EX-99.1 2 exhibit99-1.htm INTERIM FINANCIAL STATEMENTS First Majestic Silver Corp.: Exhibit 99.1 - Filed by newsfilecorp.com

 

 
 
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 
FOR THE NINE MONTHS ENDED
 
SEPTEMBER 30, 2011
 
(UNAUDITED)
 

MANAGEMENT’S COMMENTS ON
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management.

 
925 West Georgia Street, Suite 1805, Vancouver, B.C. Canada V6C 3L2
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com
www.firstmajestic.com


First Majestic Silver Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

          Three Months Ended September 30,     Nine Months Ended September 30,  
    Note     2011     2010     2011     2010  
                (Note 28)         (Note 28)
Revenues   6   $  61,407   $  32,614   $  184,713   $  77,816  
Cost of sales         15,473     14,195     50,404     35,148  
Gross margin         45,934     18,419     134,309     42,668  
Depletion, depreciation and amortization         3,467     2,545     9,405     6,978  
Mine operating earnings         42,467     15,874     124,904     35,690  
                               
General and administrative expense         3,043     2,397     10,571     6,410  
Share-based payments         937     480     4,598     2,166  
Accretion of decommissioning liabilities         107     90     338     272  
Foreign exchange loss         799     786     1,108     2,353  
Other expenses         667     114     677     1,178  
Operating earnings         36,914     12,007     107,612     23,311  
Investment and other income (loss)   7     (1,395 )   1,097     2,461     1,751  
Finance costs         (390 )   (205 )   (896 )   (601 )
Earnings before income taxes         35,129     12,899     109,177     24,461  
Income taxes                              
Current income tax expense         2,120     -     15,788     61  
Deferred income tax expense         5,237     2,842     11,154     2,923  
          7,357     2,842     26,942     2,984  
Net earnings for the period attributable                              
to equity holders of the Company       $  27,772   $  10,057   $  82,235   $  21,477  
                               
Earnings per common share                              
     Basic       $  0.27   $  0.11   $  0.80   $  0.23  
     Diluted       $  0.26   $  0.10   $  0.77   $  0.23  
                               
Weighted average shares outstanding                              
     Basic   8     104,583,335     93,139,406     102,627,618     92,888,446  
     Diluted   8     107,726,703     96,996,122     107,103,155     95,279,402  

APPROVED BY THE BOARD OF DIRECTORS

Keith Neumeyer (signed)      Director Douglas Penrose (signed)      Director

The accompanying notes are an integral part of the condensed consolidated interim financial statements


First Majestic Silver Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2011     2010     2011     2010  
          (Note 28)         (Note 28)
Net earnings for the period attributable to equity holders of the Company $  27,772   $  10,057   $  82,235   $  21,477  
                         
Other comprehensive income                        
Available for sale investments:                        
 Unrealized gain (loss) in fair value of investments   (1,107 )   (211 )   527     (99 )
Currency translation gain (loss)   (3,069 )   171     (2,350 )   846  
Other comprehensive income (loss)   (4,176 )   (40 )   (1,823 )   747  
Comprehensive income for the period $  23,596   $  10,017   $  80,412   $  22,224  

The accompanying notes are an integral part of the condensed consolidated interim financial statements


First Majestic Silver Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOW
FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

          Three Months Ended September 30,     Nine Months Ended September 30,  
    Note     2011     2010     2011     2010  
                (Note 28)         (Note 28)
OPERATING ACTIVITIES                              
Net earnings for the period       $  27,772   $  10,057   $  82,235   $  21,477  
Adjustments for:                              
 Share-based payments         937     480     4,598     2,166  
 Depletion, depreciation and amortization         3,467     2,545     9,405     6,978  
 Accretion of decommissioning liabilities         107     90     338     272  
 Investment loss (income) from derivative financial instruments     1,504     (1,070 )   (2,042 )   (1,696 )
 Deferred taxes         5,237     2,842     11,154     2,923  
 Finance costs         390     205     896     601  
 Unrealized foreign exchange loss and other         427     848     951     2,311  
Operating cash flows before movements in working capital         39,841     15,997     107,535     35,032  
Net change in non-cash working capital items   25     (4,575 )   2,672     103     1,313  
Cash generated by operating activities         35,266     18,669     107,638     36,345  
                               
INVESTING ACTIVITIES                              
Expenditures on mineral property interests (net of accruals)         (18,581 )   (4,008 )   (30,163 )   (9,367 )
Acquisition of property, plant, and equipment (net of accruals)     (13,789 )   (6,189 )   (30,604 )   (8,963 )
Acquisition of derivative financial instruments         (3,700 )   -     (3,700 )   -  
Realized gain on derivative financial instruments         4,958     1,070     8,369     1,696  
Decrease (increase) in deposits on long-term assets         (720 )   161     (11,138 )   (254 )
Proceeds from disposal of marketable securities, net of investments     -     39     -     81  
Cash used in investing activities         (31,832 )   (8,927 )   (67,236 )   (16,807 )
                               
FINANCING ACTIVITIES                              
Proceeds from exercise of stock options and share warrants         4,532     2,922     27,443     3,603  
Proceeds from lease financing         -     -     2,474     -  
Payment of lease obligations         (893 )   (380 )   (1,785 )   (1,418 )
Payment of other long-term liabilities         -     -     (76 )   -  
Finance costs paid         (390 )   (206 )   (896 )   (601 )
Prepayment facility, net of repayments         (714 )   506     1,566     811  
Repayment of debt facilities         -     (2,792 )   -     (2,792 )
Cash generated by financing activities         2,535     50     28,726     (397 )
                               
Increase in cash and cash equivalents         5,969     9,792     69,128     19,141  
Effect of exchange rate on cash held in foreign currencies         (4,725 )   31     (4,069 )   18  
Cash and cash equivalents, beginning of period   9     104,978     14,945     41,163     5,609  
Cash and cash equivalents, end of period   9   $  106,222   $  24,768   $  106,222   $  24,768  
                               
Taxes paid         6,306     334     12,108     334  
                               
Supplemental cash flow information   25                          

The accompanying notes are an integral part of the condensed consolidated interim financial statements


First Majestic Silver Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
AS AT SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    Note     September 30, 2011     December 31, 2010  
Assets               (Note 28)
Current assets                  
Cash and cash equivalents   9   $  106,222   $  41,163  
Trade and other receivables   10     12,738     8,354  
Inventories   11     11,639     8,651  
Other financial assets   12     7,985     357  
Prepaid expenses and other   13     1,947     1,572  
Total current assets         140,531     60,097  
                   
Non-current assets                  
Mining interests   14     145,122     119,660  
Property, plant and equipment   15     113,130     72,383  
Deferred tax asset         4,705     3,065  
Deposits on long-term assets   16     11,138     2,426  
Total assets       $  414,626   $  257,631  
                   
Liabilities and Equity                  
Current liabilities                  
Trade payables and accrued liabilities   17   $  25,210   $  12,400  
Current portion of debt facilities   18     1,566     -  
Current portion of lease obligations   19     3,764     1,160  
Other financial liabilities   20     6,292     -  
Taxes payable         2,596     440  
Total current liabilities         39,428     14,000  
                   
Non-current liabilities                  
Lease obligations   19     9,507     2,417  
Decommissioning liabilities         6,355     6,795  
Other long term liabilities         600     893  
Deferred tax liabilities         32,662     22,071  
Total liabilities         88,552     46,176  
                   
Equity                  
Shareholders' equity                  
Share capital   21     271,898     239,770  
Equity reserves   22     26,065     25,809  
Retained earnings (Accumulated deficit)   23     28,111     (54,124 )
Total equity         326,074     211,455  
Total liabilities and equity       $  414,626   $  257,631  
                   
Contingent liabilities (Note 26)                  
Subsequent events (Note 27)                  

The accompanying notes are an integral part of the condensed consolidated interim financial statements


First Majestic Silver Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
FOR THE PERIODS ENDED SEPTEMBER 30, 2011 AND 2010
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    Share Capital     Equity Reserves              
                                              Retained        
                            Available for     Foreign           earnings        
                      Share-based     sale     currency     Total equity     (Accumulated          
    Shares     Amount     To be issued     payment     revaluation     translation     reserves     deficit)     Total equity  
                                                       
Balance at January 1, 2010   92,648,744   $  218,608   $  247   $  24,971   $  (55 ) $  -   $  24,916   $  (89,255 ) $  154,516  
Net earnings   -     -     -     -     -     -     -     21,477     21,477  
Share-based payment   -     -     -     2,166     -     -     2,166     -     2,166  
Other comprehensive income   -     -     -     -     (99 )   846     747     -     747  
Shares issued for:                                                      
 Exercise of options   1,131,625     3,452     -     -     -     -     -     -     3,452  
 Exercise of warrants   47,500     151     -     -     -     -     -     -     151  
Transfer of equity reserve upon exercise of options and warrants   -     1,228     -     (1,228 )   -     -     (1,228 )   -     -  
Balance at September 30, 2010   93,827,869   $  223,439   $  247   $  25,909   $  (154 ) $  846   $  26,601   $  (67,778 ) $  182,509  
                                                       
