EX-99.1 2 ag-2019q2fsxex991.htm EXHIBIT 99.1 Exhibit













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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)















925 West Georgia Street, Suite 1800, 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









 





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Management’s Responsibilities over Financial Reporting


The condensed interim consolidated financial statements of First Majestic Silver Corp. (the “Company”) are the responsibility of the Company’s management. The condensed interim consolidated financial statements are prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board and reflect management’s best estimates and judgment based on information currently available.

Management has developed and maintains a system of internal controls to ensure that the Company’s assets are safeguarded, transactions are authorized and properly recorded, and financial information is reliable.

The Board of Directors is responsible for ensuring management fulfills its responsibilities. The Audit Committee reviews the results of the condensed interim consolidated financial statements prior to their submission to the Board of Directors for approval.

The condensed interim consolidated financial statements have not been audited.





esignaturekna35.jpg
 
esignaturerpa19.jpg
Keith Neumeyer
 
Raymond Polman, CPA, CA
President & CEO
 
Chief Financial Officer
August 6, 2019
 
August 6, 2019







TABLE OF CONTENTS
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
General
 
 
 
 
 
 
 
 
Statements of (Loss) Earnings
 
 
 
 
 
 
 
 
 
 
 
Statements of Financial Position
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other items
 
 
 
 
 
 
 


CONDENSED INTERIM CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 and 2018
Condensed Interim Consolidated Financial Statements - Unaudited
(In thousands of US dollars, except share and per share amounts)










The Condensed Interim Consolidated Statements of (Loss) Earnings provide a summary of the Company’s financial performance and net earnings or loss over the reporting periods.
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Note
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
Revenues
 

$83,669

 

$79,687

 

$170,479

 

$138,280

Mine operating costs
 
 
 
 
 
 
 
 
 
Cost of sales
 
62,772

 
59,285

 
122,119

 
98,966

Depletion, depreciation and amortization
 
 
16,691

 
22,706

 
33,901

 
42,041

 
 
 
79,463

 
81,991

 
156,020

 
141,007

 
 
 
 
 
 
 
 
 
 
Mine operating earnings (loss)
 
 
4,206

 
(2,304
)
 
14,459

 
(2,727
)
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
 
5,966

 
5,201

 
12,466

 
10,069

Share-based payments
 
 
2,017

 
2,247

 
4,092

 
4,763

Mine care and maintenance costs

 
394

 
—

 
1,202

 
—

Impairment of non-current assets

 
—

 
31,660

 
—

 
31,660

Acquisition costs
4
 
—

 
4,877

 
—

 
4,877

Foreign exchange (gain) loss
 
 
(748
)
 
285

 
(3,117
)
 
2,581

Operating loss
 
 
(3,423
)
 
(46,574
)
 
(184
)
 
(56,677
)
 
 
 
 
 
 
 
 
 
 
Investment and other (loss) income
9
 
(87
)
 
1,038

 
1,931

 
(421
)
Finance costs
 
(3,742
)
 
(3,799
)
 
(7,447
)
 
(6,258
)
Loss before income taxes
 
 
(7,252
)
 
(49,335
)
 
(5,700
)
 
(63,356
)
 
 
 
 
 
 
 
 
 
 
Income taxes
 
 
 
 
 
 
 
 
 
Current income tax expense
 
 
500

 
1,680

 
3,964

 
2,374

Deferred income tax expense (recovery)
 
 
4,215

 
(10,982
)
 
(577
)
 
(20,105
)
 
 
 
4,715

 
(9,302
)
 
3,387

 
(17,731
)
 
 
 
 
 
 
 
 
 
 
Net loss for the period
 
 

($11,967
)
 

($40,033
)
 

($9,087
)
 

($45,625
)
 
 
 
 
 
 
 
 
 
 
Loss per common share
 
 
 
 
 
 
 
 
 
     Basic
 

($0.06
)
 

($0.22
)
 

($0.05
)
 

($0.26
)
     Diluted
 

($0.06
)
 

($0.22
)
 

($0.05
)
 

($0.26
)
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
     Basic
 
200,965,605

 
181,126,340

 
198,413,338

 
173,515,346

     Diluted
 
200,965,605

 
181,126,340

 
198,413,338

 
173,515,346


Approved by the Board of Directors
esignaturekna37.jpg
 
esignaturedpa18.jpg
Keith Neumeyer, Director
 
Douglas Penrose, Director

The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 1

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 and 2018
Condensed Interim Consolidated Financial Statements - Unaudited
(In thousands of US dollars)


The Condensed Interim Consolidated Statements of Comprehensive (Loss) Income provide a summary of total comprehensive earnings or loss and summarizes items recorded in other comprehensive income that may or may not be subsequently reclassified to profit or loss depending on future events.

 
Note
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net loss for the period
 

($11,967
)
 

($40,033
)
 

($9,087
)
 

($45,625
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Items that will not be subsequently reclassified to profit or loss:
 
 
 
 
 
 
 
 
Unrealized (loss) gain on fair value of investments in marketable securities
(33
)
 
(350
)
 
117

 
(698
)
Realized gain on investments in marketable securities
123

 
—

 
123

 
—

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
90

 
(350
)
 
240

 
(698
)
 
 
 
 
 
 
 
 
 
Total comprehensive loss
 

($11,877
)
 

($40,383
)
 

($8,847
)
 

($46,323
)


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 2

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 and 2018
Condensed Interim Consolidated Financial Statements - Unaudited
(In thousands of US dollars)


The Condensed Interim Consolidated Statements of Cash Flows provide a summary of movements in cash and cash equivalents during the reporting periods by classifying them as operating, investing or financing activities.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Note
2019
 
2018
 
2019
 
2018
Operating Activities
 
 
 
 
 
 
 
 
Net loss for the period
 

($11,967
)
 

($40,033
)
 

($9,087
)
 

($45,625
)
Adjustments for:
 

 

 

 

Depletion, depreciation and amortization
 
17,149

 
22,876

 
34,813

 
42,398

Share-based payments
 
2,017

 
2,247

 
4,092

 
4,763

Income tax expense (recovery)
 
4,715

 
(9,302
)
 
3,387

 
(17,731
)
Finance costs
3,742

 
3,799

 
7,447

 
6,258

Acquisition costs
—

 
4,877

 
—

 
4,877

Impairment of non-current assets
 
—

 
31,660

 
—

 
31,660

Other
2,073

 
(1,894
)
 
782

 
3,271

Operating cash flows before movements in working capital and taxes
 
17,729

 
14,230

 
41,434

 
29,871

Net change in non-cash working capital items
1,634

 
(2,514
)
 
11,880

 
(8,023
)
Income taxes paid
 
(3,805
)
 
(4,885
)
 
(5,041
)
 
(5,146
)
Cash generated by operating activities
 
15,558

 
6,831

 
48,273

 
16,702

 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
Expenditures on mining interests
 
(17,754
)
 
(17,612
)
 
(37,589
)
 
(34,251
)
Acquisition of property, plant and equipment
 
(8,817
)
 
(8,634
)
 
(18,946
)
 
(14,903
)
Deposits paid for acquisition of non-current assets
 
(1,009
)
 
(1,324
)
 
(1,649
)
 
(2,150
)
Proceeds from disposal of marketable securities
 
195

 
—

 
195

 
—

(Payment for) proceeds from settlement of silver futures
 
(773
)
 
—

 
824

 
—

Primero acquisition costs, net of cash acquired
—

 
(1,006
)
 
—

 
(1,006
)
Cash used in investing activities
 
(28,158
)
 
(28,576
)
 
(57,165
)
 
(52,310
)
 
 
 
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
 
 
 
Proceeds from ATM program, net of share issue costs
16,028

 
—

 
48,486

 
—

Proceeds from exercise of stock options
 
908

 
1,203

 
2,060

 
1,886

Repayment of lease liabilities
(1,042
)
 
(1,246
)
 
(2,048
)
 
(1,956
)
Finance costs paid
 
(631
)
 
(654
)
 
(2,930
)
 
(1,294
)
Net proceeds from debt facilities
—

 
34,006

 
—

 
34,006

Repayment of debt facilities
—

 
(16,000
)
 
—

 
(16,000
)
Repayment of Primero's debt facilities
 
—

 
(106,110
)
 
—

 
(106,110
)
Net proceeds from convertible debentures
 
—

 
—

 
—

 
151,079

Repayment of Scotia debt facilities
 
—

 
(28,890
)
 
—

 
(32,072
)
Shares repurchased and cancelled
 
—

 
(35
)
 
—

 
(1,324
)
Cash provided by (used in) financing activities
 
15,263

 
(117,726
)
 
45,568

 
28,215

 
 
 
 
 
 
 
 
 
Effect of exchange rate on cash and cash equivalents held in foreign currencies
 
419

 
(540
)
 
850

 
(1,520
)
Increase (decrease) in cash and cash equivalents
 
2,663

 
(139,471
)
 
36,676

 
(7,393
)
Cash and cash equivalents, beginning of the period
 
91,457

 
249,239

 
57,013

 
118,141

Cash and cash equivalents, end of period
 

$94,539

 

$109,228

 

$94,539

 

$109,228

 
 
 
 
 
 
 
 
 
Cash
 

$94,539

 

$77,035

 

$94,539

 

$77,035

Short-term investments
 
—

 
32,193

 
—

 
32,193

Cash and cash equivalents, end of period
 

$94,539

 

$109,228

 

$94,539

 

$109,228

 
 
 
 
 
 
 
 
 
Supplemental cash flow information
 
 
 
 
 
 
 

The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 3
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT JUNE 30, 2019 AND DECEMBER 31, 2018
Condensed Interim Consolidated Financial Statements - Unaudited
(In thousands of US dollars)


The Condensed Interim Consolidated Statements of Financial Position provides a summary of assets, liabilities and equity, as well as their current versus non-current nature, as at the reporting date.
 
