Executives

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Connie Lillico – Corporate Secretary

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

Analysts

Chris Lichtenheldt – Dundee Capital Markets Inc., Research Division

David Forster – BofA Merrill Lynch, Research Division

Adam P. Graf – Cowen Securities LLC, Research Division

Chris Thompson – Raymond James Ltd., Research Division

Ovais Habib – Scotiabank Global Banking and Markets, Research Division

First Majestic Silver (AG) Q4 2013 Earnings Call February 26, 2014 2:00 PM ET

Operator

Hello, and thank you for standing by. This is the conference operator. Welcome to the First Majestic Silver Fourth Quarter 2013 and Year-End Earnings Conference Call. [Operator Instructions] And the conference is being recorded. After the presentation, there’ll be an opportunity to ask questions. [Operator Instructions] At this time, I’d like to turn the conference over to Keith Neumeyer, President and CEO of First Majestic Silver. Please go ahead.

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Thank you, and welcome, everyone. Before I say anything further, I’ll just introduce Connie Lillico to — our Corporate Secretary, to read the disclaimer.

Connie Lillico – Corporate Secretary

Thanks, Keith. Prior to us beginning today, I’ll read our disclaimer on 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 fluctuations in precious metal prices; unpredictable results of exploration activities; uncertainties 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 in the jurisdiction 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 forecasts may be based on data insufficient to support them, and the company expressly disclaims any obligation to update any forward-looking statements.

Back to you, Keith.

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Okay. Quite a mouthful. Thanks, Connie.

On the call today, we — in addition to Connie Lillico, we also have Ray Polman, our CFO, who is available for questions. We also have Martin Palacios, our CIO, who is also available. We also have Ramon Davila, our Chief Operating Officer; and Salvador Garcia, our VP of Operations, on the phone from Durango. Due to technical situations, they won’t be available for questions. And also Todd Anthony, our Manager of Investor Relations, is here.

I’m currently in Miami. I’m at the BMO Mining Conference scheduled today. I’d like to first apologize for having to delay today’s news release. We have disclosed that we’re going to put out the news release prior to the opening of the trading today. That decision was changed as a result of my meetings here in Florida. I didn’t want to have new numbers out while I was presenting because of our PowerPoint was obviously only covering Q3 and actually, well, Q2 and Q3. And the Q4 numbers were more relevant and that have forced me to change the PowerPoint, which obviously I wasn’t able to do on such short notice. So we then delayed the news release by 3 hours, and it’s now obviously out on the wires. I hope all of you have seen it.

Obviously, a great year. 2013, For those of you who don’t know, it was our 10th year anniversary. We celebrated that, and we actually became a Senior Silver Producer, breaking through the 10-million-ounce of pure silver mark, which is obviously quite the achievement. We now got our eyes to become a 20-million-ounce producer over the next 3 to 5 years. There’s some caveats in that number. Obviously, we need silver prices to probably improve and I don’t want to go back to the equity markets. So we haven’t raised money since September 2009, and I don’t really want to go back to the markets for any additional money for our growth.

I think our future growth can be built through cash flows as we’ve done in the past, at least, in the last 5 years. I’d like to continue that. So I won’t really cover too much on the news release. I think it’s pretty well self-explanatory. We’re over 10 million ounces, as I said.

So what I’ll do is open the call up right now. So for those of you who are on the line, if you wish to ask questions with management, please identify yourself, and we will prompt some of you as well. We can do that from our end. So please go ahead.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Chris Lichtenheldt of Dundee Capital Markets.

Chris Lichtenheldt – Dundee Capital Markets Inc., Research Division

Just a few questions, actually. First on Del Toro, in your guidance you talked about 2014 recoveries expected around 72%. And I know in the original technical studies, you had something just over 80% for the cyanidation circuit, I believe. Are you just being conservative or is there anything in there that is hindering the recovery level?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Well, it’s early days at Del Toro. So I think it’s more of a conservative approach than anything. Currently, the recoveries are even lower than that. The cyanidation circuit’s only really been running for a quarter. It was only deemed commercial on January 1. So there’s a lot of tweaking going on still at the mill. It’s probably not going to be optimal, I wouldn’t think, until the third or fourth quarter this year. So I would hope to see recoveries higher than that, but for guidance purposes, we decided to use that number.