Balance at December 31, 2010   97,560,417   $  239,525   $  245   $  25,170   $  18   $  621   $  25,809   $  (54,124 ) $  211,455  
Net earnings   -     -     -     -     -     -     -     82,235     82,235  
Share-based payment and related tax benefits   -     -     -     6,764     -     -     6,764     -     6,764  
Other comprehensive income   -     -     -     -     527     (2,350 )   (1,823 )   -     (1,823 )
Shares issued for:                                                      
 Exercise of options   2,251,600     9,490     -     -     -     -     -     -     9,490  
 Exercise of warrants   5,118,093     17,953     -     -     -     -     -     -     17,953  
 Conversion of shares to be issued   4,062     20     (20 )   -     -     -     -     -     -  
Transfer of equity reserve upon exercise of options and warrants   -     4,685     -     (4,685 )   -     -     (4,685 )   -     -  
Balance at September 30, 2011   104,934,172   $  271,673   $  225   $  27,249   $  545   $  (1,729 ) $  26,065   $  28,111   $  326,074  

The accompanying notes are an integral part of the condensed consolidated interim financial statements


First Majestic Silver Corp.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

1.

NATURE OF OPERATIONS

   

First Majestic Silver Corp. (the “Company” or “First Majestic”) is a publicly listed company incorporated in Canada with limited liability under the legislation of the Province of British Columbia. The Company is in the business of silver production, development, exploration, and acquisition of mineral properties with a focus on silver production in Mexico. The Company’s shares trade on the New York Stock Exchange under the symbol “AG” and on the Toronto Stock Exchange under the symbol “FR”.

   

The Company’s head office, principal address and registered and records office are located at 925 West Georgia Street, Suite 1805, Vancouver, British Columbia, Canada, V6C 3L2.

   
2.

BASIS OF PREPARATION AND FIRST-TIME ADOPTION OF IFRS

   

Statement of Compliance

   

These condensed consolidated financial statements, including comparatives, have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting” using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and using the accounting policies the Company expects to adopt in its condensed consolidated financial statements as at and for the year ending December 31, 2011.

   

These condensed consolidated interim financial statements should be read in conjunction with the Company’s 2010 Generally Accepted Accounting Principles (“GAAP”) annual financial statements, the condensed consolidated interim financial statements as at and for the three months ended March 31, 2011, and in consideration of the disclosures regarding the transition from Canadian GAAP to IFRS are included in note 28. Certain disclosures that are required to be included in annual financial statements prepared in accordance with IFRS are not included in these interim financial statements nor in the Company’s most current annual GAAP financial statements.

   

Basis of Consolidation and Presentation

   

The condensed consolidated financial statements have been prepared on an historical cost basis except for certain items that are measured at fair value including derivative financial instruments and available for sale investments. All dollar amounts presented are in United States dollars unless otherwise specified. The accounting policies in Note 3 of the condensed consolidated interim financial statements for the three months ended March 31, 2011 have been applied in preparing these condensed consolidated interim financial statements.

   

These condensed consolidated financial statements incorporate the financial statements of the Company and its controlled subsidiaries. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries: Corporación First Majestic, S.A. de C.V., First Silver Reserve Inc. (“First Silver”), and Normabec Mining Resources Ltd., First Majestic Plata, S.A. de C.V., Minera El Pilon, S.A. de C.V., Minera La Encantada, S.A. de C.V., Majestic Services S.A. de C.V., Minera Real Bonanza, S.A. de C.V., Servicios Minero-Metalurgicos e Industriales, S.A. de C.V., 0915623 B.C. Ltd., FMS Investment Coöperatie U.A., FMS Investco B.V., and FMS Trading AG. First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation. Intercompany balances and transactions are eliminated on consolidation.

Notes Page 1


First Majestic Silver Corp.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

3.

SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

   

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

   

Although management uses historical experience and its best knowledge of the amount, events or actions to form the basis for judgments and estimates, actual results may differ from these estimates.

   

The most significant accounts that require estimates as the basis for determining the stated amounts include: recoverability of accounts receivable, valuation of inventories, valuation and depreciation of property, plant and equipment and mining interests, valuation of share-based payments, recognition of deferred income tax amounts and provision for restoration, rehabilitation and environmental costs.

   

There are also significant judgments exercised in order to arrive at the stated amounts. Depreciation and depletion of property, plant and equipment is determined based on estimates of useful lives and reserves, both of which require significant judgment. The assessment of impairment of any property, plant and equipment assets depends on estimates of recoverable amounts, which takes into account factors requiring significant judgment including reserves, economic and market conditions and the useful lives of assets. The evaluation of mining interests and determination of commissioning date, the allocation of value between producing and exploration properties, determination of functional currency, provision for restoration, rehabilitation and environmental costs are dependent on various judgments, including the nature, estimate of future cost and timing of the work to be completed, which may change based on changes in future costs and environmental laws and regulations.

   
4.

RECENT ACCOUNTING PRONOUNCEMENTS

   

Financial instruments disclosure

   

In October 2010, the IASB issued amendments to IFRS 7 – Financial Instruments: Disclosures that improve the disclosure requirements in relation to transferred financial assets. The amendments are effective for annual periods beginning on or after July 1, 2011, with earlier adoption permitted. The Company does not anticipate this amendment to have a significant impact on its condensed consolidated financial statements.

   

Financial instruments

   

The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”) in its entirety with IFRS 9 – Financial Instruments (“IFRS 9”) in three main phases. IFRS 9 will be the new standard for the financial reporting of financial instruments that is principles-based and less complex than IAS 39, and is effective for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. In November 2009 and October 2010, phase 1 of IFRS 9 was issued and amended, respectively, which addressed the classification and measurement of financial assets and financial liabilities. IFRS 9 requires that all financial assets be classified as subsequently measured at amortized cost or at fair value based on the Company’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. Financial liabilities are classified as subsequently measured at amortized cost except for financial liabilities classified as at fair value through profit and loss (“FVTPL”), financial guarantees and certain other exceptions. The IASB has issued exposure drafts addressing impairment of financial instruments, hedge accounting and the offsetting of financial assets and liabilities. The Company will evaluate the impact the final standard will have on its condensed consolidated financial statements when issued.

Notes Page 2


First Majestic Silver Corp.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

4.

RECENT ACCOUNTING PRONOUNCEMENTS (continued)

   

Consolidated Financial Statements

   

In May 2011, the IASB issued IFRS 10 - Consolidated Financial Statements (“IFRS 10”) and IFRS 12 - Disclosure of Interests in Other Entities (“IFRS 12”). IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This IFRS defines the principle of control and establishes control as the basis for determining which entities are consolidated in an entity’s consolidated financial statements. IFRS 12 outlines the disclosure requirements for interests in subsidiaries and other entities to enable users to evaluate the risks associated with interests in other entities and the effects of those interests on an entity’s financial position, financial performance and cash flows. IFRS 10 and IFRS 12 supersede IAS 27, Consolidated and Separate Financial Statements and SIC-12, Consolidation – Special Purpose Entities.

   

IFRS 10 and IFRS 12 are effective for annual periods beginning on or after January 1, 2013, with earlier application permitted if adopted along with IFRS 11, IFRS 12, IAS 27 (revised) and IAS 28 (revised). The Company is evaluating the impact of these new standards on its condensed consolidated financial statements.

   

Joint Arrangements

   

In May 2011, the IASB issued IFRS 11 - Joint Arrangements (“IFRS 11”), which provides guidance on accounting for joint arrangements. If an arrangement has joint control, IFRS 11 classifies joint arrangements as either joint operations or joint ventures, depending on the rights and obligations of the parties involved. A joint operation is an arrangement where the jointly controlling parties have rights to the assets and obligations in respect of the liabilities relating to the arrangement. An entity accounts for a joint operation by recognizing its portion of the assets, liabilities, revenues and expenses. A joint venture is an arrangement where the jointly controlling parties have rights to the net assets of the arrangement. A joint venture is accounted for using the equity method and proportionate consolidation is no longer permitted.

   

This standard is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company does not anticipate these new standards to have a significant impact on its condensed consolidated financial statements.

