First Majestic Silver Corp (AG) 2014 Q3 法說會逐字稿

At this time I would like to turn the conference over to Keith Neumayer, President and CEO of First Majestic Silver. Please go ahead.

Thank you and welcome to all of you who decided to join us this morning. As many of you know, we don't normally have quarterly conference calls. We generally do two calls a year, a midyear one and a one to cover the year-end results. But due to the current market activities and the amount of emails and questions we are getting about the Company, I decided that we would have this conference call.

So on the call -- I am actually in Switzerland right now. In Vancouver we have Ray Polman, our CFO, on the line. We've also got from Durango, Salvador Garcia, our chief operating officer. We also have in Vancouver Todd Anthony, our vice president of investor relations, and with Ms. Lillico, our corporate secretary, who is also in Vancouver. I'm just going to pass the call quickly over to Connie just to talk about our disclaimer. Go ahead, Connie.

Thanks, Keith. Prior to us beginning today I will 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 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 statement 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 fluctuations in precious metal prices; unpredictable results of exploration activities; uncertainties inherent in the estimation of mineral 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 and the jurisdictions where the Company operates; lack of appropriate funding; and other risk factors as discussed in the Company's filings with the Canadian securities regulatory agencies. Resources and production goals and forecast 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.

Okay, well, thanks, Connie. I'm not going to really go over the whole news release. I'm sure most of you have read it already and then if you haven't, you are welcome to ask questions at the end of this -- my presentation. But Q3 was not a particularly good quarter. We had a number of things occurring which we tried to outline in the news release as best we could. We hope we covered it clearly.

I'm just going to cover a couple of highlights. We did lose about 400,000 ounces of production in Q3, unfortunately, due to weather problems,. We had a lightning strike at Del Toro which took out to generators, which caused a reduction of production there for a period of three weeks. We had a hurricane off the west coast of Mexico in the Pacific Ocean that brought in a very severe rain to San Martin and we also had a very heavy rain off the Gulf of Mexico, where La Encantada is very close to and it was also affected by heavy rains.

Just to explain what happens in the type of environment, it doesn't happen every year. It seems every 2 to 3 years there is a major storm in this part of the world. But the ore gets extremely wet and it clogs up the pipes and it really slows down production. It just causes a lot of problems in the mill. So that happened at three of our operations. Fortunately we do have five mines, but three were affected by weather in the third quarter.

We also did another round out layoffs. As we have made quite clear to our shareholders or at least I hope we have made it clear to our shareholders that we have been looking to reduce costs as best as we can. We were at a peak of 4900 employees back in January of 2013 and where we have done four cuts now and we did another cut in August of 300 workers, which cost us $800,000 in severance, which obviously goes right to our costs. It is a one-time expense, obviously, but it is still does impact our cost in that quarter. That won't one would probably affect us going forward. We also did have the change of mine plans, as all mining companies are doing. We are not in the days anymore where we [have put in] all our silver and we can afford to mine 100 grams per tonne silver. I wish we could but we really need to watch our head grades and we need to keep our head grades up as much as possible. That is causing us to change some of our mining methods and the two mines that are being mostly affected are the La Encantada and the Guitarra mines. So they did have higher costs in the quarter and you will see going forward that the grades will be more consistent or hopefully they will be more consistent and things will be improving there.

Also I think shareholders should be aware -- or investors should be aware that Q3 was really the last quarter of our spend. We have been expanding quite quickly and as many of you know, First Majestic has been in a high-growth phase for the last three years and we have been growing quite rapidly and spending quite a lot of money on expansions. When the metal price started to fall dramatically, we had to change the business quite a lot. And it took time to do that and we are still working on efficiencies and still working on improving the ways we do things. But Q3 was the last quarter that we had a big capital expenditure about the hookup of Del Toro to the power lines, which will help us obviously in Q4.

Another thing that shareholders and investors should be aware of is going back to Q2 it looked to us that the metal price was going to hold in the $20 to $21 range and we are learning to work in that environment and we are profitable in that environment. And we weren't expecting to see silver at $16 an ounce. And now that it is there, we have to do further cuts and then further changes to the business to bring our cost in line with the current now prices and it does take time. It doesn't happen overnight and there is a delay. Then you will see our costs improving over the next couple of quarters and our focus is very much on improving -- or in producing profitable ounces.