Chris Lichtenheldt – Dundee Capital Markets Inc., Research Division

Okay. That’s great. And secondly, just moving to La Guitarra, I really appreciate the detailed guidance you guys gave on per ounce cost and sustaining an expansion in CapEx. And if we look at Guitarra, I think you have cash cost plus sustaining CapEx per ounce of nearly $20, and then a further $9 or so — sorry, $6 to $7 of expansionary CapEx. So obviously it doesn’t look like that mine would generate any free cash this year. Can you talk a little bit about the outlook as to when you would expect that to start generating noticeable free cash?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Yes. This is an old mine, and it’s been in production through 5 different owners for the last 5 years. And it’s going to take some time. We have to go in and basically rebuild the entire mine. It’s not a 1-year process, it’s a 3- to 5-year process. And I look at this asset similar to how I look at La Parrilla back in 2004 through 2006, when we were just ramping it up. And it takes time to do that, and that’s why the expansionary capital that’s showing up in our guidance is primarily development because it’s in desperate need of the development for proper mining techniques.

Chris Lichtenheldt – Dundee Capital Markets Inc., Research Division

Okay. So I guess, the plan is still to go to the 1,000 tonnes. Do you hope to submit that permit this year, I guess? And you’ll spend this and go ahead with everything even before the permit comes in, is that right? You’re still optimistic on the permit, I guess, is my question.

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

The permitting process hasn’t started yet. And in our PowerPoint presentation, I thought you’ve already been advised that we’re not going to be permitting La Guitarra this year. We’re going to actually postpone that until 2015, unless the environment changes. We can obviously change that view. But we’re going to leave it steady-state, but the development will continue at this pace for the next few years.

Chris Lichtenheldt – Dundee Capital Markets Inc., Research Division

Okay, sounds good. And then just lastly, just a quick housekeeping. I want to confirm. There’s going to be no tailings process at Encantada this year. You’re just doing the fresh ore?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

That’s right. That was suspended in January. So we’re just doing fresh ore now. The target is to hit 3,000 tonnes a day of fresh ore. So look for great improvement, look for recovering improvement. Cost per tonne, obviously, is affected, but the cost per ounce should remain relatively the same.

Operator

The next question comes from Dave Forster of Merrill Lynch.

David Forster – BofA Merrill Lynch, Research Division

Just building on that last question that Chris had there on La Encantada. Has that been factored into the 2014 La Encantada production guidance and cash cost? Or is that something that would, the fact that the tailings aren’t going to coming through, improve the production and lower the cash cost?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Of course, because this decision has been — was made almost a year ago, and we’ve been putting dissemination out along this line. The mix was always 50-50 or at least going back the last 5 years. Due to the current environment or when metal price environment change, we started to change that mix, and we went to 70% mine ore, 80% mine ore, now we’re at 100% mine ore. So we’ve — and that is included in the guidance and so.

David Forster – BofA Merrill Lynch, Research Division

And on La Guitarra, just talking about the permits coming in or being sought after in 2015. Once you do have the permits in hand, when — how soon would production come from that additional capacity?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Well, in our current disclosure, we’re saying 2017 is when production will kick in. It would be nice to do it earlier, but as I said, we — I look at 2014 as a cash accumulation year. We just finished 2 years of very aggressive spending, and millions of dollars have gone out the door to get us to where we are right now. We’ve obviously experienced dramatic growth over the last 2 years, and it’s very exciting obviously for us to see this growth. But we have to step back now, and we have to take a bit of a wait-and-see approach. Now what happened in 2013 just shocked everyone, and it wasn’t — it was a big surprise for us, and we had to move very quickly to start cutting our expenditures. And I didn’t want to shut down our 4 construction projects over that 2-year period. I wanted to keep those going. So we had to attack things like development and exploration and so on. But the San Martin spending is ending in the next few weeks after spending $14 million over the last couple of years there. The Del Toro spend ends in May this year after spending over $140 million there over that period of time. So I want to see treasury growth. It’s very important that I see treasury growth. And I want to leave this year with more cash in the bank than we have right now, it’s very critical. And when I have comfort on our cash position and we see some stability in the metal prices, then we’ll revisit some of these assets and start investing. But we’ve got 5 targets for investment to get us up to the 20-million-ounce target which we have over the next few years.

