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CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE THREE MONTHS ENDED |
JUNE 30, 2009 (UNAUDITED) |
MANAGEMENTS COMMENTS ON
UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements of the
Company have been prepared by and are the
responsibility of the Companys
management.
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2 |
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com |
www.firstmajestic.com |
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED BALANCE SHEETS |
AS AT JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
(Expressed in Canadian dollars) |
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents (Note 4) | 23,057,406 | 17,424,123 | ||||
Accounts receivable | 1,681,260 | 2,116,325 | ||||
Other receivables (Note 5) | 7,367,915 | 7,212,693 | ||||
Inventories (Note 6) | 3,284,534 | 4,941,340 | ||||
Prepaid expenses and other (Note 7) | 2,086,898 | 2,174,256 | ||||
37,478,013 | 33,868,737 | |||||
MINING INTERESTS (Note 8) | ||||||
Producing properties | 54,170,735 | 49,933,735 | ||||
Exploration properties | 104,815,245 | 102,760,230 | ||||
Plant and equipment | 51,201,933 | 42,127,380 | ||||
210,187,913 | 194,821,345 | |||||
CORPORATE OFFICE EQUIPMENT (Note 8) | 412,057 | 483,050 | ||||
DEPOSITS ON LONG-TERM ASSETS (Note 10) | 5,009,120 | 1,986,517 | ||||
253,087,103 | 231,159,649 | |||||
LIABILITIES | ||||||
CURRENT LIABILITIES | ||||||
Accounts payable and accrued liabilities | 17,477,418 | 17,339,624 | ||||
Unearned revenue on silver bullion sales | 42,008 | 110,258 | ||||
Vendor liability and interest (Note 9) | 14,485,759 | 13,940,237 | ||||
Vendor liability on mineral property (Note 8(b)) | 651,892 | 1,372,973 | ||||
Current portion of capital lease obligations (Note 15) | 2,585,705 | 1,584,477 | ||||
Income and other taxes payable | 56,930 | 557,634 | ||||
35,299,712 | 34,905,203 | |||||
FUTURE INCOME TAXES | 28,638,629 | 30,690,087 | ||||
CAPITAL LEASE OBLIGATIONS (Note 15) | 1,784,043 | 1,898,396 | ||||
OTHER LONG TERM LIABILITIES | 824,672 | 832,769 | ||||
ASSET RETIREMENT OBLIGATIONS (Note 16) | 5,518,302 | 5,304,369 | ||||
72,065,358 | 73,630,824 | |||||
SHAREHOLDERS' EQUITY | ||||||
SHARE CAPITAL (Note 11(a)) | 215,496,416 | 196,648,345 | ||||
SHARE CAPITAL TO BE ISSUED (Note 11(d)) | 276,495 | 276,495 | ||||
CONTRIBUTED SURPLUS | 25,840,614 | 23,297,258 | ||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | (23,091,010 | ) | (23,216,390 | ) | ||
DEFICIT | (37,500,770 | ) | (39,476,883 | ) | ||
181,021,745 | 157,528,825 | |||||
253,087,103 | 231,159,649 |
CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Note 17)
APPROVED BY THE BOARD OF DIRECTORS
(signed) Keith Neumeyer | Director | (signed) Douglas Penrose | Director |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF INCOME |
FOR THE PERIODS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars, except share amounts) |
Three Months ended June 30, | Six Months ended June 30, | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
$ | $ | $ | $ | |||||||||
Revenue (Note 12) | 13,024,877 | 11,436,889 | 27,411,749 | 24,401,071 | ||||||||
Cost of sales | 9,459,868 | 7,629,755 | 17,758,681 | 14,146,811 | ||||||||
Amortization and depreciation | 943,553 | 877,252 | 1,802,391 | 1,664,431 | ||||||||
Depletion | 828,911 | 698,844 | 1,399,207 | 1,585,206 | ||||||||
Accretion of reclamation obligation | 117,171 | 50,367 | 233,210 | 95,842 | ||||||||
Mine operating earnings | 1,675,374 | 2,180,671 | 6,218,260 | 6,908,781 | ||||||||
General and administrative | 2,114,312 | 2,100,325 | 3,932,315 | 4,232,205 | ||||||||
Stock-based compensation | 800,808 | 670,616 | 1,697,548 | 1,778,832 | ||||||||
2,915,120 | 2,770,941 | 5,629,863 | 6,011,037 | |||||||||
Operating (loss) income | (1,239,746 | ) | (590,270 | ) | 588,397 | 897,744 | ||||||
Interest and other expenses | (404,765 | ) | (226,872 | ) | (764,971 | ) | (565,699 | ) | ||||
Investment and other income | 222,173 | 644,057 | 512,017 | 781,450 | ||||||||
Foreign exchange gain (loss) | 840,958 | 542,846 | (111,908 | ) | 533,034 | |||||||
(Loss) Income before taxes | (581,380 | ) | 369,761 | 223,535 | 1,646,529 | |||||||
Income tax - current | 113,532 | 267,530 | 171,582 | 705,934 | ||||||||
Income tax (recovery) - future | (1,731,328 | ) | 399,187 | (1,924,160 | ) | 172,228 | ||||||
Income tax (recovery) expense | (1,617,796 | ) | 666,717 | (1,752,578 | ) | 878,162 | ||||||
NET INCOME (LOSS) FOR THE PERIOD | 1,036,416 | (296,956 | ) | 1,976,113 | 768,367 | |||||||
EARNINGS PER COMMON SHARE BASIC & DILUTED | $ | 0.01 | $ | (0.00 | ) | $ | 0.02 | $ | 0.01 | |||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
BASIC | 82,341,636 | 73,782,410 | 79,387,259 | 68,919,747 | ||||||||
DILUTED | 99,426,674 | 90,070,550 | 96,472,297 | 85,207,887 |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME |
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars, except share amounts) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Comprehensive | Total | |||||||||||||||||||||||
Share capital | Contributed | Income (Loss) | AOCI | |||||||||||||||||||||
Shares | Amount | To be issued | Surplus | ("AOCI") (1) | Deficit | and deficit | Total | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2007 | 63,042,160 | 145,699,783 | 9,286,155 | 17,315,001 | (15,186,207 | ) | (34,332,099 | ) | (49,518,306 | ) | 122,782,633 | |||||||||||||
Net income | - | - | - | - | - | 768,367 | 768,367 | 768,367 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 11,242,916 | - | 11,242,916 | 11,242,916 | ||||||||||||||||
Unrealized loss on marketable securities | - | - | - | - | (180,000 | ) | - | (180,000 | ) | (180,000 | ) | |||||||||||||
Total comprehensive i ncome | 11,831,283 | 11,831,283 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 376,250 | 1,393,995 | - | (263,407 | ) | - | - | - | 1,130,588 | |||||||||||||||
Exercise of warrants | 7,500 | 31,875 | - | - | - | - | - | 31,875 | ||||||||||||||||
First Silver arrangement | 1,856,500 | 8,985,460 | (8,985,460 | ) | - | - | - | - | - | |||||||||||||||