Some of the things to look forward to in Q4 the Del Toro power line, obviously, as most of you probably know, was hooked up on September 29. I'm not going to give you any numbers right now but I can tell you that site is having a very nice impact on our costs, Del Toro, as expected so we are looking for some nice cost reductions at Del Toro in Q4 and going forward.

We also, as we said in our news release, we signed a new contract for cyanide in September -- in August of this year. We received delivery through September. We are still using some of the older, higher-cost inventory, so we are blending right now and as of Q1 of 2015 we will be using 100% of the lower-cost product. So you will continue to see cost improvements in Q4 to Q1. Also we are looking -- the staff, as I mentioned earlier, will affect us in Q4 and we hope to see higher production in Q4 as well. In Q4, we will see more capital being invested in Q4. I guess [the other thing] is not coming to an end as I mentioned in Q3.

Some things in 2015, as everyone knows we put out our guidance for 2015 in January. We will do that again with some details. But just on a very high level look at 2015, again the focus is producing profitable ounces at current metal prices. And we think we can get this and feel pretty confident that you will be witnessing that over the next couple of quarters.

A couple of areas, lower development costs, which we are witnessing. We saw development cost getting up to a peak of $1800 a tonne. We are expecting those development costs to be down to $1100 a tonne for 2015. We have continued chemical cost reduction with the reduction in oil price, also very much lower capital investments in 2015. We will likely be looking at [stop] cuts. I'm not sure how many [controllers] our investors know, but we did put SAP in place in January 2013. We did install the warehouse module and the maintenance module in 2014, installing the human resources module as of January 1, 2015.

That is going to allow us get deep into our staffing and allow us to make further cuts than we have made been previously. That's an area of focus of ours. In other areas, it's contractors. As many people know, the mining industry uses or tends to use outside contractors for some of the specific types of work it does. We are trying to bring as much of that work in-house and we are finding over the last couple of quarters by doing that that's actually -- it is very much assisting us. That is really a big focus of ours and will continue to be a big focus of ours over the next couple of quarters. So we do expect that will assist us and reducing our costs as well going forward. So that is really good.

So if you do -- if anyone has questions, please queue up and we will be happy to answer any questions.

(Operator Instructions) Mike Parkin, Desjardins.

Just a couple of questions. You mentioned that your cyanide costs have come down quite a bit. Can you give us a sense of like what percent of your overall operating costs are cyanide? And also with diesel prices coming off substantially I was wondering if get a sense of what your percent costs were budgeted for 2014 related to the diesel price?

Yes, Mike, I'm probably going to pass this over to Ray but just a couple of high-level comments. The diesel in Mexico or oil and gas or diesel gasoline in Mexico, it doesn't follow exactly the world prices. There is a delay. It is a fixed rate that is controlled by the government. So the government has been reducing their subsidies -- or pardon me, reducing their subsidy, which is increasing the price of diesel in Mexico for the last couple of years. And that we are expecting will stop, which is one good thing. But to see a nice reduction is another thing altogether. I think that a lot of the inputs that we use are energy-related. I think other than diesel itself, I think there will be other inputs that are affected by oil prices.

And going to cyanide, cyanide itself, depending on the operation, is not a huge contributor to total cost but the actual reduction in cyanide from August to October is 25%. So it does add up. We are looking at every single line item of our cost structure and if we can save a penny here or a penny there it makes a difference. And these are the kinds of cost measures that will help us get our cost in line. Ray, do you have any other comments?

No just to add to that, Keith, that cyanide I think is roughly -- in the fourth quarter we expect to be somewhere around 20% reduction and of the total cost that is about 4% of the total production cost.

All right, thanks, guys.

Thanks, Mike. I see there is not a lot of other people queuing up. I hope there is more questions than just a couple.

Henk Krasenberg, European Gold Centre.

-- Thinking about your decision to suspend silver sales and when that decision came, I really thought that was a sign of entrepreneurial ship. However, with the markets as they went, that decision may not be applauded by some. But that is easy in hindsight. Now you said that you will sell those 900 -- close to 1 million ounces of silver before year end. Is that a fact or is there a possibility that you carry that into the new year in anticipation of probably higher prices?

Thanks, Henk, for the question. One thing I think was important to note here is that we always [time fill.] It is not unusual. Every sale that we make, we are trying to take advantage of spikes in the metal price. We are running a business and our job is to produce metal and sell the metal and we have shareholders around the world that expect that we make a profit. We are measured by our profits, ultimately. One day we hope to pay a dividend as well and obviously that requires profit.

