First Majestic Silver Corp. (AG) Q2 2025 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the First Majestic Silver 2025 Q2 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Keith Neumeyer, President and Chief Executive Officer of First Majestic Silver. Keith?

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?

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.

Thanks, Samir. I appreciate that. And before I get into the presentation, I just want to make a couple of quick notes. Obviously, a volatile day in the stock market. Silver and gold prices are having a down day today, which is unfortunate, but nevertheless, we've seen this constantly, and it's just the volatility in the market. But also our stock is somewhat affected today by our news. Such positive news that have been on record using the word record 27 times and maybe today, I'll be breaking that record, we'll see. But there was some news that came out earlier and I'm just looking at headlines. One headline said we missed our revenue by 30%. Well, the writer of that headline of that article actually didn't realize that we reported in Canadian dollars or U.S. dollars, pardon me, and they're using Canadian dollars. So I don't know how that happen, but nevertheless. So that headline is complete nonsense. And also, we saw Reuters announcement or headline that came out this morning that said we had a loss and actually, we have a gain. So again, we're contacting these news sources and are trying to correct them. So it's just part of the business, unfortunately, we have to deal with. And I would suggest people just look at our news release that's what the facts are. Super record quarter, best quarter ever in the company's history, strong safety performance, which we're very proud of. Silver production, 3.7 million ounces, up 76%, and year- over-year. And we do have a presentation on screen. I don't know there's a number of people that are hopefully watching it. I know some of you are dialing in and don't have access on the screen. But we do have a PowerPoint that we do have available that we are going through to follow my presentation. So with silver equivalent production of 7.9 million ounces, up 48% year-over-year; record quarterly revenue, $268 million, up 94% year-over-year, that's not too bad. We have -- we're in line with having $1 billion in revenue for 2025. It's a pretty exciting place to be. Record EBITDA of $120 million, significant cash flows of about $115 million. Record cash position, and me as a CEO, I love looking at this number, I see it every Friday, and $510 million in the bank is not a too bad place to be for a company like ours. And that's growing. It should get better, should continue to grow. Strong balance sheet, as I said, we do have the convertible of course, but some people look at that as debt, but quite honestly, I look at that as equity. We're paying dividends, as all of you know, 1% of revenue. So as our revenue increases, our dividends also increase as a result of increased revenues. Record spending on exploration, 255,000 meters are expected to be drilled this year. We have 20 rigs currently active. That includes Jerritt Canyon, we just had our team down at Jerritt Canyon, watching the drilling going on there and is looking quite exciting. There's a second rig arriving, I think, next week. So that's part of that 255,000 meters of drilling. That's a lot of drilling. The exploration success Navidad, Santo Niño and Santa Elena, they're just -- it's amazing, those 2 ore bodies. And we're just -- internally, we're just putting together a bunch of work on the best way to get into those ore bodies, best way to develop them. The quickest time lines. Getting that ore into the mill and the time lines around all of that. So we'll put that information out when we're ready to do that. First Mint is doing very well, very excited about that project, and that's making money, which is good. You'll see on this slide, we remain really the purest silver company in the business. And if you look at the numbers, we're at 55% silver, Hecla catching up a little bit. They had a good quarter, 44% silver, 30 -- after silver max with Coeur, the 34% and Pan American falling a little bit behind but has increased a little bit as a result of the MAG transaction at 24%. So out of the group, this is the group that we measure ourselves against, and it's important to us to remain 50% silver or higher and we've achieved that over the last couple of quarters. So moving along into our cost structures and our production. You see, we had a great first half of the year. We're on track to hit our guidance of between 30 and 31 and 32 million silver equivalent ounces for the year. We're seeing Gatos continually deliver, which is great to see. It's been a great contributor to our portfolio. San Dimas is coming along nicely, which is good to see after some challenges. The last couple of quarters has been quite good. For San Dimas, the costs have creeped up a little bit, as you can see on the slide, we're looking to see that hopefully come down over the next couple of quarters. But there is inflation in the system. And Q2, as most of you probably know, who are listening, it tends to be a fairly big cash out draw. That's when you got union bonuses that when you've got cash -- tax payments as well. So there is -- tends to be heavy spend in Q2 just in the Mexican mining sector. That's just kind of normal. So that should revert over the next couple of quarters, we'll see. As things evolve, we just move along here. Our guidance where this is information already that's gone out of the market, but you can see our guidance on costs. We're within guidance, as you can tell. And we're quite within our production guidance as well. So everything is working as scheduled and on time and as expected. So when it comes to capital, we had a pretty aggressive first half getting these exploration programs going and getting the development done. We did front end the budget slightly. And that was just to get things really kicked off. We -- as a result of strong production and revenues and profits from Q4 and Q1, we did expand some of our projects, and we did come out with a revised guidance earlier in July, as most of you probably have seen, and that has translated into higher underground development costs, higher exploration costs. But this is all growth capital, it's all very nice to see. And will have big impacts on the business over the next couple of years. So it's great to be in a position, a strong position to be able to increase our budgets and spend this money, whereas money should be spent to grow the business over time. We're happy to be able to do that. And on our cash flows, you can see by this slide, very, very strong cash flows. Record cash flows that -- I used the word record again, he's counting, how many times, I have used the word record? I got to use it more. But record cash flows, we're very excited about that. And I go back to the treasury day, the treasury is growing, and that's what I look like or what I look at as being a successful business, you don't have to be going to the public markets to raise capital, you're actually generating cash, and that's a pretty good place to be. Talking about some of the things that we're doing on the CapEx side. I did -- I should go back and just address a couple of CapEx issues. We are looking at getting the Santa Elena up and up to 3,500 tonnes a day that's in process. We are working on getting Navidad and Santo Niño developed, which I kind of touched on, but we're getting pretty advanced on that. And I would look for news on both of those projects. We have -- there's some pretty exciting things going on there. And Gatos getting it up to a consistent 4,000 tonnes per day. We're there, but consistently keeping it at those levels is one of our major goals. We're actually changing the haulage at La Encantada. We've bought our own fleet, and we're doing -- going to be doing self-haulage. So we're going to see -- we're hoping to see a little bump up in CapEx because we have to buy the fleet, but it will be a lower OpEx over the next couple of quarters as we start to do our own haulage there. So going back to the cash flow slide, going back and forth here a little bit, but -- you can see for yourself strong cash flows, okay. We're going to go to our waterfall EBITDA slide. And this just gives you an idea of what our budget is compared to what actually occurred. Obviously, the depletion and amortization is a big number. I should probably pass this comment because we do get questions on this. I think I should probably divert this to David. Why don't you talk about this?

