Earnings Call Transcript - AG Q1 2026

Operator, Operator

Thank you for standing by. This is the conference operator. Welcome to the First Majestic Silver Q1 2026 Financial Results Conference Call. After the presentation, there will be an opportunity to ask questions via the webcast frame on your screen. I will now turn the conference over to Mr. Keith N. Neumeyer, Chief Executive Officer of First Majestic Silver. Keith, please go ahead.

Keith N. Neumeyer, Chief Executive Officer (CEO)

Well, thank you, and welcome, everyone, to our Q1 highlights conference call with investors and shareholders. Today, I am present in Europe. Mani Alkhafaji, President and Chief Corporate Development Officer, is in Vancouver. David Soares, our Chief Financial Officer, is also in Vancouver. David Howe, Chief Operating Officer, who was newly appointed on May 4th, which we will talk about a little further in the next couple of slides, joins us after quite a long search for a replacement to Steven. Steven told me last summer that he would like to retire. We put an effort in place to find his replacement, and we were successful in getting David Howe, who is a known mining executive. We are happy to have David on board. Steven will be effectively working until June 30th, assisting David in anything that David might request of him over the next month or so. We also have Samir Devendra Patel, General Counsel and Corporate Secretary, present in Vancouver, and also Darrell Rae and Joel Faltinsky from investor relations also present today. Before I go any further, I will need to pass the call over to Samir for the disclaimer.

Samir Devendra Patel, General Counsel and Corporate Secretary

Thank you. Before we begin today's call, I would like to remind you that we will be referring to certain non-IFRS measures and making certain statements regarding First Majestic Silver and its operations that constitute forward-looking statements in accordance with applicable Canadian and U.S. securities laws. All statements that are not historical facts, such as statements regarding future estimates and plans, or expectations of future performance, constitute forward-looking statements. These statements reflect the company's current views with respect to future events. These statements are necessarily based upon a number of assumptions and estimates that, while considered reasonable by the company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. We encourage you to refer to the cautionary language included in our news release that was disseminated earlier this morning and the disclosure on non-IFRS measures in our most recently filed management's discussion and analysis, as well as the risk factors set out in our most recently filed annual information form. As a reminder, these documents, along with all of our continuous disclosure documents, are available on SEDAR+ and on EDGAR. Reliance on any forward-looking statements made during today's call should be tempered by these risks. The company does not intend or assume any obligation to update these forward-looking statements or information other than as required by law. With that, I will turn the call back to Keith.

Keith N. Neumeyer, Chief Executive Officer (CEO)