Note
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
 
 

$94,539

 

$57,013

Trade and other receivables
 
7,743

 
5,599

Value added taxes receivable
22(c)
 
46,862

 
59,665

Income taxes receivable
 
 
1,564

 
982

Inventories
 
28,706

 
32,468

Other financial assets
 
7,641

 
8,458

Prepaid expenses and other
 
 
3,097

 
2,089

Total current assets
 
 
190,152

 
166,274

 
 
 
 
 
 
Non-current assets
 
 
 
 
 
Mining interests
 
453,088

 
435,613

Property, plant and equipment
 
258,148

 
251,084

Right-of-use assets
 
3,785

 
—

Deposits on non-current assets
 
 
2,214

 
3,464

Non-current income taxes receivable

 
19,214

 
18,737

Deferred tax assets
 
 
45,609

 
50,938

Total assets
 
 

$972,210

 

$926,110

 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
Trade and other payables
 

$55,004

 

$50,183

Unearned revenue
 
143

 
3,769

Current portion of debt facilities
 
1,252

 
1,281

Current portion of lease liabilities
 
4,302

 
2,904

Total current liabilities
 
 
60,701

 
58,137

 
 
 
 
 
 
Non-current liabilities
 
 
 
 
 
Debt facilities
 
151,366

 
148,231

Lease liabilities
 
4,203

 
2,943

Decommissioning liabilities
 
 
29,433

 
27,796

Other liabilities
 
 
4,164

 
3,787

Deferred tax liabilities
 
 
81,972

 
90,643

Total liabilities
 
 

$331,839

 

$331,537

 
 
 
 
 
 
Equity
 
 
 
 
 
Share capital
 
 
879,325

 
827,622

Equity reserves
 
 
91,212

 
88,030

Accumulated deficit
 
 
(330,166
)
 
(321,079
)
Total equity
 
 

$640,371

 

$594,573

Total liabilities and equity
 
 

$972,210

 

$926,110

 
 
 
 
 
 
Commitments (Note 15; Note 22(c))
 
 
 
 
 

The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 4

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2019 and 2018
Condensed Interim Consolidated Financial Statements - Unaudited
(In thousands of US dollars, except share and per share amounts)


The Condensed Interim Consolidated Statements of Changes in Equity summarizes movements in equity, including common shares, share capital, equity reserves and retained earnings or accumulated deficit.
 
 Share Capital
 
 Equity Reserves
 

Accumulated deficit
 
 
 Shares
 
 Amount
 
Share-based payments(a)
 
Other comprehensive income(b)
 
Retirement Benefit Plan(c)
 
Equity component of convertible debenture(d)
 
Total equity reserves
 
 Total equity
Balance at December 31, 2017
165,824,164

 

$636,672

 

$65,307

 

($3,004
)
 

$—

 

$—

 

$62,303

 

($116,490
)

$582,485

Net loss for the period
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(45,625
)
(45,625
)
Other comprehensive loss
—

 
—

 
—

 
(698
)
 
—

 
—

 
(698
)
 
—

(698
)
Total comprehensive loss
—

 
—

 
—

 
(698
)
 
—

 
—

 
(698
)
 
(45,625
)
(46,323
)
Share-based payments
—

 
—

 
4,763

 
—

 
—

 
—

 
4,763

 
—

4,763

Equity component of convertible debenture,
net of tax (Note 19(a))
—

 
—

 
—

 
—

 
—

 
19,164

 
19,164

 
—

19,164

Shares issued for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options (Note 21(b))
462,440

 
2,398

 
(512
)
 
—

 
—

 
—

 
(512
)
 
—

1,886

Acquisition of Primero (Note 4)
27,333,184

 
186,959

 
—

 
—

 
—

 
—

 
—

 
—

186,959

Shares repurchased and cancelled
(4,985
)
 
(21
)
 
—

 
—

 
—

 
—

 
—

 
(14
)
(35
)
Shares repurchased for delisting from Bolsa
(230,000
)
 
(899
)
 
—

 
—

 
—

 
—

 
—

 
(390
)
(1,289
)
Balance at June 30, 2018
193,384,803

 

$825,109

 

$69,558

 

($3,702
)
 

$—

 

$19,164

 

$85,020

 

($162,519
)

$747,610

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
193,873,335

 

$827,622

 

$71,715

 

($3,514
)
 

$665

 

$19,164

 

$88,030

 

($321,079
)

$594,573

Net loss for the period
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(9,087
)
(9,087
)
Other comprehensive income
—

 
—

 
—

 
240

 
—

 
—

 
240

 
—

240

Total comprehensive income (loss)
—

 
—

 
—

 
240

 
—

 
—

 
240

 
(9,087
)
(8,847
)
Share-based payments
—

 
—

 
4,092

 
—

 
—

 
—

 
4,092

 
—

4,092

Shares issued for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options (Note 21(b))
508,874

 
2,568

 
(508
)
 
—

 
—

 
—

 
(508
)
 
—

2,060

At-the-Market Distributions (Note 21(a))
8,039,363

 
48,486

 
—

 
—

 
—

 
—

 
—

 
—

48,486

Settlement of restricted share units (Note 21(c))
100,000

 
642

 
(642
)
 
—

 
—

 
—

 
(642
)
 
—

—

Shares cancelled
1,661

 
7

 
—

 
—

 
—

 
—

 
—

 
—

7

Balance at June 30, 2019
202,523,233

 

$879,325

 

$74,657

 

($3,274
)
 

$665

 

$19,164

 

$91,212

 

($330,166
)

$640,371


(a)
Share-based payments reserve records the cumulative amount recognized under IFRS 2 share-based payments in respect of stock options granted, restricted share units and shares purchase warrants issued but not exercised or settled to acquire shares of the Company.
(b)
Other comprehensive income reserve principally records the unrealized fair value gains or losses related to fair value through other comprehensive income ("FVTOCI") financial instruments.
(c)
Retirement benefit plan reserve records re-measurements arising from actuarial gains or losses and return on plan assets in relation to San Dimas' retirement benefit plan.
(d)
Equity component of convertible debenture reserve represents the estimated fair value of its conversion option of $26.3 million, net of deferred tax effect of $7.1 million. This amount is not subsequently remeasured and will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share capital. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance will remain in equity reserves.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 5

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)


1. NATURE OF OPERATIONS

First Majestic Silver Corp. (the “Company” or “First Majestic”) is in the business of silver production, development, exploration, and acquisition of mineral properties with a focus on silver production in Mexico. The Company owns and operates six producing mines: the San Dimas Silver/Gold Mine, the Santa Elena Silver/Gold Mine, the La Encantada Silver Mine, the San Martin Silver Mine, the La Parrilla Silver Mine and the Del Toro Silver Mine.

First Majestic is incorporated in Canada with limited liability under the legislation of the Province of British Columbia and is publicly listed on the New York Stock Exchange under the symbol “AG”, on the Toronto Stock Exchange under the symbol “FR” and on the Frankfurt Stock Exchange under the symbol “FMV”. The Company’s head office and principal address is located at 925 West Georgia Street, Suite 1800, Vancouver, British Columbia, Canada, V6C 3L2.

2. BASIS OF PRESENTATION

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting”, and International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). These condensed interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as at and for the year ended December 31, 2018, as some disclosures from the annual consolidated financial statements have been condensed or omitted.

These condensed interim consolidated financial statements have been prepared on a historical cost basis except for certain items that are measured at fair value including derivative financial instruments (Note 22(a)) and marketable securities (Note 14). All dollar amounts presented are in thousands of United States dollars unless otherwise specified.

These condensed interim 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 consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances, transactions, income and expenses are eliminated on consolidation.

These condensed interim consolidated financial statements were prepared using accounting policies consistent with those in the audited consolidated financial statements as at and for the year ended December 31, 2018, except for the following:

Leases
On January 1, 2019, the Company adopted IFRS 16 - Leases ("IFRS 16") which superseded IAS 17 - Leases. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset. Control is considered to exist if the customer has the right to obtain substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that asset. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on balance sheet accounting model that is similar to the finance lease accounting, with limited exceptions for short-term leases or leases of low value assets.

The Company adopted IFRS 16 on its effective date, using the modified retrospective application method, with the cumulative effect of initially applying the standard recorded as an adjustment to retained earnings and no restatement of comparative information. The Company has elected to measure its right-of-use assets at amounts equal to the associated lease liabilities as at the adoption date, which resulted in a $3.7 million increase in right-of-use assets (note 17) and lease liabilities (note 20), with no adjustment necessary to retained earnings.

The Company has elected to apply the available exemptions as permitted by IFRS 16 to recognize a lease expense on a straight line basis for short term leases (lease term of 12 months or less) and low value leases. The Company has also elected to apply the practical expedient whereby leases whose term ends within 12 months of the date of initial application would be accounted for in the same way as short term leases.

For certain leases, such as vehicles, the Company has also elected to account for the lease and non-lease components as a single lease component.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 6

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

2. BASIS OF PRESENTATION (continued)

Leases (continued)
In transitioning to IFRS 16, the Company analyzed its contracts to identify whether they are or contain a lease arrangement. This analysis identified contracts containing leases that have an equivalent increase to both the Company’s right-of-use assets and lease liabilities. Upon the adoption of IFRS 16, the Company recognized additional right-of-use assets and lease liabilities primarily related to the Company’s equipment and building rental contracts, land easement contracts and service contracts that contain embedded leases for property, plant and equipment. The incremental borrowing rates for lease liabilities initially recognized on adoption of IFRS 16 was 5.8% to 12.4%. Due to the recognition of additional right-of-use assets and lease liabilities, during the six months ended June 30, 2019, depreciation expense increased by $0.6 million and financing costs increased by $0.2 million, respectively, under IFRS 16 compared to the previous standard. Additionally, operating cash flows increased by $0.6 million with a corresponding $0.6 million increase in financing cash outflows.

3. SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

The Company’s management makes judgments in its process of applying the Company’s accounting policies in the preparation of its unaudited condensed interim consolidated financial statements. In addition, the preparation of the financial data requires that the Company’s management to make assumptions and estimates of the impacts of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting impacts on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.

In preparing the Company’s unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2019, the Company applied the critical judgments and estimates disclosed in note 3 of its audited consolidated financial statements for the year ended December 31, 2018 and the following critical judgments and estimates in applying accounting policies:

Leases as a result of adopting IFRS 16

Identifying Whether a Contract Includes a Lease
IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset. The Company had to apply judgment on certain factors, including whether the supplier has substantive substitution rights, does the Company obtain substantially all of the economic benefits and who has the right to direct the use of that asset.

Estimate of Lease Term
When the Company recognizes a lease, it assesses the lease term based on the conditions of the lease and determines whether it will extend the lease at the end of the lease contract, or exercise an early termination option. As it is not reasonably certain that the extension or early termination options will be exercised, the Company determined that the term of its leases are the lesser of original lease term or the life of the mine. This significant estimate could affect future results if the Company extends the lease or exercises an early termination option.