   

Fair Value Measurement

   

In May 2011, the IASB issued IFRS 13 - Fair Value Measurement (“IFRS 13”). This standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. IFRS 13 sets out a single IFRS framework for measuring fair value and outlines disclosure requirements about fair value measurements. IFRS 13 does not determine when an asset, a liability or an entity’s own equity instrument is measured at fair value. Rather, the measurement and disclosure requirements of IFRS 13 apply when another IFRS requires or permits the item to be measured at fair value.

   

IFRS 13 is effective for annual periods on or after January 1, 2013, with earlier application permitted. This IFRS is to be applied prospectively as of the beginning of the annual period in which it is initially applied and the disclosure requirements do not need to be applied in comparative periods before initial application. The Company is currently assessing the impact of this standard on its financial statements.

   

Items of Other Comprehensive Income

   

In June 2011, the IASB issued an amendment to IAS 1 – Presentation of Items of Other Comprehensive Income (“amendments to IAS1”). The amendments to IAS1 are the result of a joint project with the US Financial Accounting Standards Board and provide guidance on presentation of items contained in other comprehensive income (“OCI”) and their classification within OCI. The amendments to IAS1 require items of OCI, along with their tax effects, to be grouped into those that will and will not subsequently be reclassified to profit or loss. The measurement and recognition of items of profit or loss and OCI are not affected by the amendments. This amendment is effective for annual periods beginning on or after July 1, 2012 with earlier application permitted. The Company does not anticipate this amendment to have a significant impact on its condensed consolidated financial statements.

Notes Page 3


First Majestic Silver Corp.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

4.

RECENT ACCOUNTING PRONOUNCEMENTS (continued)

     

Stripping Costs

     

In October 2011, the IASB issued IFRIC 20 - Stripping costs in the production phase of a surface mine (“IFRIC 20”). This interpretation applies to waste removal costs that are incurred in open pit mining activity during the production phase of the mine. Recognition of a stripping activity asset requires the asset to be related to an identifiable component of the ore body. Stripping costs that relate to inventory produced should be accounted for as a current production cost in accordance with IAS 2, ‘Inventories’. Stripping costs that generate a benefit of improved access and meet the definition of an asset should be accounted for as an addition to an existing asset. Existing stripping costs on the balance sheet at transition that do not relate to a specific ore body should be written off to opening retained earnings. The stripping activity asset shall be depreciated on a systematic basis, over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity. This interpretation is effective for years on and after January 1, 2013. The Company is currently assessing the impact of this standard on its condensed consolidated financial statements.

     

The IASB is expected to publish new IFRSs on the following topics during 2012. The Company will assess the impact of these new standards on the Company’s operations as they are published:

     
  		•

    Leases

  		•

    Revenue recognition

         
    5.

    SEGMENTED INFORMATION

         

    The Company has three operating segments located in Mexico, one retail market segment in Canada and one corporate segment with locations in Canada and Mexico. The San Martin operations consist of the San Martin Silver Mine, the San Martin property and the Jalisco Group of Properties. The La Parrilla operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property. All of the Company’s operations are within the mining industry and its major products are silver doré and silver concentrate.

         

    An operating segment is defined as a component of the Company that:

         

    º

    		engages in business activities from which it may earn revenues and incur expenses;

    º

    		whose operating results are reviewed regularly by the entity’s chief operating decision maker; and for which discrete financial information is available.
         

    Transfer prices between business segments are set on an arms-length basis in a manner similar to transactions with third parties.

         

    Significant information relating to the Company’s reporting operating segments are summarized in the table below:


        Mexico     Canada     Consolidated  
                          Corporate and                       Corporate and              
        San Martin     La Parrilla     La Encantada       Other                       Other              
        operations     operations     operations        Eliminations       Total     Coin Sales     Dore Sales     Eliminations     Total     Total  
    Three Months Ended September 30, 2011                                                            
    Revenue $  9,345   $  15,568   $  36,457   $  - $     61,370   $  1,808   $  6,777   $  (8,548 )   $ 37   $  61,407  
    Cost of sales   3,094     3,425     9,183     (20 )   15,682     1,972     6,098     (8,279 )   (209 )   15,473  
    Depletion, depreciation and amortization   528     991     1,673     29     3,221     -     -     246     246     3,467  
    Mine operating earnings (loss)   5,723     11,152     25,601     (9 )   42,467     (164 )   680     (516 )   -     42,467  
    Finance cost   67     137     158     14     376     -     -     14     14     390  
    Capital expenditures   4,137     16,291     8,147     9,421     37,996     -     -     71     71     38,067  
                                                                 
    Three Months Ended September 30, 2010                                                            
    Revenue $  5,334   $  7,517   $  19,459   $  (74 )  $ 32,236   $  1,174   $  -   $  (796 )  $ 378   $  32,614  
    Cost of sales   2,879     3,262     8,081     (86 )   14,136     1,302     -     (1,243 )   59     14,195  
    Depletion, depreciation and amortization   358     616     848     346     2,168     -     -     377     377     2,545  
    Mine operating earnings (loss)   2,097     3,639     10,530     (334 )   15,932     (128 )   -     70     (58 )   15,874  
    Finance cost   19     29     150     14     212     -     -     (7 )   (7 )   205  
    Capital expenditures   1,806     2,551     3,919     162     8,438     -     -     2     2     8,440  

    Notes Page 4


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    5.

    SEGMENTED INFORMATION (continued)


        Mexico     Canada     Consolidated  
                          Corporate and                       Corporate and              
        San Martin     La Parrilla     La Encantada       Other                       Other              
        operations     operations     operations       Eliminations        Total     Coin Sales     Dore Sales     Eliminations     Total     Total  
    Nine Months Ended September 30, 2011                                                            
    Revenue $  28,660   $  41,609   $  113,473   $  -   $  183,742   $  7,040   $  19,994   $  (26,063 )  $ 971   $  184,713  
    Cost of sales   9,875     10,915     29,786     (24 )   50,552     6,326     18,400     (24,874 )   (148 )   50,404  
    Depletion, depreciation and amortization   1,354     2,826     4,436     64     8,680     -     -     725     725     9,405  
    Mine operating earnings (loss)   17,431     27,868     79,251     (40 )   124,510     714     1,594     (1,914 )   394     124,904  
    Finance cost   159     281     403     14     857     -     -     39     39     896  
    Capital expenditures   11,633     39,351     17,482     10,576     79,042     -     -     178     178     79,220  
                                                                 
    Nine Months Ended September 30, 2010                                                            
    Revenue $  15,692   $  20,260   $  41,529   $  (74 )  $ 77,407   $  4,056   $  -   $  (3,647 ) $  409   $  77,816  
    Cost of sales   8,716     9,183     17,665     (92 )   35,472     3,775     -     (4,099 )   (324 )   35,148  
    Depletion, depreciation and amortization   1,144     1,778     2,085     737     5,744     -     -     1,234     1,234     6,978  
    Mine operating earnings (loss)   5,832     9,299     21,779     (719 )   36,191     281     -     (782 )   (501 )   35,690  
    Finance cost   60     73     461     14     608     -     -     (7 )   (7 )   601  
    Capital expenditures   3,160     4,972     12,387     342     20,861     -     -     132     132     20,993  

        Mexico     Canada     Consolidated  
                          Corporate and           Corporate and              
        San Martin     La Parrilla     La Encantada     Other           Other              
        operations     operations     operations     Eliminations     Total     Eliminations     Total     Total  
    September 30, 2011                                                
    Total assets $  66,022   $  126,370   $  119,183   $  29,156   $  340,731   $  73,895   $  73,895   $  414,626  
    Total liabilities   18,787     17,515     12,664     22,158     71,124     17,428     17,428     88,552  
    December 31, 2010                                                
    Total assets $  53,325   $  68,070   $  76,198   $  36,765   $  234,358   $  23,273   $  23,273   $  257,631  
    Total liabilities   16,118     6,643     15,373     1,885     40,019     6,157     6,157     46,176  

    6.

    REVENUES


          Three Months Ended     Three Months Ended     Nine Months Ended     Nine Months Ended  
          September 30, 2011     September 30, 2010     September 30, 2011     September 30, 2010  
      Gross revenue from payable ounces of silver equivalents $  62,976   $  34,182   $  189,644   $  83,884  
      Less: refining & smelting, net of intercompany eliminations   (1,569 )   (1,568 )   (4,931 )   (6,068 )
      Revenues $  61,407   $  32,614   $  184,713   $  77,816  

    7.

    INVESTMENT AND OTHER INCOME (LOSS)

    The Company’s investment and other income (loss) is comprised of the following:

          Three Months Ended     Three Months Ended     Nine Months Ended     Nine Months Ended  
          September 30, 2011     September 30, 2010     September 30, 2011     September 30, 2010  
      Gain (loss) from investment in derivative investments $  (1,504 ) $  1,047   $  2,041   $  1,696  
      Interest income and other   109     50     420     55  
        $  (1,395 ) $  1,097   $  2,461   $  1,751  

    Notes Page 5


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    8.