Okay. Thanks, Samir. A couple of things on our management changes. Steven C. Holmes has been with the company for six years and has been extremely instrumental in positioning the company where it is today. Much of the improvements that the business has experienced over the last few years are a result of Steven's efforts. We are sad to see him go, but at the same time it is time for him to retire, and we wish him the best in his future travel experiences with his wife and family. We will stay in touch with Steven, but David Howe is now the new Chief Operating Officer and he brings a wealth of experience in the industry and Latin America. He has held a number of key executive roles and we are really excited for him to help lead the First Majestic team to the next phase. Further description is available in today's news release if you wish to read a little bit about his history. We are also quite pleased to announce a hiring that took place on April 20th. We were able to find a great leader for the Jerritt Canyon restart. We brought on Alexander Thompson. Alex is a seasoned and strategic planning executive with experience in building and operating mines all over the world. He will be a key part of the restart plan for Jerritt Canyon, which we will be excited about talking further about as developments continue. Going to Slide 3 of the presentation, which I am assuming some of you online have access to: if you go back over the last 20 years, Q1 is generally a soft quarter. People come back from holidays and remobilizing contractors often means losing up to two or three weeks in Q1. We have experienced that many times in the life of the business. But this Q1 was exceptionally good. We did not experience that same kind of dip, and we ended up producing 3.5 million ounces of silver, which is 26% of 2026 midpoint guidance. That is ahead of guidance. Gold production was at 28% of midpoint guidance. So both silver and gold are above our current midpoint guidance, which is fantastic to start the year on such a positive note. The average realized silver price is $86.35 compared to $33.10 in Q1 2025, which is pretty impressive. Revenues were record revenues of $477 million, up 95% compared to a year ago. We did hold back some silver and gold as well, and this was not included in revenue. We held back 676 thousand ounces of silver and 2.7 thousand ounces of gold in inventory at the end of the quarter; the value of that inventory is $63 million. If we sold it, that obviously would have improved our revenue and profitability, but we elected to hold it for higher prices and expect that to be a good strategy. We have our eyes on margins, and as the price of silver goes up, certain costs also increase. We will address that in the next couple of slides, but one thing analysts and investors should pay attention to is the expanding margins, which is pretty impressive. We have been focused on efficiency and keeping our costs in check, and it is paying off. We had operating cash flows in Q1 of $311 million, or $0.63 per share. Our silver purity is 66%, compared to 60% in 2025. Our dividend is our largest dividend ever: $0.0171 per share for shareholders of record on May 15th. The dividend is basically four times the size of last year's dividend. With revenue doubling and us changing our policy to increase our dividend from 1% to 2% effective January 1st, 2026, it has made a big impact. Shareholders will be getting the highest dividend they have ever received in the company's history. Going to Slide 4: cash cost and all-in sustaining cost per ounce are aligned with plans; there are no big surprises. Per-ounce cost increased when compared to Q1 last year, as shown on this slide. The main drivers of the increase, as we have mentioned to analysts before, are changes in our price ratios, which I will talk about shortly. Production cost did go up a little, mostly due to higher throughput because we have reduced cutoff grades due to price. We can mine lower-grade ore and still get the same ounces, but it does affect cost per ounce. That said, it improves life of mine. The revenue increase, even though grades are slightly lower, far outpaces the increase in cost, which is nice to see. On price ratio: if we used the same price ratios from 2025 at 2090-to-1, our all-in sustaining cost would be about $3 less than what we are showing in 2026. We fixed the ratio at 75-to-1 due to volatility in silver and gold, and that 75-to-1 ratio will be held throughout the year. Profit sharing has also gone up and is close to $2 an ounce. Smelting and royalties obviously go up with silver prices, so many stakeholders are benefiting. Importantly, margins have increased almost fourfold. Margins a year ago in Q1 were $13 an ounce; in Q1 2026 they were $52 an ounce. Any increase in costs is easily offset by the increase in margins. Our cost per ton is $170, which, if you look at Slide 4, is the lowest in a while, showing a true impact on cost control. On a side note, we've had questions about our exposure to diesel given events in the Middle East. We converted three of our mines to liquid natural gas over the last few years and many sites are on the grid. Our total exposure to diesel cost is only about 5%. Most of our energy is created by renewable sources and we rely very little on diesel. On Slide 5, we produced $311 million in operating cash flow from the four operating mines. Each of them had notable year-over-year improvements in profitability, notably La Encantada, which had a strong quarter. La Encantada profited $30 million in Q1; I do not remember the last time we made that much money there, but it is doing well. Corporate-wide this translated into $224 million in free cash flow, even accounting for a very large tax payment made in January as a result of our 2025 income taxes due to profitability: the Mexican government was paid $95 million, which came out of our cash flow. The chart shows the increase in cash flow being generated. Operational discipline across our four mines is key, along with cost efficiencies and the increase in silver price. We are very flexible for future growth given the size of our treasury, which is over $1.1 billion. Our development and exploration programs are very aggressive and on track; I have a couple more comments later on exploration. Operational expansions at Santa Elena and Los Gatos are coming along quite nicely and we will address that going forward. We continue to push permits and the development of new ore bodies at Santa Elena, which we will discuss as these topics become more relevant and will issue news releases in the coming months as developments occur. Going to Slide 6: we continually have exploration success at San Dimas, Santa Elena and Los Gatos. We are expanding the Santa Elena mill and expanding Los Gatos mine development. At Los Gatos our work is to mine 4,000 tons a day; we have brought in a contractor to assist in getting up those levels and are actually pretty close right now. The mill itself can handle that; the bottleneck has been at the mine, which we are resolving by bringing on assistance from a third-party contractor, which seems to be working well. Progress at Santa Elena on the mill expansion is good; we are expanding the mill to 3,500 tons a day from 3,200 tons a day and should reach that objective in 2026. The Navidad and Santo Niño discoveries are paying off. We put out some numbers on those two ore bodies already and continue to advance studies because we want to get them into the mill as soon as we can. We will put out additional news on timelines and how Santo Niño and Navidad will affect future production at Santa Elena as we get more information. We are always focused on enhancing productivity at all the mines. La Encantada: about a year ago we decided to go to self-hauling due to challenges with contractors moving ore to the mill. We bought 12 trucks which took almost a year to deliver; they are now on-site and operational. I would expect to see costs come down as a result and we are already noticing increased throughput at the mill. This mill ran at 5,000 tons a day years ago so the mill can handle the throughput; the mine logistics are improving with our truck fleet. For Jerritt Canyon, we are very excited about hiring Alexander Thompson as Managing Director. Alexander has 20 years' experience, primarily at BHP, and he has taken control of this operation and is well liked by the on-site team. We are bringing new people in to get the operation up and running. We are investing $75 million in 2026 and filling in the talent base. We are preparing a pre-feasibility study, hopefully to be out in early 2027. We are prepping the underground with people on-site right now, planning development. The plant upgrading has not quite started yet; we are ordering a bunch of equipment. Several appeals are going out over the next two weeks as items are identified and required. Some items have long lead times and we are trying to get necessary equipment ordered and on-site as soon as possible. We will share updates as we progress over the next year. We are still targeting production to commence in H2 2027 and so far we are on track. I want to address a false news release out of Mexico regarding a collapse at Los Gatos. I looked at the photograph and article myself. It was not our commercial operation; it was likely an artisanal site. We did have a small collapse: a 10-meter section of a ramp collapsed and we were down 2.5 days. We were back on track and it was not material, which is why we did not comment earlier. Things happen in mining and being down for two days is nothing. I wanted to address it so everyone is clear there are no ongoing issues. Going to Slide 7: our balance sheet and cash flows are solid and we are investing in our world-class district-scale operations. These are large land packages. We are increasing mining rates at Los Gatos to get the operation up to 4,000 tons a day and want to complete the Santa Elena expansion. We have a very large exploration program: 266,000 meters of drilling over our sites this year, not including an additional 42,000 meters at Jerritt Canyon, which we recently announced. So we are drilling over 300,000 meters this year, which is a very large program. We updated our resources and reserves in March; the AIF was filed in March and is on SEDAR and our website. Santa Elena had a 90 million ounce increase, largely due to the Santo Niño and Navidad discoveries, and we expect that number to improve over the next year. At Jerritt Canyon, including some of the underground, we have redeveloped that asset and, based on current gold prices, many of the old open pits from the 1980s and 1990s are now economic. We are working on a plan to include both underground and open pit in the same mine plan. We are now at 7.8 million ounces of gold at Jerritt Canyon, which is impressive compared to prior disclosures. Restart is still scheduled for H2 2027. That is about it. We will continue to strengthen cash flow and the balance sheet and look for continued increases to our treasury. We are leveraged to the price of silver, as you can see in share volatility, but we have experience with that. I am done with my presentation. We will now go to questions.

