Hello, this is the Chorus Call conference operator. Welcome to the First Majestic Silver Corp., Q2 2013 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Keith Neumeyer, President and CEO. Please go ahead, Mr. Neumeyer.

Welcome, everyone, to our conference call to cover the second quarter financials for 2013. On the call today, we have myself; we have Ray Polman, our CFO; we have Connie Lillico, our Corporate Secretary; we also have Todd Anthony, our Manager of Investor Relations. First off, I'm just going to pass the call to Connie.

Thanks, Keith. Prior to us beginning today, I'll read our disclaimer on forward-looking statements. Certain statements contained in this conference call regarding the company and its operations constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Section 21 of the United States Securities Exchange Act of 1934, as amended. All statements that are not historical facts, including, without limitation, statements regarding future estimates, plans, objectives, assumptions or expectations of future performance constitute forward-looking statements. We caution you that such forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Such risks and uncertainties include fluctuations in precious metal prices, unpredictable results of exploration activities, uncertainties inherent in the estimation of mineral reserves and resources, fluctuations in the cost of goods and services, problems associated with exploration and mining operations, changes in legal, social or political conditions in the jurisdictions where the company operates, lack of appropriate funding and other risk factors as discussed in the company's filings with the Canadian Securities regulatory agencies. Resources and production goals and forecasts may be based on data insufficient to support them. The company expressly disclaims any obligation to update any forward-looking statements. Now back to you, Keith.

Thanks, Connie. I hope everyone listened to that and understood it thoroughly. Can I also pass the call to the operator just the cover off the call-in for question and answers which he forgot to cover.

[Operator Instructions]

Okay, thank you. And this will be a short presentation from my end and that's why I wanted the question-and-answer instructions given early because this call will be very short, if there are no questions or answers. So really, I just want to cover the Q2 and highlights. Obviously, another record quarter from a production standpoint. We exceeded 3.2 million ounces of equivalent silver which was a major milestone for us and we expect to see continued growth over the next couple of quarters with Del Toro kicking in, continually improving and the cyanidation circuit at Del Toro coming on stream later in the third quarter and early fourth quarter, and the improvements and the expansion at San Martin coming to an end, so we expect to see continued growth quarter-over-quarter for the rest of the year. And our quarter would have been much more robust if we hadn't suspended our silver sales. We made it quite clear in our disclosure today and our disclosure when we announced our second quarter production numbers that we held back approximately 700,000 ounces of silver. We didn't make a single sale under $22.80 in the second quarter that's in the form of doré. Our average selling price was slightly lower than that due to the concentrate sales. But fortunately, we don't produce very much concentrate, so it didn't negatively impact us like some of the companies that produce primarily concentrate. So as a doré producer, it gives us a lot more flexibility when it comes to these types of decisions. Now just -- we did mention in the news release today that a lot of that inventory has been sold, that we haven't made a sale under $20, which we're quite happy or proud of. So we spent most of the month of…

[Operator Instructions] The first question is from David Forster of Merrill Lynch.

So I saw that you executed on some of the share buyback during the quarter. What do you think of the share buyback going forward? And also as another use of cash flows, where do you see a dividend? Do you still plan on having a decision maybe by the end of 2013 or are you more focused on the share buyback for now?

The share buyback, as far as I'm concerned, is a luxury. With the metal prices dropping so substantially and our revenues dropping, we've got a very major cash burn at Del Toro and that's a very important project for us to complete. And then that's really our priority. So whatever happens, Del Toro is going to be completed. So things get cut back and the share buyback was one of those things that we decided to put some of the million [ph] into the market just because the share price is just so ridiculously low. It was -- by not buying any back during that very low period of time would have been silly so we decided to put some money into it. But we haven't bought back any since end of the second quarter. Once we see higher metal prices, and I have some confidence that Del Toro's cyanidation circuit is up and running and things are just looking a little bit more rosy, I may feel more comfortable in pulling the trigger on buying back some shares. But there's no immediate plan for doing that over the next couple of weeks or possibly even couple of months. We'll make that decision when we see fit. When it comes to the dividend, this is a discussion we've had many times with [indiscernible] and there was some discussion of bringing it in, in 2013, and we decided against that. The Del Toro burn, again, it's our largest capital expenditure program in the company's history and are very important to us and will become our largest silver mine, so we have to get that completed and we'll revisit the dividend at our annual meeting in December, among the board, and those decisions generally get made at that board meeting. And it will, again, depend on silver price in this overall economy. I don't want to be implementing a dividend and taking it away. But as a significant shareholder myself, I'm supportive of a dividend, I would like to see it in place, and we will bring a dividend in sometime when we feel it's appropriate.

