Monday, November 26, 2018

First Majestic - Reserves, who needs them

When I was younger and infinitely more intelligent (as I thought), I had a high regard for First Majestic Silver. As I’ve got older, fatter, stupider and lazier, I had ignored them for ages until they ‘rescued’ San Dimas from Primero’s incompetence.

However, what peaked my interest wasn’t San Dimas, that should make money unless you are truly incompetent, it was the disconnection between what they mine at the various operations and the published reserve grades at their various mines.

It is something that I had berated Pretium for at Brucejack, but First Majestic, with 6 operating mines (excluding San Dimas as it is new), you would expect that with many years of operation experience that they would be fairly good operators, and excluding a blip or two, be within 10% of the reserve grades on average.

For the charts below I’m using:

  • Compiled production figures for 2016, 17, and 18 (to date) from FM’s MD&A’s
  • Reserve grades from the Form 40-F. and from the First Majestic Website (link).
Let us start with the good:

Santa Elena

The stand-out mine, since the start of 2016 they have mining higher grades than reserves, which are skewed by a bit of very low grade oxide material.

A mine that works.....

However, we can see in 2018 they either got into an expected high-grade area or are high-grading the shit out of the deposit to keep themselves cash flow positive with sub-$15/oz silver prices. Will this screw them in a few years?

San Martin

One of their oldest and smallest operation producing ~2Moz Ag per annum.

A mine that almost works, goddammit!!!

But consistently within 10% of the reserve grades...

La Encantada

and now the wheels start to wobble.

Will they recover in 2018/19?

It has generally been ok, but the wheels fell of the wagon this year, with mine grades plunging by an ounce. It will be interesting if they can get the mine back on track.

La Guitarra

Their smallest and generally worse mine.

A general decline...
Always been crap, but a nice spike at the end to show that they were in panic-mode to keep the mine operating.

Del Toro

Del Toro, more like La Vaca Muerta.

Funny how they keep dropping the reserve grades every year, yet the mine keep churning away at ~150 g/t Ag. 

La Parrilla

The original mine, probably getting long in the tooth, probably best to take it out back and shoot it in the head.

Wow, what a piece of shit

It look like at their mines, and in particular Del Toro and La Parrilla, that First Majestic have a fundamental problems with the resource calculations. I could understand missing but a little bit (plus or minus 10%), but to consistently not make the grade at virtually all of your mines consistently over the last 2.75 years takes a special type of company. Christ, if you got any worse, you'll be Coeur....

When you looked a bit closer, you actually see that it isn't First Majestic rescuing San Dimas, it is San Dimas that will rescue First Majestic. Santa Elena is saving them at the moment, but with the high-grading going on, will the mine be fucked in a few years?


  1. You've come up with an interesting analysis but I wonder where you got your numbers? Are they correct? I'll pick Del Toro as an example. The technical report dated Dec 31/16 shows a silver reserve grade (P&P) of 163 g/t. Presumably this was the reserve grade for all of 2017, until the reserve report shown on their website changed to 159 g/t. The quarterly production NR show 163, 173 and 149 g/t respectively for Q1 to Q3. All of these numbers are quite different from your chart for Del Toro.

    A question for you...are you mixing up Ag and AgEq grades?

    I have not looked at any of the other mines.

    1. Hello Bill,

      I used table 1 in the form 40-F as it gets updated every year, whereas the technical reports get updated every couple of years.

    2. They have a reserve report dated Dec 31/17 on their website under the tab "Projects". Did you use that one? It shows a silver reserve grade of 159 g/t for Del Toro, which presumably should match your curve for year 2018. But yours shows a much higher grade. Do you have a link to form 40-F?

    3. here you go:
      2015 -

      2016 -

      2017 -

      2018 - figures came from their website reserve and resources table -

    4. As was said on Laugh-in....verrrry interestink! There is a technical report posted on Sedar Dec 20/17 with an effective date of Dec 31/16 that shows different reserve tonnes and different silver grade than the one effective Dec 31/16 posted on Edgar. The one on Sedar has a silver grade of 163 g/t. Both reports are by the same QP. I don't know what to make of it...I've never seen anything like this before.

    5. I know, that is why I used the 40-F, it provided a constant. I don't know if these numbers are wrong, or in the technical reports.

  2. Unless JPM and the Comex get nuked near every miner will be fucked in a few years.

  3. You don't mention Santa Elena 2.0 Ermitano Project
    • Discovered in late 2016
    • 4km away from our Santa Elena mill
    • Drilling 13,000 metres in 2018
    • Not subject to Sandstorm stream
     Hole 16-04: 17.9 metres grading 11.4 g/t Au & 86 g/t Ag
     Hole 16-06: 12.9 metres grading 4.7 g/t Au & 277 g/t Ag
     Hole 16-09: 37.0 metres grading 3.0 g/t Au & 50 g/t Ag Which will help First Majestic immensely

    1. it isn't in production, and they only have inferred resources

  4. Then add in higher Silver prices add in Start-up of roasting circuit at La Encantada expected
    to add 1.5 million Ag ounces per year
     Continued improvements in metallurgical recoveries
    through implementation of microbubbles, fine grinding
    & other R&D
     Connection to power grid / LNG at Santa Elena to
    reduce operating costs
     Higher silver grades at La Encantada expected in H2
    2018 from additional sub-level caving areas
     Resource expansion potential at Santa Elena’s
    Ermitaño West property and La Parrilla’s Cerro de
     Re-rating potential w/ San Dimas acquisition now

    1. Improvements in metallurgy won't improve the reserve grades, and they already use high metal prices in the reserve calculations ($18.00 /oz Ag, $1,300 /oz Au).

      Great that they add new resources, but we need to see them converted to reserves.

    2. To follow-on, what I see is that there is a problem with the way that First Majestic are calculating their reserves (ignoring the elevated metal prices that they are using. If that is the case, then, those same problems will exist with the resource calculations.

      I had hinted at something in my post on Ermitano west, that the drilling was very widely spaced for an inferred resource on an epithermal deposit, which generally have quite irregular grade distributions.
      Similar projects are using ~50m spacing for inferred resources.

  5. No one ever notices that Santa Elena is the only one of their properties that is free milling and does not have to send a poly metallic concentrate to a smelter. Smelter charges are "about" Twenty Five percent, more or less, and always buried by all the companies. The 25% is in addition to Mexico's normal tax tax regime of 35%, with deducts for DD&A, BUT their recently imposed 10% royalty, which I understand does have some deducts in it, is another expense for producers there.
    If First Majestic had not bought Santa Elena, would they still be in business? Dunno obviously.

    1. I doubt it, what is also funny is that the other mine that they bought, San Martin, is also the only other operation that makes money. So at the moment:
      Mine bought = good
      Mines developed = bad

  6. Yields aren't close to 100% though. They will be getting much better with the new technology they are installing. Their goal is for yields to be over 90% for silver.

  7. Sometimes I don't mind being the dumbest guy in the room...I think I'm going to stay on the sidelines with first Majestic at least for a while longer... Thanks !