But in these times of distress and the market where the metals drop 19% in one quarter, I think it is prudent to hold back production. We did it then and we have done it before and we will do it again in the future. But predicting when these occurrences happen is difficult to measure or to predict. I would love to see silver and platinum go higher than it is today and we don't have to have this conversation, but we are in a very distressed time and a very distressed market.

The margins right now are quite thin. You know, at $16 silver, the Company is not making an enormous amount of money either. So ultimately we have to protect our shareholders, we have to protect our employees, we have to protect our assets, and we have to protect the Company. So that is the number one job of management and that is a priority over anything else. So we will do the best we can when it comes to production, but we have got other things to protect as well.

Okay back to your answer in your -- on probably your website because you sound like you are talking in a bucket. But of course I am on the other side of the world. I will catch your answer later.

Scott Morrison, Dundee Capital Markets.

I guess just looking forward to early next year and I guess later this year when you are doing your reserve updates, do you have a silver price in mind for the reserve pricing?

Scott, that determination has not come through yet or we haven't made that determination yet. A month ago I could have told you the number quite clearly and I would have given you an answer, but based on the market activity over the last couple of weeks we may have to check if we should change the price from what we decided a couple of weeks ago. So I just don't want to throw out a number right now because we haven't decided internally what that number is going to be.

Okay, and then moving on to costs, have you guys sat down with any of the labor unions and have you guys been able to make any progress potentially lowering costs with those contracts?

I don't want to get into specifics on that either but I can tell you that there are some discussions going on internally on that exact topic. We do have some plans that we are working on in order to address that [issue]. But I just don't want to get into specifics right now on that.

Okay. And then lastly, on development, how far ahead are you in terms of months are you for most of your mines right now?

The mandate is to get the -- all mines down to 3 tonnes. We have a couple of mines that are currently over that and those mines are getting less investment and development right now. But we feel that we can run efficiently at three months ahead for each mine.

All right, and that is it for me. Thanks for taking my questions.

(Operator Instructions) [Jim Bellen], [Abdul Merman Asset Management].

There appears to be a huge disconnect between the physical market and the paper market. You read stories saying that the US Mint is all sold out of Silver Eagles and yet the paper market, the price keeps on going down. Do you see anything in the near term that could cause that to change?

Wow, we could write a book on that I think. But I think it is quite clear what is happening or at least in my mind it is quite clear what is happening. You have got a very concentrated trade going on, where you've got most of the large funds around the world on one side of the trade. That trade is basically buy the US dollar, buy US real estate, buy the US stock market and they have been doing quite well doing that. That has been a great trade. And the dollar is up, the S&P is up, real estate price in the United States are up. The funds that have traded -- have been on the trade for the last few years have done exceedingly well and made a gazillion dollars doing it.

When is that trade going to end? Well, I don't know when the trade is going to end. Is it going to be the collapse of Alibaba or is it going to be some kind of catastrophic event? I don't know. I look at this market very similar to the 2000 to 2002, when that massive bubble cracked. The [north] sector in 1998 completely disintegrated. It was a pretty difficult sector, similar to what it is today except even today it is even more negative. At least back from 1998 to 2002 you could still (inaudible). It was tough, but you could still kind of manage. Today it's just so much negativism around the growth sector it is ridiculous.

Nevertheless, it is almost identical situation where you have got a segment of the market doing extremely well and many other segments including the resource segment not doing well at all. So it is going to take some ascent in the curves and institutions around the world like they did in 2002 will wake up and say we need to own real assets and the stuff that we have been buying and owning is just a bunch of fluffy business plans that really have no real value to them and we need to be buying other stock. That will happen and the trade will swing and then all of the sudden people will be looking for (technical difficulty) 2014, 2015 and say, geez, I wish I was buying -- investing at $5 or $6 and they are going to miss the train.

But it takes a lot of guts to buy at the bottom of anything and I am absolutely certain that we are very close to the bottom. I think there is a lot of tax loss selling going on as well that is affecting the equities and I think there is a bunch of unwinding that is going on in the precious metal sector as well, which is also adding to some of the volatility. But I think over the next couple of months I think we will see an end to it. I could -- I would be loathe to bet $1000 but this time next year we will see much higher metal prices than they currently are trading.

Do think there is a risk that that some of the metal exchanges could actually run out of the metal?