Okay. And onto La Guitarra, it looks like the grades there, and I think you alluded you to it a little bit of this in your beginning statements, the grade dipped to 167 in the quarter, it had been running at 200-plus in the quarters beforehand. I remember that El Coloso was set to begin soon and grades are expected to be higher there. Do you think we can get back to 200-plus near-term?

It's possible. I'd hate to put a number on it. El Coloso is the area that I was referring to which we're now into the vein and we're now developing it. We haven't started extracting ore from that area yet, that will happen in the next month or so. But the grades there are much higher, north of 200 grams actually. But it comes down to blending and we're pumping through over 500 tonnes of ore there on a daily basis. And that mine has not had that kind of throughput at least in the last 10 years. It's going to take time to develop the underground infrastructure there to really sustain higher grades and higher throughputs. And we've only owned that asset for 1 year now, and I think we've done incredibly good on that asset -- or with that asset. Costs there, on a per tonne basis, were $128 and the cost per ounce was somewhere around $24 an ounce. At these -- we're now down south of $50 a tonne, cost per tonne, and we're in the $13 range on a cost per ounce. So it's pretty good achievement in a year. And looking a year forward, there's more objectives we have there. We want to permit the new cyanidation mill and expand it again up to 1,000 tonnes per day, but it's going to take a lot of development time and, of course, dollars. So look for improvements there. You will see them. And grade obviously, is one of the areas where you'll see improvements.

Okay. Just getting back to the cost that you were talking about. It looked like, let me see here, the production cost per tonne fell to around $50 from over $60, previously. Is that sustainable and where do you see that going forward, is it going to be decreasing, sustaining at the current rate?

Well, it's at that level, it's our highest cost line.

Right.

So we have an internal process we call the Majestic way. And once we're fully implemented with its program methodology that we use to run our operations, you'll see the cost there curve drop and hit target, but they will drop from current levels. Our target was to get to $50 by December 31, 2013. We've got to that number by June 30, 2013, so we exceeded our own expectations by achieving what we've accomplished. So I think you should look to see it get to levels similar to San Martin, which will be a similar-size operation. But it's going to take some throughput, some additional throughput. At 500 tonnes a day, you're not going to see a dramatic increase -- or decrease, pardon me, in costs, either on a per tonne basis or a per ounce basis. You really need to have that mine on a larger operation, and that just simply takes time to get to that larger operation.

Okay. And then further down on the cash costs line, the smelting and refining costs, they look like they were cut in half. And I remember talking about a new cyanide contract. Was that the driving force behind that or are there any kind of one-time items in there that drove the cost per tonne for smelting down?

You're referring to Q1 versus Q2?

Looking at Q2, so if I'm looking at on a per ounce basis, it's $7.12, and then Q1 was $12.62, the smelting and refining costs for La Guitarra.

Yes. Ray, do you want to just address that?

Yes, sure. The smelting and refining contract became effective June 1. So there is a bit of an impact of that showing up as well. We were shipping to the La Parrilla mine previous for the months -- for the entire year up until June 1. And that was a bit of a learning process as we processed the concentrates of La Guitarra at La Parrilla. And we've had some improvements internally in the process, but you're also seeing the beginning of the impact of the new smelting contract at the same time.

Just to cover that a little bit further. The -- we were shipping those concentrates to La Parrilla to produce the doré bar and the transportation costs are quite high and we signed this other contract which was, just as simply, a much better deal economically. So we no longer produce a doré bar at La Parrilla for the concentrates of La Guitarra. Those concentrates now just being shipped to the port in Manzanillo and they're being shipped overseas in the form of concentrates. When we get a permanent place to reconstruct the mill in mid to, let's say, third -- second, third quarter of 2014, that will be for the construction of a brand new cyanidation facility. And at that point, when that's completed, we'll start producing doré bars on site at La Guitarra.

The next question is from Andrew Kaip of BMO Capital Markets.

Keith, look, just some questions on what you've -- the restructuring you've done, or the restructuring of operations at Encantada. Can you give us -- should we expect this as a go-forward run rate for this operation where we see increasing to 2,000 tonnes per day from underground and nominally around 1,500 tonnes per day from the reprocessing of the tailings?