Operator, Operator

Thank you, Keith. We will now proceed to the Q&A session. If you are using the speakerphone, please pick up your handset before pressing any keys. If you are participating today through the webcast, you can submit questions in writing by using the form in the lower section of the webcast frame on your screen. The first question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

Heiko Ihle, Analyst (H.C. Wainwright)

Hi there. Thanks for taking my questions and congratulations to Alexander and David, who I know quite well from his time back at Endeavor. Keith, you focused quite a bit on margins earlier in this call and it's impressive what has been accomplished the last few quarters. Do you think there comes a point where, if commodity prices keep rising or even stay at these levels, stakeholders—labor, governments, others—will try to capture more value? Have there been any conversations or what have you seen? You're much closer to the pulse than I am. Any color would be helpful.

Keith N. Neumeyer, Chief Executive Officer (CEO)

On the government, you can never predict. There are no rumors or discussions that the government is going to change anything. At these prices and with the profitability of Mexican miners, the government is getting a windfall in tax income from mining, which has accelerated dramatically, so I believe the government is generally happy. Unions are similar: union members' bonuses are tied to the silver price. We just went through a couple of negotiations with the national union and they were quiet and negotiations went very smoothly. That said, our all-in sustaining cost has increased as a result of higher taxes and higher bonuses, which can be expected. Looking back to the last bull market around 2011 when silver hit $50, we saw equipment suppliers increase prices by 15% to 25% in some cases. We have not seen that broadly this time. We are in the process of signing an agreement with Sandvik and it looks like we will get reasonable pricing on our new purchases. We have not seen big increases in cyanide or ammonia. We do not rely on diesel much. So, no, we have not really seen the inflation that some would expect.

Heiko Ihle, Analyst (H.C. Wainwright)

Alright. Fair enough. Moving on to Jerritt Canyon: I'm excited to see the site re-enter production. With Alexander on board now, on a grander scale, when do you think hiring for the site should really start ramping up? I assume second half or even fourth quarter kind of thing. And once Jerritt is in full operations, given the proximity to talent, do you expect any issues getting workers? What are you seeing with the labor pool given you'll be taking up a decent amount of the local workforce?