    EARNINGS PER SHARE

    The calculations of basic and diluted earnings per share for the three and nine months ended September 30, 2011 and 2010 are based on the following:

          Three Months Ended     Three Months Ended     Nine Months Ended     Nine Months Ended  
          September 30, 2011     September 30, 2010     September 30, 2011     September 30, 2010  
      Net income for the period attributable to equity holders of the Company $  27,772   $  10,057   $  82,235   $  21,477  
      Weighted average number of shares on issue - basic   104,583,335     93,139,406     102,627,618     92,888,446  
      Adjustments for:                        
                 Share options   3,052,870     2,099,372     3,595,619     1,433,378  
                 Warrants   90,498     1,757,343     879,918     957,578  
      Weighted average number of shares on issue - diluted   107,726,703     96,996,122     107,103,155     95,279,402  

    9.

    CASH AND CASH EQUIVALENTS

       

    Cash and cash equivalents of the Company are comprised of bank balances and short-term investments, which are convertible to cash, with a term of 90 days or less as follows:


          September 30, 2011     December 31, 2010  
      Cash $  106,140   $  34,951  
      Short-term investments   82     6,212  
        $  106,222   $  41,163  

    10.

    TRADE AND OTHER RECEIVABLES

    Trade and other receivables of the Company are comprised of:

          September 30, 2011     December 31, 2010  
      Trade receivables $  5,756   $  2,748  
      Value added taxes and other taxes recoverable   6,470     5,300  
      Loan receivable from supplier and other   512     306  
        $  12,738   $  8,354  

    The Company does not hold any collateral for any receivable amounts outstanding at September 30, 2011. Trade and other receivables include $580,000 in value added taxes recoverable that have been outstanding for more than one year. The Company expects full recovery of the amounts outstanding and therefore no impairment has been recorded against these receivables.

    11.

    INVENTORIES


          September 30, 2011     December 31, 2010  
      Silver coins and bullion including in process s hipments $  537   $  396  
      Finished product - doré and concentrates   480     1,823  
      Work in process   3,404     1,233  
      Stockpile   1,203     959  
      Materials and supplies   6,015     4,240  
        $  11,639   $  8,651  

    The amount of inventories recognized as an expense during the period is equivalent to cost of sales for the period and no inventory write-downs were recorded or reversed during the periods presented.

    Notes Page 6


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    12.

    OTHER FINANCIAL ASSETS

    Other financial assets of the Company are comprised of:

          September 30, 2011     December 31, 2010  
      Marketable securities $  4,285   $  357  
      Derivative financial instruments   3,700     -  
        $  7,985   $  357  

    13.

    PREPAID EXPENSES AND OTHER

    Prepaid expenses and other of the Company are comprised of:

          September 30, 2011     December 31, 2010  
      Prepayments to suppliers and contractors $  1,485   $  1,336  
      Deposits   462     236  
        $  1,947   $  1,572  

    14.

    MINING INTERESTS

    The Company’s mining interests are composed of the following:

          September 30, 2011     December 31, 2010  
      Producing properties $  79,308   $  62,741  
      Exploration properties (non-depletable)   65,814     56,919  
        $  145,122   $  119,660  

    Producing properties are allocated as follows:

          La Encantada     La Parrilla     San Martin        
      Producing properties   Silver Mine     Silver Mine     Silver Mine     Total  
      Cost                        
      At January 1, 2010 $  12,423   $  21,286   $  37,016   $  70,725  
      Additions   4,601     5,396     1,053     11,050  
      Change in decommissioning liabilities   488     770     268     1,526  
      At December 31, 2010 $  17,512   $  27,452   $  38,337   $  83,301  
      Additions   5,916     8,245     2,640     16,801  
      Change in decommissioning liabilities   -     (305 )   -     (305 )
      Transfer from exploration properties   -     3,608     -     3,608  
      At September 30, 2011 $  23,428   $  39,000   $  40,977   $  103,405  
                               
      Accumulated depletion and amortization                        
      At January 1, 2010 $  (2,747 ) $  (2,863 ) $  (10,742 ) $  (16,352 )
      Depletion and amortization   (1,453 )   (966 )   (1,789 )   (4,208 )
      At December 31, 2010 $  (4,200 ) $  (3,829 ) $  (12,531 ) $  (20,560 )
      Depletion and amortization   (1,302 )   (1,116 )   (1,119 )   (3,537 )
      At September 30, 2011 $  (5,502 ) $  (4,945 ) $  (13,650 ) $  (24,097 )
                               
      Carrying value                        
      At December 31, 2010 $  13,312   $  23,623   $  25,806   $  62,741  
      At September 30, 2011 $  17,926   $  34,055   $  27,327   $  79,308  

    Notes Page 7


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    14.

    MINING INTERESTS (continued)

    Exploration properties are allocated as follows:

          La Encantada     La Parrilla     San Martin     Del Toro     La Luz        
      Exploration properties   Silver Mine     Silver Mine     Silver Mine     Silver Mine     Silver Project     Total  
      Cost                                    
      At January 1, 2010 $  2,383   $  7,465   $  13,863   $  11,280   $  16,479   $  51,470  
      Exploration and evaluation expenditures   552     325     1,569     360     2,107     4,913  
      Change in decommissioning liabilities   -     -     -     -     536     536  
      At December 31, 2010 $  2,935   $  7,790   $  15,432   $  11,640   $  19,122   $  56,919  
      Exploration and evaluation expenditures   1,517     4,657     1,851     6,971     907     15,903  
      Proceeds from option payment (f)   -     -     (3,400 )   -     -     (3,400 )
      Transfer to producing properties   -     (3,608 )   -     -     -     (3,608 )
      At September 30, 2011 $  4,452   $  8,839   $  13,883   $  18,611   $  20,029   $  65,814  

      (a)

    La Encantada Silver Mine, Coahuila State

         

    The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The La Encantada Silver Mine consists of a 3,750 tonnes per day (“tpd”) cyanidation plant, a 1,000 tpd flotation plant (currently in care-and-maintenance), an airstrip, and a village with 180 houses as well as administrative offices and infrastructure required for such an operation. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz, is 225 km away via mostly paved road. The Company owns 100% of the La Encantada Silver Mine. On April 1, 2010, the mill expansion project achieved commercial stage production and all revenues and costs from that date are recorded in the mine operating earnings.

         
      (b)

    La Parrilla Silver Mine, Durango State

         

    The La Parrilla Silver Mine is a system of connected underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos mine and the Quebradillas mine. La Parrilla is located approximately 65 km southeast of the city of Durango, in the State of Durango, Mexico. Located at the mine are: an 1,425 tpd milling facility consisting of a 425 tpd cyanidation circuit and a 1,000 tpd flotation circuit, mining equipment, buildings and infrastructure related to the operation and mining concessions covering an area of 69,460 hectares. The Company owns 100% of the La Parrilla Silver Mine. The Company owns 45 hectares and leases an additional 69 hectares of surface rights. During the third quarter of 2011, the Company expanded the mine’s flotation circuit from 425 tpd to 1,000 tpd and is in the final stage of construction of a 1,000 tpd cyanidation circuit to replace the 425 tpd cyanidation circuit currently in use. Plant capacity is anticipated to reach 2,000 tpd by year end.

         
     

    There is a net smelter royalty (“NSR”) agreement of 1.5% of sales revenue associated with the Quebradillas Mine, with a maximum payable of $2.5 million. The Company has an option to purchase the NSR at any time for an amount of $2.0 million. For the three and nine months ended September 30, 2011, the Company paid royalties of $133,000 (September 30, 2010 - $18,000) and $204,000 (September 30, 2010 - $83,000), respectively. As at September 30, 2011, the sum of total royalties paid to date for the Quebradillas NSR is $525,000.

         
      (c)

    San Martin Silver Mine, Jalisco State

         
     

    The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The operation consists of a 950 tpd cyanidation mill, flotation circuit, mine buildings, administrative offices and all related infrastructure. The flotation circuit is currently on care and maintenance. The mine is comprised of approximately 7,841 hectares of mineral rights, approximately 1,300 hectares of surface rights surrounding the mine, and another 104 hectares of surface rights where the mill is located. The Company owns 100% of the San Martin Silver Mine.

    Notes Page 8


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    14.

    MINING INTERESTS (continued)

         
    (d)

    Del Toro Silver Mine, Zacatecas State

         

    The Del Toro Silver Mine is located 60 km to the southeast of the Company’s La Parrilla Silver Mine and consists of 393 contiguous hectares of mining claims and 129 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro Silver Mine consists of two old silver mines, the San Juan and Perseverancia mines, which are approximately one kilometre apart. The Company owns 100% of the Del Toro Silver Mine. In 2011, the Company acquired a neighbouring property during the third quarter called Dolores for $1.5 million. The property includes 12 hectares of land and a small producing mine where a small amount of high grade ore was shipped to La Parrilla by the previous owner.