Yes. Or less, even less than 1,500 tonnes a day. We'd like to see that decline over time. But the mine -- the long-term plan at La Encantada is really to get the mine up to 3,000 tonnes a day. But it's going to take 3 years to get there. So it's a stepping -- you know how we build our business, Andrew. We always do things in slow steps, one at a time, incrementally. And right now, we're reconstructing the crushing circuit because the bottleneck at La Encantada is the front end of the mill. It just can't handle the throughput. The cyanidation process can handle it no problem at all. As you know, we can run 4,600 tonnes a day through cyanidation without a problem, but we couldn't push that much fresh ore because the crushing is not there to do it. So we've put a third ball mill in, that was one of the processes, now we're redoing all the conveyors and then the primary and secondary crushers. Now we've got a budget in 2014 to accomplish that. I forgot exactly what the budget is, but maybe Ray knows what that number is, but it's really more of a late 2014 story before we get up to north of 2,000 tonnes.

Okay. So we should just gradually step it up over the next 6 quarters then is effectively what you're saying?

Yes. I think that getting to 2,000 tonnes a day by the third quarter of 2014 would be reasonable.

Okay. And then with respect to grade, along that trajectory, which -- what kind of grades should we be expecting from the underground or what kind of trends do you foresee?

Well, the underground grade will remain the same, in the mid-200 range. But the overall blend or the grade -- head grade will slowly improve over time. And we haven't given any guidance on that when it comes to actual numbers.

The next question is from Chris Lichtenheldt of Dundee Capital Markets.

Just a question on your capital program. I think in the press release, you said somewhere around $71 million expected expansionary CapEx for the remainder of the year, and that does not exclude -- or rather, that excludes any sustaining capital cost requirements. Can you give us some sense of what sustaining CapEx might look like in the back half?

Thanks very much for that question, Chris. I'm on record, saying that this whole sustaining capital and all-in cash cost number is a bit of a red herring because what analysts, I believe, don't take into consideration is these costs actually fluctuate with the price of the mill. And as the metal price goes up, these costs go up and as metal prices goes down, obviously, these costs go down. So by putting a number out there, it gets treated, I believe, incorrectly. So I think, really, the number that investors really should be focused on is our capital expenditure number. And that's the number that we put out there because that's the number that is actually building the business, and that's the number that we could decide to increase or decrease according to what we're trying to accomplish at that given time. But to put too much focus on sustaining capital, I think, is the wrong focus. But we are looking at this issue, we have addressed it in today's news release, we did address it in a previous news release as well. We know there's pressure on companies to come out with these all-in cash cost numbers. We're waiting for what other companies are doing in this area for guidance. We haven't seen any real, solid methodology or solid guidance to guide us in what we should be doing in this area. So we're taking a bit of a latency approach. But we had a discussion just a couple of days ago, internally, on this topic, and I think that starting in the new year, we'll start to publish numbers that cover these 2 topics.

Okay, that's fair. It's fair to say though that you will be spending some additional capital over and above the $71 million. Irrespective of prices, you have some other capital that needs to be spent? It seems to be implied by the press release or it's all a wait and see at this point?

Obviously, you've got G&A in there. And then -- and that's not included. And there's some operating costs that aren't in there that are necessary to run the business. We -- I suppose, if you want to, you could probably dig deep into the financials and probably try to figure it out yourself. We haven't done that work. But as I mentioned earlier, we are looking at this topic and it's an area that we know that investors are wanting to hear more disclosure about or see more disclosure about, and we're becoming sensitive to that.

Okay. I guess we'll wait on that. Switching topics then. Most of the mines you saw a reduction cost per tonne, San Martin was a bit of an exception. Can you just explain what was going on there? Is that sort of the new run rate cost at San Martin, around $50 per tonne?

That's a good question. Ray, do you want to cover that?

I think there's a couple of things that are going on at San Martin, with respect to getting into the new area, as well as the -- I think some costs getting mixed in, in the start up and the preparation for the start up of the expanded mill. We've got some additional energy costs there which are related to a high consumption of diesel because of the use of portable generators. And I think that as we get into the expansion and into the mining, you should see that cost come down again.

Down, do you have some idea -- some sense of where it might level off?

I don't want to give any guidance on that quite yet until we've had a chance to see how the mine settles in.

And the next question is from Chris Thompson of Raymond James.

Keith, just a quick question on Parrilla and the sort of grade assumptions we should be using for the remainder of the year. And as we are creeping up, I think, to guidance of 174, how are things going on that front?