Public offering, net of issue costs (Note 11(a)(ii)) | 8,500,000 | 40,144,471 | - | 2,666,135 | - | - | - | 42,810,606 | ||||||||||||||||
Stock option expense during the period | - | - | - | 1,778,832 | - | - | - | 1,778,832 | ||||||||||||||||
Balance at June 30, 2008 | 73,782,410 | 196,255,584 | 300,695 | 21,496,561 | (4,123,291 | ) | (33,563,732 | ) | (37,687,023 | ) | 180,365,817 | |||||||||||||
Balance at December 31, 2008 | 73,847,810 | 196,648,345 | 276,495 | 23,297,258 | (23,216,390 | ) | (39,476,883 | ) | (62,693,273 | ) | 157,528,825 | |||||||||||||
Net income | - | - | - | - | - | 1,976,113 | 1,976,113 | 1,976,113 | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Translation adjustment | - | - | - | - | 124,630 | - | 124,630 | 124,630 | ||||||||||||||||
Unrealized gain on marketable securities | - | - | - | - | 750 | - | 750 | 750 | ||||||||||||||||
Total comprehensive income | 2,101,493 | 2,101,493 | ||||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||
Exercise of options | 6,250 | 10,888 | - | (2,950 | ) | - | - | - | 7,938 | |||||||||||||||
Public offering, net of issue costs (Note 11(a)(i)) | 8,487,576 | 18,837,183 | - | 848,758 | - | - | - | 19,685,941 | ||||||||||||||||
Stock option expense during the period | - | - | - | 1,697,548 | - | - | - | 1,697,548 | ||||||||||||||||
Balance at June 30, 2009 | 82,341,636 | 215,496,416 | 276,495 | 25,840,614 | (23,091,010 | ) | (37,500,770 | ) | (60,591,780 | ) | 181,021,745 |
(1) |
AOCI consists of the cumulative translation adjustment on self sustaining s ubsidiaries, except for the unrealized gain of $750 (2008 - unrealized loss of $180,000) on marketable securities classified as "available for sale". |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE PERIODS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED) |
(Expressed in Canadian dollars) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
$ | $ | $ | $ | |||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income (loss) for the period | 1,036,416 | (296,956 | ) | 1,976,113 | 768,367 | |||||||
Adjustment for items not affecting cash | ||||||||||||
Depletion | 828,911 | 698,844 | 1,399,207 | 1,585,206 | ||||||||
Depreciation | 943,553 | 906,483 | 1,802,391 | 1,727,752 | ||||||||
Stock-based compensation | 800,808 | 670,616 | 1,697,548 | 1,778,832 | ||||||||
Accretion of reclamation obligation | 117,171 | 50,367 | 233,210 | 95,842 | ||||||||
Write-down of other assets | - | - | - | 240,000 | ||||||||
Future income taxes | (1,731,481 | ) | 399,187 | (1,949,967 | ) | 172,228 | ||||||
Other income from derivative financial instruments | (212,380 | ) | - | (479,197 | ) | - | ||||||
Unrealized foreign exchange and other | (1,310,042 | ) | 278,444 | (1,004,365 | ) | 39,765 | ||||||
472,956 | 2,706,985 | 3,674,940 | 6,407,992 | |||||||||
Net change in non-cash working capital items | ||||||||||||
(Increase) decrease in accounts receivable and other receivables | (662,399 | ) | 126,912 | (266,919 | ) | (592,683 | ) | |||||
Decrease (increase) in inventories | 2,192,939 | (318,828 | ) | 1,656,806 | (794,683 | ) | ||||||
(Increase) decrease in prepaid expenses and advances | (1,722,418 | ) | (2,280,319 | ) | (2,202,403 | ) | (973,842 | ) | ||||
(Decrease) increase in accounts payable and accrued liabilities | (496,077 | ) | 5,488,267 | (2,834,288 | ) | 6,981,118 | ||||||
Decrease in unearned revenue | (336,122 | ) | - | (68,250 | ) | - | ||||||
(Decrease) increase in taxes receivable and payable | (14,851 | ) | 400,741 | (172,875 | ) | 422,737 | ||||||
Increase in vendor liability and interest | - | 199,556 | - | 399,112 | ||||||||
Decrease in vendor liability on mineral property | (370,521 | ) | - | (721,081 | ) | - | ||||||
(936,493 | ) | 6,323,314 | (934,070 | ) | 11,849,751 | |||||||
INVESTING ACTIVITIES | ||||||||||||
Expenditures on mineral property interests (net of accruals) | (3,174,554 | ) | (2,834,191 | ) | (5,022,028 | ) | (5,993,053 | ) | ||||
Additions to plant and equipment (net of accruals) | (5,888,016 | ) | (8,036,238 | ) | (7,473,675 | ) | (12,537,258 | ) | ||||
Decrease in silver futures contract deposits | 281,335 | - | 969,628 | - | ||||||||
Decrease (increase) in deposits on long term assets and other | 380,708 | (2,150,613 | ) | - | (3,843,306 | ) | ||||||
Increase in restricted cash securitizing vendor liability (Note 9) | - | - | (545,522 | ) | - | |||||||
(8,400,527 | ) | (13,021,042 | ) | (12,071,597 | ) | (22,373,617 | ) | |||||
FINANCING ACTIVITIES | ||||||||||||
Issuance of common shares and warrants, net of issue costs | (19,798 | ) | 157,432 | 19,693,879 | 43,973,069 | |||||||
Payment of capital lease obligations | (678,606 | ) | - | (1,061,074 | ) | - | ||||||
(698,404 | ) | 157,432 | 18,632,805 | 43,973,069 | ||||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (10,035,424 | ) | (6,540,296 | ) | 5,627,138 | 33,449,203 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH HELD IN FOREIGN CURRENCY | 5,891 | (54,169 | ) | 6,145 | (59,667 | ) | ||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD | 33,086,939 | 52,819,184 | 17,424,123 | 12,835,183 | ||||||||
CASH AND CASH EQUIVALENTS - END OF THE PERIOD | 23,057,406 | 46,224,719 | 23,057,406 | 46,224,719 | ||||||||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | - | |||||||||||
Cash | 8,487,949 | 740,710 | 8,487,949 | 740,710 | ||||||||
Short-term deposits | 83,698 | 45,484,009 | 83,698 | 45,484,009 | ||||||||
Restricted cash (Note 9) | 14,485,759 | - | 14,485,759 | - | ||||||||
23,057,406 | 46,224,719 | 23,057,406 | 46,224,719 | |||||||||
Interest paid | 233,402 | 5,832 | 275,770 | 11,665 | ||||||||
Income taxes paid | - | - | - | 221,108 | ||||||||
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 18) |
The accompanying notes are an integral part of these consolidated financial statements
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
1. | DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS |
First Majestic Silver Corp. (the Company or First Majestic) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Companys shares and warrants trade on the Toronto Stock Exchange under the symbols FR, FR.WT.A and FR.WT.B, respectively.