David Forster – BofA Merrill Lynch, Research Division

Okay. And also on La Guitarra, the impairment that was taken there at year end, was that all driven by a lower silver price assumption or are there any other factors that are at work?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Ray, you want to take that?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

Yes, thanks for the question, Dave. The answer is yes, that was primarily driven by silver prices and just working through the revised economics in the impairment models to take into consideration not only the current year, but the investment plans into the future and just doing a discounted cash flow to come up with a revised carrying value mostly for the change, the write-off of the goodwill at La Guitarra and a write-down of some of the exploration properties that came along with the acquisition of Silvermex.

David Forster – BofA Merrill Lynch, Research Division

Okay, okay. And if I can just ask one last question, this one on Del Toro. The cash costs were a little bit elevated this quarter and reading through the news release, it looked like it was power line delays, as well as additional smelting and refining cost. Of the $12.16 per ounce cash cost, can you break it down how much was related to the power line delays, and how much was related to the smelting and refining? And also, just a second part of that question. When would you expect the refining cost to improve? Do you have an idea there or are you already seeing improvements in January and February of this year?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Ray, you want to tackle that one or you like me to do it?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

Let me take a quick stab at it, Keith. What I would say is, if you’re looking at elevated cash cost at Del Toro, I would say perhaps 2/3 of that is related to the additional energy cost that we’re incurring by using a set of power plants and consuming diesel to get our source of power, and the other 1/3 would be related to additional penalties for impurities in the early stage ore that’s been running through the plant. You can add anything you’d like to that, Keith.

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Yes, I’m glad you brought up the impurities because this is early stages for this operation. As I said earlier in the call, it’s going to be a couple of quarters before we see this mill operating at optimal levels and we’ve — in particular, in the first few quarters, we were just using all the above-ground ore that we had mined over the last couple of years. And so the mine plan is — needs to be refined, the blending needs to be refined, the metallurgy needs to be refined. So there’s a number of things that have to go on over the next couple of quarters to really change the smelting cost and well, the whole cost structure. Just going back to the energy for one sec. Del Toro’s energy costs are about 30% of their total cost and as a result of the power line getting finally hooked up in, we’re hoping, June, that will reduce our energy cost by 50%. Although it’s a big input.

Operator

The next question comes from Adam Graf of Cowen Securities.

Adam P. Graf – Cowen Securities LLC, Research Division

Just a quick question, Keith, regarding the New Mexican royalties. Where are you guys accounting for the royalties in your guidance? Is it in the cash cost, are you guys calling it a tax and excluding it from the cash cost?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

The 0.5% is in the cash cost because that is technically a royalty. And hold on a second here. So what’s this, $0.12… is included? Okay, so $0.12 per ounce is included in the cash cost number. The actual 7.5% would not be included according to the World Gold Council which, for whatever reason, they say that taxes are not supposed to be part of your all-in sustaining cost. But yet, they put noncash items in there like stock-based compensation and accretion and amortization which quite obviously, I would take those out.

Adam P. Graf – Cowen Securities LLC, Research Division

Yes. I mean, personally, I would call it a royalty, but that’s just me. A question for you again regarding that. We heard some of your competitors in Mexico looking to switch to contract miners in order to try to increase the expense side and reduce that tax. Is there any opportunity there at your operations to try to reduce that 7.5% tax on EBITDA?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Well, I don’t want to get too cute. I think that I’ve obviously seen the same information that you’ve seen, and my view is that if too many companies start getting too cute, the government will just change laws. And it costs a lot of money to change your corporate structure. And I’m not really of the view that we should be spending millions of dollars to change our structure in Mexico in order to avoid the tax. This tax is effectively increasing us from 29% to about 34% on an effective basis. And we can live with that. Some of these costs will be pushed off to other people. We can push some of these costs away. We’ve reduced our payrolls in Mexico. We’re actually at 4,600 employees back in January of 2013, where we ended the year at 4,100 employees. And we’re looking for additional cuts. We hope to have that number reduced even further throughout this year. So we are — and it’s right across the board. It’s not just mining. It’s — all companies across the board are doing the same thing. So I personally think it’s backfiring on the Mexican government a little bit because corporations are laying off 5% to 10% of their entire workforce. And I think it will hurt Mexico more than it’s going to hurt us.