Yes, thank you, Keith. Hello, everyone. Just on Slide 7 here, we've got the waterfall that shows the difference between net earnings or what makes up the difference between net earnings and EBITDA. You can see there a large portion of that difference is really just the depletion, depreciation and amortization and about $44 million or so, $44.6 million relates to Cerro Los Gatos and really the PPA, the purchase price allocation bump that was done when we had to allocate the $1 billion that we paid for the asset to the asset. So it went from a book value of a few hundred million dollars to $1 billion. Obviously, that brings up the value and the depreciation as well. So we also had a strong production quarter, which -- across most of our sites, and that also contributed a little bit here as well. So really, that noncash item making up the big difference between net earnings and EBITDA. We had some financing costs, most of which were related to noncash accretion, but we also had some interest in standby costs, which were about $3 million. And then we also had an income tax recovery impacting here as well, mainly related to changes in the FX rate on our tax pools in Mexico. Anytime there's big changes from quarter-to-quarter in the Mexican peso versus the U.S. dollar, we get these fairly large adjustments on the tax side. So ending EBITDA for the quarter was $119.9 million.

Great. David, actually, you explained that way better than I could have. Glad you took that on. Okay. So going to the next slide, slide -- page. Just some notable comments on the quarter. I already covered some of this stuff already during my previous verbiage, but the bonuses, of course, is always June and tax installments, of course, tend to be large. At this time of the year, we did have some energy disruptions. There were some weather events in June and water -- had to use extra diesel at San Dimas and so on and there was also integration costs at Los Gatos, which were kind of onetime off cost, but you can see those details in the MD&A. They're all there, laid out. So if you want to see further details on the impact, please have a look. And then you see the details on the tax payments and the dividend payments and so on, on the slide. We did get upgraded by ISS, our ESG scores, which is pretty impressive. This is a big initiative that the company launched a couple of years ago and our score just continually improves every year. I know many investors don't really pay a lot of attention to this kind of stuff. But we do have a group of investors and shareholders and institutions that really do care about these types of initiatives, and we do continually try to improve that side of our business, which is something we take quite seriously and we're quite proud of it. So jumping to the next slide, Slide 9, the Gatos integration. It's been extremely smooth. It's got to be 1 of smoothest integrations in the 23 history -- 23-year history of the company. I guess that's probably to do with the fact that it's a new mine. It wasn't 1 of the old ancient mines that we bought in the past, we've had to go in and basically rebuild and take time and money to do that. But in this case, there's no capital required. We're actually even able to reduce the exploration programs a little bit just because they already have a 10- year life of mine. So you don't need to spend that type of capital. As long as we replace reserves at our resources that we're mining on an annual basis, that's really the job of the exploration team. And they do that successfully, and we expect they'll continue to do that going forward. The areas like safety, security, environment, health, people, everything is aligning. We're actually -- just implemented SAP. We've been using SAP within First Majestic for up to almost 5 years, I think, and getting that implemented at Gatos take some time, and that was just launched last week. So it was really nice to see that. That's really going to give us an extra layer of controls over that operation and brings it into the whole supply chain and maintenance and so on, matching all the guidelines and the policies and procedures within First Majestic. So we're happy to see that. Okay. Let's move along here. So our financial strength. It's hard to avoid talking about having $510 million in the bank. That's not a bad place to be. So that continually grows or hopefully, it will continue to grow. There's no plans on spending that money anytime soon. We're going to continue with our current budget. Our current -- our budget was released in July -- for the balance of the year. There will be no changes to our guidance or our budget or our spend. We are looking at some interesting investments in 2026, but we will discuss that at a later date, when you get closer to January when we put our guidance out for 2026. So I think that's it for my presentation. This is the first time ever, and I just -- so the listeners know that we've actually done a PowerPoint presentation. Usually we do these formal type discussions or we try to formalize it and that's why we decided to create some slides, which we've shown you today. So let's open up the call for questions.