Determining the Discount Rate for Leases
Determining the discount rate for leases IFRS 16 requires the Company to discount the lease payments using the rate implicit in the lease if that rate is readily available. If that rate cannot be readily determined, the lessee is required to use its incremental borrowing rate (“IBR”). The Company generally used its IBR rate when recording leases initially, since the implicit rates were not readily available due to information not being available from the lessor regarding the fair value of underlying assets and direct costs incurred by the lessor related to the leased assets. The IBR for each lease was determined on the commencement date of the lease and recalculated at the re-measurement date, where applicable.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 7

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

4. ACQUISITION OF PRIMERO MINING CORP.
Description of the Transaction
On May 10, 2018, First Majestic completed the acquisition of all of the issued and outstanding common shares (the "Arrangement") of Primero Mining Corp. pursuant to the terms and conditions of an arrangement agreement (the “Arrangement Agreement”) between First Majestic and Primero dated January 11, 2018. Under the terms of the Arrangement Agreement, First Majestic issued an aggregate of 6,418,594 common shares to Primero shareholders, on the basis of 0.03325 of a First Majestic common share for each Primero common share (the "Exchange Ratio").

The Arrangement also provided for the issuance by First Majestic of an aggregate of 221,908 replacement stock options (the "Replacement Options") to the holders of outstanding Primero stock options, at exercise prices adjusted by the Exchange Ratio. Under the Arrangement, all existing warrants of Primero also became exercisable to acquire First Majestic shares at exercise prices adjusted by the Exchange Ratio ("Replacement Warrants"). After the effective date of the Arrangement, such warrants are exercisable for an aggregate of 366,124 common shares of the Company. The fair value of the Replacement Options and Replacement Warrants, determined using a Black-Scholes valuation model, resulted in a nominal value as the exercise prices of the options and warrants are significantly out-of-the-money based on the Exchange Ratio and underlying share price.

With this transaction, First Majestic added the San Dimas Silver/Gold Mine which is located approximately 130 km northwest of Durango, Durango State, Mexico. The mine is accessible via a 40 minute flight from Durango to the mine’s airstrip. The operation consists of an underground mine and a mill with a 2,500 tpd capacity.

Concurrently and in connection and as part of the Arrangement, First Majestic terminated the pre-existing silver purchase agreement with Wheaton Precious Metals Corp. and its subsidiary, Wheaton Precious Metals International Ltd. (“WPMI”), relating to the San Dimas Mine and entered into a new precious metal purchase agreement (the “New Stream Agreement”) with WPMI and FM Metal Trading (Barbados) Inc., a wholly-owned subsidiary of First Majestic. Pursuant to the New Stream Agreement, WPMI is entitled to receive 25% of the gold equivalent production (based on a fixed exchange ratio of 70 silver ounces to 1 gold ounce) at San Dimas in exchange for ongoing payments equal to the lesser of $600 (subject to a 1% annual inflation adjustment) and the prevailing market price, for each gold ounce delivered under the New Stream Agreement. As part of the restructuring of the stream agreement, WPMI received 20,914,590 common shares of First Majestic with an aggregate fair market value of approximately $143.1 million based on the closing price of First Majestic common shares on May 9, 2018 of $6.84. The final common share purchase consideration was determined based on the closing market price of First Majestic’s common shares on the day before the closing date of the Arrangement.



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 8

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

4. ACQUISITION OF PRIMERO MINING CORP. (continued)
Consideration and Purchase Price Allocation
Management has concluded that Primero constitutes a business and, therefore, the acquisition is accounted for in accordance with IFRS 3 - Business Combinations. Total consideration for the acquisition was valued at $187.0 million on the acquisition date. The purchase price allocation, is estimated as follows:
Total Consideration
 
 
 
6,418,594 First Majestic shares to Primero shareholders at $6.84 (CAD$8.80) per share
$
43,903

20,914,590 First Majestic shares to Wheaton Precious Metals Corp. at $6.84 (CAD$8.80) per share
 
143,056

 
 
 
$
186,959

 
 
 
 
Allocation of Purchase Price
 
 
 
Cash and cash equivalents
 
 
$
3,871

Value added taxes receivable
 
 
27,508

Inventories
 
 
15,628

Mining interests
 
 
178,183

Property, plant and equipment
 
 
122,815

Deposit on non-current assets
 
 
60

Non-current income taxes receivable
 
 
19,342

Other working capital items
 
 
(23,792
)
Income taxes payable
 
 
(2,888
)
Debt facilities
 
 
(106,110
)
Decommissioning liabilities
 
 
(4,095
)
Other non-current liabilities
 
 
(4,678
)
Deferred tax liabilities
 
 
(38,885
)
Net assets acquired
 
 
$
186,959


Total transaction costs of $4.9 million related to the acquisition were expensed in the year ended December 31, 2018.

5. SEGMENTED INFORMATION

All of the Company’s operations are within the mining industry and its major products are precious metals doré and precious and base metals concentrates which are refined or smelted into pure silver, gold, lead and zinc and sold to global metal brokers. Transfer prices between reporting segments are set on an arms-length basis in a manner similar to transactions with third parties. Coins and bullion cost of sales are based on transfer prices.

A reporting segment is defined as a component of the Company that:
•
engages in business activities from which it may earn revenues and incur expenses;
•
whose operating results are reviewed regularly by the entity’s chief operating decision maker; and
•
for which discrete financial information is available.

For the three and six months ended June 30, 2019, the Company's reporting segments includes its six operating mines in Mexico. Effective January 1, 2019, the Company no longer considers the La Guitarra mine, which was placed on care and maintenance on August 3, 2018 as a significant reporting segment. Accordingly, it has been grouped in the “others” category for the three and six months ended June 31, 2019 and 2018. “Others” also consists primarily of the Company’s corporate assets including cash and cash equivalents, other development and exploration properties (Note 15), debt facilities (Note 19), intercompany eliminations, and corporate expenses which are not allocated to operating segments. Management evaluates segment performance based on mine operating earnings. Therefore, other income and expense items are not allocated to the segments. The segmented information for the comparative periods have been adjusted to reflect the Company's reporting segments for the reporting period ended June 30, 2019 for consistency.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 9

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

5. SEGMENTED INFORMATION (continued)

Significant information relating to the Company’s reportable operating segments is summarized in the tables below:
Three Months Ended June 30, 2019 and 2018
 
 
 Revenue
 
Cost of sales
 
Depletion, depreciation, and amortization
 
Mine operating earnings (loss)
 
Capital expenditures
Mexico
 
 
 
 
 
 
 
 
 
 
 
San Dimas
2019
 

$46,007

 

$28,086

 

$6,918

 

$11,003

 

$9,180

 
2018
 
27,989

 
18,609

 
4,248

 
5,132

 
4,038

Santa Elena
2019
 
19,792

 
13,704

 
2,921

 
3,167

 
4,648

 
2018
 
21,211

 
12,903

 
3,063

 
5,245

 
4,423

La Encantada
2019
 
7,194

 
8,312

 
2,702

 
(3,820
)
 
3,597

 
2018
 
5,436

 
7,703

 
3,195

 
(5,462
)
 
4,878

San Martin
2019
 
3,990

 
4,872

 
2,363

 
(3,245
)
 
2,035

 
2018
 
8,505

 
5,518

 
2,151

 
836

 
2,168

La Parrilla
2019
 
5,069

 
5,227

 
1,162

 
(1,320
)
 
3,177

 
2018
 
8,425

 
6,524

 
6,097

 
(4,196
)
 
3,250

Del Toro
2019
 
1,559

 
2,465

 
364

 
(1,270
)
 
1,071

 
2018
 
4,526

 
4,815

 
2,089

 
(2,378
)
 
3,169

Others
2019
 
58

 
106

 
261

 
(309
)
 
6,031

 
2018
 
3,595

 
3,213

 
1,863

 
(1,481
)
 
4,685

Consolidated
2019
 

$83,669

 

$62,772

 

$16,691

 

$4,206

 

$29,739

 
2018
 

$79,687

 

$59,285

 

$22,706

 

($2,304
)
 

$26,611


Six Months Ended June 30, 2019 and 2018
 
 
 Revenue
 
Cost of sales
 
Depletion, depreciation, and amortization
 
Mine operating earnings (loss)
 
Capital expenditures
Mexico
 
 
 
 
 
 
 
 
 
 
 
San Dimas
2019
 

$86,892

 

$51,468

 

$13,190

 

$22,234

 

$17,377

 
2018
 
27,989

 
18,609

 
4,248

 
5,132

 
4,038

Santa Elena
2019
 
39,925

 
26,471

 
5,209

 
8,245

 
9,469

 
2018
 
44,941

 
25,485

 
5,903

 
13,553

 
9,265

La Encantada
2019
 
18,767

 
17,347

 
6,186

 
(4,766
)
 
6,447

 
2018
 
13,033

 
15,330

 
6,703

 
(9,000
)
 
8,335

La Parrilla
2019
 
10,526

 
10,945

 
2,462

 
(2,881
)
 
6,002

 
2018
 
16,621

 
12,979

 
12,317

 
(8,675
)
 
6,380

Del Toro
2019
 
3,614

 
5,422

 
718

 
(2,526
)
 
2,052

 
2018
 
10,032

 
9,636

 
4,374

 
(3,978
)
 
5,568

San Martin
2019
 
10,516

 
10,143

 
5,617

 
(5,244
)
 
4,481

 
2018
 
18,142

 
10,849

 
4,313

 
2,980

 
4,266

Others
2019
 
239

 
323

 
519

 
(603
)
 
12,621

 
2018
 
7,522

 
6,078

 
4,183

 
(2,739
)
 
8,865

Consolidated
2019
 

$170,479

 

$122,119

 

$33,901

 

$14,459

 

$58,449

 
2018
 

$138,280

 

$98,966

 

$42,041

 

($2,727
)
 

$46,717



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 10

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

5. SEGMENTED INFORMATION (continued)
At June 30, 2019 and December 31, 2018
 
 
Mining Interests
 
Property, plant and equipment
 
Total
mining assets
 
 Total
assets
 
Total liabilities
 
Producing
 
Exploration
 
 
 
 
Mexico
 
 
 
 
 
 
 
 
 
 
 
 
 
San Dimas
2019
 

$188,634

 

$4,257

 

$117,937

 

$310,828

 

$346,942

 

$52,602

 
2018
 
182,434

 
3,705

 
120,218

 
306,357

 
368,460

 
59,990

Santa Elena
2019
 
42,010

 
11,490

 
38,315

 
91,815

 
113,110

 
17,838

 
2018
 
33,447

 
14,316

 
39,664

 
87,427

 
104,955

 
16,753

La Encantada
2019
 
44,986

 
985

 
42,865

 
88,836

 
112,091

 
10,814

 
2018
 
39,564

 
5,660

 
43,060

 
88,284

 
111,887

 
13,972

San Martin
2019
 
49,036

 
14,056

 
17,368

 
80,460

 
90,744

 
27,421

 
2018
 
50,406

 
12,538

 
18,373

 
81,317

 
92,835

 
23,386

La Parrilla
2019
 
18,159

 
4,842

 
8,620

 
31,621

 
55,598

 
7,271

 
2018
 
17,172

 
3,486

 
7,603

 
28,261

 
52,383

 
9,784

Del Toro
2019
 
9,927

 
3,966

 
5,852

 
19,745

 
35,223

 
6,285

 
2018
 
9,601

 
3,082

 
5,775

 
18,458

 
36,760

 
7,624

Others
2019
 
21,027

 
39,713

 
27,191

 
87,931

 
218,501

 
209,608

 
2018
 
21,027

 
39,175

 
16,391

 
76,593

 
158,830

 
200,028

Consolidated
2019
 

$373,779

 

$79,309

 

$258,148

 

$711,236

 

$972,210

 

$331,839

 
2018
 

$353,651

 

$81,962

 

$251,084

 

$686,697

 

$926,110

 

$331,537


During the three and six months ended June 30, 2019, the Company had five (June 30, 2018 - five) customers that accounted for 100% of its doré and concentrate sales revenue, with one major customer accounting for 83% of total revenue (2018 - two major customers for 72% and 18%).