These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Of the Companys cash balance of $23.1 million at June 30, 2009, $14.5 million was restricted and subsequently on July 16, 2009, $14,258,332 of this amount was paid out in trust pending the outcome of the litigation described in Note 9. The Companys ability to continue as a going concern is dependent primarily on the price of silver in global commodity markets, and on maintaining sustained, profitable operations and/or obtaining funds from other sources as required for capital developments. If the Company were unable to continue as a going concern, then material adjustments would be required to the carrying value of assets and liabilities and the balance sheet classifications used.
2. | BASIS OF PRESENTATION |
The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP) with respect to the preparation of interim financial information. Accordingly, they do not include all the information and disclosures required by Canadian GAAP in the preparation of annual financial statements. Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with GAAP have been omitted. The accounting policies, used in preparation of the accompanying unaudited interim consolidated financial statements, are the same as those described in our most recent annual consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results for the entire year. These interim financial statements should be read in conjunction with the Companys latest audited consolidated financial statements for the year ended December 31, 2008.
The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (CFM) and First Silver Reserve Inc. (First Silver) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (First Majestic Plata), Minera El Pilon, S.A. de C.V. (El Pilon), Minera La Encantada, S.A. de C.V. (La Encantada) and Majestic Services S.A. de C.V. (Majestic Services). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 9. Intercompany balances and transactions are eliminated on consolidation.
1
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
3. | SIGNIFICANT CHANGES IN ACCOUNTING POLICIES |
The CICA issued the new Handbook Section 3064, Goodwill and Intangible Assets, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009.
The CICA issued the new Handbook Section 1582, Business Combinations, Section 1601 Consolidations and Section 1602 Non-controlling Interests to harmonize with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted.
International Financial Reporting Standards (IFRS)
In 2006, the Canadian Accounting Standards Board (AcSB) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canadas own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.
We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined.
4. | RESTRICTED CASH |
On July 22, 2008, the Company secured its outstanding vendor liability (Note 9) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. In addition, a further $545,522 was paid into the Supreme Court of British Columbia in January 2009 and the Letter of Credit increased to a total Restricted Cash balance of $14,485,759. On July 16, 2009, the Company agreed to a consent order whereby $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder of First Silver. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. This cash is not available for general corporate purposes. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.
5. | OTHER RECEIVABLES |
Details of the components of other receivables are as follows:
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Value added taxes recoverable | 6,678,909 | 6,109,943 | ||||
Other taxes recoverable | 39,570 | 406,536 | ||||
Interest receivable | 85,408 | 188,111 | ||||
Advances to employees | 137,510 | 67,240 | ||||
Advances to suppliers | 426,518 | 440,863 | ||||
7,367,915 | 7,212,693 |
2
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
6. | INVENTORIES |
Inventories consist of the following:
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Silver coins and bullion including in process shipments | 178,779 | 572,149 | ||||
Finished product - doré and concentrates | 692,615 | 1,017,769 | ||||
Ore in process | 198,493 | 196,169 | ||||
Stockpile | 607,254 | 1,631,625 | ||||
Materials and supplies | 1,607,393 | 1,523,628 | ||||
3,284,534 | 4,941,340 |
7. | PREPAID EXPENSES AND OTHER |
Details of prepaid expenses and other are as follows:
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Advances to suppliers and contractors | 1,804,256 | 1,380,509 | ||||
Deposits | 231,517 | 252,941 | ||||
Marketable securities | 51,125 | 50,375 | ||||
Derivative financial instruments | - | 490,431 | ||||
2,086,898 | 2,174,256 |
8. | MINING INTERESTS |
Expenditures incurred on mining interests, net of accumulated depreciation and depletion, are as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
depreciation | depreciation | |||||||||||||||||
and | and | |||||||||||||||||
Cost | depletion | Net | Cost | depletion | Net | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Mining properties | 175,055,187 | 16,069,207 | 158,985,980 | 167,130,756 | 14,436,791 | 152,693,965 | ||||||||||||
Plant and equipment | 58,968,528 | 7,766,595 | 51,201,933 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||||||||
234,023,715 | 23,835,802 | 210,187,913 | 215,402,188 | 20,580,843 | 194,821,345 |
3
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS (continued) |
A summary of the net book value of mining properties is as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depletion | Value | Cost | Depletion | Value | |||||||||||||
MEXICO | $ | $ | $ | $ | $ | $ | ||||||||||||
Producing properties | ||||||||||||||||||
