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First Majestic Silver Corporation (AG 4.12%)
Q2 2020 Earnings Call
Jul 15, 2020, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you for standing by. This is the conference operator. Welcome to the First Majestic Silver Second Quarter Production Results Conference Call. [Operator Instructions]
I would now like to turn the conference over to Keith Neumeyer, President and CEO. Please go ahead.
Keith Neumeyer -- President & Chief Executive Officer
Welcome everyone to our mid-year production conference call. Before I get into the call today, I'm going to pass over to Connie Lillico, our Corporate Secretary.
Connie Lillico -- Corporate Secretary
Thanks, Keith. Prior to us beginning today, I'll read our disclaimer and forward-looking statements. Certain statements contained in this conference call regarding the company and its operations constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the United States Securities Exchange Act of 1934 as amended. All statements that are not historical facts, including without limitation, statements regarding future estimates, plans, objectives, assumptions or expectations of future performance, constitute forward-looking statements. We caution you that such forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements.
Such risks and uncertainties include the duration in effect of the corona virus and COVID-19 and any other pandemics on our operations and workforce and effects on global economies and society; fluctuations in precious metal prices; unpredictable results of exploration activities; uncertainties inherent in the estimation of reserves and resources; fluctuations in the cost of goods and services; problems associated with exploration and mining operations; changes in legal, social or political conditions in the jurisdictions where the company operates; lack of appropriate funding and any other factors as discussed in the company's filings with the Canadian security regulatory agencies.
Resources and production goals and forecasts may be based on data insufficient to support them. The company expressly disclaims any obligation to update any forward-looking statements.
Back to you, Keith.
Keith Neumeyer -- President & Chief Executive Officer
Thanks Connie. Obviously, the last few months have been challenging for all of us. I wanted -- before I get into the call, I'd just wanted to thank the staff here in Canada and in Mexico for the diligence and the hard work that everyone has put into the business over the last three or four months. I can tell you, it's been pretty challenging to manage the business during this very difficult period of time and happy to have all the mines back up and running again and getting back to business. Q2 is somewhat of a bit of a write-off quite honestly, but the numbers are the numbers and they actually turned out to be better than we expected they were going to be. We are looking forward to ending Q -- ending 2020 on a very positive note, but we can get into that a little bit later.
Focusing on Q2. We did produce 3.5 million silver equivalent ounces, making up about 1.8 million silver ounces and over 15,000 gold ounces. As I said, that's -- that's higher than what we originally estimated. San Dimas continually operated throughout much of April and into May and the other mines were shut down a little bit sooner than that. We did hold back some silver sales. We actually reached a peak of somewhere around 1.5 million ounces of inventory. We started liquidating some of those ounces before June 30. We ended up with about 970,000 ounces in silver inventory at the end of the quarter, which is very nice. We were able to take advantage of today's metal prices which obviously are much better than they were over the last few months.
We were able to get the HIG mill delivered to San Dimas, and this is quite, quite the achievement, this mill was shipped through the Panama Canal. It was dropped at Mazatlan in Mexico and we had to have special permits to transport this very, very large piece of equipment over the highways and into the mine, which is quite a distance away right in Central Mexico and we had to move in, we are fortunate that the government gave us these permits to do this work and it worked out perfectly because there was no one on the highways due to COVID. So this piece of equipment was delivered on site, without any ripples at all and is now sitting there, it's been there for over a month now and the foundations are now being laid and the project is slightly delayed obviously, but we are anticipating early '21 -- early 2021 that project to be completed. So we're excited about that.
Ermitano development activities are continuing. They just restarted up. We hit the vein as well and the grades are nice and we're pretty pleased with the government work that's going on there. The LNG plant at Santa Elena is now resumed or the construction of it is now resumed, and we originally anticipated that was going to be completed by the end of Q3 or potentially the beginning of Q4, that is obviously going to be pushed into 2021, but when that project is finally completed, it's going to make a huge difference for the operation coming off diesel and up to 100% LNG or close to 100% LNG.
Rigs are back up and running again. We've got 14 drill rigs active. We've got another seven rigs being added over the next few months. We'll have a total of about 21 rigs active in the third quarter, which we're looking forward to obviously. Lots of focus on Ermitano and the Santa Elena area, but of course, San Dimas is getting a lot of focus as well.
I'm not going to get into reading out the outlook. It's there and we put out new numbers, in line, we're close to what they were in earlier year, we did lose a little bit of ounces due to the approximate six weeks shutdown, but our focus as a team here at First Majestic is to make up as many of these ounces as possible. We're going to try our best to beat the current guidance that's in this news release that went public this morning. Time will obviously tell. So that's really it for me.
I'm going to pass this over to questions, if there are any coming in.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Heiko Ihle of H.C. Wainwright. Please go ahead.