Keith N. Neumeyer, Chief Executive Officer (CEO)

I think most hiring will come from the local area and perhaps recent turmoil at other operations might assist with availability. We have a detailed list of positions to be filled. We have hired a handful of key management positions in the last couple of weeks and are looking to hire several more people over the next week or two. After that we will start hiring more labor-intensive roles and should be well-manned by fall. We will then add the underground workforce in early 2027. Jerritt is only 45 minutes from Elko, so it is the closest mine to town; commutes are much shorter than some other sites, which is attractive for employees. The community is excited and we are regularly approached by people to join as employees.

Heiko Ihle, Analyst (H.C. Wainwright)

Yeah. As someone who's been on the ground, Jerritt Canyon site is huge. I will get back in queue. Thank you very much.

Operator, Operator

Once again, if you have a question, please press *1. The next question comes from Eric Windmill with Scotiabank. Please go ahead.

Eric Windmill, Analyst (Scotiabank)

Hi, Keith and team. Thanks for taking my question. Just continuing on Jerritt Canyon: in addition to the hiring plans, are there other critical path items or milestones beyond the PFS we should be looking for throughout this year and next year?

Keith N. Neumeyer, Chief Executive Officer (CEO)

The two most critical things are the oxygen plant and the underground fleet. We are working on defining those, including costs and timelines. We will be placing orders for some of the underground fleet in the next couple of weeks; those items have 10 to 12-month lead times. We are working with a group on the oxygen plant right now. Details are still evolving, but once we know more we will put more information out to the market.

Eric Windmill, Analyst (Scotiabank)

Okay, thank you. Appreciate that. Just some of the other expansions you're working on at Los Gatos or Santa Elena: any critical items there we should be keeping an eye on?

Keith N. Neumeyer, Chief Executive Officer (CEO)

No. Just time and money. There is nothing critical.

Eric Windmill, Analyst (Scotiabank)

I appreciate that. One more: in terms of M&A, what are you guiding to the market? Are you happy with the size of the portfolio or any changes you would like to make or assets you would like to add down the road?

Keith N. Neumeyer, Chief Executive Officer (CEO)

We are always looking for ways to grow. I can't talk too much about specific targets, but our team continually scours the planet looking for good silver projects. They are relatively rare and hard to find, but we continue to look.

Operator, Operator

I will now pass the floor over to Mr. Darrell Rae, Investor Relations at First Majestic Silver, to take us through questions submitted through the webcast.

Darrell Rae, Investor Relations

Okay, thanks. Yes, just a few here. One is just getting a general First Majestic Mint update; I see there are a few questions in here. What percentage of your total revenue came from the First Majestic Mint business and just talk about the first quarter?

Keith N. Neumeyer, Chief Executive Officer (CEO)

Yeah. I am going to pass this question over to Mani.

Mani Alkhafaji, President and Chief Corporate Development Officer

Thanks, Keith. The Mint continues to operate quite nicely. Q1 was another record for us. It is very retail-driven, so when metal prices run up, orders come in strongly. We had a nice uptick throughout the quarter, which was great to see. Operationally it is going well; we were staffed appropriately. We do have plans for further expansion and will pull the trigger on this in due course. All in all, the Mint is building on the momentum from last year.

Darrell Rae, Investor Relations

Okay. The last question we have from the webcast is picking up on Keith's comments and elaborating on the strategy about the lower cutoff grade and that seemingly increasing mine life. Just a little clarification question.

Keith N. Neumeyer, Chief Executive Officer (CEO)

I would maybe use 20% as a rough estimate, but you should talk to our Qualified Person before using that number. Historically, in underground mining you might mine three to four meters of rock and leave lower-grade material on the walls of the tunnel because it was uneconomic. Today, we can widen those mining stopes by a couple of meters and pull that rock out and still make money, even though the grade is lower. So yes, it does increase life of mine. You may advance slower or mine wider, which has an impact on life of mine and it is a positive impact.

Darrell Rae, Investor Relations

And that is it from the webcast, Ashiya.

Operator, Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Keith for any closing remarks. Please go ahead.

Keith N. Neumeyer, Chief Executive Officer (CEO)

Yes. I think I covered everything. It was an impressive quarter and Q2 is looking very good as well, so we hope to have another great quarter. We will have more to talk about as we advance through this year. It's an exciting year with large capital expenditures going into exploration, development, mill and mine expansion. We are pretty excited about what we are seeing in the company and with metal prices. Assuming they stay at these levels, it is going to be another record year. Mani, is there anything you would like to add before we go?

Mani Alkhafaji, President and Chief Corporate Development Officer

No. Just be on the lookout for more updates throughout the year. There's a lot of exciting stuff coming.

Keith N. Neumeyer, Chief Executive Officer (CEO)

Okay. Well, very good. Thanks, everyone, for joining us.

Operator, Operator

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.