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 11

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

6. REVENUES

The Company sells metals in the form of doré and concentrates. The Company’s primary product is silver and other metals produced as part of the extraction process, such as gold, lead and zinc, are considered as by-products. Revenues from sale of metal, including by-products, are recorded net of smelting and refining costs.

Revenues for the period are summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Gross revenue by material:
 
 
 
 
 
 
 
 
 
 
 
   Doré

$77,894

92
%
 

$65,913

81
%
 

$158,257

91
%
 

$109,777

77
%
   Concentrate
7,137

8
%
 
15,823

19
%
 
15,057

9
%
 
33,212

23
%
Gross revenue

$85,031

100
%
 

$81,736

100
%
 

$173,314

100
%
 

$142,989

100
%
 
 
 
 
 
 
 
 
 
 
 
 
Gross revenue from payable metals:
 
 
 
 
 
 
 
 
 
 
 
   Silver

$46,844

55
%
 

$47,086

58
%
 

$99,332

57
%
 

$83,193

58
%
   Gold
34,843

41
%
 
28,863

35
%
 
66,874

39
%
 
47,553

33
%
   Lead
1,893

2
%
 
4,096

5
%
 
4,422

3
%
 
8,533

6
%
   Zinc
1,451

2
%
 
1,691

2
%
 
2,686

2
%
 
3,710

3
%
Gross revenue
85,031

100
%
 
81,736

100
%
 
173,314

100
%
 
142,989

100
%
Less: smelting and refining costs
(1,362
)
 
 
(2,049
)
 
 
(2,835
)
 
 
(4,709
)
 
Revenues

$83,669

 
 

$79,687

 
 

$170,479

 
 

$138,280

 

As at June 30, 2019, $0.1 million of revenues that have not satisfied performance obligations were recorded as unearned revenue (December 31, 2018 - $3.8 million) and will be recorded as revenue in the subsequent period. During the six months ended June 30, 2019, revenue related to provisional pricing adjustments on concentrate sales was $0.1 million (2018 - $0.1 million).

(a)
Gold Stream Agreement with Sandstorm Gold Ltd.
The Santa Elena mine has a purchase agreement with Sandstorm Gold Ltd. (“Sandstorm”), which requires the Company to sell 20% of its gold production over the life of mine from its leach pad and a designated area of its underground operations. The selling price to Sandstorm is the lesser of the prevailing market price or $450 per ounce, subject to a 1% annual inflation. During the six months ended June 30, 2019, the Company delivered 3,914 ounces of gold (2018 - 4,869 ounces) to Sandstorm at an average price of $457 per ounce (2018 - $452 per ounce).

(b)
Gold Stream Agreement with Wheaton Precious Metals Corporation
The San Dimas mine has a purchase agreement with WPMI, which entitles WPMI to receive 25% of the gold equivalent production (based on a fixed exchange ratio of 70 silver ounces to 1 gold ounce) at San Dimas in exchange for ongoing payments equal to the lesser of $600 (subject to a 1% annual inflation adjustment) and the prevailing market price, for each gold equivalent ounce delivered under the New Stream Agreement.

During the six months ended June 30, 2019, the Company delivered 21,795 ounces (2018 - 3,738 ounces) of gold equivalent to WPMI at $603 (2018 - $600) per ounce.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 12

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

7. COST OF SALES

Cost of sales excludes depletion, depreciation and amortization and are costs that are directly related to production and generation of revenues at the operating segments. Significant components of cost of sales are comprised of the following:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Consumables and materials

$12,064

 

$13,214

 

$24,488

 

$21,526

Labour costs
33,735

 
25,411

 
61,922

 
43,194

Energy
10,322

 
8,913

 
19,583

 
17,066

Other costs
1,312

 
4,424

 
5,597

 
8,138

Production costs

$57,433

 

$51,962

 

$111,590

 

$89,924

Transportation and other selling costs
734

 
900

 
1,541

 
1,802

Workers participation costs
3,479

 
711

 
5,074

 
1,052

Environmental duties and royalties
341

 
340

 
677

 
595

Inventory changes
785

 
5,372

 
3,237

 
5,593

 

$62,772

 

$59,285

 

$122,119

 

$98,966


8. GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses are incurred to support the administration of the business that are not directly related to production. Significant components of general and administrative expenses are comprised of the following:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Corporate administration

$1,282

 

$1,825

 

$2,322

 

$2,932

Salaries and benefits
2,629

 
2,266

 
6,152

 
4,529

Audit, legal and professional fees
1,267

 
664

 
2,428

 
1,641

Filing and listing fees
127

 
100

 
260

 
250

Directors fees and expenses
204

 
176

 
393

 
360

Depreciation
457

 
170

 
911

 
357

 

$5,966

 

$5,201

 

$12,466

 

$10,069


9. INVESTMENT AND OTHER (LOSS) INCOME

The Company’s investment and other (loss) income are comprised of the following:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Loss from investment in marketable securities (Note 14)
 

($1,314
)
 

($101
)
 

($161
)
 

($2,250
)
Gain (loss) from investment in silver futures derivatives
 
46

 
—

 
(490
)
 
—

Interest income and other
 
1,181

 
1,139

 
2,582

 
1,829

 
 

($87
)
 

$1,038

 

$1,931

 

($421
)


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 13

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

10. FINANCE COSTS

Finance costs are primarily related to interest and accretion expense on the Company’s debt facilities, lease liabilities and accretion of decommissioning liabilities. The Company’s finance costs in the period are summarized as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Debt facilities (Note 19)
 

$2,752

 

$3,083

 

$5,459

 

$4,966

Lease liabilities (Note 20)
 
199

 
142

 
407

 
290

Accretion of decommissioning liabilities
 
606

 
358

 
1,210

 
687

Silver sales and other
 
185

 
216

 
371

 
315

 
 

$3,742

 

$3,799

 

$7,447

 

$6,258


11. EARNINGS OR LOSS PER SHARE

Basic net earnings or loss per share is the net earnings or loss available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted net earnings or loss per share adjusts basic net earnings per share for the effects of potential dilutive common shares.

The calculations of basic and diluted (loss) earnings per share for the period ended June 30, 2019 and 2018 are as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net loss for the period
 

($11,967
)
 

($40,033
)
 

($9,087
)
 

($45,625
)
 
 
 
 
 
 
 
 
 
Weighted average number of shares on issue - basic and diluted(1)
 
200,965,605

 
181,126,340

 
198,413,338

 
173,515,346

 
 
 
 
 
 
 
 
 
Loss per share - basic and diluted
 

($0.06
)
 

($0.22
)
 

($0.05
)
 

($0.26
)

(1)
Diluted weighted average number of shares excluded 9,701,515 (2018 - 5,786,161) options, 10,000 (2018 - nil) restricted share units and 16,327,598 (2018 - 16,327,598) common shares issuable under the convertible debentures (Note 19(a)) that were anti-dilutive for the three and six months ended June 30, 2019.

12. TRADE AND OTHER RECEIVABLES

Trade and other receivables of the Company are comprised of:
 
June 30,
2019
 
December 31, 2018
Trade receivables

$6,645

 

$4,671

Other
1,098

 
928

 

$7,743

 

$5,599



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 14

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

13. INVENTORIES

Inventories consist primarily of materials and supplies and products of the Company’s operations, in varying stages of the production process, and are presented at the lower of weighted average cost or net realizable value. Inventories of the Company are comprised of:
 
June 30,
2019
 
December 31,
2018
Finished goods - doré and concentrates

$1,700

 

$2,538

Work-in-process
2,930

 
4,626

Stockpile
1,454

 
1,257

Silver coins and bullion
280

 
351

Materials and supplies
22,342

 
23,696

 

$28,706

 

$32,468


The amount of inventories recognized as an expense during the period is equivalent to the total of cost of sales plus depletion, depreciation and amortization for the period. As at June 30, 2019, mineral inventories, which consist of stockpile, work-in-process and finished goods, includes a $1.4 million (December 31, 2018 - $3.0 million) net realizable value write-down which was recognized in cost of sales during the period.

14. OTHER FINANCIAL ASSETS

As at June 30, 2019, other financial assets consists of the Company’s investment in marketable securities and foreign exchange derivatives comprised of the following:
 
June 30,
2019
 
December 31,
2018
First Mining Gold Corp. (TSX: FF)

$2,636

 

$2,753

Sprott Physical  Silver Trust (NYSE: PSLV)
2,284

 
2,236

FVTPL marketable securities

$4,920

 

$4,989

FVTOCI marketable securities
1,476

 
1,431

Total marketable securities

$6,396

 

$6,420

Silver future derivatives
724

 
2,038

Foreign exchange derivatives
521

 
—

Total other financial assets

$7,641

 

$8,458


(a)
Marketable Securities
Changes in fair value of marketable securities designated as fair value through profit or loss ("FVTPL") for the six months ended June 30, 2019 totalling $0.2 million (2018 - $2.3 million) are recorded through profit or loss.

