Mr. Keith Neumeyer reports
FIRST MAJESTIC ANNOUNCES FINANCIAL RESULTS FOR Q4 AND YEAR END 2018
First Majestic Silver Corp. has released the consolidated financial results for the company's fourth quarter and year ended Dec. 31, 2018.The full version of the financial statements and the management discussion and analysis can be viewed on the company's website, on SEDAR and EDGAR. All amounts are in U.S. dollars unless stated otherwise.
2018 highlights:
Completed transformational acquisition of Primero Mining Corp. and its world-class San Dimas silver/gold mine on May 10, 2018, creating one of the largest publicly traded silver companies in the world;Produced 11.7 million ounces of silver, 111,084 ounces of gold, 16.1 million pounds of lead and 5.7 million pounds of zinc;Total production reached 22.2 million silver equivalent ounces, achieving the 2018 total production guidance range of 20.5 million to 22.6 million ounces, an increase of 37 per cent over the prior year;All-in sustaining costs (AISC) of $14.95 per payable silver ounce, in line with the AISC guidance range of $14.53 to $15.83 per ounce;Cash costs of $6.98 per payable silver ounce, beating the 2018 guidance range of $7.18 to $7.75 per ounce;Revenues totalled $300.9-million, representing a 19-per-cent increase from 2017;Mine operating loss of $11.9-million compared with earnings of $16.0-million in 2017 primarily due to a $7.5-million inventory loss due to the bankruptcy of Republic Metals Refining Corp. and a 9-per-cent decrease in the average realized silver price per ounce; Operating cash flows before working capital and taxes of $61.6-million or 34 cents per share (non-generally accepted accounting principles);Recorded a net loss of $204.2-million ($1.11 per share) in 2018, reflecting the impact of impairment pretax charges totalling $199.7-million;Began commissioning of the new 2,000-tonne-per-day roasting facility at La Encantada which is expected to increase silver production by 1.5 million ounces per year;Achieved annual consolidated silver recoveries of 80 per cent, a new company record, due to continuing investments in metallurgical processing and innovation;Exercised option agreements on the Ermitano and Cumobabi projects in Sonora, Mexico, with Evrim Resources Corp. for a 100-per-cent earn-in for both projects;Ended 2018 with cash and cash equivalents of $57.0-million, down from $118.1-million at the end of 2017;Subsequent to year-end, the company sold 2.25 million shares through its at-the-market offering equity program on the New York Stock Exchange for net proceeds of $13.2-million.
Fourth quarter 2018 highlights:
Produced 3.3 million ounces of silver, 34,487 ounces of gold, 3.3 million pounds of lead and 1.4 million pounds of zinc, for a total of 6.5 million silver equivalent ounces;Revenues totalling $74.1-million, representing a 21-per-cent increase compared with the fourth quarter of 2017;Mine operating loss of $9.0-million compared with earnings of $1.4-million in the fourth quarter of 2017; AISC of $12.83 per payable silver ounce, representing a 9-per-cent decrease compared with the fourth quarter of 2017;Cash costs of $6.06 per payable silver ounce, representing a 10-per-cent decrease compared with the fourth quarter of 2017;Adjusted net loss of $10.5-million (five cents per share) after excluding non-cash and unusual items;Operating cash flows before working capital and taxes of $11.0-million or six cents per share (non-GAAP).
Chief executive officer comments
"Two thousand eighteen was a bittersweet year for First Majestic following the largest acquisition in the company's history of the San Dimas mine paired with silver prices falling to a nine-year low," said Keith Neumeyer, president and chief executive officer of First Majestic. "Nevertheless, First Majestic delivered a solid year with record production and revenues of over $300-million and an AISC of $14.95 per ounce. We also advanced numerous innovative projects in 2018 aimed at increasing shareholder value in 2019. We continue to lead the industry as the purest silver producer and remain focused on improving margins by adopting new technologies with high returns on invested capital."