Adam P. Graf – Cowen Securities LLC, Research Division

And on a different note, you mentioned just a few minutes ago, you’ve got 5 targets for growth over the next several years. I’m assuming you’re talking about internal projects?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Yes, of course. I couldn’t talk about M&A activity through a forum like this. I’m including Plomosas, which will be a brand-new mine. It’s the next group of Mexico mine. Actually, a couple of our senior managers have actually worked at this mine when Grupo was operating it back in the ’80s. It’s very high-grade gold-silver mine. Quite a nice operation. I personally think that will probably be the next one that we’ll invest in. La Luz, again, an old mine, an old Spanish mine. 225 million ounces were produced there from 1750 to 1900. It’s in the state of San Luis de Potosi, so it’s somewhat more difficult to permit this one. But relatively eventually got it permitted. A nice thing about both of these assets is its ores are very clean ore. So it won’t be a lead or zinc concentrate, it will actually be most probably a doré bar. La Guitarra, we hope to expand that, bring in a cyanidation mill and basically pull those down, their current flotation facility that we’re currently using, and that would obviously double the size there. Del Toro, we can make the decision to build that shaft because currently, our guidance is to run Del Toro at only 2,500 tonnes a day, 25% of the capacity through the flotation circuit, which is 500, and 100% of capacity through the cyanidation circuit, which is 2,000. We could make the decision sometime in the future to build the shaft and then bring up the flotation circuit to its full capacity of 2,000 tonnes a day. La Encantada, we’re doing some interesting things there as well. We’re upgrading the entire crushing area right now to facilitate the growth or the future growth of the underground mine there. In La Parrilla we’ve got the underground rail system there, which we’re — the electrical system which is 1.4 kilometers, I think, if completed. That’s a 5,000 near underground transportation system to transport the ore to the mill. Once that is completed, we actually have originally hoped to have it done by the end of 2014, but it got caught in our cutbacks, and it won’t be now completed until the end of 2016. But when that is completed, we can then look at possibly expanding this operation once again. So there’s lots of places for growth in the company. It’s just a matter of comfort that we’re going to see some stability and some treasury growth.

Adam P. Graf – Cowen Securities LLC, Research Division

That’s great detail, Keith. You guys have any plans to release any scoping studies on any of those projects?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Oh, for sure, yes. Plomosas and La Luz both need — well, La Luz already has a 43-101, but it still needs additional work and additional drilling and so on. We have to update it before we make that investment. And Plomosas, we’ll also need a report as well before we make the investment.

Operator

The next question comes from Chris Thompson of Raymond James.

Chris Thompson – Raymond James Ltd., Research Division

A couple of quick questions, mainly on the ramp-up. What sort of ramp up can we expect, if you can break it down quarter-by-quarter as far as Del Toro and the leach circuit this year?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Ray, do you have that?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

With del Toro, I believe the ramp-up was coming up to 2,200 by the end of the year. And currently, I don’t know where we are as of today. But I would think that a lot of that will already be in place by the end of the first quarter. And I think we’re up to about 2,000 by the end of the second quarter. So the final 200 would be added in the third and fourth quarter.

Chris Thompson – Raymond James Ltd., Research Division

And as far as, I guess, La Encantada, the ramp-up there I guess in the mined ore, I have you at 3,000 tonnes a day. Is that right by the end of the year?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Yes, that’s correct. And we need to — we’re not quite there yet, but we will be there, much earlier than the end of the year. I think more like midyear.