Changes in fair value of marketable securities designated as fair value through other comprehensive income ("FVTOCI") for the period ended June 30, 2019 was $0.2 million (2018 - $0.7 million) and was recorded through other comprehensive income and will not be transferred into profit or loss upon disposition or impairment.

(b) Silver Future Derivatives
As at June 30, 2019, the Company carried a long position of 200 silver future contracts for 1,000,000 ounces of silver. The silver future derivatives carried a $0.7 million balance (December 31, 2018 ‐ $2.0 million) primarily consisting of $0.7 million in deposits. For the period ended June 30, 2019, the Company recognized a $0.5 million net loss on its investment in silver future derivatives (2018 - $nil).

The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 15

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

15. MINING INTERESTS

Mining interests primarily consist of acquisition, development and exploration costs directly related to the Company’s operations and projects. Upon commencement of commercial production, mining interests for producing properties are depleted on a units-of-production basis over the estimated economic life of the mine. In applying the units of production method, depletion is determined using quantity of material extracted from the mine in the period as a portion of total quantity of material, based on reserves and resources, considered to be highly probable to be economically extracted over the life of mine plan.

The Company’s mining interests are comprised of the following:
 
June 30,
2019
 
December 31,
2018
Producing properties

$373,779

 

$353,651

Exploration properties (non-depletable)
79,309

 
81,962

 

$453,088

 

$435,613


Producing properties are allocated as follows:
Producing properties
San Dimas
 
Santa Elena
 
La Encantada
 
La Parrilla
 
Del Toro
 
San Martin
 
La Guitarra
 
Total
Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017

$—

 

$36,371

 

$88,627

 

$155,351

 

$104,635

 

$90,955

 

$106,691

 

$582,630

Additions
11,030

 
7,609

 
5,787

 
8,336

 
6,241

 
3,988

 
2,686

 
45,677

Acquisition of Primero (Note 4)
178,183

 
—

 
—

 
—

 
—

 
—

 
—

 
178,183

Change in decommissioning liabilities
4,092

 
(633
)
 
3,122

 
—

 
—

 
—

 
—

 
6,581

Transfer from exploration properties
—

 
1,694

 
1,900

 
—

 
—

 
—

 
—

 
3,594

At December 31, 2018

$193,305

 

$45,041

 

$99,436

 

$163,687

 

$110,876

 

$94,943

 

$109,377

 

$816,665

Additions
11,062

 
3,332

 
2,689

 
3,406

 
857

 
2,090

 
—

 
23,436

Transfer from exploration properties
2,456

 
7,462

 
5,659

 
—

 
—

 
—

 
—

 
15,577

At June 30, 2019

$206,823

 

$55,835

 

$107,784

 

$167,093

 

$111,733

 

$97,033

 

$109,377

 

$855,678

Accumulated depletion, amortization and impairment
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017

$—

 

($7,639
)
 

($55,564
)
 

($62,144
)
 

($67,154
)
 

($40,317
)
 

($62,594
)
 

($295,412
)
Depletion and amortization
(10,871
)
 
(3,955
)
 
(4,308
)
 
(16,470
)
 
(4,850
)
 
(4,220
)
 
(3,102
)
 
(47,776
)
Impairment
—

 
—

 
—

 
(67,901
)
 
(29,271
)
 
—

 
(22,654
)
 
(119,826
)
At December 31, 2018

($10,871
)
 

($11,594
)
 

($59,872
)
 

($146,515
)
 

($101,275
)
 

($44,537
)
 

($88,350
)
 

($463,014
)
Depletion and amortization
(7,318
)
 
(2,231
)
 
(2,926
)
 
(2,419
)
 
(531
)
 
(3,460
)
 
—

 
(18,885
)
At June 30, 2019

($18,189
)
 

($13,825
)
 

($62,798
)
 

($148,934
)
 

($101,806
)
 

($47,997
)
 

($88,350
)
 

($481,899
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carrying values
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2018

$182,434

 

$33,447

 

$39,564

 

$17,172

 

$9,601

 

$50,406

 

$21,027

 

$353,651

At June 30, 2019

$188,634

 

$42,010

 

$44,986

 

$18,159

 

$9,927

 

$49,036

 

$21,027

 

$373,779



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 16

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

15. MINING INTERESTS (continued)

Exploration properties are allocated as follows:
Exploration properties
San Dimas
 
Santa Elena
 
La Encantada  
 
La Parrilla
 
Del Toro
 
San Martin 
 
La Guitarra
 
Other
 
Total
Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017

$—

 

$7,777

 

$5,221

 

$13,982

 

$10,117

 

$9,599

 

$10,385

 

$29,847

 

$86,928

Exploration and evaluation expenditures
3,705

 
8,233

 
2,339

 
3,291

 
2,363

 
2,939

 
1,337

 
3,593

 
27,800

Impairment
—

 
—

 
—

 
(13,787
)
 
(9,398
)
 
—

 
(5,987
)
 
—

 
(29,172
)
Transfer to producing properties
—

 
(1,694
)
 
(1,900
)
 
—

 
—

 
—

 
—

 
—

 
(3,594
)
At December 31, 2018

$3,705

 

$14,316

 

$5,660

 

$3,486

 

$3,082

 

$12,538

 

$5,735

 

$33,440

 

$81,962

Exploration and evaluation expenditures
3,008

 
4,636

 
984

 
1,356

 
884

 
1,518

 
—

 
538

 
12,924

Transfer to producing properties
(2,456
)
 
(7,462
)
 
(5,659
)
 
—

 
—

 
—

 
—

 
—

 
(15,577
)
At June 30, 2019

$4,257

 

$11,490

 

$985

 

$4,842

 

$3,966

 

$14,056

 

$5,735

 

$33,978

 

$79,309


(a)
San Dimas Silver/Gold Mine, Durango State

The San Dimas Mine has a gold and silver streaming agreement with WPMI which entitles WPMI to receive 25% of the gold equivalent production (based on a fixed exchange ratio of 70 silver ounces to 1 gold ounce) at San Dimas in exchange for ongoing payments equal to the lesser of $600 (subject to a 1% annual inflation adjustment commencing in May 2019) and the prevailing market price, for each gold equivalent ounce delivered under the New Stream Agreement.

(b)
Santa Elena Silver/Gold Mine, Sonora State

The Santa Elena Mine has a gold streaming agreement with Sandstorm, which requires the mine to sell 20% of its life of mine gold production from its leach pad and a designated area of its underground operations to Sandstorm. The selling price to Sandstorm is the lesser of $450 per ounce, subject to a 1% annual inflation increase commencing in April 2018, and the prevailing market price.

In December 2016, the Company entered into an option agreement with Compania Minera Dolores, S.A. de C.V., a subsidiary of Pan American Silver Corp., to acquire the Los Hernandez Property, consisting of 5,802 hectares of mining concessions north of the Santa Elena mine. In exchange, First Majestic has agreed to incur $1.6 million in exploration costs on the property over four years, grant a 2.5% NSR royalty on the related concessions, and to pay $1.4 million in option payments, of which $0.5 million has been paid, $0.2 million due in December 2019 and $0.7 million in December 2020.

(c) Del Toro Silver Mine, Zacatecas State

In October 2016, the Company entered into an agreement to acquire 7,205 hectares of mining concessions adjacent to the Del Toro Silver Mine. The total purchase price amounted to $1.5 million, payable over six equal payments every six months. As at June 30, 2019, $1.3 million (December 31, 2018 - $1.2 million) has been paid.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 17

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

16. PROPERTY, PLANT AND EQUIPMENT

The majority of the Company's property, plant and equipment is used in the Company's six operating mine segments. Property, plant and equipment is depreciated using either the straight-line or units-of-production method over the shorter of the estimated useful life of the asset or the expected life of mine. Where an item of property, plant and equipment comprises of major components with different useful lives, the components are accounted for as separate items of property, plant and equipment. Assets under construction are recorded at cost and re-allocated to land and buildings, machinery and equipment or other when they become available for use.

Property, plant and equipment are comprised of the following: 
 
Land and Buildings(1)
 
Machinery and Equipment
 
Assets under Construction
 
Other
 
Total
Cost
 
 
 
 
 
 
 
 
 
At December 31, 2017

$134,398

 

$341,899

 

$21,949

 

$14,711

 

$512,957

Additions
9

 
4,411

 
28,669

 
621

 
33,710

Acquisition of Primero (Note 4)
40,404

 
70,064

 
7,169

 
5,178

 
122,815

Transfers and disposals
3,053

 
14,488

 
(22,114
)
 
2,900

 
(1,673
)
At December 31, 2018

$177,864

 

$430,862

 

$35,673

 

$23,410

 

$667,809

Additions
—

 
857

 
21,218

 
14

 
22,089

Transfers and disposals
6,382

 
3,151

 
(10,589
)
 
(45
)
 
(1,101
)
At June 30, 2019

$184,246

 

$434,870

 

$46,302

 

$23,379

 

$688,797

 
 
 
 
 
 
 
 
 
 
Accumulated depreciation, amortization and impairment
 
 
 
 
 
 
At December 31, 2017

($86,404
)
 

($223,353
)
 

$—

 

($11,148
)
 

($320,905
)
Depreciation and amortization
(8,215
)
 
(36,650
)
 
—

 
(1,777
)
 
(46,642
)
Transfers and disposals
—

 
1,464

 
—

 
48

 
1,512

Impairment
(16,639
)
 
(33,420
)
 
—

 
(631
)
 
(50,690
)
At December 31, 2018

($111,258
)
 

($291,959
)
 

$—

 

($13,508
)
 

($416,725
)
Depreciation and amortization
(2,672
)
 
(11,179
)
 
—

 
(1,128
)
 
(14,979
)
Transfers and disposals
271

 
713

 
—

 
71

 
1,055

At June 30, 2019

($113,659
)
 

($302,425
)
 

$—

 

($14,565
)
 

($430,649
)
 
 
 
 
 
 
 
 
 
 
Carrying values
 
 
 
 
 
 
 
 
 
At December 31, 2018

$66,606

 

$138,903

 

$35,673

 

$9,902

 

$251,084

At June 30, 2019

$70,587

 

$132,445

 

$46,302

 

$8,814

 

$258,148


(1) Included in land and buildings is $11.5 million (December 31, 2018 - $11.5 million) of land which is not subject to depreciation.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 18

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

16. PROPERTY, PLANT AND EQUIPMENT (continued)

Property, plant and equipment, including land and buildings, machinery and equipment, assets under construction and other assets above are allocated by mine as follow:
 
San Dimas
 
Santa Elena
 
La Encantada
 
La Parrilla
 
Del Toro
 
San Martin
 
La Guitarra
 
Other
 
Total
Cost
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

At December 31, 2017

$—

 

