Acquisitions driving First Majestic Silver’s growth profile

Q&A for First Majestic Silver Corp.

Q. Will growth for the company be purely organic or are you on the acquisitions trail?

A. Our growth to date is a result of our aggressive approach to acquisitions. So far, we’ve purchased two publicly traded companies that we considered distressed at the time of acquisition and we’ve purchased three other assets from Mexican families. Three of our current assets are now mines and the other two are expected to be mines in the coming years. As things stand, with our current asset base, we intend to produce 16 million ounces by 2014. Our target however, is to become a 20 million ounce producer. In order to achieve this longer term objective, either a large discovery at one of our existing mines is required or we continue to acquire assets. So yes, we are open to the possibility of further acquisitions, but it has to make sense.

Q. Fronteer has just been taken out by Newmont Mining an example of the larger companies needing to replenish their reserves; do you see First Majestic as a takeover target?

A. It is a surprise to us that we have not been taken out already, after all we are the fastest growing silver producer and the purest silver mining company in the world. However, we can’t plan for such things; our focus remains to continue to build the business as big as possible.

Q. Are there any plans to pay a dividend to your investors?

A. The subject of dividends is under discussion and we hope to pay a dividend by the first quarter 2012.

Q. Stocks had leverage against the physical metal for first part of this bull market however the last few years has seen that leverage dissipate. Do you see stocks out performing silver going forward?

A. The stock price of First Majestic has increased 300% recently so you can see that we have maintained leverage against silver. However, there are many stocks that have not been so fortunate. In previous bull markets there were only stocks that an investor could turn to as an alternative to buying physical silver, which is not the case today as we now have various alternatives such as metal ETF’s. I expect this phenomenon to begin to shift back to stocks as more equity ETF’s are launched. We’ve seen some very large, high profile Mining Share ETF’s

launched recently and I expect this will continue. I expect this process to create more equilibrium in the financial markets resulting in multiples of good quality mining shares going back to historic levels.

Q. What do you expect the silver high to be for 2011?

A. We don’t like making these sort of predictions but we would say for this year a high of $35.00/oz. However, looking longer term we do expect the gold to silver ratio to return to 16:1. Without going too deep into the fundamentals there are new needs being discovered every day for silver so the demand from the commercial side is growing very strongly. I expect to see prices of silver reaching north of $100 per ounce in the coming years.

Q. Your mining operations are in one country only and that is Mexico, does it concern you that you have all your eggs in one basket in terms of political risk?

A. We would rather be in Mexico than Canada or Australia where we perceive the political risk to be much greater. For Mexico mining is a high growth sector responsible for much of the new employment. There are over 260 Canadian mining companies operating in Mexico which equates to around $5 billion of investment per annum. We are comfortable being in Mexico.

Q. You offer a service whereby the general public can purchase silver directly from you, how is that going?

A. This service was first offered to our shareholders and it grew from there. We sell around 35,000 to 40,000 ounces per month at the moment from our E-com website using credit cards. Our premiums are normally one of the most competitive on the web. It also serves as a great introduction to our company and leads to many silver buyers becoming shareholders.

Q. The two new mills, Del Toro and La Parrilla are they for the sole use of First Majestic or can other producers rent them from time to time?

A. They are for the sole use of First Majestic. The construction of the mill at Del Toro is expected to start in the first quarter of 2011 and the expansion at La Parrilla commenced in December 2010 and is expected to result in the doubling of production at La Parrilla to 1600 tonnes per day by the year end.

Q. You have recently been listed on the New York Stock Exchange so we are curious to know just how did you manage to get the symbol ‘AG’ – Argentum being the Latin for silver, etc.

A. The symbol was previously allocated to another company, an agricultural one we think and was no longer required by them, so we were fortunate to pick it up.

Overview

In its latest news release First Majestic Silver Corporation gave the following overview of their activities: that production in 2010 reached 7,024,055 equivalent ounces of silver, representing a 62% increase over 2009 from 4,337,103 equivalent ounces of silver.