La Encantada (a) | 11,263,775 | 2,665,513 | 8,598,262 | 8,922,466 | 2,276,963 | 6,645,503 | ||||||||||||
La Parrilla (b) | 20,954,533 | 2,489,093 | 18,465,440 | 18,644,777 | 2,038,223 | 16,606,554 | ||||||||||||
San Martin (c) | 38,021,634 | 10,914,601 | 27,107,033 | 36,803,283 | 10,121,605 | 26,681,678 | ||||||||||||
70,239,942 | 16,069,207 | 54,170,735 | 64,370,526 | 14,436,791 | 49,933,735 | |||||||||||||
Exploration properties | ||||||||||||||||||
La Encantada (a) | 3,410,253 | - | 3,410,253 | 2,858,043 | - | 2,858,043 | ||||||||||||
La Parrilla (b) | 9,331,386 | - | 9,331,386 | 8,722,897 | - | 8,722,897 | ||||||||||||
San Martin (c) (1) | 76,600,821 | - | 76,600,821 | 77,582,247 | - | 77,582,247 | ||||||||||||
Del Toro (d) | 12,781,534 | - | 12,781,534 | 11,881,557 | - | 11,881,557 | ||||||||||||
Cuitaboca (e) | 2,691,251 | - | 2,691,251 | 1,715,486 | - | 1,715,486 | ||||||||||||
104,815,245 | - | 104,815,245 | 102,760,230 | - | 102,760,230 | |||||||||||||
175,055,187 | 16,069,207 | 158,985,980 | 167,130,756 | 14,436,791 | 152,693,965 |
(1) |
This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties). |
A summary of plant and equipment is as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
La Encantada Silver Mine | 29,940,249 | 1,657,553 | 28,282,696 | 19,541,421 | 1,221,301 | 18,320,120 | ||||||||||||
La Parrilla Silver Mine | 18,705,404 | 3,343,637 | 15,361,767 | 18,590,746 | 2,568,373 | 16,022,373 | ||||||||||||
San Martin Silver Mine | 10,322,875 | 2,765,405 | 7,557,470 | 10,139,265 | 2,354,378 | 7,784,887 | ||||||||||||
Us ed in Mining Operations | 58,968,528 | 7,766,595 | 51,201,933 | 48,271,432 | 6,144,052 | 42,127,380 | ||||||||||||
Corporate office equipment | 726,792 | 314,735 | 412,057 | 712,525 | 229,475 | 483,050 | ||||||||||||
59,695,320 | 8,081,330 | 51,613,990 | 48,983,957 | 6,373,527 | 42,610,430 |
Details of plant and equipment and corporate office equipment by specific assets are as follows:
June 30, 2009 | December 31, 2008 | |||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||
Land | 2,301,252 | - | 2,301,252 | 2,302,273 | - | 2,302,273 | ||||||||||||
Automobile | 426,465 | 185,971 | 240,494 | 427,817 | 140,703 | 287,114 | ||||||||||||
Buildings | 6,270,911 | 520,709 | 5,750,202 | 6,250,748 | 399,982 | 5,850,766 | ||||||||||||
Machinery and equipment | 27,926,718 | 6,515,186 | 21,411,532 | 27,744,171 | 5,053,326 | 22,690,845 | ||||||||||||
Computer equipment | 533,750 | 250,823 | 282,927 | 566,511 | 239,162 | 327,349 | ||||||||||||
Office equipment | 599,219 | 481,198 | 118,021 | 600,413 | 447,405 | 153,008 | ||||||||||||
Leasehold improvements | 320,304 | 127,443 | 192,861 | 320,304 | 92,949 | 227,355 | ||||||||||||
Construction in progress (1) | 21,316,701 | - | 21,316,701 | 10,771,720 | - | 10,771,720 | ||||||||||||
59,695,320 | 8,081,330 | 51,613,990 | 48,983,957 | 6,373,527 | 42,610,430 |
(1) |
Construction i n progress includes $18,897,156 relating to La Encantada, $517,693 relating to La Parrilla and $1,901,852 relating to San Martin. |
4
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS (continued) |
Mineral property options paid and future option payments are due as follows:
Del Toro | Cuitaboca | ||||||||
Note 8(d) | Note 8(e) | Total | |||||||
(US$) | (US$) | (US$) | |||||||
Paid as at June 30, 2009 | 5,925,000 | 1,175,000 | 7,100,000 | ||||||
Payable November 25, 2009 | - | 275,000 | 275,000 | ||||||
Payable December 6, 2009 | 62,500 | - | 62,500 | ||||||
Payable before December 31, 2009 | 62,500 | 275,000 | 337,500 | ||||||
Payable in 2010 and beyond | 225,000 | 1,050,000 | 1,275,000 | ||||||
Total Future Option Payments | 287,500 | 1,325,000 | 1,612,500 |
(a) | La Encantada Silver Mine, Coahuila State |
The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz de Boquillas del Cármen, is 45 kilometres away via unpaved road. The La Encantada Silver Mine consists of a 1,000 tonnes per day flotation plant, an airstrip, and other facilities, including a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.
The Company is constructing a 3,500 tonne per day cyanidation plant at La Encantada which is expected to begin commissioning in September 2009 and is expected to be fully commissioned by the end of 2009.
(b) | La Parrilla Silver Mine, Durango State |
The La Parrilla Silver Mine is a system of connecting underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 kilometres southeast of the city of Durango, in Durango state Mexico. Located at the mine are: mining equipment, a 425 tonne-per-day cyanidation plant, a 425 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.
In 2008, the Company amended payment terms to an optionor regarding the outstanding payments as at December 31, 2008 on the Quebradillas Mine. In regards to the aggregate of US$749,000 which was previously payable in 2008, the Company has agreed to make a series of payments in 2009 totaling US$1,121,160 which includes interest at a rate of 3% over three month LIBOR. During the six months ended June 30, 2009, the Company made payments totaling US$560,634 (of which US$10,332 related to interest) pursuant to the amended agreements.
There is a net smelter royalty agreement (NSR) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. For the period ended June 30, 2009, the Company paid US$64,846 (December 31, 2008 US$69,000) relating to royalties.
5
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
8. | MINING INTERESTS (continued) |
(c) | San Martin Silver Mine, Jalisco State |
The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface rights where the 950 tonnes per day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.