$73,684

 

$124,198

 

$96,491

 

$117,201

 

$47,541

 

$28,115

 

$25,727

 

$512,957

Additions
5,750

 
3,066

 
8,812

 
2,564

 
3,016

 
2,375

 
1,296

 
6,831

 
33,710

Acquisition of Primero (Note 4)
122,815

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
122,815

Transfers and disposals
(802
)
 
(79
)
 
(864
)
 
(9
)
 
1,311

 
1,784

 
(2,648
)
 
(366
)
 
(1,673
)
At December 31, 2018

$127,763

 

$76,671

 

$132,146

 

$99,046

 

$121,528

 

$51,700

 

$26,763

 

$32,192

 

$667,809

Additions
3,307

 
1,501

 
2,774

 
1,240

 
311

 
873

 
—

 
12,083

 
22,089

Transfers and disposals
(20
)
 
444

 
399

 
(1,145
)
 
(439
)
 
45

 
(334
)
 
(51
)
 
(1,101
)
At June 30, 2019

$131,050

 

$78,616

 

$135,319

 

$99,141

 

$121,400

 

$52,618

 

$26,429

 

$44,224

 

$688,797

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated depreciation, amortization and impairment
 
 
 
 
 
 
 
 
 
 
At December 31, 2017

$—

 

($28,898
)
 

($80,269
)
 

($52,984
)
 

($93,579
)
 

($27,789
)
 

($21,654
)
 

($15,732
)
 

($320,905
)
Depreciation and amortization
(8,179
)
 
(8,397
)
 
(9,646
)
 
(8,489
)
 
(3,761
)
 
(4,388
)
 
(2,161
)
 
(1,621
)
 
(46,642
)
Transfers and disposals
634

 
288

 
829

 
92

 
(804
)
 
(1,150
)
 
1,546

 
77

 
1,512

Impairment
—

 
—

 
—

 
(30,062
)
 
(17,609
)
 
—

 
(3,019
)
 
—

 
(50,690
)
At December 31, 2018

($7,545
)
 

($37,007
)
 

($89,086
)
 

($91,443
)
 

($115,753
)
 

($33,327
)
 

($25,288
)
 

($17,276
)
 

($416,725
)
Depreciation and amortization
(5,533
)
 
(2,949
)
 
(3,204
)
 
(46
)
 
(136
)
 
(2,039
)
 
—

 
(1,072
)
 
(14,979
)
Transfers and disposals
(35
)
 
(345
)
 
(164
)
 
968

 
341

 
116

 
132

 
42

 
1,055

At June 30, 2019

($13,113
)
 

($40,301
)
 

($92,454
)
 

($90,521
)
 

($115,548
)
 

($35,250
)
 

($25,156
)
 

($18,306
)
 

($430,649
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carrying values
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

At December 31, 2018

$120,218

 

$39,664

 

$43,060

 

$7,603

 

$5,775

 

$18,373

 

$1,475

 

$14,916

 

$251,084

At June 30, 2019

$117,937

 

$38,315

 

$42,865

 

$8,620

 

$5,852

 

$17,368

 

$1,273

 

$25,918

 

$258,148




The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 19

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

17. RIGHT-OF-USE ASSETS

The Company entered into operating leases to use certain land, building, mining equipment and corporate equipment for its operations. Upon the adoption of IFRS 16, which became effective January 1, 2019 (see note 2), the Company is required to recognize right-of-use assets representing its right to use these underlying leased asset over the lease term.

Right-of-use asset is initially measured at cost, equivalent to its obligation to payments over the term of the respective operating leases, and subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation is recorded on a straight-line basis over the shorter period of lease term and useful life of the underlying asset.

Right-of-use assets are comprised of the following: 
 
Land and Buildings
 
Machinery and Equipment
 
Other
 
Total
At December 31, 2018

$—

 

$—

 

$—

 

$—

Initial adoption of IFRS 16 (Note 2)
2,624

 
1,036

 
22

 
3,682

Additions
170

 
585

 
—

 
755

Remeasurements
—

 
(41
)
 
—

 
(41
)
Depreciation and amortization
(323
)
 
(284
)
 
(4
)
 
(611
)
At June 30, 2019

$2,471

 

$1,296

 

$18

 

$3,785


18. TRADE AND OTHER PAYABLES

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

Trade and other payables are comprised of the following items:
 
June 30,
2019
 
December 31,
2018
Trade payables

$20,817

 

$26,420

Trade related accruals
16,040

 
9,351

Payroll and related benefits
15,750

 
11,255

Environmental duty
686

 
1,536

Other accrued liabilities
1,711

 
1,621

 

$55,004

 

$50,183



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 20

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

19. DEBT FACILITIES

The movement in debt facilities during the six months ended June 30, 2019 and year ended December 31, 2018, respectively, are comprised of the following:
 
 
Convertible Debentures
(a)
 
Revolving Credit Facility
(b)
 
Scotia
Debt Facilities
 
Primero Debt Facilities
 
Total
Balance at December 31, 2017
 

$—

 

$—

 

$31,769

 

$—

 

$31,769

Net proceeds from convertible debentures
 
151,079

 
—

 
—

 
—

 
151,079

Portion allocated to equity reserves
 
(26,252
)
 
—

 
—

 
—

 
(26,252
)
Net proceeds from revolving credit facility
 
—

 
34,006

 
—

 
—

 
34,006

Acquisition of Primero (Note 4)
 
—

 
—

 
—

 
106,111

 
106,111

Finance costs
 
 
 
 
 
 
 
 
 
 
Interest expense
 
2,738

 
1,170

 
529

 
—

 
4,437

Accretion
 
4,978

 
419

 
555

 
—

 
5,952

Repayments of principal
 
—

 
(16,000
)
 
(32,072
)
 
(106,111
)
 
(154,183
)
Payments of finance costs
 
(1,736
)
 
(890
)
 
(781
)
 
—

 
(3,407
)
Balance at December 31, 2018
 

$130,807

 

$18,705

 

$—

 

$—

 

$149,512

Finance costs
 
 
 
 
 
 
 
 
 
 
Interest expense
 
1,475

 
849

 
—

 
—

 
2,324

Accretion
 
2,808

 
327

 
—

 
—

 
3,135

Payments of finance costs
 
(1,465
)
 
(888
)
 
—

 
—

 
(2,353
)
Balance at June 30, 2019
 

$133,625

 

$18,993

 

$—

 

$—

 

$152,618

 
 
 
 
 
 
 
 
 
 
 
Statements of Financial Position Presentation
 
 
 
 
 
 
 
 
 
 
Current portion of debt facilities
 

$1,002

 

$279

 

$—

 

$—

 

$1,281

Non-current portion of debt facilities
 
129,805

 
18,426

 
—

 
—

 
148,231

Balance at December 31, 2018
 

$130,807

 

$18,705

 

$—

 

$—

 

$149,512

Current portion of debt facilities
 

$1,011

 

$241

 

$—

 

$—

 

$1,252

Non-current portion of debt facilities
 
132,614

 
18,752

 
—

 
—

 
151,366

Balance at June 30, 2019
 

$133,625

 

$18,993

 

$—

 

$—

 

$152,618


(a)
Convertible Debentures
During the first quarter of 2018, the Company issued $156.5 million of unsecured senior convertible debentures (the “Notes”). The Company received net proceeds of $151.1 million after transaction costs of $5.4 million. The Notes mature on March 1, 2023 and bear an interest rate of 1.875% per annum, payable semi-annually in arrears in March and September of each year.

The Notes are convertible into common shares of the Company at any time prior to maturity at a conversion rate of 104.3297 common shares per $1,000 principal amount of Notes converted, representing an initial conversion price of $9.59 per common share, subject to certain anti-dilution adjustments. In addition, if certain fundamental changes occur, holders of the Notes may be entitled to an increased conversion rate.

The Company may not redeem the Notes before March 6, 2021, except in the event of certain changes in Canadian tax law. At any time on or after March 6, 2021 and until maturity, the Company may redeem all or part of the Notes for cash if the last reported share price of the Company’s common shares for 20 or more trading days in a period of 30 consecutive trading days exceeds 130% of the conversion price. The redemption price will equal to the sum of: (i) 100% of the principal amount of the notes to be redeemed and (ii) accrued and unpaid interest, if any, to the redemption date.



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 21

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

19. DEBT FACILITIES (continued)

(a)
Convertible Debentures (continued)
The Company is required to offer to purchase for cash all of the outstanding Notes upon a fundamental change, at a cash purchase price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest, if any, to the fundamental change purchase date.

The component parts of the convertible debentures, a compound instrument, are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company's own equity instrument is an equity instrument.

At initial recognition, net proceeds of $151.1 million from the Notes were allocated into its debt and equity components. The fair value of the debt portion was estimated at $124.8 million using a discounted cash flow model method with an expected life of five years and a discount rate of 6.14%. This amount is recorded as a financial liability on an amortized cost basis using the effective interest method using an effective interest rate of 6.47% until extinguished upon conversion or at its maturity date.

The conversion option is classified as equity and was estimated based on the residual value of $26.3 million. This amount is not subsequently remeasured and will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share capital. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance will remain in equity reserves. Deferred tax liability of $7.1 million related to taxable temporary difference arising from the equity portion of the convertible debenture was recognized in equity reserves.

Transaction costs of $5.4 million that relate to the issuance of the convertible debentures were allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the life of the convertible debentures using the effective interest method.

(b)
Revolving Credit Facility
On May 10, 2018, the Company entered into a $75.0 million senior secured revolving credit facility ("Revolving Credit Facility") with the Bank of Nova Scotia, Bank of Montreal and Investec Bank PLC, as lenders. The Revolving Credit Facility will mature on its third anniversary date. Interest on the drawn balance will accrue at LIBOR plus an applicable range of 2.25% to 3.5% while the undrawn portion is subject to a standby fee with an applicable range of 0.5625% to 0.875%, dependent on certain financial parameters of First Majestic. As at June 30, 2019, the applicable rates were 5.2% and 0.6875%, respectively.

These debt facilities are guaranteed by certain subsidiaries of the Company and are also secured by a first priority charge against the assets of the Company, and a first priority pledge of shares of the Company’s subsidiaries.

