First Majestic Silver Corp (NYSE:AG) 34th Annual Gold Forum Americas 2022 Conference September 19, 2022 12:40 PM ET
Company Participants
Keith Neumeyer – CEO
Keith Neumeyer
Welcome. Good morning. Thanks for coming to my presentation. So we can’t get into my presentation without talking about Silver first. Silver production peaked out at about 880 million ounces of production worldwide in 2016. As you can see on this graph, it did drop since then and it’s recovered a little bit since COVID, and got down about 760 million ounces worldwide. 2021 were about 830 this year, it’ll be interesting to see what production is. But we’re still not seeing the production that we saw back in 2016, is likely not going to get back up to those levels based on what we’re seeing.
Consumption is pretty amazing actually some numbers are suggesting the consumption 2022 is going to be as high as 1.4 billion ounces. On this slide, we’re showing 1.1 billion, that’s our consumption last year approximately. One of the most interesting that’s this, so the deficit continues and has been there for several decades with only 2009 in recent time being a surplus. The most interesting number on this slide, as far as I’m concerned, is the mining ratio. I know a lot of people don’t really pay a lot of attention to the mining ratio, but I do.
When [Technical Difficulty] is trading somewhere rational markets and the industry is mining 7 to 1, it’s a pretty shocking stat. And just goes to show you how undervalued Silver is and we can talk for quite some time on that topic. But obviously, we don’t have time for that today. One of the major drivers so there’s a couple this one, and the next one coming up in the next slide. The automotive industry, it’s on a car like this is consuming somewhere around three times the amount of fuel combustion car. This is a relatively new industry, approaching 100 million ounces of silver consumption. And that’s — that balls not going backwards that’s going to continue on.
If you look at some of the stats in the sector, there’s about 1.4 billion automobiles sitting on the surface of the earth today. The automotive sector produces around 80 million cars per year worldwide of that number approximately 10% of those automobiles are electric. Those electric cars are consuming somewhere around 70 million ounces of silver, you do the math and try with governments around the world pushing electric cars and to some cities, potentially mandating only electric cars on their streets and banning fuel combustion cars.
The automotive sector is going to really have to produce a lot more electric cars, which is going to obviously consume a lot of silver. Solar panels as you know, I don’t have to tell you the story here. But governments around the world are pushing this technology. We’re approaching 150 million plus ounces, silver consumption in this industry alone. So we have two industries that are relatively new on the solar panel industry, as well as the automotive sector are consuming somewhere in the order of 25% a world consists of a world production of silver. It’s just pretty interesting. And so I think it’s just up for silver prices going forward
And as far as I’m concerned. Some of the technologies that we take for granted, 40-inch televisions got 3 ounces of silver in it, for example. So ratios many of you follow probably. And getting into First Majestic, we have about 50% of our revenues from the sale of silver, that is dropping a little bit because of our recent acquisition in Nevada and our increase in production at Santa Lena, which I’ll get into a little bit. This year, we’re producing somewhere around 32 million ounces of silver equivalent. Our objective is to get up to about 50 million ounces by 2024. And I’ll get into how we’re going to do that.
Very experienced management team of little bit over 5000 employees who continually receive awards in ESG. We actually just published our second ESG report in July, it’s on our website, that’s quite an interesting report. For those of you who are interested in that, I would suggest you review that on our website. And getting into the assets a little bit.
The company has been in business for 19 years, I put it together back in 2002. We made our first acquisition outside of Mexico, all our assets had been in Mexico historically. The yellow dots there, what we call projects or mines that were really the founding of assets of our company, dating back to 2004. And then as the company built, taking out Santa Elena in 2015, and then San Dimas in 2018 San Dimas has been our largest mine. And then our first investment outside of Mexico, just an operation which I’ll cover in a couple of minutes, you can see the breakdown of our production.
And we expected to see 2020 as a record year, obviously, we know why it didn’t become a record year, but we got back on track in 2021. And with the acquisition of Jerritt, and we’re having a record 2022. The revenues will be somewhere around 700 million as a result of that increase. And look, as I mentioned earlier, look for this to continue to grow over the next couple of years. They’re reaching what we’re expecting around 50 million silver equivalent ounces by 2024.