(d) | Del Toro Silver Mine, Zacatecas State |
The Del Toro Silver Mine is located 60 km to the southeast from the Companys La Parrilla Silver Mine and consists of 320 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart.
The Company owns 100% of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package.
(e) | Cuitaboca Silver Project, Sinaloa State |
The Cuitaboca Silver Project, located in Sinaloa State , Mexico, consists of an option to acquire a 5,134 hectare land package. This option was acquired in May 2006 through the acquisition of First Silver and its wholly owned subsidiary, El Pilon.
The Company entered into an option agreement in November 2004 with Consorcio Minero Latinamericano, S.A. de C.V., a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims covering 3,718 hectares located in Sinaloa State, Mexico. To purchase the claims, the Company needs to pay US$2,500,000 in staged cash payments through November, 2010 (US$1,175,000 paid as at June 30, 2009). A 2.5% NSR on the claims may be purchased at any time during the term of the agreement or for a period of 12 months thereafter for an additional US$500,000.
9. | VENDOR LIABILITY AND INTEREST |
In May 2006, First Majestic acquired control of First Silver Reserve Inc. (First Silver) for $53,365,519. The purchase price was payable to the majority shareholder of First Silver (the Majority Shareholder) in three instalments. The first instalment of $26,682,759, for 50% of the purchase price, was paid upon closing on May 30, 2006. An additional 25% instalment of $13,341,380 was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum was payable quarterly on the outstanding vendor balance.
In November 2007, an action was commenced by the Company and First Silver against the Majority Shareholder who previously was a director, President & Chief Executive Officer of First Silver. The Company and First Silver allege that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silvers right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.
6
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
9. | VENDOR LIABILITY AND INTEREST (continued) |
Pending resolution of the litigation set out above, the Company had withheld payments of interest due to the previous Majority Shareholder on scheduled interest payment dates of November 30, 2007, February 29, 2008 and May 30, 2008, as well as payment of the final instalment of $13,341,380 due May 30, 2008, the combined amounts totalling $13,940,237. On July 22, 2008, the Company posted an irrevocable Letter of Credit with the Supreme Court of British Columbia pending the court outcome which is not anticipated for at least one year or until such litigation has been resolved. In January 2009, a further $545,522 was paid into the Supreme Court of British Columbia for additional interest payments and was added to the Letter of Credit posted to the Supreme Court of British Columbia.
On July 16, 2009, the Company agreed to a consent order with the prior Majority Shareholder, with respect to the $14,485,759 posted by a Letter of Credit securing the vendor liability and interest. Pursuant to the order, $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.
10. | DEPOSITS ON LONG-TERM ASSETS |
Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Deposit on equipment at La Encantada | 3,520,034 | 1,986,517 | ||||
Deposit on equipment at La Parrilla | 1,489,086 | - | ||||
5,009,120 | 1,986,517 |
11. | SHARE CAPITAL |
(a) | Authorized unlimited number of common shares without par value |
Issued | Six Months ended June 30, 2009 | Year ended December 31, 2008 | ||||||||||
Shares | $ | Shares | $ | |||||||||
Balance - beginning of the period | 73,847,810 | 196,648,345 | 63,042,160 | 145,699,783 | ||||||||
Issued during the period | ||||||||||||
For cash: | ||||||||||||
Exercise of options | 6,250 | 7,938 | 436,650 | 1,398,566 | ||||||||
Exercise of warrants | - | - | 7,500 | 31,875 | ||||||||
Public offering of units (i) (ii) | 8,487,576 | 18,837,183 | 8,500,000 | 40,144,471 | ||||||||
For First Silver Arrangement | - | - | 1,861,500 | 9,009,660 | ||||||||
Transfer of contributed surplus for stock options exercised | - | 2,950 | - | 363,990 | ||||||||
Balance - end of the period | 82,341,636 | 215,496,416 | 73,847,810 | 196,648,345 |
7
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
11. | SHARE CAPITAL (continued) |
(i) |
On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,685,941, of which $18,837,183 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 expiring on March 5, 2011. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants. |
(ii) |
On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 units at an issue price of $5.35 per unit for net proceeds to the Company of $40,144,471. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 warrants at a price of $0.56 per warrant. The underwriters did not exercise their option to purchase any option shares, but did acquire the 637,500 warrants (see Note 11(c)). |
(b) | Stock Options |
Under the terms of the Companys Stock Option Plan, the maximum number of shares reserved for issuance under the 2008 Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.