Heiko Ihle -- H.C. Wainwright & Co -- Analyst
Hey guys. Congrats on the quarter and thanks for taking my questions here.
Keith Neumeyer -- President & Chief Executive Officer
No problem Heiko. Nice hearing from you.
Heiko Ihle -- H.C. Wainwright & Co -- Analyst
Always pleasure. It might be a bit too early to ask this question, but can you just provide a little bit of color on the incremental cost that you faced during the quarter in regards to the pandemic? And then maybe also just maybe a little bit of color on the ongoing costs that you expect, like sanitation, social distancing, people can't be too close together, that kind of stuff. Any -- just ideas that you can provide us with both past and present?
Keith Neumeyer -- President & Chief Executive Officer
We've done an enormous amount of work in Mexico. We've been donating medicines and protective gear, you name it. We beefed up our medical staff. We've added doctors. We've added nurses. We've really come to these communities in support of them every way we can possibly do it. We've shut down the roadways. We've done testing. The list goes on and on, and it's -- from my perspective as the CEO, I'm pretty proud of the work that we've done. The government's come in and done their inspections as well, looked at some of the things that we've done and they've been very impressed with the work that our GMs and then our COO has accomplished within Mexico.
On a cost perspective, it's not really a whole bunch of money and it's -- when you're supplying masks and antibacterial solutions and protective gear and all the different things, medicines and so on, it doesn't add up to a whole bunch. I think we've spent probably about $600,000 in the quarter for extra medical costs and related items. So it's not really a material issue at all. The production -- the loss of production is very -- the more material item. Does that answer your questions.
Heiko Ihle -- H.C. Wainwright & Co -- Analyst
And then -- it does. Yes. And then just with the HIG mill at San Dimas, I mean it seems to be everything arrived as planned, but your plan is to leave it there until next year. Just thinking out loud, if we were to have another shutdown, which I don't expect, but just if we do, could you install the equipment, then is there any other potential ways, areas, roads, that it could be installed soon or should we just simply expect it sitting there until 2021?
Keith Neumeyer -- President & Chief Executive Officer
It's not a matter of sitting there. You've seen the Santa Elena installation or at least photographs of the installation and it's a very complex process. There is a lots of plumbing and lots of stuff that goes on. It's not just a matter of erecting the HIG mill and expecting it to operate, there's a bunch of things that have to happen. And all those crews, construction crews, the contractors that were doing all of that work had to leave site, so all that work stopped. So now, the equipment did arrive but we had 150 ton crane arrive during COVID, we had another 50 ton crane arrived. We had the HIG arrived. We had all the ancillary motors and equipment. We had trucks and trucks and trucks of equipment arrive over the last 60 days on site. So all that has been happening quite nicely. Crews coming back is another issue and that's that's what takes time. So we have to get the crews back mobilized and start putting foundations in place and start the plumbing and everything else to erect this piece of equipment, which is quite large and get it running again. So we are getting a running period. So we're only really delayed about three or four months in the entire process.
Heiko Ihle -- H.C. Wainwright & Co -- Analyst
Excellent. That's it from me. Thank you guys very much. And very good quarter. Congratulations yet again.
Keith Neumeyer -- President & Chief Executive Officer
Okay. Thanks, Heiko.
Operator
[Operator Instructions] Our next question comes from Craig Hutchison of TD Bank. Please go ahead.
Craig Hutchison -- TD Securities -- Analyst
Hi guys. Good morning. Just in terms of the costs for Q2, will you guys account for all the COVID related costs in your C1 cost structure or will there be some additional costs. So you sort of, you strip out of your C1 cash costs when you guys report your financials?
Keith Neumeyer -- President & Chief Executive Officer
I'll pass it to Ray Polman, our CFO, who is sitting beside me.
Raymond Polman -- Chief Financial Officer
Yes. The costs are not material, but they are rolled into the cash costs. They are the cost of the operation. We have the mining costs, the milling costs and the overhead costs. So it's spread across those areas as it's applicable to each area. And yes, you're right, it is -- it's factored into our forecast and our projections going in for the second half of the year.
Craig Hutchison -- TD Securities -- Analyst
Okay. In terms of your capital budget, your updated one, I believe you've reduced the capital for automation efficiency projects, the $29 [Phonetic] million and previously it was $47 million. Can you just provide some context in terms of what the delta is there? Is it related to the HIG mill at San Dimas etc? Or is that that something else?
Keith Neumeyer -- President & Chief Executive Officer
It's just a delay. It's all of that money is still going to get spent. It's just a matter of pushing it into 2021. So you've got Ermitano in there. You've got all the construction, the transportation of the ore system. There's a lot of work that's going in Ermitano, but of course, San Dimas as well. So those are the two big projects.