         
    (e)

    La Luz Silver Project, San Luis Potosi State

         

    The La Luz Silver Project is located near the village of Real de Catorce, 25 km west of the town of Matehuala in San Luis Potosi State, Mexico. The La Luz property consists of 35 mining concessions covering 5,738 hectares. The Company owns 100% of the La Luz Silver Project. In November 2010, the Company agreed to acquire the 3% NSR, the surface rights of the property, the buildings located thereon covering the location of the previous mining operations, and all technical and geological information collected pertaining to the area, in consideration for $3.0 million. Consideration for the purchase consisted of a cash payment of $1.05 million and $1.5 million in shares of the Company in November 2010, and a cash payment of $0.45 million which was paid by January 31, 2011.

         
    (f)

    Jalisco Group of Properties, Jalisco State

         

    The Company also owns the Jalisco Group of Properties which consist of 5,240 hectares of mining claims in Jalisco State, Mexico. On April 15, 2011, a definitive agreement was entered into with Sonora Resources Corp. (the “Optionee”) whereby the Optionee has an option to acquire up to 90% in the Jalisco Group of Properties (the “Properties”) located in the Jalisco State, Mexico. The Optionee issued 10 million shares of common stock with a fair value of $3.4 million to the Company and is committed to spend $3 million over the first three years to earn a 50% interest and $5 million over five years to earn a 70% interest. In order to obtain a 90% interest, the Optionee is required to complete a bankable feasibility study within seven years. First Majestic will retain a 10% free carried interest and a 2.375% NSR. The fair value of common shares received from the Optionee was recorded with a corresponding reduction in the carrying value of the San Martin mining interests during the period.

         
    15.

    PROPERTY, PLANT AND EQUIPMENT

         

    Property, plant and equipment is composed of the following:


          Land and     Machinery and     Assets under     Corporate        
          buildings     equipment     construction     assets     Total  
      Cost                              
      At January 1, 2010 $  7,827   $  25,387   $  32,113   $  1,415   $  66,742  
      Additions   641     11,741     7,007     663     20,052  
      Transfers   6,485     29,904     (36,389 )   -     -  
      At December 31, 2010 $  14,953   $  67,032   $  2,731   $  2,078   $  86,794  
      Additions   1,990     21,102     22,479     945     46,516  
      At September 30, 2011 $  16,943   $  88,134   $  25,210   $  3,023   $  133,310  
                                     
      Accumulated depreciation and amortization                              
      At January 1, 2010 $  (2,566 ) $  (5,177 ) $  -   $  (892 ) $  (8,635 )
      Depreciation and amortization   (919 )   (4,624 )   -     (233 )   (5,776 )
      At December 31, 2010 $  (3,485 ) $  (9,801 ) $  -   $  (1,125 ) $  (14,411 )
      Depreciation and amortization   (955 )   (3,337 )   -     (1,477 )   (5,769 )
      At September 30, 2011 $  (4,440 ) $  (13,138 ) $  -   $  (2,602 ) $  (20,180 )
                                     
      Carrying value                              
      At December 31, 2010 $  11,468   $  57,231   $  2,731   $  953   $  72,383  
      At September 30, 2011 $  12,503   $  74,996   $  25,210   $  421   $  113,130  

    Notes Page 9


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    15.

    PROPERTY, PLANT AND EQUIPMENT (continued)

       

    Mining assets, including land and buildings, machinery and equipment, assets under construction and corporate assets above are allocated as follow:


        La Encantada     La Parrilla     San Martin     Del Toro     La Luz              
        Silver Mine     Silver Mine     Silver Mine     Silver Mine     Silver Project     Corporate     Total  
    Cost                                          
    At January 1, 2010 $  40,118   $  16,161   $  9,331   $  324   $  60   $  748   $  66,742  
    Additions   11,658     3,011     2,124     1,620     1,297     342     20,052  
    Transfers   12     374     (387 )   -     -     1     -  
    At December 31, 2010 $  51,788   $  19,546   $  11,068   $  1,944   $  1,357   $  1,091   $  86,794  
    Additions   10,049     26,449     7,142     1,373     1,072     431     46,516  
    At September 30, 2011 $  61,837   $  45,995   $  18,210   $  3,317   $  2,429   $  1,522   $  133,310  
                                               
    Accumulated depreciation and amortization                                          
    At January 1, 2010 $  (1,854 ) $  (3,629 ) $  (2,765 ) $  -   $  (25 ) $  (362 ) $  (8,635 )
    Depreciation and amortization   (2,370 )   (1,910 )   (1,241 )   -     (12 )   (243 )   (5,776 )
    At December 31, 2010 $  (4,224 ) $  (5,539 ) $  (4,006 ) $  -   $  (37 ) $  (605 ) $  (14,411 )
    Depreciation and amortization   (3,331 )   (1,719 )   (494 )   -     (28 )   (197 )   (5,769 )
    At September 30, 2011 $  (7,555 ) $  (7,258 ) $  (4,500 ) $  -   $  (65 ) $  (802 ) $  (20,180 )
                                               
    Carrying value                                          
    At December 31, 2010 $  47,564   $  14,007   $  7,062   $  1,944   $  1,320   $  486   $  72,383  
    At September 30, 2011 $  54,282   $  38,737   $  13,710   $  3,317   $  2,364   $  720   $  113,130  

    Subsequent to September 30, 2011, the Company pledged certain properties of the San Martin Mine as guarantees as part of its tax appeal process (see Note 26).

    16.

    DEPOSITS ON LONG-TERM ASSETS

    The Company’s deposits on long-term assets are comprised of the following:

          September 30, 2011     December 31, 2010  
      Deposits on equipment $  10,349   $  2,056  
      Deposits on services   789     370  
        $  11,138   $  2,426  

    17.

    TRADE PAYABLES AND ACCRUED LIABILITIES

    The Company’s trade payables and accrued liabilities are primarily comprised of amounts outstanding for purchases relating to mining operations, exploration and evaluation activities and corporate office expenses. The usual credit period for trade purchases is between 30 to 90 days.

    Trade payables and accrued liabilities are comprised of the following items:

          September 30, 2011     December 31, 2010  
      Trade payables $  9,480   $  6,023  
      Accrued l iabilities   15,650     6,279  
      Unearned revenue   80     98  
        $  25,210   $  12,400  

    Notes Page 10


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    18.

    DEBT FACILITIES

       

    In April 2011, the Company entered into an agreement for a pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, $3.0 million was advanced against the Company’s lead concentrate production from the La Parrilla Silver Mine for a period of twelve months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly quotas valued at $250,000. As at September 30, 2011, after delivering monthly quotas of lead concentrates and payments of interest charges, the Company had a remaining balance payable on the pre-payment facility of $1,566,000 (December 31, 2010 - $nil).

       
    19.

    LEASE OBLIGATIONS

       

    The Company has entered into leases for various mining and plant equipment. These leases have terms of 36 to 48 months with interest rates ranging between 7.9% to 12.5%.

       

    The following is a schedule of future minimum lease payments under the finance leases:


          Minimum Lease Payments  
          September 30, 2011     December 31, 2010  
      Less than one year $  4,700   $  1,409  
      More than one year but not more than five years   10,540     2,687  
          15,240     4,096  
      Less: future finance charges   (1,969 )   (519 )
      Present value of minimum lease payments $  13,271   $  3,577  
      Included in the financial s tatements a s:            
             Current portion of lease obligations   3,764     1,160  
             Lease obligations   9,507     2,417  
      Present value of minimum lease payments $  13,271   $  3,577  

    20.

    OTHER FINANCIAL LIABILITIES

       

    The Company has derivative financial liabilities of $6,292,000 representing the unrealized loss on its silver futures investments as at September 30, 2011. The corresponding deposit of $3,700,000 to fulfill the margin requirement is recorded in other financial assets. For the nine months ended September 30, 2011, the Company has a realized gain on silver futures of $8,369,000, resulting in a net gain of $2,041,000 on investment in derivative instruments net of commissions of $36,000.

    Notes Page 11


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    21.