The changes in stock options outstanding for the six months ended June 30, 2009 and the year ended December 31, 2008 are as follows:
Six Months Ended June 30, 2009 | Year Ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average | Number of | Exercise Price | Average | |||||||||||||
Shares | ($) | Remaining Life | Shares | ($) | Remaining Life | |||||||||||||
Balance, beginning of the period | 6,862,500 | 3.84 | 2.78 years | 5,892,500 | 4.04 | 2.75 years | ||||||||||||
Granted | 1,275,000 | 2.03 | 3.75 years | 2,672,500 | 2.93 | 3.67 years | ||||||||||||
Exercised | (6,250 | ) | 1.27 | 2.78 years | (436,650 | ) | 3.20 | 0.51 years | ||||||||||
Forfeited or expired | (177,500 | ) | 4.10 | 1.59 years | (1,265,850 | ) | 3.05 | 0.45 years | ||||||||||
Balance, end of the period | 7,953,750 | 3.55 | 2.52 years | 6,862,500 | 3.84 | 2.78 years |
8
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
The following table summarizes both the stock options outstanding and those that are exercisable at June 30, 2009:
Price | Options | Options | |||||||
$ | Outstanding | Exercisable | Expiry Dates | ||||||
4.32 | 605,000 | 605,000 | December 6, 2009 | ||||||
5.50 | 200,000 | 200,000 | February 1, 2010 | ||||||
4.64 | 75,000 | 75,000 | June 1, 2010 | ||||||
4.17 | 100,000 | 100,000 | August 8, 2010 | ||||||
3.72 | 30,000 | 30,000 | September 24, 2010 | ||||||
3.98 | 20,000 | 20,000 | October 17, 2010 | ||||||
4.45 | 580,000 | 580,000 | October 30, 2010 | ||||||
4.34 | 50,000 | 50,000 | November 1, 2010 | ||||||
4.42 | 25,000 | 25,000 | November 12, 2010 | ||||||
4.34 | 200,000 | 200,000 | December 5, 2010 | ||||||
4.42 | 50,000 | 37,500 | February 20, 2011 | ||||||
4.65 | 100,000 | 75,000 | March 25, 2011 | ||||||
4.19 | 20,000 | 15,000 | April 26, 2011 | ||||||
4.02 | 100,000 | 75,000 | May 15, 2011 | ||||||
4.30 | 450,000 | 450,000 | June 19, 2011 | ||||||
4.67 | 130,000 | 65,000 | July 4, 2011 | ||||||
4.15 | 300,000 | 150,000 | July 28, 2011 | ||||||
3.62 | 685,000 | 342,500 | August 28, 2011 | ||||||
1.60 | 200,000 | 100,000 | October 8, 2011 | ||||||
1.27 | 118,750 | 56,250 | October 17, 2011 | ||||||
4.32 | 245,000 | 245,000 | December 6, 2011 | ||||||
4.41 | 400,000 | 400,000 | December 22, 2011 | ||||||
5.00 | 155,000 | 155,000 | February 7, 2012 | ||||||
2.03 | 800,000 | 200,000 | May 7, 2012 | ||||||
4.65 | 25,000 | 25,000 | June 20, 2012 | ||||||
4.34 | 925,000 | 925,000 | December 5, 2012 | ||||||
3.62 | 100,000 | 50,000 | August 28, 2013 | ||||||
1.44 | 240,000 | 120,000 | November 10, 2013 | ||||||
1.56 | 550,000 | 275,000 | December 17, 2013 | ||||||
2.03 | 462,500 | 115,625 | May 7, 2014 | ||||||
2.32 | 12,500 | 3,125 | June 15, 2014 | ||||||
7,953,750 | 5,765,000 |
During the six months ended June 30, 2009, the Company granted stock options to directors, officers and employees to purchase 1,275,000 shares of the Company. Pursuant to the Companys policy of accounting for the fair value of stock-based compensation over the applicable vesting period, $1,697,548 has been recorded as an expense in the six months ended June 30, 2009 relating to all stock options.
The fair value of stock options granted is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
Six Months ended | Six Months ended | |||||
June 30, 2009 | June 30, 2008 | |||||
Risk-free interest rate | 0.9% | 2.8% | ||||
Estimated volatility | 80.3% | 53.1% | ||||
Expected life | 2.44 years | 1.9 years | ||||
Expected dividend yield | 0% | 0% |
9
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
11. | SHARE CAPITAL (continued) |
(b) | Stock Options (continued) |
Option-pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide an accurate measure of the actual fair value of the Companys stock options.
(c) | Share Purchase Warrants |
The changes in share purchase warrants for the six months ended June 30, 2009 and the year ended December 31, 2008 are as follows:
Six months ended June 30, 2009 | Year ended December 31, 2008 | |||||||||||||||||
Weighted | Weighted | |||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||
Number of | Exercise Price | Average Term to | Number of | Exercise Price | Average Term to | |||||||||||||
Warrants | ($) | Expiry | Warrants | ($) | Expiry | |||||||||||||
Balance, beginning of the period | 5,078,791 | 6.99 | 1.19 years | 5,845,240 | 5.66 | 0.89 years | ||||||||||||
Issued (i) (ii) (iii) | 4,243,788 | 3.50 | 2.00 years | 4,887,500 | 7.00 | 2.00 years | ||||||||||||
Exercised | - | 0.00 | 0.00 years | (7,500 | ) | 4.25 | 0.86 years | |||||||||||
Cancelled or expired | (191,291 | ) | 6.81 | 0.00 years | (5,646,449 | ) | 5.62 | 0.00 years | ||||||||||
Balance, end of the period | 9,131,288 | 5.37 | 1.17 years | 5,078,791 | 6.99 | 1.19 years |
(i) |
On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35%, expected life of 2 years and expected dividend yield of 0%) and $848,758 was credited to contributed surplus. |
(ii) |
On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2,380,000 was credited to contributed surplus. |
(iii) |
On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus. |
The following table summarizes the share purchase warrants outstanding at June 30, 2009:
Exercise Price | Warrants | |||||
$ | Outstanding | Expiry Dates | ||||
7.00 | 4,887,500 | March 25, 2010 | ||||
3.50 | 4,243,788 | March 5, 2011 | ||||
9,131,288 |
10
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
11. | SHARE CAPITAL (continued) |
(d) | Share Capital to be Issued |
On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc. and the San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic.
At June 30, 2009, the prior shareholders of First Silver had yet to exchange the remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic resulting in a remaining balance of shares to be issued of $276,495.
Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.
12. | REVENUE |
Details of the components of revenue are as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
$ | $ | $ | $ | |||||||||
Combined revenue - silver doré bars, concentrates, coins and ingots | 18,003,518 | 14,290,892 | 35,467,655 | 30,536,815 | ||||||||
Less: intercompany eliminations | (2,223,922 | ) | - | (2,223,922 | ) | - | ||||||
Consolidated gross revenue | 15,779,596 | 14,290,892 | 33,243,733 | 30,536,815 | ||||||||
Less: refining and smelting charges | (2,165,720 | ) | (2,345,331 | ) | (4,706,462 | ) | (5,146,566 | ) | ||||
Less: metal deductions | (588,999 | ) | (508,672 | ) | (1,125,522 | ) | (989,178 | ) | ||||
Net revenue | 13,024,877 | 11,436,889 | 27,411,749 | 24,401,071 |
11
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
13. | RELATED PARTY TRANSACTIONS |
During the period ended June 30, 2009, the Company:
a) |
incurred $147,748 for the six month period ended June 30, 2009 and $71,255 for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $120,273; quarter ended June 30, 2008 - $75,088) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement. |
b) |
incurred $146,462 for the six month period ended June 30, 2009 and $72,829 for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $139,105; quarter ended June 30, 2008 - $78,849) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement. |
c) |
incurred $1,269,751 of service fees during the six month period ended June 30, 2009 and $nil for the quarter ended June 30, 2009 (six months ended June 30, 2008 - $4,207,123; quarter ended June 30, 2008 - $2,271,223) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Companys mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $627,578 was unpaid as at June 30, 2009 (2008 - $1,635,365). This relationship was terminated in February 2009. |
Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.