Craig Hutchison -- TD Securities -- Analyst
Okay. And then just my last question is on, in terms of grades at San Dimas are quite good in Q2. Can we expect similar grades through Q3 and Q4?
Keith Neumeyer -- President & Chief Executive Officer
Yes. Very similar grades, yes. The Tayoltita mine is coming online as well. That's the first time we've been -- we spent over a year, putting that or rehabilitating the rail system and still another I think about two kilometers to go. I think we've developed about three kilometers already, and we're pulling about I think 300 tonnes a day out of that old Silver Mine that was really the beginning of this mine dating back over a couple of hundred years. So we're pretty excited about getting that old operation back up and running, and over the next year or two it's going to start supply more ore to the mill.
Craig Hutchison -- TD Securities -- Analyst
Perfect. Thanks for taking my questions.
Keith Neumeyer -- President & Chief Executive Officer
Okay.
Operator
Our next question comes from William Cruise [Phonetic] of Neil Advisor Professional Services. Please go ahead.
William Cruise -- Neil Advisor Professional Services -- Analyst
Hi, Keith. How are you doing? Regards from [Indecipherable] and regards from Joseph as well. My question is related to the government. Have you guys had any interaction with the government to see if their policies would change or will be adjusted in the future depending on how this global crisis impacts Mexico and different centers?
Keith Neumeyer -- President & Chief Executive Officer
Nice hearing from you Willy. I didn't quite understand the question. When you say, are we expecting change from the government. What are you referring to?
William Cruise -- Neil Advisor Professional Services -- Analyst
Yes. It's like America is right now, I mean, the numbers, may be accurate maybe not. So we don't know, one day everything looks fine but next day everything looks very terrible. So I don't know if the government has given you guys in the mining industry assurances that things will stay the way they are that you guys will not be interrupted or is it just one day after the next, the government may change their policies that may lock you -- shut you down in one or two months or have they already established a policy that mining will continue operating business as usual in Mexico?
Keith Neumeyer -- President & Chief Executive Officer
Well, governments are unpredictable. So I'd hate to say anything that would be certainly in any way, but the government of Mexico has deemed mining essential. So it's allowed all the mines to restart. We've had -- we've been lucky. We've had very limited cases of any issues. We've locked down the communities. We're working very closely with the communities to prevent any spread of the virus and it's been working out quite well. So if things change, I can't predict that, but we're not anticipating any change from the status of mining in Mexico that was announced back in May, 23rd, I believe it was.
Raymond Polman -- Chief Financial Officer
Yes.
William Cruise -- Neil Advisor Professional Services -- Analyst
Okay. Thank you very much. That's fine for me.
Keith Neumeyer -- President & Chief Executive Officer
Okay. Thanks, Willy.
Operator
Our next question comes from Jake Sekelsky of ROTH Capital Partners. Please go ahead.
Jacob Sekelsky -- ROTH Capital Partners -- Analyst
Hey, guys. Thanks for taking my questions and congrats on the quarter. Just from a high level, can you just speak a bit to the million or so ounces in inventory at quarter end. And just kind of the thinking around the timing of selling that down. If you haven't already sold a significant portion of it?
Keith Neumeyer -- President & Chief Executive Officer
Yes. It's not the first time we've done that. We've -- when we've seen volatility like that in the past, I have made the decision to hold back ounces and this time around when silver did what it did back in March, it was pretty shocking. So we decided just to stop the sales of the metal and we started to resume sales in mid June, and we brought the inventories down to the -- around the 9.70 [Phonetic] level, which is in the news release and we've now pretty well liquidated that entire amount now at these current prices. So it was a great decision on our part. I don't know exactly what the math is on it, but you can probably -- maybe when $4 or $5 times 1 million ounces or whatever the number is, it's a substantial amount of revenue that comes to us versus going to the hands of the banks who are manipulating this market.
Jacob Sekelsky -- ROTH Capital Partners -- Analyst
Got it. Okay. That's helpful. Well done on staying nimble on that front. That's all from me.
Keith Neumeyer -- President & Chief Executive Officer
Okay, great. And that said, I think so, thanks very much for everyone's time today. If you have additional questions or comments, please contact Todd Anthony or Mark or others. I'm being waved down here. We're good. Okay.
Raymond Polman -- Chief Financial Officer
Thanks very much everyone. Have a great day.
Operator
[Operator Closing Remarks]
Duration: 20 minutes
Call participants:
Keith Neumeyer -- President & Chief Executive Officer
Connie Lillico -- Corporate Secretary
Raymond Polman -- Chief Financial Officer
Heiko Ihle -- H.C. Wainwright & Co -- Analyst
Craig Hutchison -- TD Securities -- Analyst
William Cruise -- Neil Advisor Professional Services -- Analyst
Jacob Sekelsky -- ROTH Capital Partners -- Analyst