    SHARE CAPITAL

         
    (a)

    Authorized and issued capital

         

    The Company has unlimited authorized common shares with no par value. The movement in the Company’s issued and outstanding capital during the period is as follows:


                      Shares        
          Shares     Amount     to be issued     Total  
                               
      Balance at January 1, 2010   92,648,744   $  218,608   $  247   $  218,855  
      Shares issued for:                        
       Exercise of options   1,131,625     3,452     -     3,452  
       Exercise of warrants   47,500     151     -     151  
      Transfer of equity reserve upon exercise of options   -     1,228     -     1,228  
      Balance at September 30, 2010   93,827,869   $  223,439   $  247   $  223,686  
                               
      Balance at December 31, 2010   97,560,417   $  239,525   $  245   $  239,770  
      Shares issued for:                        
       Exercise of options   2,251,600     9,490     -     9,490  
       Exercise of warrants   5,118,093     17,953     -     17,953  
       Conversion of shares to be issued   4,062     20     (20 )   -  
      Transfer of equity reserve upon exercise of options   -     4,685     -     4,685  
      Balance at September 30, 2011   104,934,172   $  271,673   $  225   $  271,898  

      (b)

    Stock options

         
     

    Under the terms of the Company’s Stock Option Plan, the maximum number of shares reserved for issuance under the Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options granted prior to May 19, 2011 are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter. All stock options granted thereafter are subject to vesting with 25% vesting on first anniversary from the date of grant, and 25% vesting each six months thereafter.

         
     

    The following table summarizes the information about stock options outstanding and exercisable as at September 30, 2011:


          Options Outstanding     Options Exercisable  
                Weighted     Weighted           Weighted     Weighted  
                Average     Average           Average     Average  
          Number of     Exercise Price     Remaining Life     Number of     Exercise Price     Remaining Life  
      Exercise prices (CAD$)   Options     (CAD$/Share)     (Years)     Options     (CAD$/Share)     (Years)  
                                           
      2.01 - 3.00   519,950     2.04     1.30     519,950     2.04     1.30  
      3.01 - 4.00   1,240,625     3.64     1.57     1,194,375     3.63     1.57  
      4.01 - 5.00   1,117,500     4.38     1.03     1,080,000     4.38     1.00  
      10.01 - 20.03   1,367,450     12.69     2.90     614,325     12.53     2.94  
          4,245,525     6.55     1.82     3,408,650     5.23     1.59  

    Notes Page 12


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    21.

    SHARE CAPITAL (continued)

         
    (b)

    Stock options (continued)

         

    The aggregate intrinsic values of vested share options (the market value less the exercise value) at September 30, 2011 and December 31, 2010 were $35.6 million (CAD$36.7 million) and $47.6 million (CAD$47.4 million), respectively.

         

    The changes in stock options issued during the period ended September 30, 2011 and the year ended December 31, 2010 are as follows:


          Nine Months Ended     Year Ended  
          September 30, 2011     December 31, 2010  
                Weighted Average           Weighted Average  
                Exercise Price           Exercise Price  
          Number of Options     (CAD$/Share)     Number of Options     (CAD$/Share)  
      Balance, beginning of the period   6,464,875     5.61     8,603,750     3.50  
      Granted   52,500     18.98     2,003,000     10.03  
      Exercised   (2,251,600 )   4.09     (3,573,125 )   3.16  
      Expired   (20,250 )   12.44     (568,750 )   4.63  
      Balance, end of the period   4,245,525     6.55     6,464,875     5.61  

    During the nine months ended September 30, 2011, 2,251,600 (September 30, 2010 – 1,131,625) stock options were exercised. The weighted average closing share price at date of exercise for the nine months ended September 30, 2011 was CAD$19.27 (September 30, 2010 - CAD$5.42) .

    During the nine months ended September 30, 2011, 52,500 (September 30, 2010 – 560,000) stock options were granted for an aggregate fair value of CAD$494,000 (September 30, 2010 – CAD$897,000).

    The fair value of stock options granted is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:

          Nine Months Ended September 30,  
          2011     2010  
      Weighted average fair value at grant date ($)   9.40     1.60  
      Expected dividend yield (%)   -     -  
      Average risk-free interest rate (%)   1.83     1.54  
      Expected life (years)   3.07     1.88  
      Expected volatility (%)   77.45     83.00  
      Forfeiture rate (%)   5.00     5.00  

    The expected volatility assumption is based on the historical and implied volatility of the Company’s Canadian dollar common share price on the Toronto Stock Exchange. The risk-free interest rate assumption is based on yield curves on Canadian government zero-coupon bonds with a remaining term equal to the stock options’ expected life.

    Notes Page 13


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    21.

    SHARE CAPITAL (continued)

         
    (c)

    Share purchase warrants

         

    As at September 30, 2011, there are no share purchase warrants outstanding.

         

    The changes in share purchase warrants during the nine months ended September 30, 2011 and the year ended December 31, 2010 are as follows:


          Nine Months Ended     Year Ended  
          September 30, 2011     December 31, 2010  
                Weighted Average           Weighted Average  
          Number of     Exercise Price     Number of     Exercise Price  
          Warrants     (CAD$/Share)     Warrants     (CAD$/Share)  
      Balance, beginning of the period   5,142,277     3.44     11,357,465     5.04  
      Exercised   (5,118,093 )   3.44     (1,185,250 )   3.41  
      Cancelled or expired   (24,184 )   3.50     (5,029,938 )   7.06  
      Balance, end of the period   -     -     5,142,277     3.44  

      (d)

    Share capital to be issued

         
     

    On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc. and the San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic.

         
     

    At September 30, 2011, the prior shareholders of First Silver had yet to exchange 105,130 shares (December 31, 2010 – 113,254 shares) of First Silver, exchangeable for 52,565 shares (December 31, 2010 – 56,627 shares) of First Majestic resulting in a remaining value of shares to be issued of $225,000 (December 31, 2010 - $245,000). During the nine months ended September 30, 2011, a total of 4,062 shares were redeemed by prior shareholders of First Silver.

         
     

    Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.

    Notes Page 14


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    22.

    EQUITY RESERVES


          Nine Months Ended     Nine Months Ended  
          September 30, 2011     September 30, 2010  
                   
      Available for sale revaluation reserve (a)            
      Balance at beginning of period $  18   $  (55 )
      Gain (loss) on available for sale securities   527     (99 )
      Balance at end of period   545     (154 )
                   
      Share-based payments reserve (b)            
      Balance at beginning of period   25,170     24,971  
      Share-based payments recognized in profit and loss, and related tax benefit   6,764     2,166  
      Reclassed to share capital for exercise of stock options and warrants   (4,685 )   (1,228 )
      Balance at end of period   27,249     25,909  
                   
      Foreign currency translation reserve (c)            
      Balance at beginning of period   621     -  
      Currency translation gain (loss)   (2,350 )   846  
      Balance at end of period   (1,729 )   846  
                   
      Total equity reserves per statement of financial position $  26,065   $  26,601  

      (a)

    The available for sale reserve principally records the fair value gains or losses related to available-for-sale financial instruments.

         
      (b)

    The share-based payments reserve records the cumulative amount recognized under IFRS 2 in respect of options granted but not exercised to acquire shares of the Company and related tax benefits.

         
      (c)

    The foreign currency translation reserve represents exchange differences arising on the translation of non-US dollar functional currency operations within the Company into the US dollar presentation currency.


    23.

    RETAINED EARNINGS / ACCUMULATED DEFICIT

         

    At September 30, 2011, the Company has retained earnings of $28,111,000 (December 31, 2010 – accumulated deficit of $54,124,000).

         

    No dividends have been paid or declared by the Company since its inception.

         
    24.

    FINANCIAL RISK MANAGEMENT

         

    There are no significant changes in financial risk management compared to the Company’s 2010 annual financial statements except for the following:

         
    (a)

    Liquidity Risk

         

    Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and to support its expansion plans. As at September 30, 2011, the Company has outstanding trade payables of $9.5 million (December 31, 2010 - $6.0 million) which are generally payable in 90 days or less and accrued liabilities of $15.7 million (December 31, 2010 - $6.3 million) which are generally payable within 12 months.

         

    The Company believes it has sufficient cash on hand to meet operating requirements as they arise for at least the next twelve months.

    Notes Page 15


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    24.

