The Hera Research Newsletter
(HRN) is pleased to present an informative interview with Keith Neumeyer, Chief Executive Officer, President and Director
of First Majestic Silver Corp. (TSX:FR / NYSE:AG).
Mr. Neumeyer began his career at the Vancouver
Stock Exchange and worked in the investment community for 26 years beginning
his career in a series of Canadian national brokerage firms including McLeod
Young Weir (now Scotia McLeod), then Richardson Greenshields
and then Walwyn Stogell McCuthchen (which became Midland Walwyn).
Mr. Neumeyer
moved on to work with several publically traded companies in the natural
resource and high technology sectors. His roles have included senior
management positions and directorships in the areas of finance, business
development, strategic planning and corporate restructuring. Mr. Neumeyer, who has listed a number of companies on the
Toronto Stock Exchange, has extensive experience dealing with financial,
regulatory, legal and accounting issues.
Hera Research
Newsletter (HRN): Thank you for joining us again. Let’s talk about First Majestic
Silver. I understand your silver
production has increased substantially in the past year.
Keith Neumeyer: We’ve grown a lot in the
last 12 to 14 months. We’ve
had, basically, a 50% increase in production due to the fact that we built a
new facility at the La Encantada Silver Mine, which
is now operating at over 4,000 tonnes per day. Now, we’re going to leapfrog
ahead again with the La Parrilla Silver Mine, which
we’re coming to the final stages of completion of a major expansion
project there. That operation is doubling in size for 2012.
HRN: How
much silver will La Parrilla produce now?
Keith Neumeyer: La Parrilla
was operating at 850 tonnes per day. It will be 2,000 tonnes
per day by the end of the year and it will be a 3 million ounce producer,
plus a substantial amount of lead and zinc. The cost per ounce will come down on a
byproduct basis and the production almost doubles.
HRN: So,
you expect your margins to increase, even without higher silver prices?
Keith Neumeyer: Yes. We should have a good 4th quarter and
an even better 1st quarter.
![](http://www.24hgold.com/24hpmdata/articles/2011/12/img/20111214CLA08191.jpg)
HRN:
What will the production numbers look like?
Keith Neumeyer: We have 3 mines in production
now: La Encantada, La Parrilla
and San Martin. We expect to go
up to 10 million ounces production next year from about 7 1/2 million ounces
this year.
HRN: A 25%
increase in production in the next year?
Keith Neumeyer: We also have another mine, Del
Toro, coming online. We’ve
got a feasibility study coming out in January, which will discuss all the
numbers. Del Toro will ultimately
become First Majestic’s largest mine. We’re expecting to see some
small production from Del Toro in the 4th quarter of 2012, but the largest
increases in production will be in 2013 and 2014.
HRN: How
much silver will you be producing?
Keith Neumeyer: In 2014 we expect to be producing
over 16 million ounces silver equivalent (90% silver).
![](http://www.24hgold.com/24hpmdata/articles/2011/12/img/20111214CLA08192.jpg)
HRN: So,
a 100% increase in the next 2 years.
Do you still classify First Majestic Silver as a junior producer?
Keith Neumeyer: In the gold market they call a
100,000 ounce producer mid-tier and 500,000 ounces is senior. 500,000 ounces at today’s gold-silver
ratio is roughly 25 million ounces of silver. There are not that many 25 million
ounce silver producers. I think
there are 2. So, I would call
First Majestic Silver a mid-tier producer right now.
HRN: How
does First Majestic Silver grow so consistently, year after year? What’s your success formula?
Keith Neumeyer: Well, first of all, it comes down
to the people. I formed First
Quantum Minerals back in 1992.
It’s one of the top 5 copper producers in the world with a $10 billion
market cap. I learned a lot at
First Quantum. The team and the
on-the-ground skill set in the country you’re active in is extremely important.
HRN: I
read that your background is in finance, not mining.
Keith Neumeyer: I came from the brokerage side of
the business. I was on the
financial side for a number of years and I got a lot of business
experience. I developed good
connections in the financial community, with analysts and brokers, so I can
raise money when needed for good projects.
HRN: How
does that help you run a mining company?
Keith Neumeyer: Well, you put all these things
together. It’s common
sense. We’ve created a
great skill set right across the board.
Our Chief Operating Officer, Ramon Davilla,
has done a heck of a job in Mexico.
He came from Pan American Silver and was with Industrias
Penoles and with Luismin
before that. Our CFO, Raymond Polman, is very experienced in the financial
markets. When you look at all the
senior managers we have in Mexico, you can see how deep we are in terms of
experience. The top 40 executives
have over 600 years of mining experience in Mexico.
HRN: How
did you recruit a team with so much experience?