The equivalent silver production for 2010 consisted of 6,529,325 ounces of silver, representing a 72% increase from the prior year, 6,404,227 pounds of lead, representing a 3% decrease from the previous year, and 2,152 ounces of gold, representing a decrease of 19% compared to the previous year.

Total silver production as a percentage of total production amounted to 93% making First Majestic the purest silver company in the world.

Company guidance released on January 11, 2010 stated, “Production is expected to exceed 6.0 million ounces of silver in 2010″ which was in fact exceeded by a strong 9%. As a result of the current expansion underway at the La Parrilla Silver Mine and other operational improvements at the La Encantada and San Martin Silver Mines, production is anticipated to exceed 7.5 million ounces of silver in 2011.

In addition to further increases in production expected for 2011, the Company is also expanding its exploration budget. The current 2011 budget calls for 47,800 metres of drilling over the Company’s five core projects for a total expenditure of US$7,137,500.

This exploration program compares to the total of 17,322 metres drilled in 2010, and total expenditures equalling US$1,897,280. It is further anticipated that new updated NI 43-101 Technical Reports will be released on each project in late 2011 or early 2012.

With respect to the fourth quarter, total ore processed at the Company’s three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to 467,175 tonnes milled in the quarter representing an 8% increase over the previous quarter.

The overall average silver head grade in the quarter for the three mines decreased slightly from the previous quarter to an overall head grade of 207 g/t of silver. The combined recoveries of silver also decreased slightly from 58% to 57%. This was due to the much larger La Encantada operation as it is primarily reprocessing old tailings.

As the mix of ore from the mine increases throughout 2011, these recoveries are also expected to improve.

The Company developed 6,288 metres underground in the fourth quarter, compared to 6,207 metres of underground development completed in the previous quarter. The total annual underground development for 2010 totalled 22,658 metres.

Development has been focused on increasing the Reserve and Resource preparation ratios at the three operating mines. Due to the expanding production levels anticipated in 2011 and 2012, the Company’s development budget is being increased to US$21,741,183 in 2011 from $12,335,119 in 2010.

Also, the diamond drilling programs totalled 6,104 metres of definition drilling in the quarter, for a 2010 annual total of 17,322 metres of drilling completed at the Company’s three mines.

Drilling at the Company’s two development projects, the Del Toro Silver Mine and the Real de Catorce Silver Project is expected to commence in early 2011.

2010 accomplishments:

Newly constructed 3500tpd cyanidation mill at La Encantada reaches commercial production. Annual silver production is estimated to be 4.3M oz of silver Doré.

Achieved status as “Purist Silver Producer” with 93% of revenue derived from the sale of silver in 3Q2010.

Began trading on the NYSE under ticker “AG”

Broke ground on expansion project at La Parrilla to double the throughput capacity to 1600tpd. Annual silver production is estimated to reach 3.0M oz of silver equivalent.

Significantly reduced cash costs by transitioning to a primary Dore producer.

Milestones to look for in 2011:

Begin mill construction at Del Toro in 1H2011.
Complete La Parrilla mill expansion project in 2H2011.
Continue to focus on reducing cash costs.
Update 43-101 reserves/resource estimates for all 5 assets.

Conclusion:

In 2010 First Majestic was the third best performing stock on the TSX, S&P Composite Index which reflects their phenomenal growth. We have tracked them for about five years but for various reasons we haven’t made a purchase. Either we bid too low, being tight, or were distracted at the time. So now we have to put this one down to ‘the one that got away’ as we failed to pounce when the opportunity presented itself.

Going forward we would like to say that we should buy the dips, however, if silver prices take off as we expect them to, then there may not be too many dips in front of us. A better strategy might be to layer in over time and build up a position over the coming months. We will commence with the purchase of a few shares tomorrow and take it from there.

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