    FINANCIAL RISK MANAGEMENT

         
    (a)

    Liquidity Risk (continued)

         

    The Company’s liabilities and commitments have maturities which are summarized below:


                Payments Due By Period        
      Balances in USD$'000   Total     Less than     1 to 3     4 to 5     After 5  
                1 year     years     years     years  
      Finance Lease Obligations $  13,271   $  3,764   $  7,450   $  2,057   $  -  
      Purchase Obligations   19,615     19,615     -     -     -  
      Decommissioning l iabilities   6,355     -     -     -     6,355  
      Trade payables a nd a ccrued l iabilities   25,210     25,210     -     -     -  
      Other financial l iabilities   6,292     6,292     -     -     -  
      Debt facilities   1,566     1,566     -     -     -  
      Ta xes payable   2,596     2,596     -     -     -  
      Total Obligations $  74,905   $  59,043   $  7,450   $  2,057   $  6,355  

      (b)

    Currency Risk

         
     

    Financial instruments that impact the Company’s net earnings or other comprehensive income due to currency fluctuations include Canadian dollar and Mexican peso denominated assets and liabilities. The sensitivity of the Company’s net earnings and other comprehensive income due to changes in the exchange rate between the Canadian dollar and the Mexican peso against the U.S. dollar is included in the table below:


                         
    September 30, 2011
    December 31, 2010
    		 
    Balances in USD$'000               Trade payables     Net assets     Effect of +/- 10%     Net assets     Effect of +/- 10%  
        Cash and cash     Trade and     and accrued     (liabilities)     change in     (liabilities)     change in  
        equivalents     other receivable     liabilities     exposure     currency     exposure     currency  
    Canadian dollar $  79,683   $  77   $  (1,843 ) $  77,917   $  7,792   $  8,174   $  817  
    Mexican peso   6,460     6,499     (18,238 )   (5,279 )   (924 )   (10,726 )   (1,073 )
      $  86,143   $  6,576   $  (20,081 ) $  72,638   $  6,868   $  (2,552 ) $  (256 )

    25.

    SUPPLEMENTAL CASH FLOW INFORMATION


          Three Months Ended     Three Months Ended     Nine Months Ended     Nine Months Ended  
          September 30, 2011     September 30, 2010     September 30, 2011     September 30, 2010  
                               
      Net change in non-cash working capital items:                        
       Decrease (increase) in trade and other receivables $  (2,204 ) $  959   $  (4,384 ) $  846  
       Increase in inventories   (1,478 )   (1,137 )   (2,988 )   (3,029 )
       Decrase (increase) in prepaid expenses and other   3,600     156     (410 )   (511 )
       Increase (decrease) in trade payables and accrued liabilities   2,030     2,469     5,729     3,649  
       Increase (decrease) in taxes payable   (6,523 )   225     2,156     358  
        $  (4,575 ) $  2,672   $  103   $  1,313  
                               
      Non-cash investing and financing activities:                        
           Transfer of contributed surplus upon exercise of options and warrants $  1,444   $  1,003   $  4,686   $  1,228  
           Assets acquired by capital lease   (4,804 )   (1,774 )   (9,004 )   (1,774 )

    Notes Page 16


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    26.

    CONTINGENT LIABILITIES

         

    Due to the size, complexity and nature of the Company’s operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, these matters will not have a material effect on the condensed consolidated interim financial statements of the Company.

         

    During the year, Minera El Pilon, S.A. de C.V., a subsidiary of the Company, received tax assessments from the Mexican tax authority for fiscal years 2004 to 2007 relating to various tax treatments with a maximum potential remittance of approximately $5.6 million (75.7 million Mexican pesos). The Company is currently defending the tax treatments amounting to $3.2 million (43.4 million Mexican pesos) related to 2007 via the administrative appeal process and believes it has a strong defense against the claims. The tax reassessment for 2004 to 2006 amounting to $2.4 million (32.3 million Mexican pesos) are being pursued through tax court, which requires pledging security as guarantees until the end of the trial. As a result, the Company has pledged certain properties of the San Martin Mine as guarantees. The Company believes it is more likely than not that it will defend itself successfully in all claims and therefore has not recorded a provision for the potential tax exposure.

         
    27.

    SUBSEQUENT EVENTS

         

    From October 1, 2011 to November 8, 2011, 75,000 options were granted with an exercise price of CAD$15.99 and expire in five years from the grant date.

         
    28.

    FIRST TIME ADOPTION OF IFRS

         

    The Company adopted IFRS on January 1, 2011 with a transition date of January 1, 2010. The accounting policies set out in Note 3 of the condensed consolidated interim financial statements as at and for the three months ended March 31, 2011 have been applied in preparing the condensed consolidated interim financial statements for the three and nine months ended September 30, 2011. In note 24 of the March 31, 2011 condensed consolidated interim financial statements, the Company reported the impact of the transition to IFRS at January 1, 2010 and December 31, 2010. There were no changes to the reconciliations as previously reported.

         

    The Company applied the following exemptions to its opening statement of financial position dated January 1, 2010 in accordance with IFRS 1, “First-time adoption of International Financial Reporting Standards”, provides guidance for the initial adoption of IFRS. IFRS 1 requires retrospective application of the standards in the transition statement of financial position, with all adjustments to assets and liabilities taken to accumulated deficit unless certain exemptions are applied:

         
    (a)

    Business combinations

         

    The Company has elected to not apply IFRS 3 to business combinations that occurred before the date of transition to IFRS. IFRS 3 has been applied by the Company to business combinations that occurred on or after January 1, 2010.

         
    (b)

    Cumulative translation differences

         

    As permitted by the IFRS 1 election for cumulative translation differences, the Company has deemed cumulative translation differences for foreign operations to be zero at the date of transition. Any gains and losses on subsequent disposal of foreign operations will not be impacted by translation differences that arose prior to the date of transition.

    Notes Page 17


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    28.

    FIRST TIME ADOPTION OF IFRS (continued)

         
    (c)

    Decommissioning liabilities included in the cost of property, plant and equipment

         

    The Company has elected to apply the exemption related to decommissioning liabilities included in the cost of property, plant and equipment. This exemption allows a first-time adopter to apply the requirements of IFRIC 1, dealing with changes in decommissioning liabilities, on a prospective basis from the date of transition.

         
    (d)

    Share-based payment

         

    IFRS 1 encourages, but does not require, first-time adopters to apply IFRS 2 Share-based Payment to equity instruments that were granted on or before November 7, 2002, or equity instruments that were granted subsequent to November 7, 2002 and vested before the date of transition to IFRS. The Company has elected not to apply IFRS 2 to awards which had vested at the date of transition.

         
    (e)

    Fair value as deemed cost

         

    IFRS 1 allows an entity to measure individual items of mining interests and property, plant and equipment at fair value as deemed cost at the date of transition. The Company has elected to apply this exemption to the carrying value of mining interest for the San Martin mine at the date of transition. As a result, an adjustment of $48,945,000, net of deferred income tax recovery of $13,705,000, was recorded to accumulated deficit to adjust the aggregate carrying value of mining interests under previous GAAP to its fair value at January 1, 2010.

         
    (f)

    Estimates

         

    IFRS 1 requires that an entity’s estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the same date under the entity’s previous GAAP, unless there is objective evidence that those estimates were in error. The Company’s IFRS estimates as of January 1, 2010 are consistent with its Canadian GAAP estimates for the same date.

         

    IFRS employs a conceptual framework that is similar to Canadian GAAP. However, significant differences exist in certain matters of recognition, measurement and disclosure. While adoption of IFRS has not changed the Company’s actual cash flows, it has resulted in changes to the Company’s reported financial position and results of operations. In order to allow the users of the financial statements to better understand these changes, the Company’s Canadian GAAP statements of income and statements of financial position for the nine months ended September 30, 2010 and year ended December 31, 2010 have been reconciled to IFRS, with the resulting differences explained below.

         

    The adoption of IFRS does not have a significant impact on the statement of cash flows for the three and nine months ended September 30, 2010 and the year ended December 31, 2010. Therefore, no reconciliation is presented in these condensed consolidated interim financial statements.

    Notes Page 18


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    28.

    FIRST TIME ADOPTION OF IFRS (continued)

       

    The September 30, 2010 Canadian GAAP statement of financial position has been reconciled to IFRS as follows:


          Canadian     Canadian           Effect of        
          GAAP     GAAP         Transition to IFRS       IFRS  
        September 30, 2010     September 30, 2010         September 30, 2010       September 30, 2010  
          CAD$     USD$     Note     USD$     USD$  
                                     
      ASSETS                              
      Current assets                              
      Cash and cash equivalents $  25,506   $  24,768                                 $ -   $  24,768  
      Trade and other receivables   7,781     7,668           -     7,668  
      Inventories   6,803     6,607           -     6,607  
      Prepaid expenses and other   1,945     1,889           -     1,889  
      Total current assets   42,035     40,932           -     40,932  
                                     
      Non-current assets                              
      Mining interests   177,095     164,626     (v)(vi)     (52,804 )   111,822  
      Property, plant and equipment   72,155     67,182     (i)     (740 )   66,442  
      Deposits on long-term assets   1,605     1,558           -     1,558  
      Total assets $  292,890   $  274,298                                 $  (53,544 ) $  220,754  
                                     
      LIABILITIES AND EQUITY                              
      Current liabilities                              
      Trade payables and accrued liabilities $  13,286   $  12,956                                 $  -   $  12,956  
      Current portion of debt facilities   2,692     2,610           -     2,610  
      Current portion of lease obligations   1,422     1,381           -     1,381  
      Taxes payable   488     474           -     474  
      Total current liabilities   17,888     17,421           -     17,421  
                                     
      Non-current liabilities                              
      Lease obligations   1,601     1,555           -     1,555  
      Decommissioning liabilities   4,750     4,606           -     4,606  
      Other long-term liabilities   944     917           -     917  
      Deferred tax liabilities   35,218     34,198     (v)(vi)     (20,452 )   13,746  
      Total liabilities   60,401     58,697           (20,452 )   38,245  
                                     
      Equity                              
      Shareholders' Equity                              
      Share capital   249,524     223,686           -     223,686  
      Equity reserves   28,472     25,508     (iii)     401     25,909  
      Accumulated other comprehensive income (loss)   (34,522 )   (25,633 )   (ii)     26,325     692  
      Accumulated deficit   (10,985 )   (7,960 )   (i)(ii)(iii)(v)(vi)     (59,818 )   (67,778 )
      Total liabilities and equity $  292,890   $  274,298                                   $  (53,544 ) $  220,754  

    Notes Page 19


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    28.