Well I think while I think that La Parrilla was over budget for the quarter, and it wasn't quite the shining star for us. We -- the decision of switching the doré production from La Guitarra over to the smelting company that we sold that concentrate to, I think it was a great decision and helped out that operation. And the grade, underground grade is consistent. One of the reasons why you did see an increase is because of the lower throughput from the open pit. The open pit area is known to be lower grade. It's around 130, 140 grams. So we are putting through quite a bit of that ore. But at these metal prices, I think that we did make the decision to start to focus more on the underground areas, so the open pit we've left for later.

Are you focusing entirely on the underground at the moment? I mean, do you still see something coming from the open pit?

We do. I don't have the tonnage number in front of me, the -- but we are still mining. But I think, Ray, do you know, I think we're about 50% lower or in that range.

I think it was about 66% lower, Keith.

Okay. Look for that being maintained, we don't expect that will be dropping much further than that.

The next question is from Mike Parkin of Desjardins Securities.

A couple updates. On the Rincon area, are you doing any exploration work on that still? And will there be any kind of update in the remainder of the 2013 year?

Yes, we're waiting on permits. Right now, we've been working with the community to get some permits in place on that area. I just visited the area just about 6 weeks ago, I went with the whole team and looking at logistics, and there hasn't been anything going on in that area for quite some time. So there's some infrastructure that needs to be put in place, the roads need to be improved. There's just some -- there's quite a bit of work that needs to be done before we can actually get a rig in there and obviously we need a permit. So the permit we hope to be in place sometime in the next 2 to 3 months. At that time, we'll start going in there with our team and preparing the area for drilling. It's a very exciting area, we're very anxious to get into that region.

Okay. And is that something that you'll throw like additional rigs at in 2014? Or...

Well, we haven't put a budget yet to -- and again, we've cut our exploration budget down dramatically this year, already. We haven't -- we don't currently have a budget to drill at Rincon in 2013. So if we're even to get a permit tomorrow, it's unlikely that we will drill it this year. We will be putting our 2014 budget together shortly in the next couple of months, and depending on our priorities at the time, we'll decide whether we will be drilling in that region. But it's a high-priority target, that and Rosario or Plomasas in Sonora, those 2 are the highest priority targets in the company and they're our must-drill targets that we have to get to, there is only so much capital available to do these things.

And I guess a bit of results-oriented kind of budget too?

Of course, yes.

Okay. And then on La Guitarra, the 1,000 tonnes a day cyanidation permit that you're looking for, when are you -- in your latest presentation, you show that construction completes in the second -- mid-second half of 2014. Do you expect to have that permit in place before the end of this year?

Well, we expect to. And -- so that guidance might be a little bit aggressive, considering we're already approaching August, or are in August. But yes, we might have to adjust that. But it's -- the permit is close. It was a number of things we've been doing over the last couple of months. And -- but again, it is budget contingent as well, there's only so many things we can do and Del Toro is really the priority, to get it up and running. And that's going to generate quite a lot of cash flow for the company. And once it's up and running, we could then maybe be a bit more aggressive. Or silver prices resume their bullish trend and go north of $30 again, which obviously changes everything.

So you've submitted the paperwork for that permit or is that -- that's kind of work in progress?

No, we're working with the community first. You don't want to submit these permits until you are confident you're going to get them. There's a number of things that need to happen within the region before the permit can actually go in.

Okay. And just also on a similar kind of topic. La Luz, your continuing to work on the permitting there. And I know you basically brought on a few guys on the team -- or a guy on the team to help with that permitting, any update on that?

Yes, La Luz is actually going quite well. We've been encouraged lately by some of the comments that have been made by some of the locals. There was actually a demonstration, about 2 weeks ago, with the local community, about 800 people apparently showed up, demonstrating for the commencement of construction of the mines. A lot of very good support we're getting from the area. It's going to be a big driver to the local economy. There's really nothing going on in this part of Mexico. It's a very poor part of the country other than tourism. But they really desperately needed this work. And since the election, we've got a lot of the local electorate or the politicians, pardon me, that are now in power in the region and now part of the same party as the Federal government which is really helping. So all the different people that are the decision-makers, are all now in the same political party. And that's been a big driving force for us. And we've been more encouraged, as I said, in the last month or so than we have been for the last couple of years.

The next question is from David Forster of Merrill Lynch.

Just one more follow-up. On the tax rate for the quarter, the effective tax rate was a lot higher in past quarters. Let's say for the past 4, I believe it was within 1% of kind of the 20% mark, significantly higher this quarter. I'm assuming that was just a one-off item in there. Can you confirm that for me?

