Earnings Call Transcript - AG Q2 2025

Operator, Operator

Thank you for your patience. This is the conference operator. Welcome to the First Majestic Silver 2025 Q2 Financial Results Conference Call. I will now hand the conference over to Mr. Keith Neumeyer, President and Chief Executive Officer of First Majestic Silver. Keith?

Keith N. Neumeyer, CEO

Thank you for that, and welcome, everyone. Glad you were able to join us this morning early. Thank you for joining us today to discuss our second quarter financial results and updated 2025 guidance. Our second quarter results, news release, MD&A and financial statements were released earlier this morning and are posted on our website. Joining me in Vancouver for our call today are David Soares, our Chief Financial Officer; Steve Holmes, our Chief Operating Officer; Samir Patel, our General Counsel and Corporate Secretary; Mani Alkhafaji, VP Corporate Development and Investor Relations. We also have Darrell Rae and Joel Faltinsky from our Investor Relations team. We will be prepared to remark or take questions after our presentation. Before we start, I'll ask Samir to read out the forward-looking statement disclaimer. Samir?

Samir Devendra Patel, General Counsel & Corporate Secretary

Thanks, Keith. 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 that 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 quarterly 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. Investors are cautioned against attributing undue certainty or reliance on any forward-looking statements made during today's call, and 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, CEO

Thanks, Samir. I appreciate that. Before I start the presentation, I want to mention a couple of quick points. It’s a volatile day in the stock market, and unfortunately, silver and gold prices are down today. However, this volatility is something we've seen consistently. Our stock is also impacted by recent news. We've had positive news—I've used the word record 27 times, and maybe today I'll break that record. Earlier, I noticed headlines claiming we missed our revenue target by 30%. The writer didn't realize we reported our revenue in U.S. dollars, while they were using Canadian dollars, so that headline is completely inaccurate. Additionally, Reuters reported that we had a loss, but in fact, we have a gain. We're reaching out to these news sources to correct the misinformation. It's just part of the business that we have to deal with. I encourage everyone to look at our news release for the actual facts. It was a record quarter for us—our best ever—with strong safety performance. Silver production reached 3.7 million ounces, a 76% increase year-over-year. Our silver equivalent production was 7.9 million ounces, a 48% year-over-year increase, and we achieved record quarterly revenues of $268 million, a 94% rise compared to last year. We're on track to reach $1 billion in revenue by 2025, which is exciting. We also recorded an EBITDA of $120 million and strong cash flows of approximately $115 million. Our cash position is at $510 million, which I find very favorable for a company like ours, and it's projected to grow. Our balance sheet remains strong. Some people view our convertible securities as debt, but I see them as equity. We're paying dividends at 1% of revenue, meaning as our revenue increases, so do our dividends. We're investing record amounts in exploration, expecting to drill 255,000 meters this year with 20 active rigs, including at Jerritt Canyon, where drilling is progressing well. We've had great exploration success at Navidad, Santo Niño, and Santa Elena. We're working internally to evaluate the best approaches to developing these ore bodies and expediting ore processing timelines. First Mint is performing well and generating profit, which is positive. We continue to be the purest silver company in the industry, with our silver content at 55%, while Hecla is at 44%, Coeur at 34%, and Pan American at 24%. This is vital for us, and we've maintained above 50% silver for several quarters. Regarding our cost structures and production, the first half of the year has gone well, and we're on track to meet our guidance of 30 to 32 million silver equivalent ounces for the year. Gatos continues to perform well, making a substantial contribution to our portfolio, and San Dimas is improving after facing some challenges. While San Dimas costs have increased slightly, we expect them to decrease in the coming quarters, though inflation remains a concern. As many of you know, Q2 typically sees significant cash outflow in the Mexican mining sector due to union bonuses and cash tax payments. We anticipate a return to more standard spending levels in the following quarters. Our guidance on costs confirms that we are operating within expectations regarding production. We initiated aggressive capital plans in the first half, front-loading our budget to kick off projects quickly. Thanks to strong production and revenue in Q4 and Q1, we expanded projects and adjusted our guidance accordingly, which has led to higher underground development and exploration costs. However, this expenditure is essential for growth and will significantly impact the business over the next few years. On the cash flow side, we’re experiencing strong performance and are generating cash without needing public markets for capital, a testament to running a successful business. We’re focused on increasing the capacity at Santa Elena to 3,500 tonnes daily and making progress on Navidad and Santo Niño; announcements about both projects will come soon. We're aiming for Gatos to consistently reach 4,000 tonnes per day. Additionally, we're shifting to self-haulage at La Encantada, which may initially increase capital expenditures due to fleet purchases but will lower operational costs in subsequent quarters. Overall, we’re seeing remarkable cash flows, and I’m pleased to report that our treasury is growing. This solid financial standing is what benchmarks a successful business. Finally, regarding our budget execution, depletion and amortization are substantial figures, and I suggest David address any related questions.