Chris Thompson – Raymond James Ltd., Research Division

And then finally, just I know you guys have been putting off publishing some of the 43-101 reports. What I’m looking for, I guess, is one for Encantada and Parrilla. Any indication of timelines for those this year?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Well, La Encantada is going to be the first one. The 43-101 on that mine is probably our oldest and it’s really, I think, there’s a lot of drilling that’s gone on and there’s a lot of good news that we could really talk about around the reserves and resources with this mine. We really need to get the report out. AMEC has been on site now I think 4 times, 3 or 4 times. And they’re trying to do a cutoff of June 30. I’m not quite sure whether they’re going to make the June 30 cutoff, but it normally takes 2 to 3 months to get a report out after cutoff date. The next one would be most probably La Parrilla, and the one after that will be La Guitarra, but that one will be — and AMEC is doing that one and SRK in La Parrilla. But AMEC needs to finish La Encantada before they can get to La Guitarra.

Chris Thompson – Raymond James Ltd., Research Division

That’s probably key. So before the end of the year, Keith, you think, for La Encantada?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Yes, I sure hope so. I would say yes to that and then, hopefully, for La Parrilla as well.

Operator

The next question comes from Ovais Habib of Scotiabank.

Ovais Habib – Scotiabank Global Banking and Markets, Research Division

Most of my questions have been answered but just, Keith, in terms of — what kind of seller price are you looking for just in terms of internally to go ahead with the growth projects that you have in place and go ahead with the development that you planned for the future?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Well, it’s more than silver price. I’m just looking for stability. If you told me silver was going to be trading at $20 everyday for the next 5 years, we could build the business around that. And then, we make a profit on that and we could build additional mines with that. Because what happens is the biggest influence on cost is price. So our sustaining cash cost number is on its way down, and I think there’s room for it to go quite a lot lower. If we see $20 silver prices consistently for the next year, you’re going to see cost drop across the board. And we’re getting more résumés than we probably ever got in 5 years. We’ve got contractors looking for work. The whole system’s in distress right now, and prices are dropping. So I just want to see some stability, and then I want to see treasury growth. We ended the year last year at $105 million. We ended this past year at about $65 million. I want to see that treasury up around — back to the $100 million range before we start permitting some of these assets. And I think it’ll be — the question about silver price, I think that will more impact us, which — how many of these projects do we do at a time? Because we do 5 things that we could do with our investment over the next 2 to 5 years. So which ones we choose first will be — that’s a discussion that we do internally. Or do we do more than one at one time? Do we do a couple at a time?

Operator

We have a follow-up question from Chris Lichtenheldt of Dundee Markets.

Chris Lichtenheldt – Dundee Capital Markets Inc., Research Division

I just wanted to follow up on the treasury quickly. You mentioned a couple times about finishing the year higher. Just when we look at the guidance, I mean, if you add up all the dollars going out the door, it’s mid-17s per ounce and then some G&A out on that and taxes, obviously, and lease payments. It gets pretty close to the silver price. So I’m wondering, in order to add to treasury, what you’re sort of expecting or how to you accomplish that. And if prices do remain low, can some of that CapEx be cut out again here to try to achieve that? And then lastly, as part of that question, I think I noticed in the fourth quarter tables went up, so you might actually have some more outflows in that sense. So I just want to get a sense on how to achieve that.

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Well, Chris, you could at least ask me in separate questions. The — I just opened up our PowerPoint and the expansionary capital for 2014 is $45 million. The sustaining capital for 2014 is $61 million. So the expansionary capital there — of course, some more can be cut. And as things get really ugly, we’ll obviously start visiting some of those areas to look at further cutting. Some of these things also you don’t really want to cut because you could actually start affecting future productions. So it’s a bit of a juggling act. To have $100 million budget, $106 million budget for a company our size is a pretty darn lean budget as it is. It’s probably our lowest budget in something in the order of 5 years. So it took a lot of work to get here. But there’s always room and just hopefully, it doesn’t get to that point. We’re using $20 silver in our budgets, and I believe we’ll end the year at something like $50 million in cash. And if we see how our metal prices, obviously, that will change.