Well, you know, the problem is maybe Todd knows the stat, I think he's on the line with us. But I think something like 1% or 2% or 3% of contracts -- metal contracts actually get sold to delivery. So you have got a market where you have got 1 billion ounces of silver trading in paper a day and you've only got 800 million ounces of silver supply that's physical product from mining companies on an annual basis. So the leverage is like 400 to 1. So it is just ridiculous.

Thank you.

You know it is very -- I wish the regulators -- well it's probably not going to happen because the regulators are run by the banks, but the regulators really need to step in and force the exchanges to use a reasonable leverage.

I agree with you and it is just -- to me it is very disturbing that when you see like reports that one seller is selling and this is gold 400 tonnes of gold in one trade. That is not a seller who is out to get the best price for his gold.

Right, right. No, it is concentrated selling purposefully to knock down the market. All of these guys get together and they play these games and the regulators stand aside and let them do it and that's the market we are in. And one day they will be on the other side. But right now they are on the side that games the price. When this all turns around, they will be on the other side. And they will be pushing that. At least I am pretty confident they will be pushing the prices in the future like they are suppressing the prices today.

Thank you very much.

Graeme Jennings, Cormark Securities.

Just have a question a couple of questions first around Del Toro or just overall all-in costs. Last quarter we got in around just under $20. And the real outlier here I see is basically Del Toro at around $25. La Encantada obviously was a bit higher and we know the reasons for that, La Parilla came in quite nicely but Del Toro -- the question is can we get those costs down to reasonable level? I know there's power lines come in but what -- what is your goal for all-in costs, say, for next year for Del Toro?

Well, we haven't put guidance out, Graeme, for 2015, but we know that issue obviously. There is optimization that is required. Del Toro had some specific issues in Q3. So I don't really think you can use Q3 as a guidance going forward. Costs at Del Toro have been gradually increasing as a result of all of the changes that were made. But you have to remember that we made a number of changes at the mill as a result of us changing the whole process there from running two circuits separately versus running everything through flotation.

Then in the third quarter we decided to put the two ball mills in series versus being in parallel and changing the plumbing. Then we had the lightning strike and we also had some lower grade, and so there is a series of events that happened at Del Toro and Q3. It was like a perfect storm almost.

So I really think it would be extremely unfair to use Q3 as a go-forward measurement. I would suggest and ask you at the same time to wait for Q4 and I think Q4 will be better guideline of what we can see going forward. Also as a result is some of the things we are doing on the ground at Del Toro, in Q4 what we'll probably be more equipped to answer some of those questions as well.

So if you're on track this year for say 16 million of sustaining at Del Toro do you know if that is a -- would that be a good go-ahead number just on that business of sustaining for next year or again do you just want me to wait for Q4?

You mean averaging 2014 out?

Yes. Like -- yes, I think 2014 is somewhere around 16 million.

No, I still think that is high, I think that that -- Del Toro is a new mine. It is like any new mine. There's lots of stuff that we need to do there and not completing the investment, not completing all of the underground developments, not putting the shop in place, not finishing the grinding and crushing area, that was the decision to be made. I think it was the right decision to save $30 million by doing that.

But it kind of stopped us in the tracks at the same time and that required us to have to make some changes to the whole go-forward plan at Del Toro. That has really taken us time to do it. So I think, as I said, you need to look at Q4 and use that as a basis going forward. We know the environment and we are not in the business of producing unprofitable ounces. So we will be producing profitable ounces even at Del Toro.

And then at La Parilla we saw a little jump up in development capital. Is there -- is that expected to be repeated? Is there -- are you looking to spend a bit more money there with the success you've had?

Well, we are just doing 2015 budgeting now. Ray, do you know --? I actually don't know -- I didn't know that there was a bump up in that. Can you answer that question?

I think what we are looking at is a little bit more of an adjustment and mining equipment at the time and mining equipment tends to be a bit lumpy up and down. So I don't think that is something that will be continued. But you'll probably see that showing up in the third quarter.

Great. And then finally at San Martin, we saw some great grades there. Once again, I know I may be asking this quarterly. Can we see -- do you expect these grades to hold on going forward?

San Martin is having a great couple of months and we are expecting that to continue. It had record quarter in Q3 and we are expecting it to have a record quarter in Q4. The whole area that we developed is -- this discovery was made in 2009 and we came finally came out to report in 2012 the 43-101, which gave 10 years of reserves in this new area, the [Letola] area. We just got it in production this year. It is only running at 100% in the last quarter. So this area is much higher grade and we are going to expect that going forward for the next several years.