2018 ANNUAL AND FOURTH QUARTER HIGHLIGHTS Key performance metrics2018 Q4 2017 Q420182017OperationalOre processed/tonnes milled850,272 736,684 3,375,452 2,981,506Silver ounces produced 3,250,816 2,337,46311,679,452 9,749,591Silver equivalent ounces produced6,485,761 4,065,33722,243,07116,207,905Cash costs per ounce $6.06 $6.76 $6.98 $7.04All-in sustaining cost per ounce$12.83$14.13$14.95$13.82Total production cost per tonne $65.31$50.81$60.71$50.12Average realized silver price per ounce $14.47$16.61$15.53$17.12Financial (in $ millions)Revenues $74.1 $61.2$300.9$252.3Mine operating (loss) earnings ($9.0) $1.4($11.9)$16.0Impairment of non-current assets (loss)($168.0) ($65.5)($199.7) ($65.5)Net (loss) earnings($164.4) ($56.1)($204.2) ($53.3)Operating cash flows beforeWorking capital and taxes$11.0 $18.7 $61.6 $81.0Cash and cash equivalents$57.0$118.1 $57.0$118.1Working capital $108.1$116.3$108.1$116.3Shareholders(Loss) earnings pershare (EPS) -- basic($0.85) ($0.34) ($1.11) ($0.32)Adjusted EPS (loss) ($0.05) ($0.04) ($0.21) ($0.04)Cash flow per share$0.06 $0.11 $0.34 $0.49
2018 financial results
Full-year revenues totaled $300.9-million, a 19-per-cent increase compared with 2017, primarily due to a 37-per-cent increase in production offset by a 9-per-cent decrease in average silver prices. The company realized an average silver price of $15.53 per ounce in 2018, its lowest annual selling price since 2009 due to continued market weakness.
Annual mine operating loss totalled $11.9-million compared with earnings of $16.0-million in 2017. The decrease in mine operating earnings was attributed to taking a $7.5-million inventory loss due to the bankruptcy of Republic Metals Refining Corp., one of three refineries used by the company. At the time of the Chapter 11 announcement, the company had approximately 758,000 silver equivalent ounces of inventory that were in Republic's possession for refining. The company has been pursuing legal and insurance channels to recover the value of this inventory, but there is no assurance that some or any this inventory will be recovered. As a result, the company has written off the cost of these inventories to cost of sales. The decrease in mine operating earnings was also affected by tighter margins as a result of a 9-per-cent decrease in the average silver price, higher production costs attributed to increases in energy costs and $2.1-million in severance costs incurred during the year as part of the company's staff reduction initiative.
The company was required to record an impairment charge of $111.8-million and $56.3-million on its two concentrate producing mines, La Parrilla and Del Toro, respectively, due to a reduction in estimated reserves and resources as a result of a decline in long-term metal price forecasts, a decrease of investment and increase in operating costs. In addition, the company recognized an impairment charge of $31.7-million on La Guitarra in the second quarter as a result of management's decision to place the operation on care and maintenance effective Aug. 3, 2018.
Adjusted EPS (non-GAAP), normalized for non-cash or unusual items such as impairment of non-current assets, share-based payments and deferred income taxes for the year ended Dec. 31, 2018, was a loss of 21 cents, compared with a loss of four cents in 2017.
Cash flows before movements in working capital and taxes during the year was $61.6-million (34 cents per share) compared with $81.0-million (49 cents per share) in 2017.
The company ended 2018 with $57.0-million in cash and cash equivalents compared with $118.1-million at the end of 2017. In addition, the company ended the year with a working capital surplus of $108.1-million compared with $116.3-million at the end of 2017. The decrease in cash and cash equivalents was primarily attributed to movements in working capital items in relation to the Primero acquisition, including a $6.4-million decrease in trade and other payables as First Majestic began paying down overdue liabilities assumed from the Primero acquisition and absorbed a $17.2-million increase in value-added taxes (VAT) receivable as a result of delays in recovery from the Mexican tax authority, the Servicio de Administracion Tributaria (SAT). Primero was 18 months behind on its VAT filings when First Majestic acquired the San Dimas mine, however, since acquisition the company has accelerated its filings and as at Dec. 31, 2018, has recovered $4.5-million of the outstanding amount. Subsequent to Dec. 31, the company has recovered a further $7.0-million related to its Primero VAT filings.
