
24,033
(2,651)
(3,378)
13,958
3,865
3,553
—
23,767
—
—
(4,301)
—
—
(19,110)
12,290
1,522
—
2,081
7,479
1,973
4,642
—
$4,097
($55,430)
$5,954
Weighted average number of shares on issue - basic
266,673,994
256,805,023
263,122,252
244,749,772
Adjusted EPS
($0.07)
$0.02
($0.21)
$0.02
(1) Abnormal costs includes $3.1 million incurred as a result of marginal ore material that was processed to keep the mill running at minimum feed requirements to perform government mandated air
compliance test work at the Jerritt Canyon Gold mine.
127
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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,
2022
December 31,
2021
$370,289
$397,207
(167,399)
(172,822)
$202,890
$224,385
75,000
50,000
$277,890
$274,385
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, 2022, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the
information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported, within the appropriate time
periods and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
Internal Control over Financial Reporting
The Company’s management, with the participation of its CEO and CFO, is responsible for establishing and maintaining adequate internal control
over financial reporting as such term is defined in the rules of the United States Securities and Exchange Commission and the Canadian Securities
Administrators. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. The Company’s
internal control over financial reporting includes policies and procedures that:
• maintain records that accurately and fairly reflect, in reasonable detail, the transactions and dispositions of assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary for preparation of financial statements in accordance with IFRS as issued
by IASB;
• provide reasonable assurance that the Company’s receipts and expenditures are made only in accordance with authorizations of management and
the Company’s Directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the Company’s condensed interim 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, 2022. There have been
no significant changes in our internal controls during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to
materially affect, internal control over financial reporting.
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 22, 2023 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.
Limitations of Controls and Procedures
The Company’s management, including the President and CEO and CFO, 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
128
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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; interpretation of drill results and other technical data; anticipated
development, expansion, exploration activities and production rates and mine plans and mine life; 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; anticipated reclamation and decommissioning activities; conversion of mineral resources to proven and probable mineral reserves; 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; completion of the sale of the Company’s La Parrilla and La Guitarra mines;
payment of dividends; statements with respect to the recovery of value added tax receivables and the tax regime in México; the conduct or outcome of
outstanding litigation, regulatory proceedings, negotiations or proceedings under NAFTA or other claims; expectations regarding the continuing effect of the
COVID-19 pandemic on the Company’s operations, the global economy and the market for the Company’s products. 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 forecasts of future results, estimates of amounts not yet determinable and assumptions of management
made in light of management’s experience and perception of historical trends, current conditions and expected future developments 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, 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 and other factors described in the Company’s Annual Information Form under the heading “Risk Factors”.
The Company believes that the expectations reflected in any such forward-looking statements are reasonable, but no assurance can be given that these
expectations will prove to be correct and such forward-looking statements included herein this MD&A should not be unduly relied upon. These statements
speak only as of the date of this MD&A. The Company does not intend, and does not assume any obligation, to update these forward-looking statements,
except as required by applicable laws. Actual results may differ materially from those expressed or implied by such forward-looking statements.
Cautionary Note regarding Reserves and Resources
National Instrument 43-101 (“NI 43-101”), issued by the Canadian Securities Administrators, lays out the standards of disclosure for mineral projects.
This includes a requirement that a certified Qualified Person (“QP”) (as defined under the NI 43-101) supervises the preparation of the mineral reserves
and mineral resources. Ramon Mendoza, P. Eng., Vice President of Technical Services is a certified QP for the Company and has reviewed this MD&A for QP
technical disclosures. All NI 43-101 technical reports can be found on the Company’s website at www.firstmajestic.com or on SEDAR at www.sedar.com.
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 materially from the requirements of United States securities laws applicable to U.S. companies. Information concerning our mineral properties has
been prepared in accordance with the requirements of Canadian securities laws, which differ in material respects from the requirements of the United
States Securities and Exchange Commission (the “SEC”) applicable to domestic United States issuers. Accordingly, the disclosure in this Management’s
Discussion and Analysis regarding our mineral properties is not comparable to the disclosure of United States issuers subject to the SEC’s mining
disclosure requirements.
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, 2022, is available on SEDAR at www.sedar.com and on the Company’s website at www.firstmajestic.com.
129
FIRST MAJESTIC SILVER 2022 ANNUAL REPORTMANAGEMENT’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
David Soares, CPA, CA
Chief Financial Officer
Sophie Hsia, LL.B., B.C.L., LL.M.
General Counsel
Connie Lillico, BA
Corporate Secretary
Marjorie Co, B.SC., LLB, MBA 1,3,4
Director
Ana Lopez, BA Hons, LLB, CPHR, CEC 2
Director
Thomas Fudge Jr., P.E., P.Eng. (ret) 2,3
Chairman & Director
Jean des Rivières, P.Geo, M.Sc.A, B.Sc. 1,2,3,4
Director
Colette Rustad, B.Comm, CPA, CA 1
Director
Raymond Polman, B.Sc., CPA, CA
Director
1. Audit Committee
2. Compensation Committee
3. Corporate Governance and Nominating Committee
4. Environmental, Social, Health & Safety
ANNUAL GENERAL MEETING
The Sutton Place Hotel
845 Burrard St.
Vancouver, BC V6Z 2K6
Date: Thursday, May 25, 2022
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
Alex Sim
E-Commerce Marketing Specialist
customersupport@firstmajestic.com
https://store.firstmajestic.com
@FMBullion
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