12
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
14. | SEGMENTED INFORMATION |
The Company considers that it has three operating segments all of which are located in Mexico, and one corporate segment with locations in Canada and Mexico. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property, the Cuitaboca Silver Project and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.
These reportable operating segments are summarized in the table below:
Three months ended June 30, 2009 | |||||||||||||||
First Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 5,128,241 | 5,206,431 | 2,678,133 | 12,072 | 13,024,877 | ||||||||||
Cost of s ales | 3,326,950 | 3,436,485 | 2,588,633 | 107,800 | 9,459,868 | ||||||||||
Amortiza tion, depreciation and accretion | 238,154 | 547,730 | 274,840 | - | 1,060,724 | ||||||||||
Depletion | 463,081 | 228,188 | 137,642 | - | 828,911 | ||||||||||
Mine operating earnings (loss) | 1,100,056 | 994,028 | (322,982 | ) | (95,728 | ) | 1,675,374 | ||||||||
General and administrative | - | - | - | 2,114,312 | 2,114,312 | ||||||||||
Stock-based compensation | - | - | - | 800,808 | 800,808 | ||||||||||
Net interest, other income (expense) and foreign exchange | (73,230 | ) | (603,422 | ) | (417,616 | ) | 435,902 | (658,366 | ) | ||||||
Income tax expense (recovery) | 121,398 | (58,486 | ) | (599,696 | ) | (1,081,012 | ) | (1,617,796 | ) | ||||||
Net income (loss) | 1,051,888 | 1,655,936 | 694,330 | (2,365,738 | ) | 1,036,416 | |||||||||
Capital expenditures | 874,235 | 1,903,461 | 6,419,379 | 131,485 | 9,328,560 | ||||||||||
Total assets | 118,788,430 | 62,249,122 | 49,559,957 | 22,489,594 | 253,087,103 |
Three months ended June 30, 2008 | |||||||||||||||
First Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 3,343,546 | 4,057,696 | 4,035,647 | - | 11,436,889 | ||||||||||
Cost of sales | 2,792,146 | 3,256,004 | 1,581,605 | - | 7,629,755 | ||||||||||
Amortization, depreciation and accretion | 214,009 | 549,597 | 145,952 | 18,061 | 927,619 | ||||||||||
Depletion | 270,305 | 228,044 | 200,495 | - | 698,844 | ||||||||||
Mine operating earnings (loss) | 67,086 | 24,051 | 2,107,595 | (18,061 | ) | 2,180,671 | |||||||||
General and administrative | - | - | - | 2,100,325 | 2,100,325 | ||||||||||
Stock-based compensation | - | - | - | 670,616 | 670,616 | ||||||||||
Net interest, other income (expense) and foreign exchange | 160,866 | (1,011,351 | ) | (60,199 | ) | (49,347 | ) | (960,031 | ) | ||||||
Income tax (recovery) expense | (351,764 | ) | 659,229 | 964,573 | (605,321 | ) | 666,717 | ||||||||
Net income (loss) | 257,984 | 376,173 | 1,203,221 | (2,134,334 | ) | (296,956 | ) | ||||||||
Capital expenditures | 4,118,671 | 7,596,329 | 2,248,968 | (146,923 | ) | 13,817,045 | |||||||||
Total assets | 131,020,870 | 57,759,525 | 21,227,658 | 47,789,874 | 257,797,927 |
13
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
14. | SEGMENTED INFORMATION (continued) |
Six months ended June 30, 2009 | |||||||||||||||
First | |||||||||||||||
Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 9,584,207 | 9,142,290 | 8,126,458 | 558,794 | 27,411,749 | ||||||||||
Cost of sales | 6,060,176 | 6,137,789 | 5,072,929 | 487,787 | 17,758,681 | ||||||||||
Amortization, depreciation and accretion | 491,301 | 1,012,489 | 531,811 | - | 2,035,601 | ||||||||||
Depletion | 714,521 | 379,067 | 305,619 | - | 1,399,207 | ||||||||||
Mine operating earnings | 2,318,209 | 1,612,945 | 2,216,099 | 71,007 | 6,218,260 | ||||||||||
General and administrative | - | - | - | 3,932,315 | 3,932,315 | ||||||||||
Stock-based compensation | - | - | - | 1,697,548 | 1,697,548 | ||||||||||
Net interest, other income and foreign exchange | 220,403 | (255,927 | ) | (136,896 | ) | 537,282 | 364,862 | ||||||||
Income tax (recovery) expense | (53,295 | ) | (105,744 | ) | (25,659 | ) | (1,567,880 | ) | (1,752,578 | ) | |||||
Net income (loss) | 2,151,101 | 1,974,616 | 2,378,654 | (4,528,258 | ) | 1,976,113 | |||||||||
Capital expenditures | 1,567,128 | 3,789,716 | 12,342,385 | 146,301 | 17,845,530 | ||||||||||
Total assets | 118,788,430 | 62,249,122 | 49,559,957 | 22,489,594 | 253,087,103 |
Six months ended June 30, 2008 | |||||||||||||||
First | |||||||||||||||
Majestic | Corporate | ||||||||||||||
El Pilon | Plata | La Encantada | and Other | ||||||||||||
operations | operations | operations | Eliminations | Total | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | 5,553,108 | 9,055,725 | 9,792,238 | - | 24,401,071 | ||||||||||
Cost of sales | 4,257,678 | 5,827,499 | 4,061,634 | - | 14,146,811 | ||||||||||
Amortiza tion, depreciation and accretion | 499,273 | 904,477 | 292,987 | 63,536 | 1,760,273 | ||||||||||
Depletion | 748,980 | 418,846 | 417,380 | - | 1,585,206 | ||||||||||
Mine operating earnings | 47,177 | 1,904,903 | 5,020,237 | (63,536 | ) | 6,908,781 | |||||||||
General and administrative | - | - | - | 4,232,205 | 4,232,205 | ||||||||||
Stock-based compensation | - | - | - | 1,778,832 | 1,778,832 | ||||||||||
Net interest, other income and foreign exchange | 169,012 | 681,246 | (23,919 | ) | (77,554 | ) | 748,785 | ||||||||
Income tax (recovery) expense | (437,839 | ) | 750,886 | 1,170,436 | (605,321 | ) | 878,162 | ||||||||
Net income (loss) | 654,028 | 1,835,263 | 3,825,882 | (5,546,806 | ) | 768,367 | |||||||||
Capital expenditures | 6,920,925 | 13,079,039 | 3,644,492 | 20,506 | 23,664,962 | ||||||||||
Total assets | 131,020,870 | 57,759,525 | 21,227,658 | 47,789,874 | 257,797,927 |
14
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
15. | CAPITAL LEASE OBLIGATIONS |
In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for $14.1 million (US$11.2 million) of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. On March 13, 2009, the Company executed a restructuring agreement for the balance of $3.6 million (US$2.9 million) payable to the equipment lease vendor, to be paid over 24 monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.