And our costs, Jerritt Canyon is the standout here, it’s obviously pulling the average up, the investment that’s going on at Jerritt is hitting our cash costs, our all in sustaining costs. I’ll cover that as we get to that slide. But the majority of that company’s production, about 80% of the company’s production is cash flowing. Obviously, Santa Elena and San Dimas are the two outstanding assets are producing the majority of the cash in the business.
And the investment, we do come out with guidance twice per year. The original guidance shown on this, well actually don’t shown on this slide but it was 208 million investment in CapEx and so on. We did reduce that with our guidance, but this does — it’s a little bit skewed because there’s about 8% inflation also on this number. So that was actually pretty substantial cut, since we put this guidance out in July of this year. And we’ve actually had it even further we’ve based on the reduction in metal prices that we’re all experiencing. We’ve actually made further reductions in our CapEx. So you’ll see this number of 199 once we’re finished this year will be quite a bit lower than this number. So there is other initiatives going on within the business.
And in our exploration record drilling, we did cut some of our exploration back to do the cost cutting measures, but still 250,000 meters of drilling as obviously have substantial, something in the order of 30 rigs active right now and resources are increasing, which is what we expect, and our average grades are holding up quite nicely.
So, Jerritt Canyon, we get asked a question about buying gold mine in Nevada. It’s quite interesting, because having gold in our portfolio, despite the fact I’m such a [silver bowl], really gives us some stability in our business. Silver prices are extremely volatile, and it is quite difficult to manage the business, when you’re 70%, 80%, 90% silver with the gold, as I said, it just does stabilize the business.
Jerritt Canyon has been in production for something like 40 years, it has been a series of open pits, it used to be the largest gold mine in the state of Nevada. And then this year it will produce somewhere around 110,000 ounces of gold, but it needs to be bigger. This mill is a 5,000 ton per day capacity, where it’s only running at about 2,500 tons per day right now. Our objective while we’re expecting to see this hit 3,000 tons per day by the end of the year. Our objective is to get it up to 4000 tons per day by the end of 2023. In 2024, we’re projecting 200,000 ounces of gold being produced here. And we’re making the investment today to achieve that objective and that’s why you’re seeing such elevated costs [Technical Difficulty] is we just have to spend this money, this capital has been in a couple of hands over the last 15 years. And it’s just not been particularly well managed. And so we’re coming in with a strong balance sheet and a very good skilled technical staff that are really turning this operation around.
We’re also blessed with this roaster. This is only one of three roasters in the state of Nevada. And again, it’s only running at half capacity. We may fill it with other ore coming from other operations. We’re evaluating that now. But we don’t necessarily need to do that. We need to develop our underground operation and get the ore developed and get this mill filled. This mine or project was historically two separate mines, as you can see on this slide, the SSX mine and the Smith mine have been operating for the last decade or two.
And when we first did our evaluation of this asset, we saw right away that if we join these two mines on the ground, not only would we bring into some efficiencies in the operation, but also we could use this drift as an exploration drift, which has paid off very substantially. You see Zone 10, which is our new discovery that was just done in the last 12 months, and we’re now developing into it and this whole drift, and 800 meter drift and all this development is currently going on is hitting our costs.
And this is all going to come to an end, of course shortly at all, but more importantly, these ounces in Zone 10 will start hitting our production towards the end of this year and all throughout the next couple of years. Also, importantly, this is the exploration upside. Many of these are old open pits. We have a couple of these coming into production as well, particularly the West Gen is coming into — should be started hitting the mill by the end of the year and that’s how we’re getting our throughput up to 3000 tons per day. And then we’ve got in the Murray and a couple of the of the other open pits coming into production throughout 2023 and then into 2024.
The San Dimas mine is obviously our largest operation. We’re blessed by high grades here. So very nice cash flowing asset. It could be bigger, and then potentially we’ll expand it. But we’ll see, because there’s so many other investments that we’re making throughout the business and it’s such a just a great asset to be in our portfolio. It’s one of the largest, I think it is the largest silver gold mine in state of Durango. Big, big land package. It was 70,000 hectares in size, very prolific. It’s been in production for over 200 years and will be in production for longer than we really care. But we’d love to see it expanded as I mentioned.