FULL-YEAR 2018 OPERATIONAL RESULTSAnnual productionsummarySan Dimas (1) Santa Elena La Encantada San Martin La ParrillaDel Toro La Guitarra ConsolidatedOre processed/tonnes milled435,289 899,370916,894284,656 491,637 267,17080,4353,375,452Silver ouncesproduced 3,621,868 2,223,2461,603,7401,746,139 1,340,385 785,154 358,919 11,679,452Silver equivalentounces produced8,051,605 6,014,6871,610,8952,169,338 2,323,056 1,432,312 641,179 22,243,071Cash costs perounce$0.11 $0.50 $18.80$9.42$12.83$17.10 $9.79$6.98All-in sustainingcost per ounce $5.92 $4.54 $23.82 $12.28$19.57$27.49$16.13 $14.95Total productioncost per tonne $117.46$57.01 $32.28 $77.66$51.88$70.20$81.91 $60.71(1) San Dimas production was from the period May of 10, 2018, to Dec. 31, 2018.
Total production in 2018 reached 22.2 million equivalent ounces of silver, representing a 37-per-cent increase over 2017, and at the upper end of the company's guidance of 20.5 million to 22.6 million silver equivalent ounces. Total production consisted of 11.7 million ounces of silver, 111,084 ounces of gold, 16.1 million pounds of lead and 5.7 million pounds of zinc. The increase in metal production can be attributed to the addition of the San Dimas mine, which contributed 3.6 million ounces of silver and 54,098 ounces of gold (or 8.1 million silver equivalent ounces) of production since being acquired on May 10, 2018.
Cash cost per ounce in the year was $6.98, a decrease of six cents per ounce compared with the previous year and below the range of the company's 2018 guidance of $7.18 to $7.75 per ounce. The decrease in cash cost compared with the prior year was primarily due to the addition of San Dimas, which had a cash cost of 11 centsper ounce, partially offset by $2.1-million in severance costs incurred during the year as part of the company's cost reduction initiative and staff level optimization as well as increase in energy costs due to a 30-per-cent rate hike by Mexico's Federal Electricity Commission and higher diesel costs.
AISC per ounce in 2018 was $14.95, an increase of $1.13 per ounce compared with the previous year and within the annual guidance of $14.53 to $15.83 per ounce. The increase in AISC per ounce was attributed to higher sustaining capital expenditures as the company increased investments in development and exploration.
The company's total capital expenditures in 2018 was $107.2-million, an increase of 32 per cent or $25.8-million compared with the prior year, consisting of $45.7-million for underground development, $27.8-million in exploration and $33.7-million in property, plant and equipment. Total investments, on a mine-by-mine basis, primarily consisted of $20.5-million at San Dimas, $18.9-million at Santa Elena, $16.9-million at La Encantada, $9.3-million at San Martin, $14.2-million at La Parrilla, $11.6-million at Del Toro and $5.3-million at La Guitarra.
As previously announced, the company plans to invest a total of $137.4-million on capital expenditures in 2019 consisting of $61.1-million for sustaining requirements and $76.3-million for expansionary projects. The company is preparing for future production growth by developing additional mine production levels at each of the mining units, investments in high-intensity grinding mills and microbubble flotation cells, in addition to the exploration work at the Ermitano West project in order to advance the project toward a production decision. First Majestic will remain nimble and ensure its capital investments are flexible to account for changing commodity prices.
Fourth quarter 2018 financial results
Revenues generated in the fourth quarter of 2018 totalled $74.1-million, representing a 21-per-cent increase compared with $61.2-million in the fourth quarter of 2017.