[Operator Instructions] Our first question is from Wayne Lam with TD Securities.

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 time line would be to achieving that?

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.

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.

Wayne, does that answer your question?

Yes, I was also wondering -- so that ties in with the synergies portion?

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, 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 2-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 2 examples.

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

Yes. So Mani, just brought up a point that we have a lot of different synergies. One of them, for example, is there are 3 different exploration contractors doing exploration work at Cerro Los Gatos and we have a major contractor that does most of our work in Mexico that we're quite comfortable with that gives us very good rates on exploration work. And we've integrated that contractor now into Cerro Los Gatos and saw significant savings and exploration work that was being done. So that's 1 example. Another 1 is we've looked at all the major consumable contracts like [ bulk oils ] and things of this nature. And we've been able to utilize some of our major suppliers to integrate the Cerro Los Gatos to give Cerro Los Gatos just lower costs overall. [ Bulk oils ] is a good example. Some of the ground control supply is another good example as well.

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?

Yes. Wayne, some of that information is not yet public, and we've put out news around Navidad and then Santo Niño and Winter. These are 3 major discoveries and I've mentioned to people that our geological team is suggesting that these discoveries are larger than Ermitaño. Time will tell. Our maiden discovery, our maiden resources was released in our [ AIS ] earlier in the year, and there was 30 million ounces at Navidad, which included, I think, did that include winter as well or just Navidad.

It did include a portion of Winter, yes.

A portion of Winter and then Navidad. But the drilling is continuing -- and then we discovered Santo Niño, which we have with resource around yet. Our whole focus is how quickly can we get these ore bodies into the mill. We're doing a bunch of engineering work. Steve is spending a ton of time right now with the team to try to figure out the best way to get into this and how to develop it, where to build the ads, where to build the tunnels. Once we have all that done, which hopefully will be by end of the year, maybe Q1. We will put out some guidance on that. So we'll answer -- be able to answer your question at that time.

[Operator Instructions] Meanwhile, I'll pass the floor over to Mr. Darrell Rae, Investor Relations at First Majestic Silver to take us through questions submitted from the webcast.

So okay, yes, we'll take a couple from the webcast, Gailene. This 1 slightly directed towards David. David, what is your total -- First Majestic, what is your total debt outstanding? What was paid in the last quarter in interest? And what are you expecting to pay in 2025 or 2026.

Yes. Just to answer that question, was paid in the last quarter was about $3 million. It's included in the financing bucket of the EBIT to EBITDA slide. It's part of that $7-or-so. We're not looking at changing our -- or increasing our debt levels at First Majestic, even though we're there. Our balance sheet is very strong. And if we had use for that debt or a project that we can look at it. But as Keith said, right now, our cash balance remains super strong, and it's increasing. And we've got internal projects lining up for -- which will probably disclose once they further develop -- the ideas around those are further developed in early 2026. So for now, we've got our converts outstanding. We're happy with that level of debt. And at the right time, we'll see what we do with that.

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.

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.

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.

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?

No, it's not full capacity is measured by basically man-hours and shifts. The equipment could produce more than it's currently producing, was limited by man hours. So we could put a second shift on and double current capacity, if need be, the budget is to do 100,000 ounces a month. They're slightly behind that. The budget is -- no, not the budget, but the goal is to get up to 10% of the company's production through the mine. We're currently just shy of 6%. So it's not too bad after 1 year of production. This is a start-up business. It's brand new. There's competition out there that we're dealing with. And -- but it's a profit center, we're making money and we're trying to grow it. And as I said, we're trying to get it up to 10% of the production of the global production of the company.

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

We have no further analysts on the -- in the queue.

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

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

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 info@firstmajestic.com 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.

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.