La Encantada, steady state operation, I’ve been in our portfolio since 2006. I should have said that Jerritt Canyon is 100% gold, San Dimas is 50% silver 50% gold, La Encantada are only asset that’s 100% silver, it is challenged with grades. It’s a very unique orebody where it says series of chimneys and mantles and it’s very difficult to drill into. So you’ll see if you’ve been following First Majestic for very long that the grades here fluctuate quite dramatically, year-over-year, and it’s just a matter of running into these big pockets have high grade, you look at, for example, 2019, it was a very high grade year for this mine. And we expect over the next couple of years that you’re going to continue to see that volatility and grades and it does affect costs but it is cash flowing.
Santa has been going into over the last couple of years. By the way, all the assets are [indiscernible] producers as well. This is approximately 60% silver or probably 60% gold, 40% silver. And this is another area of growth that we’re expecting over the next couple of years, you’re going to see gold growth predominantly. Very large land package, the red dot there is the Ermitaño discovery. The mill is about for farmers wave the mill, you see the white square at the top of this map. And that’s what’s cheapest, the SilverCrest operation which is just now coming into production.
We’ve got about 10 rigs active here, throughout this property, very, very prolific part of Mexico, often called the Carlin trend of Mexico. And here’s the slide. This is a discovery that we did back in 2016. You see the grades here, very much a gold centric, and these grades are really about 10 times higher than the grades — gold grades that were predominantly in the Santa Elena operation. There’s the first pour with three ladies there, that was — that pour was done ahead of schedule back in November of 2021. It was about $3.5 million worth of metal sitting on that table. And this is the Splay, Ermitaño was the previous slide — that slide there and that’s where the resource is. Everything outside of that resource is not part of the current resource. So it’s not public data or what I mean by that it’s not part of the 43101. We will be updating that hopefully by the end of mid-2023. But you can see some of the interesting drill holes there. We’ve been drilling actually deeper than what this slide actually indicates. And that will all be coming into the new resource that will be published next year.
We actually came in as guidance this year at about 7 million ounces of production. We’ll be doing about 9 million this year silver equivalent, and we’re expecting about 10 million ounces of silver, copper next year.
Very important slide. We get this question all the time, we’re very proud of the LNG work that’s been going on. As I said, the recent report was just put out in July, which is on our website, gets into much more detail than the slide does. And there are efforts to actually improve this. I didn’t cover San Dimas saw the electrical needs there. But about 50% of the electric power generate San Dimas’ hydro. And we that could be expanded and the government wishes as well, very supportive. The community is very supportive of that as well, but it’s going to require investment. And that decision has not been made yet. But we do expect that LNG consumption will continually increase and we’re looking at ways to reduce our diesel consumption as well. But we’ve had some major inroads, bringing Santa Elena into our converting Santa Elena over from diesel to LNG just this year or – yes, this year.
And that’s the plant there, it’s a pretty monstrous plant. And you can see that those three expansion tanks were actually putting another there’s 7 gensets here now. We’re actually putting another 3 gensets, as I mentioned in the previous slides to reduce our diesel consumption even further. And this will be supplying power to the Ermitaño area. This cost is about a million and half bucks to build this surprisingly. The company that did this for us, did this CapEx investment and we just buy power directly from them at $0.21 compared to $0.38 for diesel.
And getting into the corporate side of things a little bit, the market cap is a little over 2 billion U.S. strong balance sheet and breakdown of our shareholders there. And the short position for those who are interested in such things. And our dividend policy, it’s modest right now, it’s only 1% of revenue. We hope to see that increase over the next couple of years, but it’s really, I thought it was an important thing to bring into the business and I think a lot of shareholders appreciate it. And some interesting tidbits on silver.
And that’s it for my presentation. These are some of the noncore assets are currently on the market. Okay. Thank you.
Question-and-Answer Session
End of Q&A
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