Yes. Ray, can you touch on this?

Yes, sure. Thanks, John, no problem. The effective tax rate is really reflecting a number of things that have occurred in the current quarter, that are given different tax treatment than accounting treatment. For example, we've got the $14.1 million that we've received from the court system which is taxable, but we've not included it in income at this time. As well, we've got share-based payments which are nondeductible expense. Normally, as we have stock options exercised in a more robust market, we have a way of making those tax-deductible. And we also have a loss on the silver futures which is affecting the tax rate. So once we get past this quarter and we have resolution of the court matters, as well as some changes with respect to the silver price, we'll expect ourselves to get back into the normal range for the effective tax rate.

Okay. So back down to the 20% mark, thereabouts?

That would be my expectation, yes.

[Operator Instructions] The next question is from Sneha Banerjee of Reuters.

I would like to ask whether you guys have confirmed the 10% cut in manpower that you had announced earlier in July?

Are you asking whether we've accomplished it or whether we're still doing it?

Whether you've accomplished it, yes.

We've pretty well actually hit the 10% mark, our objective was to hit 10% by the end of this year. We actually -- I think we're pretty well there now. Ray, do you have a further comment on that?

Well, I can say that, just recently, as of last week, unfortunately there was a cut. I know that in the G&A area we have achieved the full 10% now. With respect to operations, I think we've, for the most part, substantially achieved it. But there may be some more of it going on for the remainder of the year.

So is it going to be more than 10% or it's just going to -- you're going to limit it to 10%?

Well the 10% was an estimate. And we're looking through the entire company, and looking for waste and leakages and inefficiencies. So the entire business is under review right now. So nothing is being not looked at. So whether it's 9% or 12% at the end of the day, it's an estimate that we put out to the market. We're looking for efficiencies throughout the entire company, and whatever that means, I can't really -- it's hard to really answer the question in specifics.

The next question is from Danny Dean [ph], a private investor.

My question is with regards to the price of silver itself. On your comments that you're -- and are expecting it's going to be resuming its upward trend and be up back over $30. Personally, I'm a subscriber to the thesis that the price of silver is being systematically manipulated and depressed by the Fed and other central banks. Apart from just a slow recovery, when do you see their involvement, assuming you're in an agreement with me, when do you see this sort of manipulation ending? And is there any actions that you might take along with other silver miners, perhaps as you have, withholding sales of silver to offset this type of manipulation?

I wish I had a crystal ball because I'd be able to answer your question. I think, if and when, for -- I agree with the thesis. But also, I agree that there's no market in the world that's not manipulated by our governments. And the human -- we act as a race, continually put these individuals in power, and they seem to think, for whatever reason, that they're doing the right thing by manipulating markets because they're trying to take the swings out of the economies so that recessions don't occur, the currencies don't collapse or economies don't collapse and so on and so forth. We can have an argument on whether the banks should be doing that or not, personally, I believe they shouldn't, and they just should stay out of it and finance the police and the firetrucks and build roads and things like that and stay out of the financial markets. But I don't know if they ever will get out of that business, and so I'm not here to predict whether that's going to happen or not. But when it comes to supply and demand, I'm a pure -- I'm a believer that any commodity will revert to a supply-demand trend. And this supply-demand for silver, I think, was extremely good, and I'm very bullish on silver and I read articles almost on a daily basis about new uses and -- for silver and I think silver is a strategic metal. I think it's one of the most important metals, including copper, that we use as a human race, and that's why I put together silver companies. So these trends that happen in the daily market, I try to ignore them, even though it does affect our business on the long-term goal. And I believe that we will resume this market as both [ph] move in silver. And I expect triple-digit silver prices. At $21 silver it seems ridiculous to say that silver is going to be triple digits, but I honestly believe that, that's going to occur. And our job, as a management team, in the meantime, is to keep our costs as low as possible and keep our growth coming and keep as pure as possible so that you're not going to wake up one day and see us investing in gold or copper or investing in Russia or investing in China. We're very focused, one country, one metal, and then that's the commitment I made to our shareholders and that's really all we can do as a management team, and it's up to you, as a shareholder, and other shareholders to make a decision on what they feel is going on out there.

[Operator Instructions] There are no more questions at this time.

Okay. Well, thank you very much, everyone, for joining us. It was a good turnout and I appreciate all your interest and feel free to go to our website or contact Todd Anthony in Investor Relations, at any time if you have any other further questions. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.