Okay, great. Thanks, guys.

[Andy Schopick], private investor.

Thanks, good morning. Keith, I think you correctly observed and commented that some of the pressure we are seeing on these mining stocks is related to tax loss selling unfortunately that particular pressure may continue for another several weeks independent of the trend in any metals prices. Wondering if you care to comment at the time, give us any update on the stock buyback authorization that is in place. And, as you said, it takes a lot of guts to buy low and I just wonder how you feel about the whole stock buyback program and your intentions going forward.

Thanks, Andy. Well, I wish I had $250 million in the bank because if we did I can tell you that we would be way more aggressive buying stock back. But these are precarious times and the margins are skinny and profits aren't great. Treasury is really the most important thing in our business and we have really got to look at our treasury, we've got to watch our treasury, we've got to really start seeing treasury growth.

You know, we just come after three years of very substantial investments and even though we have been profitable over most of the quarter except for this last quarter we still have been burning cash even though it had been profitable over that period. And that is just a result of our investment in expansion. So I am in big favor of buying back stock. We did buy back some stock in Q3. I think maybe Todd or Ray can throw that number out. I think it was around 30,000 or 40,000 shares.

We have been on the bid over the last couple of weeks. I think that we bought something in the order of 30,000 shares in the last few weeks. We still have got bids in the system right now under the current. We will buy stock if the stock is under further pressure. But it is a fine line when we -- I want to buy stock. I want to buy more stock, but at the same time we really need to see treasury grow. I want to see the bank account higher at the end of this year than it is currently at. And it is a bit of a juggling act.

Understood, and I agree with your response. Thanks, Keith.

(Operator Instructions) Howard Flinker, Flinker & Co.

Do you hear of any lead zinc silver mines and a copper silver mines in Mexico planning to shut?

No, not yet. I think there's one shut -- maybe Todd knows better than I do. But I think it is a silver mine that shut down a little while ago, about year ago. A Peruvian private mine to shut down last week, a silver mine, a privately owned silver mine shut down.

Peruvian, you say?

I haven't heard any -- there is a privately owned silver mine in Peru that just got shut down last week.

Okay. And it will happen. They don't have endless money and someone will have to shut.

Second as to regulators, if you are asking them to intrude now, they will impede you on the way up. Keep them out. They will hinder you more on the way up than they will hurt by abstaining now. We know regulators once they are in office find a reason to exercise their power and that can only hurt you on the way up. Even though we would like them to somehow to put a floor under the market, the expense on the way up would be much greater than any saving now. So that was my comment about regulators.

Specifically what are you referring to, Howard?

Well, you said if the regulators would get in and somehow change the rules between trading paper silver and physical silver, if they take actions now you can be sure they will take actions that will be painful -- not painful, expensive on the way up. Just keep them out, don't encourage them to come. That is my comment.

I learned a long time ago we can't rely on government. We have to run our own business and we are alert to run the business in different environments and unfortunately as first suggested, we are a very nimble company and it sometimes painful to make changes. We are a very capable group of people and we can make the changes when necessary.

At these prices, that market will take care of itself, demand will rise and one way or another supply will shrink.

Yes. Well, thanks, Howard, appreciate it.

Sure.

Larry Carnell, Carnell Enterprises.

Hey, Keith, got a question. Are you giving any thought to maybe selling your zinc forward?

I haven't heard your voice for so long, Larry. Where have you been?

Well, I tried to communicate but you know what? Putting out fires with gasoline there, Keith, it ain't that great. So do you think about selling any of the zinc forward?

We have got 40% of the zinc sold at $1.02 I believe. We could (technical difficulty) more. The zinc fundamentals actually are looking quite good. You've got over 10% of supply of zinc coming offline in 2015. You've got 300,000 tonnes of zinc coming off out of Ireland in July. You've got 800,000 tonnes, the largest zinc mine in the world in Australia coming offline in November of next year.

And that -- even though there is a surplus of zinc concentrate on the market right now. For sure there is. But 2016 looks really exciting for zinc. We are forward sold on 40%, Ray could correct me if I'm wrong but I think out until the middle of 2017. We are at $1.02, I believe.

All right. I agree with you on the zinc part of it, okay, but at some point selling the zinc might be a way to generate more money to buy shares back, because there is probably nothing cheaper than your share price at this point.

