President/CEO Keith Neumeyer spoke to Kevin Michael Grace February 6.
RW: How does Del Toro advance First Majestic?
KN: Del Toro gives us our fifth mine in Mexico, which I think is quite significant. Del Toro is in the State of Zacatecas. It’s our first investment there, and it will actually become our largest investment. When it’s all done in mid-2014, we’ll have spent over $150 million on that mine to get it up and running.
RW: How much of an increase in silver production will this represent?
KN: Del Toro will contribute close to three million ounces in 2013 and close to six million ounces in 2014.
RW: On January 9, you announced a quarterly record of 2.6 million silver-equivalent ounces. How much production do you expect in 2013?
KN: Silver ounces will be in the 10.5 million to 11 million ounce range, and silver equivalent will be around 13 million ounces.
RW: How are you doing with cash costs?
KN: Pretty good. Our fourth quarter isn’t public yet, but over the first nine months of 2012, we produced silver at around $9 an ounce, and I don’t expect that to change much.
RW: On December 19, you announced a $50-million forward-sale contract on future lead and zinc production. This was to raise cash without dilution?
KN: Working capital for a company to continue to grow without diluting its shareholders. We sold one-third of our lead and zinc production for the next three years.
RW: How much cash does First Majestic have now?
KN: About $100 million.
RW: Are you looking at further acquisitions after Orko Silver V.OK?
KN: There is nothing hot on the burner, but we always have one eye open. We had two acquisitions in one year, and that’s pretty aggressive.
RW: How big does your company want to get?
KN: We’re growing pretty quickly.
RW: Many people expect a breakout in the price of silver and a big change in its ratio to gold.
KN: I’m a big ratio guy, and I think that’s what it’s going to come down to at the end of the day. If you look at the earth’s crust, there is approximately 15:1 silver to gold in the earth’s crust, and we’re mining at a 10:1 ratio right now, so for every ounce of gold that’s mined 10 ounces of silver gets mined. So we’re actually mining at less than earth’s ratio, which suggests that silver mines are quite rare and are becoming rarer.
Consumption of silver is actually 50 times greater than gold. There is approximately the exact amount of dollars being spent on gold versus silver, and at a 50:1 ratio that would suggest that there is 50 times more physical silver being purchased daily than gold.