    FIRST TIME ADOPTION OF IFRS (continued)

       

    The Company’s Canadian GAAP income statement and condensed consolidated interim statement of income for the three months ended September 30, 2010 have been reconciled to IFRS as follows:


                Three Months Ended September 30, 2010        
                            Effect of        
          Canadian     Canadian                       Transition to        
          GAAP     GAAP     Note     IFRS     IFRS  
          CAD$     USD$           USD$     USD$  
                                     
      Revenues $  33,466   $  32,614                     $        -   $  32,614  
      Cost of sales   14,218     14,195           -     14,195  
      Gross margin   19,248     18,419           -     18,419  
      Depletion, depreciation and amortization   2,284     2,197     (i)     348     2,545  
      Mine operating earnings   16,964     16,222           (348 )   15,874  
                                     
      General and administration expense   2,520     2,397           -     2,397  
      Share-based payments   584     561     (iii)     (81 )   480  
      Accretion of decommissioning liabilities   94     90           -     90  
      Foreign exchange loss   699     786           -     786  
      Other expenses   145     114           -     114  
      Operating earnings   12,922     12,274           (267 )   12,007  
                                     
      Investment and other income   1,094     1,097           -     1,097  
      Finance costs   (213 )   (205 )         -     (205 )
      Earnings before income taxes   13,803     13,166           (267 )   12,899  
                                     
      Current income tax expense   1     -           -     -  
      Deferred income tax expense   3,523     3,435     (vi)     (593 )   2,842  
          3,524     3,435           (593 )   2,842  
      Net earnings for the period $  10,279   $  9,731                   $       326   $  10,057  
                                     
                                     
      EARNINGS PER COMMON SHARE                              
               BASIC $  0.11                     $  0.11  
               DILUTED $  0.11                     $  0.10  

    Notes Page 20


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    28.

    FIRST TIME ADOPTION OF IFRS (continued)

       

    The Company’s Canadian GAAP income statement and condensed consolidated interim statement of income for the nine months ended September 30, 2010 have been reconciled to IFRS as follows:


                Nine Months Ended September 30, 2010        
                            Effect of        
          Canadian     Canadian         Transition to          
          GAAP     GAAP     Note     IFRS     IFRS  
          CAD$     USD$           USD$     USD$  
                                     
      Revenues $  80,647   $  77,816                   $  -   $  77,816  
      Cost of sales   36,627     35,148           -     35,148  
      Gross margin   44,020     42,668           -     42,668  
      Depletion, depreciation and amortization   6,462     6,238     (i)     740     6,978  
      Mine operating earnings   37,558     36,430           (740 )   35,690  
                                     
      General and administration expense   6,914     6,410           -     6,410  
      Share-based payments   1,928     1,855     (iii)     311     2,166  
      Accretion of decommissioning liabilities   282     272           -     272  
      Foreign exchange loss   283     2,353           -     2,353  
      Other expenses   1,030     1,178           -     1,178  
      Operating earnings   27,121     24,362           (1,051 )   23,311  
                                     
      Investment and other income   1,766     1,751           -     1,751  
      Finance costs   (623 )   (601 )         -     (601 )
      Earnings before income taxes   28,264     25,512           (1,051 )   24,461  
                                     
      Current income tax expense   65     61           -     61  
      Deferred income tax expense   6,017     5,811     (vi)     (2,888 )   2,923  
          6,082     5,872           (2,888 )   2,984  
      Net earnings for the period $  22,182   $  19,640                 $  1,837   $  21,477  
                                     
                                     
      EARNINGS PER COMMON SHARE                              
           BASIC $  0.24                     $  0.23  
           DILUTED $  0.23                     $  0.23  

    Notes Page 21


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    28.

    FIRST TIME ADOPTION OF IFRS (continued)

         
    (i)

    Change in functional currency

         

    Effective January 1, 2010, the Company has changed its presentation currency from the Canadian dollar to US dollar. The Company has determined that the functional currency of its Mexican subsidiaries is the U.S. dollar effective January 1, 2010. Previously, the Company’s subsidiaries had a functional currency of the Mexican peso. The Company has accounted for this change in functional currency on a prospective basis in accordance with the requirements of IAS21, “The Effects of Changes in Foreign Exchange Rates”. With the successful expansion of the La Encantada plant, the Company has achieved consistent profitability in 2010 and the need to access additional financing from the Canadian public markets has been significantly reduced. Also, a substantial portion of the Company’s revenue stream and a significant portion of expenditures are now incurred in U.S. dollars.

         
    (ii)

    Cumulative translation differences

         

    As permitted by the IFRS 1 election for cumulative translation differences, the Company has deemed cumulative translation differences for foreign operations to be zero at the date of transition. Cumulative translation loss at January 1, 2010 was re-allocated from accumulated other comprehensive loss to accumulated deficit.

         
    (iii)

    Share-based payments

         

    IFRS requires each tranche of a share-based award with different vesting dates to be considered a separate grant for purpose of fair value calculation, and the resulting fair value is amortized over the vesting period of the respective tranches. Furthermore, forfeiture estimates are recognized in the period they are estimated.

         

    Under Canadian GAAP, the fair value of share-based awards with graded vesting was calculated as one single grant and the resulting fair value was recognized on a straight-line basis over the longest vesting period. Forfeitures of awards were only recognized in the period the forfeiture occurred.

         
    (iv)

    Decommissioning liabilities

         

    IFRS requires provision for decommissioning liabilities to be estimated based on constructive cash flow discounted based on liability specific risk-free discount rate. The discount rate should be updated periodically at each period end date. Under Canadian GAAP, provision for decommissioning liabilities was estimated based on legal cash flow and discounted based on a risk-adjusted discount rate.

         

    Historical net book value of costs of the related mining properties when the first decommissioning liabilities first arose was adjusted to reflect historical difference in the decommissioning liabilities.

         
    (v)

    Fair value as deemed cost

         

    IFRS 1 allows an entity to measure individual items of property, plant and equipment at fair value at the date of transition. The Company has elected to apply the IFRS 1 exemption to measure its mining interest for the San Martin mine at fair value as deemed cost at January 1, 2010 using a discounted cash flow model under IFRS compared to Canadian GAAP which determines fair value based on undiscounted cash flows. Based on silver prices ranging from $14.50 to $19.30 per ounce and a discount rate of 14.75% used in the discounted cash flow model, an adjustment of $48,945,000, net of future income tax recovery of $13,705,000, was recorded to accumulated deficit to adjust the aggregate carrying value of mining interests under previous Canadian GAAP to its aggregate fair value at January 1, 2010.

    Notes Page 22


    First Majestic Silver Corp.
    NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
    (tabular amounts are expressed in thousands of United States dollars, except share and per share amounts - unaudited)

    28.

    FIRST TIME ADOPTION OF IFRS (continued)

         
    (vi)

    Deferred tax liabilities

         

    IFRS does not allow recognition of deferred taxes for acquisition of assets that do not qualify as a business combination. There is no similar prohibition under Canadian GAAP. As a result, deferred tax liabilities related to the Company’s previous asset acquisitions that did not qualify as business combination were derecognized at transition.

         

    As part of the transition to IFRS, the carrying value of the Company’s property, plant and equipment and mining interests were changed without a change in their respective tax value. Deferred taxes were updated to reflect the change in temporary differences between the carrying value and tax value of these assets.

         
    29.

    APPROVAL OF FINANCIAL STATEMENTS

         

    The Condensed Consolidated Interim Financial Statements of First Majestic Silver Corp. for the period ended September 30, 2011 were approved and authorized for issue by the Board of Directors on November 8, 2011.

    Notes Page 23