The Revolving Credit Facility includes financial covenants, to be tested quarterly on a consolidated basis, requiring First Majestic to maintain the following: (a) a leverage ratio based on total debt to rolling four quarters adjusted EBITDA of not more than 3.00 to 1.00; (b) an interest coverage ratio, based on rolling four quarters adjusted EBITDA divided by interest payments, of not less than 4.00 to 1.00; and (c) tangible net worth of not less than $563.5 million plus 50% of its positive earnings subsequent to June 30, 2018. The debt facilities also provide for negative covenants customary for these types of facilities and allows the Company to enter into finance leases up to $30.0 million. As at June 30, 2019 and December 31, 2018, the Company was in compliance with these covenants.



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 22

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

20. LEASE LIABILITIES

The Company has finance leases, operating leases and equipment financing liabilities for various mine and plant equipment, office space and land. Finance leases and equipment financing obligations require underlying assets to be pledged as security against the obligations and all of the risks and rewards incidental to ownership of the underlying asset being transferred to the Company. For operating leases, the Company controls but does not have ownership of the underlying right-of-use assets.

Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Lease liabilities are subsequently measured at amortized cost using the effective interest rate method, and adjusted for interest and lease payments.

Certain lease agreements may contain lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, the Company has elected to account for the lease and non-lease components as a single lease component.

The movement in lease liabilities during the three months ended June 30, 2019 and year ended December 31, 2018, respectively, are comprised of the following:
 
Finance
Leases
(a)
 
Operating Leases
(b)
 
Equipment Financing
(c)
 
Total
Balance at December 31, 2017

$2,109

 

$—

 

$7,196

 

$9,305

Finance costs
80

 
—

 
444

 
524

Repayments of principal
(1,700
)
 
—

 
(1,846
)
 
(3,546
)
Payments of finance costs
(80
)
 
—

 
(356
)
 
(436
)
Balance at December 31, 2018

$409

 

$—

 

$5,438

 

$5,847

Initial adoption of IFRS 16 (Note 2)
—

 
3,682

 
—

 
3,682

Additions
—

 
723

 
—

 
723

Finance costs
13

 
209

 
185

 
407

Repayments of principal
(196
)
 
(623
)
 
(1,229
)
 
(2,048
)
Payments of finance costs
(13
)
 
—

 
(202
)
 
(215
)
Foreign exchange loss
—

 
109

 
—

 
109

Balance at June 30, 2019

$213

 

$4,100

 

$4,192

 

$8,505

Statements of Financial Position Presentation
 
 
 
 
 
 
 
Current portion of lease liabilities

$352

 

$—

 

$2,552

 

$2,904

Lease liabilities
57

 
—

 
2,886

 
2,943

Balance at December 31, 2018

$409

 

$—

 

$5,438

 

$5,847

Current portion of lease liabilities

$213

 

$1,552

 

$2,537

 

$4,302

Lease liabilities
—

 
2,548

 
1,655

 
4,203

Balance at June 30, 2019

$213

 

$4,100

 

$4,192

 

$8,505


(a)
Finance Leases
From time to time, the Company purchases equipment under finance leases, with terms ranging from 24 to 48 months with interest rates ranging from 6.9% to 7.5%.

As at June 30, 2019, the net book value of property, plant and equipment includes $0.5 million (December 31, 2018 -$0.6 million) of equipment in property, plant and equipment pledged as security under finance leases.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 23

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

20. LEASE LIABILITIES (continued)

(b) Operating Leases
Upon the adoption of IFRS 16, the Company recognized $3.7 million in operating lease liabilities as at January 1, 2019, primarily related to certain equipment and building rental contracts, land easement contracts and service contracts that contain embedded leases for property, plant and equipment.

These operating leases have remaining lease terms of one to 10 years, some of which include options to terminate the leases within a year, with incremental borrowing rates ranging from 5.8% to 12.4%.

(c) Equipment Financing
During 2017, the Company entered into a $7.9 million credit facility with repayment terms ranging from 12 to 16 equal quarterly installments in principal plus related interest. The facility bears an interest rate of LIBOR plus 4.60%. Proceeds from the equipment financing were primarily used for the purchase and rehabilitation of property, plant and equipment. The equipment financing is secured by certain equipment of the Company and is subject to various covenants, including the requirement for First Majestic to maintain a leverage ratio based on total debt to rolling four quarters adjusted EBITDA. As at June 30, 2019 and year ended December 31, 2018, the Company was in compliance with these covenants.

As at June 30, 2019, the net book value of property, plant and equipment includes $4.2 million (December 31, 2018 - $4.6 million) of equipment pledged as security for the equipment financing.

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 summarized in the consolidated statements of changes in equity.

In May 2018, the Company completed an arrangement agreement to acquire all of the issued and outstanding shares of Primero by issuing 27,333,363 common shares at a price of $6.84 (CAD$8.80) based on the Company’s quoted market price as at the acquisition date. See Note 4 for details.

In 2018, the Company filed a prospectus supplement to the short form base shelf prospectus, pursuant to which the Company may, at its discretion and from time-to-time, sell common shares of the Company for aggregate gross proceeds of up to $50.0 million. The sale of common shares would be made through “at-the-market distributions” ("ATM"), as defined in the Canadian Securities Administrators’ National Instrument 44-102 Shelf Distributions, directly on the New York Stock Exchange. During the six months ended June 30, 2019, First Majestic sold 8,039,363 common shares of the Company under the ATM program at an average price of $6.22 per share for gross proceeds of $50.0 million, or net proceeds of $48.5 million after costs.

(b)
Stock options

Under the terms of the Company’s 2019 Long-Term Incentive Plan ("LTIP"), the maximum number of shares reserved for issuance under the LTIP is 8% of the issued shares on a rolling basis. Options may be exercisable over periods of up to ten 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 are subject to vesting with 25% vesting on first anniversary from the date of grant, and 25% vesting each six months thereafter.




The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 24

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

21. SHARE CAPITAL (continued)

(b)
Stock options (continued)
The following table summarizes information about stock options outstanding as at June 30, 2019:
 
    Options Outstanding    
 
    Options Exercisable    
Exercise prices (CAD$)
Number of
Options
 
Weighted Average Exercise Price (CAD $/Share)
 
Weighted Average Remaining Life (Years)
 
Number of
Options
 
Weighted Average Exercise Price (CAD $/Share)
 
Weighted Average Remaining Life (Years)
4.69 - 5.00
1,245,707

 
4.79

 
1.51

 
1,245,707

 
4.79

 
1.51

5.01 - 10.00
5,105,793

 
8.03

 
7.31

 
1,485,947

 
7.18

 
3.54

10.01 - 15.00
3,018,102

 
11.03

 
2.71

 
2,454,203

 
11.09

 
2.55

15.01 - 20.00
125,000

 
16.36

 
2.13

 
125,000

 
16.36

 
2.13

20.01 - 126.01
206,913

 
74.26

 
1.70

 
206,913

 
74.26

 
1.70

 
9,701,515

 
10.07

 
4.95

 
5,517,770

 
11.10

 
2.54


The movements in stock options issued during the six months ended June 30, 2019 and year ended December 31, 2018 are summarized as follows:
 
Six Months Ended
 
Year Ended
 
June 30, 2019
 
December 31, 2018
 
Number of
Options
 
Weighted Average Exercise Price (CAD $/Share)
 
Number of
Options
 
Weighted Average Exercise Price (CAD $/Share)
Balance, beginning of the period
9,266,098

 
10.76

 
9,431,737

 
9.35

Granted
2,214,180

 
8.22

 
2,552,796

 
15.95

Exercised
(508,874
)
 
5.38

 
(973,948
)
 
5.28

Cancelled or expired
(1,269,889
)
 
13.76

 
(1,744,487
)
 
13.78

Balance, end of the period
9,701,515

 
10.07

 
9,266,098

 
10.76


During the six months ended June 30, 2019, the aggregate fair value of stock options granted was $6.8 million (December 31, 2018 - $7.8 million), or a weighted average fair value of $3.06 per stock option granted (December 31, 2018 - $3.07).

The following weighted average assumptions were used in estimating the fair value of stock options granted using the Black-Scholes Option Pricing Model:
 
 
 
 
Six Months Ended
 
Year Ended
Assumption
 
Based on
 
June 30, 2019
 
December 31, 2018
Risk-free interest rate (%)
 
Yield curves on Canadian government zero- coupon bonds with a remaining term equal to the stock options’ expected life
 
2.11
 
1.87
Expected life (years)
 
Average of the expected vesting term and expiry term of the option
 
5.78
 
5.40
Expected volatility (%)
 
Historical and implied volatility of the precious metals mining sector
 
51.70
 
58.70
Expected dividend yield (%)
 
Annualized dividend rate as of the date of grant
 
—
 
—

The weighted average closing share price at date of exercise for the six months ended June 30, 2019 was CAD$8.88 (December 31, 2018 - CAD$8.86).


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 25

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

21. SHARE CAPITAL (continued)

(c)
Restricted Share Units

The Company adopted the 2019 LTIP to allow the Company to grant to its directors, employees and consultants non-transferable Restricted Share Units ("RSU's") based on the value of the Company's share price at the date of grant. Unless otherwise stated, the awards typically have a graded vesting schedule over a three-year period and can be settled either in cash or equity upon vesting at the discretion of the Company. The Company intends to settle all RSU's in equity.

The associated compensation cost is recorded as share-based payments expense against equity reserves.

The following table summarizes the changes in RSU's for the six months ended June 30, 2019:
 
Six Months Ended June 30, 2019
 
Number of shares
Weighted
Average
Fair Value
Outstanding, beginning of the period
—


$—

Granted
110,000

6.42

Settled
(100,000
)
6.42

Forfeited
—

—

Outstanding, end of the period
10,000


$6.42


22. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT

The Company’s financial instruments and related risk management objectives, policies, exposures and sensitivity related to financial risks are summarized below.
(a)
 
Fair value and categories of financial instruments
 
 
 
 
 
Financial instruments included in the consolidated statements of financial position are measured either at fair value or amortized cost. Estimated fair values for financial instruments are designed to approximate amounts for which the instruments could be exchanged in an arm’s-length transaction between knowledgeable and willing parties.
 
 
 
 
 
The Company uses various valuation techniques in determining the fair value of financial assets and liabilities based on the extent to which the fair value is observable. The following fair value hierarchy is used to categorize and disclose the Company’s financial assets and liabilities held at fair value for which a valuation technique is used:
 
 
 
 
 
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
 
 
 
 
 
Level 2: All inputs which have a significant effect on the fair value are observable, either directly or indirectly, for substantially the full contractual term.
 
 
 
 
 
Level 3: Inputs which have a significant effect on the fair value are not based on observable market data.