Keith Neumeyer: It hasn’t always been easy,
believe me. There have been a lot
of challenges along the way but the results are there. First Majestic is very well
respected. When people become
available in this sector they come to our front door for a job first. It’s a real compliment. Often we create positions for 30 year
veterans who bring experience to the table. We’ve done that for the last 5
years and it’s created a kind of snow ball that we know as First
Majestic today. It’s a
group of very dedicated people that are looking in the same direction,
focusing on the same targets.
HRN:
What is the direction?
Keith Neumeyer: We’re looking ahead to
become a much larger company. We
can see that happening now.
We’ve got the team in place and the assets to accomplish it.
HRN: Why
do you think most other mining companies don’t grow significantly?
Keith Neumeyer: Many companies that would like to
grow just can’t because they don’t have the skill set. I just got back from a 3-day mining
conference in Acapulco, a technical conference. We had 25 of our own senior managers
there. We had a number of
speeches and presentations there and I met with a lot of CEOs of mining
companies that are active in Mexico and elsewhere. They’re clamoring for people and
there just aren’t enough experienced people. They look at us as being quite special
because of the people we have in place and our attrition level is virtually
zero in our senior management team.
The people we put in place 5 years ago are virtually the same people
today and they’re going to be there in the years to come.
HRN: So,
they find it difficult to attract the best people and you don’t?
Keith Neumeyer: Just in the last 2 months, we had
two very senior people join us. I
won’t name the companies they came from, but, no, we don’t have
any difficulty. It’s a
continual process. I can name
several events in the last five years that have caused 20 people to show up
on our doorstep with resumes and we grabbed 8 or 10 of them. It’s happened
a number of times. As I said, First Majestic has proven to be a very
attractive place to work and with our growth, people want to be part of that.
HRN: How
can you keep up the same level of growth?
Keith Neumeyer: We bought all of our assets
between 2004 and 2006, except for the La Luz Silver Project, which we bought
in 2009 when we took over another public company. I can’t say they were unknown
assets but we had no competition.
We went in; we looked at them; we cut a check and we bought them. It surprised me at the time that there
weren’t other companies out there being as aggressive as we were. We’ve been very aggressive and
today have 5 assets, 3 are producing and are continually being expanded. Each one of those mines has been
expanded multiple times since we began operating them and we will continue to
expand them for the foreseeable future.
There are a lot of ounces in the ground and it’s just a matter
of developing the underground infrastructure and, when that’s
completed, expanding the mills again.
We’ll keep doing that at each of our operations. Del Toro is currently under
construction and La Luz is in the permitting process.
HRN:
What’s the picture in terms of resources? Can you keep growing your resources?
Keith Neumeyer: I’m not a geologist, but I
think Mexico is extremely underexplored.
It’s only been since 1993 that NAFTA was signed and foreign
investors had any protection when investing in Mexico. The resource sector began to fall in
1997 and didn’t bottom until 2002.
So, there had only been a few years of new exploration and
that’s really not enough time.
But in that time, some pretty interesting things have happened. There
have been some big discoveries.
![](http://www.24hgold.com/24hpmdata/articles/2011/12/img/20111214CLA08193.jpg)
HRN:
Many new discoveries seem to be less accessible and lower grade.
Keith Neumeyer: All the easy stuff—all the
outcrops—have been pretty well discovered. The next stage of the exploration is
deeper drilling into geophysical or geochemical anomalies. That’s what’s happening
now. I think there will be a lot
of discoveries in Mexico over the next 10 to 20 years in all metals, not just
silver. I think there will be
discoveries of gold, silver, copper, lead and zinc.
HRN: So,
you expect underground deposits to be discovered?
Keith Neumeyer: These deposits are extremely
deep. If you have a chance to sit
down with a geologist who is very active in Mexico, you should do that. I’ve done it several times. The Spaniards went in 500 years ago
and mined all the easy stuff but they tended to abandon the mines when it
became too difficult because they could just go somewhere else. Things have changed. We’re able to go much deeper due
to higher prices and new technology.
We’re finding that, what were thought to be 50 or 200 metre structures go 800, to 1000 meters down.
HRN:
Thank you for your time once again.
Keith Neumeyer: It’s my pleasure.
After Words
Keith Neumeyer, Chief
Executive Officer, President and Director of First Majestic Silver Corp. (TSX:FR / NYSE:AG) has led the company on a path of phenomenal
growth. One of a small number of primary silver producers, First Majestic has
consistently increased its production, cash margins and mineral resources
while lowering production costs. With three operating mines and a fourth mine
under construction, First Majestic has broken into the mid-tier producer
category and is on track to become a major producer. The company is a
showcase “growth story” that illustrates virtually everything
savvy investors look for in precious metals mining stocks. Down from its
52-week high of $26.88 on April 26, 2011, the stock is poised to move higher
with silver remaining over $30 per ounce compared to cash costs of $8.32 per
ounce.
Editor’s Note: Hera Research, LLC or its
Directors are shareholders in First Majestic Silver Corp.
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