Yes. But, you know, you read the same stuff I read. You see that Wall Street (technical difficulty) they have been -- I forget -- I read the just a couple of weeks ago I think they spent $35 billion in the last three years or something buying back stock. And of course it is money but they have got this huge debt on their back that now they have got to contend with. And I am not sure -- I know it is a hedge and it is not a true -- it is not truly falling money. You have got a metal product against it, but you still got a negative liability under balance sheet and I'm not sure if that is the right thing (multiple speakers).

Well, I would never take you to take debt to buy the stock back, that is for sure. And you're absolutely right. I think at some point in the correction in the big market, okay, these people are going to be pretty tired that they bought their stock back. So, all right, just a thought again. You know what and we have been through this long enough there, Keith, and you take it day by day and the market will take care of itself. So thank you for your time.

Well, we hope so. And thanks, Larry.

Thanks, bye-bye.

(Operator Instructions) [Curt Beeler], private investor.

If I heard you correctly you had -- when silver prices were at a higher level you had a price for write-down of your reserves. So I would like to know what that number is.

It is not -- well, maybe Ray wants to jump in on this one. But every year and this happens in all mining companies and actually oil and gas as well. Your reserve and resource value is a certain amount and it's based on the -- you know, it is a judgment call. You price -- you price your ounces at [$24], which we did last year and you come up with a value and that value goes on your balance sheet and then you depreciate from that (inaudible) going forward against your profits and that follows you. You've got to do the same thing every year and that number changes over time. It can go both ways, it can go up and it can go down. Ray, do you have a comment?

Well the comment I would add, Keith, is every year we do look at the carrying value of our assets and we determine based on the life of the assets, which is a product of the ongoing repricing of the reserves and resources and we need to decide what we can sustain going forward.

So it is a forward-looking calculation based on what the general consensus is on silver prices. But at the end of every year we do need to do a review of that carrying value of each of the assets and to reprice them. And as you mentioned before, it is a bit of an art right now, we haven't come up with what that price will be on a go-forward basis but we will be and the months to come before we approach the end of the year.

Okay and the second question is, if in fact prices of silver stayed where they currently are, have you thought about how you would handle that? Would you shut down a mine like Del Toro?

No, these mines have been operating for generations and even though Del Toro is a [good] mine and it does have higher cost associated with it [as we are going] back, they can be wound down substantially and then --. We put this Company together back in 2003, 2004 when silver prices were $6.00 and we were profitable when silver was $10. And God forbid if we see those prices again.

But shareholders and investors need to know that there is nothing that affects costs more need to know that there is nothing that affects cost more than price. As the price of a metal goes up, costs go up. As the price of metal goes down, cost go down. But there is a delay. The price of the metals has been dropping rapidly that it is difficult for companies, mining companies to cut their cost as quickly as the price has been dropping. It does happen. Some companies are more nimble than others. And that is where investors need to make that call.

Some companies can have more contractors and have -- or have long-term contracts with external groups that are less able to cut costs quickly and that is where investors need to make that call. Some companies can have more contractors and have long-term contracts with external groups that are less able to cut cost quickly. Other companies like First Majestic have most of the talent in-house, where we can change the way we do things and lay people off or suspend some certain types of investments or slow things down that other companies can't do because they are bound by contracts. So, yes, costs will come down and if we are stuck at $16 silver for the next one or two years we can be profitable at that price. But it just takes time to get there and we will be producing profitable ounces at these prices.

Okay. Thank you very much for your answers.

[Raghu Gorham], private investor.

My question is related to silver demand in solar panel applications. We read in very -- figures like anywhere from 50 million ounces to 100 million ounces for the next year demand aspect. My question is, can you comment on that? And also if it were true 100 million ounces of demand where the silver is going to come from? Because we see mints running out of silver kinds.

They are producing anywhere conservatively worldwide around 120 million ounces. And just kinds, one ounce kinds. Now if we add that to silver demand in solar and altogether with silver is going to come to meet all of this demand. I want you to shed some light on that and anything related to demand. Thank you.

Todd, do want to tackle that one?

Sure. Yes, hi, Raghu, this is Todd Anthony. I believe the estimate there was a report from the GSMS survey that stated that it takes for every one megawatt of solar capacity to build it is approximately 3 million ounces of silver. So you could work the numbers, there is numbers out of China, how much they are projecting to build, there is projections out of India of the gigawatts that they are projecting to build. So the future growth for solar is still growing. I think the number that you stated, the 50 million ounces, was as of last year.

