CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE MONTHS ENDED
 
JUNE 30, 2009 (UNAUDITED)
 

 

 

MANAGEMENT’S 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Canada’s 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 Company’s 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 Silver’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 management’s 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 finder’s fee of 6% cash will be payable on a portion of this private placement to an arm’s 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