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 26

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

22. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)

(a) Fair value and categories of financial instruments (continued)

The table below summarizes the valuation methods used to determine the fair value of each financial instrument:
Financial Instruments Measured at Fair Value
 
Valuation Method
Trade receivables (related to concentrate sales)
 
Receivables that are subject to provisional pricing and final price adjustment at the end of the quotational period are estimated based on observable forward price of metal per London Metal Exchange (Level 2)
 
 
 
Marketable securities
 
Based on quoted market prices for identical assets in an active market (Level 1) as at the date of statements of financial position
Silver futures derivatives
 
Foreign exchange derivatives
 
 
 
 
Financial Instruments Measured at Amortized Cost
 
Valuation Method
Cash and cash equivalents
 
Approximated carrying value due to their short-term nature
Trade and other receivables
 
 
Trade and other payables
 
 
Debt facilities
 
Assumed to approximate carrying value as discount rate on
 
 
these instruments approximate the Company's credit risk.


The following table presents the Company’s fair value hierarchy for financial assets and financial liabilities that are measured at fair value:
 
June 30, 2019
 
December 31, 2018
 
 
 
Fair value measurement    
 
 
 
Fair value measurement
 
Carrying value
 
Level 1
 
Level 2
 
Carrying value
 
Level 1
 
Level 2
Financial assets
 
 
 
 
 
 
 
 
 
 
 
Trade receivables

$2,223

 

$—

 

$2,223

 

$2,559

 

$—

 

$2,559

Marketable securities (Note 14)
6,396

 
6,396

 
—

 
6,420

 
6,420

 
—

Silver futures derivatives (Note 14)
724

 
724

 
—

 
2,038

 
2,038

 
—


There were no transfers between levels 1, 2 and 3 during the six months ended June 30, 2019 and year ended December 31, 2018.

(b)
 
Capital risk management
 
 
 
 
 
The Company’s objectives when managing capital are to maintain financial flexibility to continue as a going concern while optimizing growth and maximizing returns of investments from shareholders.
 
 
 
 
 
The Company monitors its capital structure and, based on changes in operations and economic conditions, may adjust the structure by repurchasing shares, issuing new shares, issuing new debt or retiring existing debt. The Company prepares annual budget and quarterly forecasts to facilitate the management of its capital requirements. The annual budget is approved by the Company’s Board of Directors.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 27

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

22. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)

(b) Capital risk management

The capital of the Company consists of equity (comprising of issued capital, equity reserves and retained earnings or accumulated deficit), debt facilities, lease liabilities, net of cash and cash equivalents as follows:
 
June 30,
2019
 
December 31,
2018
Equity

$640,371

 

$594,573

Debt facilities
152,618

 
149,512

Lease liabilities
8,505

 
5,847

Less: cash and cash equivalents
(94,539
)
 
(57,013
)
 

$706,955

 

$692,919


The Company’s investment policy is to invest its cash in highly liquid short-term investments with maturities of 90 days or less, selected with regards to the expected timing of expenditures from continuing operations. The Company expects that its available capital resources will be sufficient to carry out its development plans and operations for at least the next 12 months.

The Company is not subject to any externally imposed capital requirements with the exception of complying with covenants under the debt facilities (Note 19) and lease liabilities (Note 20). As at June 30, 2019 and December 31, 2018, the Company was in compliance with these covenants.

(c)
 
Financial risk management
 
 
 
 
 
The Company thoroughly examines the various financial instruments and risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, commodity price risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.
 
 
 
 
 
Credit Risk
 
 
 
 
 
Credit risk is the risk of financial loss if a customer or counterparty fails to meet its contractual obligations. The Company’s credit risk relates primarily to trade receivables in the ordinary course of business, value added taxes receivable and other receivables.
 
 
 
 
 
As at June 30, 2019, value added taxes receivable was $46.9 million (2018 - $49.7 million), majority of which relates to Primero Empresa Minera, S.A. de C.V. ("PEM") due to filings in arrears when First Majestic acquired the entity. Since acquisition, the Company has accelerated its filings and reduced PEM's pre-acquisition VAT receivables to $7.7 million. The Company continues supplying additional information requested by the Servicio de Administración Tributaria (“SAT”) in response to the review process and the Company fully expects the amounts to be refunded in the future.
 
 
 
 
 
The Company sells and receives payment upon delivery of its silver doré and by-products primarily through two international customers. Silver-lead concentrates and related base metal by-products are sold primarily through three international customers. All of the Company's customers have good ratings and payments of receivables are scheduled, routine and fully received within 60 days of submission; therefore, the balance of trade receivables owed to the Company in the ordinary course of business is not significant.
 
 
 
 
 
The carrying amount of financial assets recorded in the consolidated financial statements represents the Company’s maximum exposure to credit risk. With the exception to the above, the Company believes it is not exposed to significant credit risk.



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 28

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

22. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)

(c) Financial risk management (continued)

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 and contractual obligations.

The following table summarizes the maturities of the Company’s financial liabilities as at June 30, 2019 based on the undiscounted contractual cash flows:
 
 
Carrying Amount
 
Contractual
Cash Flows
 
Less than
1 year
 
1 to 3 years
 
4 to 5 years
 
After 5 years
Trade and other payables
 

$55,004

 

$55,004

 

$55,004

 

$—

 

$—

 

$—

Debt facilities
 
152,618

 
190,818

 
4,359

 
27,025

 
159,434

 
—

Lease liabilities
 
8,505

 
9,545

 
4,447

 
3,795

 
1,303

 
—

Other liabilities
 
4,164

 
4,164

 
—

 
—

 
—

 
4,164

 
 

$220,291

 

$259,531

 

$63,810

 

$30,820

 

$160,737

 

$4,164


At June 30, 2019, the Company had working capital of $129.5 million (December 31, 2018 – $108.1 million). Total available liquidity at June 30, 2019 was $184.5 million, including $55.0 million of undrawn revolving credit facility. The Company believes it has sufficient cash on hand, combined with cash flows from operations, to meet operating requirements as they arise for at least the next 12 months.
Currency Risk
 
The Company is exposed to foreign exchange risk primarily relating to financial instruments that are denominated in Canadian dollars or Mexican pesos, which would impact the Company’s net earnings or loss. To manage foreign exchange risk, the Company may occasionally enter into short-term foreign currency derivatives. The foreign currency derivatives are not designated as hedging instruments for accounting purposes.

The sensitivity of the Company’s net earnings or loss and comprehensive income or loss 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:
 
June 30, 2019
 
 
Cash and cash equivalents

 
Trade and other receivables

 
Value added taxes receivable

 
Other financial assets

 
Trade and other payables

 
Foreign exchange derivative

 
Net assets (liabilities) exposure

 
Effect of +/- 10% change in currency

Canadian dollar

$7,030

 

$47

 

$—

 

$2,636

 

($1,195
)
 

$—

 

$8,518

 

$852

Mexican peso
11,772

 
—

 
38,281

 
—

 
(34,717
)
 
16,000

 
31,336

 
3,134

 

$18,802

 

$47

 

$38,281

 

$2,636

 

($35,912
)
 

$16,000

 

$39,854

 

$3,985



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 29

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

22. FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)
(c) Financial risk management (continued)
 
 
Commodity Price Risk
 
 
 
 
 
The Company is exposed to commodity price risk on silver, gold, lead and zinc, which have a direct and immediate impact on the value of its related financial instruments and net earnings. The Company’s revenues are directly dependent on commodity prices that have shown volatility and are beyond the Company’s control. The Company does not use derivative instruments to hedge its commodity price risk to silver.

The following table summarizes the Company’s exposure to commodity price risk and their impact on net earnings:
 
 
 
 
 
 
 
June 30, 2019
 
 
Effect of +/- 10% change in metal prices
 
 
Silver

 
Gold

 
Lead

 
Zinc

 
Total

Metals subject to provisional price adjustments

$128

 

$—

 

$66

 

$144

 

$338

Metals in doré and concentrates inventory
52

 
156

 
17

 
7

 
232

 

$180

 

$156

 

$83

 

$151

 

$570

Interest Rate Risk
 
The Company is exposed to interest rate risk on its short-term investments, debt facilities and lease liabilities. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk. The Company’s interest bearing financial assets comprise of cash and cash equivalents which bear interest at a mixture of variable and fixed rates for pre-set periods of time.
 
As at June 30, 2019, the Company’s exposure to interest rate risk on interest bearing liabilities is limited to its debt facilities and lease liabilities. The Company’s equipment leases bear interest at fixed rates.
 
Based on the Company’s interest rate exposure at June 30, 2019, a change of 25 basis points increase or decrease of market interest rate does not have a significant impact on net earnings or loss.


The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 30

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Interim Consolidated Financial Statements - Unaudited
(Tabular amounts are expressed in thousands of US dollars)

23. SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Note
 
2019
 
2018
 
2019
 
2018
Adjustments to reconcile net earnings to operating cash flows before movements in working capital:
 
 
 
 
 
 
 
 
 
Unrealized foreign exchange loss (gain) and other
 
 

$805

 

($1,995
)
 

$131

 

$1,021

Unrealized loss from marketable securities and silver futures derivatives
 
1,268

 
101

 
651

 
2,250

 
 
 

$2,073

 

($1,894
)
 

$782

 

$3,271

Net change in non-cash working capital items:
 
 
 
 
 
 
 
 
 
Decrease (increase) in trade and other receivables
 
 

$186

 

$22,012

 

($2,144
)
 

$23,070

Decrease (increase) in value added taxes receivable
 
 
3,000

 
(24,397
)
 
12,803

 
(29,575
)
(Increase) decrease in inventories
 
 
(1,399
)
 
4,581

 
3,155

 
5,247

Decrease (increase) in prepaid expenses and other
 
 
704

 
2,322

 
(1,008
)
 
(158
)
(Decrease) increase in income taxes payable
 
 
(1,502
)
 
158

 
(3,437
)
 
(474
)
Increase (decrease) in trade and other payables
 
 
645

 
(7,190
)
 
2,511

 
(6,133
)
 
 
 

$1,634

 

($2,514
)
 

$11,880

 

($8,023
)
Non-cash investing and financing activities:
 
 
 

 
 

 
 
 
 
Transfer of share-based payments reserve upon settlement of RSUs
 
 

$642

 

$—

 

$642

 

$—

Transfer of share-based payments reserve upon exercise of options
 
 

$238

 

$400

 

$508

 

$512



The accompanying notes are an integral part of the condensed interim consolidated financial statements
 
First Majestic Silver Corp. 2019 Second Quarter Report
Page 31