Chris Lichtenheldt – Dundee Capital Markets Inc., Research Division

And you’re not really expecting or are you expecting any payment from the lawsuit or is that not really a factor?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

No, no. We couldn’t budget for that anyway. It’s really not even worth commenting on. We are working through it, and we are optimistic that we’ll get more funds from that lawsuit. But the timing of that is questionable.

Operator

Our next question comes from Howard Flinker [ph] of Flinker & Co.

Unknown Analyst

I have a few questions. I wasn’t clear. Is that $39 million write-off all because of price or was there some Mexican tax in there?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Ray?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

The $39 million write-down is basically a technical thing created by the IFRS as interpretation of the royalty being a tax, and that’s due to timing differences on the assets of the company. This fictitious number of a deferred tax is created. There’s no cash impact to that $38 million, $39 million. It’s just something that’s created at a point in time. If the royalty number was increased or reduced, that number would increase or reduce into the future but it would amortize into the future through a reduction of deferred taxes in the balance sheet in the future. So it is not at all related to real taxes. It’s something that’s created in the theoretical accounting world.

Unknown Analyst

Don’t kid yourself. You’re not going to get that money down the road. The Mexican government will get it. That’s why it’s deferred. Not today but it’s down the road.

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

No, I think you’re misinterpreting what I’m saying. This is not related to what we’re actually going to be paying to the Mexican government in the future. It’s strictly a difference between the value of something which has no value for tax purposes and a value for book purposes, and it strictly has no impact on any taxes that we will be paying to the government of Mexico in the future.

Unknown Analyst

Okay. I came in late so I didn’t see the whole earnings release, which I’ll read momentarily. Do I calculate approximately that your D&A this year will be about $40 million? So that the cash on hand, $55 million plus D&A, would be $95 million and you’d have to earn a little money to pay for your CapEx?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

You’re talking about development and exploration?

Unknown Analyst

Depreciation and amortization.

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

I think it’s fair to say, it would remain roughly the same.

Unknown Analyst

The same as?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

As 2013.

Unknown Analyst

Even though you have a little more assets at year end than you had at the beginning of the year? So the average asset would be there?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

Correct. Yes, a lot of it is also depletion-related. It’s the value of the mineral properties and I think — sorry to say that we’ll be roughly the same. But it’s a noncash item, right?

Unknown Analyst

Yes, but in calculating old-fashioned cash flow, one can add that back to whatever the earnings are?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

Yes, correct.

Unknown Analyst

Okay. And finally, in the abbreviated highlights, you have a thing called working capital and income taxes. What is that? About 2/3 of the way down the highlights.

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

I’m not seeing that in this report…

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Which bullet is it?

Unknown Analyst

About 10 down on the left-hand side as you go over the number, 20.4 and to the right of it, 43.2, you have it classified as working capital and income taxes. I don’t understand that classification.

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

You’re actually in the financial statements or are you on the news release?

Unknown Analyst

On the news release, Page 2, where you have that table, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11th highlight.

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

I believe what you’re looking at is just the working capital line comparing current assets, current liabilities, including deferred taxes.

Unknown Analyst

I see. So that’s — the income taxes is part of the working capital. Is that what you mean?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

Deferred taxes.

Operator

[Operator Instructions] Our next question comes from Andrew Schopick, a private investor.

Andy Schopick

Keith, should I take get it that this is not yet going to be a quarterly event?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

I’ll defer that answer.

Andy Schopick

A couple of questions. In your opening remarks, Keith, you did mention you’re not interested in raising any additional capital. I think you — we specifically said equity. But should that be interpreted as equity or any debt financing in the foreseeable near-term that you’re not inclined to raise any additional capital of any kind?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Well, we currently have a hedge on 30% of our lead and 30% of our zinc with Bank of America. It’s actually pretty cheap money, it’s 3.2% above LIBOR, and they’ve offered to go higher. We’re currently at 30%, as I said. I wouldn’t want to go too much past 60%. But 50% to 60% is about the max of my comfort level. And that probably would raise us an additional $30 million to $50 million if we did that. And it’s not really debt. It’s a hedge against our production, obviously, right? So if we ever did want to do something in the way of a fundraising for whatever reason, that’s where I would go, quite frankly. I wouldn’t be doing any kind of straight bank loans or bank debt or any equity.