David Soares, CFO

Yes, thank you, Keith. Hello, everyone. On Slide 7, we have a waterfall chart that illustrates the differences between net earnings and EBITDA. A significant part of this difference comes from depletion, depreciation, and amortization, with approximately $44.6 million related to Cerro Los Gatos and the purchase price allocation adjustment made when we allocated the $1 billion we paid for the asset. This adjustment raised the book value from a few hundred million dollars to $1 billion, thereby increasing depreciation as well. We also experienced a strong production quarter across most of our sites, contributing to this figure. Overall, the noncash items were the primary factor in the disparity between net earnings and EBITDA. We faced some financing costs, mainly noncash accretion, along with interest and standby costs of about $3 million. Additionally, there was an income tax recovery primarily influenced by fluctuations in the foreign exchange rate concerning our tax pools in Mexico. Significant changes in the Mexican peso compared to the U.S. dollar lead to substantial adjustments on the tax front. Consequently, the ending EBITDA for the quarter was $119.9 million.

Keith N. Neumeyer, CEO

Great. David, you explained that much better than I could have. I'm glad you addressed that. Now, moving to the next slide. I have already mentioned some notable aspects of the quarter. Bonuses typically occur in June, and tax installments are generally significant this time of year. We did experience some energy disruptions due to weather events in June, requiring extra diesel at San Dimas. Additionally, there were one-time integration costs at Los Gatos, which you can find detailed in the MD&A. For those interested in more information regarding these impacts, please refer to the slide for details on tax and dividend payments. We also received an upgrade from ISS on our ESG scores, which is impressive. This initiative was launched a couple of years ago, and our score has been improving consistently each year. While many investors might not focus on this, we have a group of investors and institutions that value these initiatives, and we are committed to enhancing this aspect of our business, which we take seriously and are proud of. Now, moving to Slide 9, the Gatos integration has been extremely smooth, likely one of the easiest integrations in the history of the company. This success can be attributed to it being a new mine, unlike older mines we've previously acquired that required significant rebuilding efforts. In this case, no capital was necessary, and we've even reduced exploration programs slightly since there is already a 10-year life of mine. Our exploration team is successfully replacing reserves and will continue to do so. Our safety, security, environmental, health, and personnel efforts are aligning well. We have just implemented SAP at Gatos, having used it in First Majestic for almost five years, and it was launched last week. This will provide an additional level of control over operations, integrating it into our supply chain and maintenance, in line with First Majestic's guidelines and procedures. We're pleased to have this in place. Moving forward, we have financial strength with $510 million in the bank, which is advantageous. We anticipate this amount will continue to grow. We have no spending plans for that money in the near term and will adhere to our current budget, which was released in July for the remainder of the year. There will be no changes to our guidance or spending. We are considering some interesting investments for 2026, but we will speak about that closer to January when we provide guidance for that year. That's it for my presentation. This is the first time we've done a PowerPoint presentation; we typically conduct these discussions in a more formal setting, which is why we decided to create slides for today's call. Let's open the floor for questions.

Operator, Operator

Our first question is from Wayne Lam with TD Securities.

Wayne Lam, Analyst

First question, really nice to see the smooth integration of Gatos and really the operational improvements being made across the entire portfolio. Just wondering if you could maybe help walk through some of the synergies that you've kind of outlined with the integration. And then can you provide maybe a bit more detail on the improvements needed to sustain the 4,000 tonnes per day there and what the timeline would be to achieving that?

Keith N. Neumeyer, CEO

Sure. Well, thanks, Wayne, for dialing in and listening today, and I appreciate your question. So I'm going to pass your question on to our Chief Operating Officer, Steve Holmes.

Steven C. Holmes, COO

Right. So yes, thanks for the question. And Cerro Los Gatos, we have a situation where the plant capacity is a bit higher than the mine, and that's been that way for quite a few years. So what we're doing is we're accelerating the mining rigs and the ramp development downward in Cerro Los Gatos to basically provide a more continuous supply, more matched with the plant's capacity, and that will take some time. But we put a plan together to execute on that. And so far, we've been pretty successful in doing that. So it's really about making sure the mine can support the capacity of the plant and it's a matter of accelerating development, particularly in the ramp systems, in the northwest zone, central zone and even in the southeast deep zone, which is developing now, which is a big part of the future of the ramp.

Keith N. Neumeyer, CEO

Wayne, does that answer your question?

Wayne Lam, Analyst

Yes, I was also wondering if that relates to the synergies portion.

Steven C. Holmes, COO

Right. So on the synergies, we've identified many synergies, some of which come from Gatos with First Majestic and many of which come from First Majestic to Los Gatos. Some examples, Wayne, would be, for example, we've instituted as part of First Majestic's operating practices, a really strong reconciliation process within Cerro Los Gatos. It allows us to really measure what we actually achieved versus our plan. And we've seen some really significant opportunities to improve what would break and reduce dilution in the deposit. So we're working on that. On the other side, we noted that Cerro Los Gatos has a robust business improvement process. It's based on lean principles that some of which we were applying within First Majestic, but they also have some really good processes that we are applying now through the First Majestic operation. So these synergies are two-way streets. We're drawing on the best that we can see in Gatos, and we're providing the best processes and technology that come from First Majestic into Gatos. So those are just two examples.