Yes, last year and for next year their position is for 100 million ounces demand in solar panel applications.

Yes, that number might -- it seems a little high to me, to be honest. But maybe in between last year and that estimate I think.

Okay. Now --.

I think the highest number that we have seen and maybe Todd can correct me, but I thought it was out of Barclays and it was 140 million ounces by 2016.

Yes, so we are directionally correct. Even if we had between 50 million to 100 million or thereabouts, where the silver is going to come to meet all of this demand. We don't have kinds now. The premiums have gone up everywhere. The percentage of premium for $15 silver, a $3 or $4 dollar premium is too much.

Yes.

So you go -- how you -- where is the silver coming going to come from there is no junk silver coming. Nobody is going to sell at this price. Or if anybody wants to sell, you they would have sold by now like $40, $30, $25. I don't think people are waiting to sell at $15 silver. I mean junk guys, they get even less price than the wholesale price.

So we need to understand what is your view --? There should be -- the visible demand is certainly more than what the mine could supply. Even a person like me to understand that. What do you think and what are your views?

Raghu, thanks for the question and it is one of these crazy situations where the paper is in disconnect with the physical. And I think there is lots of stuff around about this and I think everyone that follows the sector would agree with that. You have got the banks and the big trader trading the paper and they don't care if a mine in Mexico shuts down. They don't care if Sony needs to buy 20 million ounces of silver to produce television. They don't care.

They are just they are short a particular instruments and if it is silver and they are trying to make money and at some point they are going to give up and say, okay, well, we have made enough money and we are not going to cover our shorts. Then all of a sudden the price explodes and basically it is a (technical difficulty) situation because your physical supply outreaches the physical demand -- or pardon me, the physical demand outreaches the supply. We know this market is in a deficit right now. The numbers[determined] for 2013 was 105 million ounces short and that came out of investment boards and wherever it came from. And in 2014 we are likely going to be in another deficit as well particularly the fall in the metal prices. The demand has skyrocketed for physical metal.

I am a big believer in supply and demand, even though it's not working. But I think ultimately the supply/demand fundamentals of silver will outweigh what is going on in the paper markets and it will be -- overwhelm the paper markets. That is my thesis and I hope that is true for all of our shareholders and all of the (inaudible). I am pretty certain it is because I am a big believer in the financial market. So just give it some time and I don't know when it is going to happen, obviously. I don't have a crystal ball. But I think that you have just got to use these opportunities if possible to take (inaudible) for yourself. And it is hard to do when things are looking so ugly.

Okay, thank you.

(Operator Instructions) [Nicholas Detski], private investor.

I just have a quick question regarding a potential -- any potential share issuance that is coming up I'm just wondering if there has been any approaches by brokerages or even private investors -- not private investors but, say, asset management firms such as Sprott even at these prices just to raise some cash. I'm wondering what you guys feel about that. Just quickly my second question is regarding those ounces that you held back. In the press release it seems to implicate that you have sold those already. Can you comment on that? Thanks.

Okay, thanks, Nicholas. Look, the stock is pretty darn cheap right now and we haven't raised money since 2009. The stock was at $26 in 2011 and we didn't raise any money then. So I am not quite sure why we need to raise money at these prices. Anyways, whether we get approached or not I can't really comment on that. But I can tell you it would be very unlikely to be getting equity at these prices.

Regarding the sale of silver, we did take advantage of the spike in the first week of October. We held back some ounces at the end of the quarter. As we made quite clear, I think silver closed out at around $16.80 at the end of September on the spike up to $17.60. We were able to sell that inventory. I was hoping for higher prices. I was actually expecting to see silver get up in the $18, $18.50 range. But it failed quite miserably. And I got -- quite frankly I got a little bit nervous and I decided to liquidate that position, which we did.

It was the right thing to do. Within two days of the decision of liquidating that position, silver prices have dropped almost $1. So even though I hated selling the metal at those prices, I am not enjoying selling silver at $17.29, believe me. But we have a Company to protect and that is our first obligation. It turned out to be the right thing and we made a little bit of extra (technical difficulty) and as I said earlier from another question we take advantage of these spikes on a regular basis.

Thanks.

It appears to be the last call.

Yes, there are no more questions at this time. I will now hand back the call to you, Keith.

Great, thank you. Yes, thank you all for hanging on for the balance of the call and if any of you have further questions feel free to contact Todd Anthony at your convenience. He is available at any time to answer any of your further questions. So thank you very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.