The company realized a nine-year low quarterly average silver price of $14.47 per ounce, representing a 13-per-cent decrease compared with $16.61 per ounce in the fourth quarter of 2017. Mine operating loss was $9.0-million compared with earnings of $1.4-million in the fourth quarter of 2017. The decrease was primarily due to the $7.5-million inventory loss due to the bankruptcy of Republic Metals, tighter margins as a result of a 13-per-cent decrease in average silver price and $1.0-million in severance costs incurred during the quarter as part of the company's staff reduction initiative.
The company recorded a net loss of $164.4-million (EPS loss of 85 cents) during the fourth quarter of 2018 compared with $56.1-million (EPS loss of 34 cents) in the fourth quarter of 2017. The $108.3-million decrease in net earnings was primarily attributed to a $168.0-million non-cash impairment charge, or $130.6-million net of tax, on the La Parrilla and Del Toro mines and the decrease in mine operating earnings.
Adjusted net loss for the quarter was $10.5-million (adjusted loss per share of five cents), after excluding non-cash and non-recurring items.
Cash flows before movements in working capital and income taxes were $11.0-million (six cents per share), compared with $18.7-million (11 cents per share) in the fourth quarter of 2017.
FOURTH QUARTER 2018 OPERATIONAL RESULTSFourth quarterproduction summary San Dimas Santa Elena La Encantada San Martin La Parrilla Del Toro ConsolidatedOre processed/tonnesmilled 172,641 221,945206,812 66,924 125,751 56,200850,272Silver ouncesproduced 1,367,028 567,754449,632404,523 312,144149,7343,250,816Silver equivalentounces produced3,127,871 1,587,396451,244511,911 563,703243,6376,485,761Cash costs (benefit)per ounce$0.58($1.06)$15.60 $10.40$13.80 $27.69$6.06All-in sustainingcost per ounce $5.35 $2.18 $18.70 $13.60$21.18 $37.83 $12.83Total productioncost per tonne $113.66$54.55 $33.20 $83.27$52.47 $84.67 $65.31
Total production reached 6.5 million silver equivalent ounces in the fourth quarter of 2018, representing a 4-per-cent decrease compared with the previous quarter, consisting of 3.3 million ounces of silver, 34,487 ounces of gold, 3.3 million pounds of lead and 1.4 million pounds of zinc. The slight decrease in production was primarily due to a 5-per-cent decrease in consolidated silver grade and 2-per-cent decrease in tonnes milled.
Cash cost per ounce in the quarter was $6.06, a decrease of 12 per cent or 79 cents per ounce compared with the previous quarter. The decrease in cash cost per ounce was primarily attributed to an increase in byproduct credits which was partially offset against a $1.0-million in severance costs incurred during the quarter as part of the company's cost reduction initiative.
AISC in the fourth quarter was $12.83 per ounce, a decrease of $2.29 per ounce compared with the previous quarter, primarily attributed to lower sustaining capital expenditures as the company wound down its development and exploration projects near the end of the year after completing respective budget programs.
Capital expenditures in the fourth quarter were $25.8-million, a decrease of 26 per cent compared with the prior quarter, primarily consisting of $7.4-million at San Dimas, $3.7-million at Santa Elena, $3.0-million at La Encantada, $2.4-million at San Martin, $3.4-million at La Parrilla and $2.0-million at Del Toro.
About First Majestic Silver Corp.
First Majestic is a mining company focused on silver production in Mexico and is aggressively pursuing the development of its existing mineral property assets. The company presently owns and operates the San Dimas silver/gold mine, the Santa Elena silver/gold mine, the La Encantada silver mine, the La Parrilla silver mine, the San Martin silver mine and the Del Toro silver mine. Production from these mines is projected to be between 14.2 million and 15.8 million silver ounces or 24.7 million to 27.5 million silver equivalent ounces in 2019.
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