Mani Alkhafaji, VP Corporate Development & Investor Relations

You mentioned new contracts that we're renegotiating and exploration.

Steven C. Holmes, COO

Yes. Mani pointed out that we have numerous synergies. One example is that there are three different exploration contractors working at Cerro Los Gatos, and we have a primary contractor in Mexico with whom we are very comfortable and who offers us excellent rates for exploration work. We have now integrated that contractor into Cerro Los Gatos, resulting in notable savings in exploration. Another example is our review of major consumable contracts. We have managed to utilize some of our main suppliers to reduce overall costs at Cerro Los Gatos. Bulk oils is one such example, along with some supplies for ground control.

Wayne Lam, Analyst

Okay. Great. Yes, it sounds like quite a few opportunities there. Maybe at Santa Elena, you guys are also starting to delineate quite a few new discoveries. Just wondering if you could provide a bit more detail on the sequencing and advancement of some of those new veins. Maybe some color on when Ermitaño gets mined out, when does Santo Niño come in? Sounds like that's pretty advanced. And then does Navidad give you that bigger step change in tonnage? And how far out would that be?

Keith N. Neumeyer, CEO

Yes. Some of that information is not yet public, and we've shared news about Navidad, Santo Niño, and Winter. These are three significant discoveries, and our geological team believes they may be larger than Ermitaño. Time will tell. Our initial discovery and resources were announced earlier in the year, showing 30 million ounces at Navidad. I’m not sure if that figure includes Winter or just Navidad.

Steven C. Holmes, COO

It did include a portion of Winter, yes.

Keith N. Neumeyer, CEO

A portion of Winter and then Navidad. The drilling is continuing, and we have discovered Santo Niño, which still has resources to be assessed. Our main focus is on how quickly we can process these ore bodies in the mill. We are doing a lot of engineering work, and Steve is dedicating a significant amount of time right now with the team to determine the best approach for development, including where to construct the ads and the tunnels. Once we complete all of that, which we hope to achieve by the end of the year or possibly in the first quarter, we will provide guidance on this. Then we will be able to answer your question.

Operator, Operator

Meanwhile, I'll hand it over to Mr. Darrell Rae, Investor Relations at First Majestic Silver, to address the questions submitted from the webcast.

Darrell Rae, Investor Relations

Sure, we'll take a few questions from the webcast, Gailene. This one is directed towards David. David, could you tell us what the total debt is for First Majestic and how much interest was paid in the last quarter? Also, what are the expectations for payments in 2025 or 2026?

David Soares, CFO

Yes. To answer that question, the amount paid in the last quarter was approximately $3 million. This is included in the financing section of the EBIT to EBITDA slide, which is part of that roughly $7 million. We do not intend to change or increase our debt levels at First Majestic, even though we currently hold some. Our balance sheet is very robust, and we could consider using that debt for projects if opportunities arise. However, as Keith mentioned, our cash balance remains very strong and is on the rise. We have internal projects lined up, which we will disclose once they are further developed, likely in early 2026. For the moment, we have our convertible debt in place, and we are satisfied with that level of debt. At the appropriate time, we will evaluate our next steps.

Keith N. Neumeyer, CEO

And just a comment about debt. I know the analysts out there look at convertibles as debt, but I don't. I look at convertibles as equity. They are convertible into equity therefore, I call it equity. But that $230 million is basically the majority of the company's debt, which is convertible.

David Soares, CFO

Super low carrying costs on those and also if we were to think about renewing that or what other options we have, the rates right now are super attractive as well.

Keith N. Neumeyer, CEO

Yes, the rate on that $230 million, for those who aren't aware, is 0.375%, the lowest coupon done in the history of mining companies. It's not one lower. Anything else.

Darrell Rae, Investor Relations

Okay. Yes. And another question, probably for you, Keith, is First Mint up to full capacity. And if not, when is this likely to happen?

Keith N. Neumeyer, CEO

No, it's not at full capacity when looking at man-hours and shifts. The equipment has the potential to produce more, but it's currently limited by the available man-hours. We could implement a second shift and double the current capacity if necessary, as the plan is to achieve 100,000 ounces a month. They are slightly behind that target. The objective is to increase the mine's contribution to 10% of the company's production. Currently, we are just below 6%. Considering this is a start-up business and only one year into production, it's not too bad. We are facing competition, but it's a profitable segment, and we are focused on growing it. As mentioned, our goal is to reach 10% of the company's global production.

Darrell Rae, Investor Relations

Okay. That's great. Gailene, any more on your end?

Operator, Operator

We have no further analysts in the queue.

Darrell Rae, Investor Relations

Okay. And that's the final question from the webcast.

Operator, Operator

All right. And I'd like to hand the call back over to Keith for any closing remarks.

Keith N. Neumeyer, CEO

Well, thanks, everyone, for joining in today, and I'm sure there'll be many people that will be listening to this online after the live presentation. I would ask that you do look at the news release, read through it. If you have further questions, please contact the company, go to [email protected] or just dial us in and ask for either Dale or Darrell or Joel, They'll be happy to answer any of your further questions. Thanks again, and have a great day.

Operator, Operator

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