Andy Schopick

Okay. Now in connection with that comment, your profile right now is about 83% silver in 2013, about 5% gold, the balance in lead and zinc. Is that profile — production profile likely to change materially at all this year or in the next couple of years?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Yes. It’s going up right now. It was 90% in 2012, and then dropped because of the flotation circuit being turned on at Del Toro. And now with the cyanidation circuit and the doré bars now being produced at Del Toro, that purity will go back up around 90% again this year.

Andy Schopick

The silver?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Silver purity, yes…

Andy Schopick

Okay. So it’s going to go up relative to the gold, zinc and lead contribution?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Yes, on a percentage basis. That’s right.

Andy Schopick

Okay. Also, just curious, to make sure I understood the comment about the effective tax rate, you’re anticipating as a direct result of the Mexican tax reform that your tax rate will increase to about 34% this year, up from about 29% previously?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Ray, you want to grab this one?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

I think it might actually go a few points up beyond that as well. We are still working through a number of things with the new Mexican fiscal reforms. The Mexican government is coming out with applied or miscellaneous rules to help interpret how the taxes will be applied next year. And we’re applying further on this as we step into the next quarter and get something more substantial from the Mexican government. But I’m anticipating it’ll actually be closer into the 36% to 38% effective rate.

Andy Schopick

You guys operating in Mexico can’t be happy with this. One last thing…

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

It’s going to be harder on the communities. The communities themselves are the ones that are going to suffer.

Andy Schopick

I understand, but it is what it is for now. In the press release, you have an excellent table, commentary about 2014 production outlook and all-in sustaining costs guidance. I was looking through SEDAR and other things on your website to see if I could find a comparable table for the actuals for 2013 in the same format that you provided for 2014 outlook. Is anything like that available or can it be made available for comparable purposes?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Well, it’s very difficult because it’s a change of our disclosure and because of the whole industry moving to the sustaining capital method of disclosing this information, this is the old cash cost method, there would be an enormous task to go back and rebuild everything to — and I’m not sure how much benefit it would be even to do it. I’m not sure, Ray, do you have any other comments?

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

Yes, the only comment I would add is that we went through this process of studying this and commissioned PricewaterhouseCoopers to assist us with defining exactly how you measure the investment in sustaining capital. And that really concluded towards the third quarter of 2013. And going back through the numbers and to the beginning of 2013, we would have to use a lot of subjectivity to redefine investments in SEDAR being expansionary or sustaining. And I don’t think it would be the fairest representation of what the number is. I’d rather look at this on a perspective basis only.

Andy Schopick

Okay. I understand what you’re saying on that component of the table. But certainly, above that line where we’re just looking at tonnes processed, silver ounces, et cetera, et cetera, although we probably can reconstruct that from the published filings, I just wondered whether you are going to present that part of it in a comparable table form to what you have in the press release, on the production outlook, and if that would be done?

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

So if you go to Page 9 of the financial statements, you’ll see a table in there, which is probably what you are looking for. So we have a mine-by-mine and then also a consolidated table.

Andy Schopick

As I said, I’m sure I can reconstruct it.

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

We’ve been doing these same tables for the last several years. So you can go back and look at our previous annual reports.

Andy Schopick

Yes, okay. That’s fine, and I do appreciate it.

Raymond L. Polman – Chief Financial Officer and Principal Accounting Officer

And the highlights are available and have been published both on a consolidated and a mine-by-mine basis with, I think, basically all the information that we have in this summary guidance table being presented on a quarterly and an annual basis and a year-to-date basis…for a few years.

Operator

[Operator Instructions]

Keith N. Neumeyer – Chief Executive Officer, President and Non-Independent Director

Unless there’s any another questions, I see that there’s no one queued up. I can give a couple more seconds here to see if someone wants to queue up for a question. If not, we’ll end this call in a couple of seconds here.

Okay, well thank you. I see no one wanted to ask further questions. So thank you for joining us today and if you have any further questions, please feel free to contact Todd Anthony at any time.

Operator

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

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