On January 12, 2009, the Company executed two additional financing arrangements with an equipment vendor, committing the Company to total payments of approximately $2.6 million (US$2.0 million) representing the purchase price plus interest with terms of 36 monthly lease payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.
The following is a schedule of future minimum lease payments under the capital leases at June 30, 2009:
$US | $CA | |||||
2009 Gross lease payments | 1,314,651 | 1,528,939 | ||||
2010 Gross lease payments | 2,108,858 | 2,452,603 | ||||
2011 Gross lease payments | 653,453 | 759,966 | ||||
2012 Gross lease payments | 132,549 | 154,154 | ||||
4,209,511 | 4,895,662 | |||||
Less: interest | (452,204 | ) | (525,914 | ) | ||
Total payments, net of interest | 3,757,307 | 4,369,748 | ||||
Less: current portion | (2,223,306 | ) | (2,585,705 | ) | ||
Capital Lease Obligation | 1,534,001 | 1,784,043 |
15
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
16. | ASSET RETIREMENT OBLIGATIONS |
Six months ended | Year ended | |||||
June 30, 2009 | December 31, 2008 | |||||
$ | $ | |||||
Balance, beginning of the period | 5,304,369 | 2,290,313 | ||||
Effect of change in estimates | - | 2,979,726 | ||||
Interest accretion | 233,210 | 200,477 | ||||
Effect of translation of foreign currencies | (19,277 | ) | (166,147 | ) | ||
5,518,302 | 5,304,369 |
Asset retirement obligations allocated by mineral properties are as follows:
Anticipated | June 30, 2009 | December 31, 2008 | |||||||
Date | $ | $ | |||||||
La Encantada Silver Mine | 2018 | 1,940,922 | 1,865,674 | ||||||
La Parrilla Silver Mine | 2022 | 1,674,518 | 1,609,602 | ||||||
San Martin Silver Mine | 2016 | 1,902,862 | 1,829,093 | ||||||
5,518,302 | 5,304,369 |
During the year ended December 31, 2008, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Companys estimated obligations is $7.27 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $2.46 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.31 million of the obligation relates to the San Martin Silver Mine, and $2.51 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on managements current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.
17. | COMMITMENTS |
The Company is obligated to make certain mining property option payments as described in Note 8, in connection with the acquisition of its mineral property interests.
As at June 30, 2009, the Company is obligated to make a series of payments totalling US$560,526 before the end of 2009 with respect to property payments at the Quebradillas Mine at La Parrilla.
The Company has capital lease obligations as described in Note 15.
The Company has office lease commitments of $77,900 per annum in 2009 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.
As at June 30, 2009, the Company is committed to construction contracts of approximately $13.8 million (US$11.9 million) (December 31, 2008 - $5.9 million or US$4.9 million) relating to the La Encantada Project which is currently being constructed.
16
FIRST MAJESTIC SILVER CORP. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE PERIODS ENDED JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
17. | COMMITMENTS (continued) |
The Company is committed to making severance payments amounting to US$605,000 (December 31, 2008 -US$540,000) to four officers in the event of a change of control of the Company.
18. | NON-CASH FINANCING AND INVESTING ACTIVITIES |
Three months ended | Six months ended | |||||||||||
June 30, 2009 | June 30, 2008 | June 30, 2009 | June 30, 2008 | |||||||||
$ | $ | |||||||||||
NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||||||
Fair value of warrants upon completion of public offering | - | 286,135 | 848,758 | 2,666,135 | ||||||||
Issuance of shares for First Silver Arrangement | - | - | - | 8,985,460 | ||||||||
Transfer of contributed surplus to common shares for options exercised | - | - | 2,950 | 263,407 | ||||||||
Assets acquired by capital lease | - | 1,989,227 | 2,259,380 | 1,989,227 |
19. | SUBSEQUENT EVENTS |
Subsequent to June 30, 2009:
(a) |
On July 16, 2009, the Company agreed to a consent order with the prior Majority Shareholder of First Silver with respect to the funds represented by a Letter of Credit securing the vendor liability and interest described in Note 9. Pursuant to the order, $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. These funds will be accessible to the Company in the event of a favourable outcome to the litigation. |
(b) |
On August 10, 2009, 12,500 stock options were granted at a price of $2.40 per share expiring on August 10, 2012. |
(c) |
On August 12, 2009, the Company reported a non-brokered private placement offering consisting of up to 4,000,000 units to be issued at a price of $2.30 per unit for gross proceeds of up to $9.2 million. Each unit will consist of one common share and one-half of one common share purchase warrant with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. The Company plans to use the net proceeds of the offering as general working capital in respect to its three operating silver mines in Mexico. A finders fee of 6% cash will be payable on a portion of this private placement to an arms length party. Closing of the private placement is subject to receipt of all required regulatory approvals including the consent of the Toronto Stock Exchange. |
(d) |
On August 12, 2009, the Company reported that it will settle certain debts of its subsidiaries in the aggregate amount of up to $4,000,000 and has entered into debt settlement agreements with those creditors to settle such debt by the issuance of up to 1,739,130 common shares of the Company at a deemed price of $2.30 per share. Closing of the debt settlement is subject to receipt of all required regulatory approvals including the consent of the Toronto Stock Exchange. |
20. | COMPARATIVE FIGURES |
Certain comparative figures have been reclassified to conform with the classifications used in 2009.
17