TORONTO (miningweekly.com) – North American miner First Majestic Silver has reduced the top-end of its full-year silver equivalent production guidance by 1.2-million ounces, in an effort to increase free cash flow from its operations.

Management advised that leaving higher-cost ounces in the ground was a prudent choice for its shareholders, until silver prices improved.

"Our operational team continued to make positive steps in reducing input costs during the third quarter. Consolidated production costs decreased to $41.81/t, which represents an 11% improvement when compared to the prior quarter and the lowest rate since the second quarter of 2013," stated president and CEO Keith Neumeyer.

He noted that the company had launched more aggressive cost-cutting initiatives in the quarter, resulting in 180 layoffs, with additional personnel reductions to be completed in the fourth quarter.

“These difficult times are requiring difficult decisions; however, the company remains focused on free cash flow and producing ounces that are profitable at current metal prices," he said.

Precious metals prices had so far this year been under immense pressure as a result of slower global demand growth, the strong US dollar and the threat of the US Federal Reserve hiking US interest rates, which did not bode well for precious metals in the short term.

Mexico-focused First Majestic advised that it had reduced the head grade at the La Encantada mine to 130 g/t, from previous estimates of 160 g/t to 180 g/t, owing to a delay in accessing higher-grade material as a result of a reduction in development and exploration budgets. Grades were expected to increase once the Ojuelas deposit was developed and brought into production in 2017.

At La Parrilla, stripping at the Quebradillas openpit had been halted, owing to revised cutoff grades. The cyanidation mill would operate at 500 t/d and would process oxide ore from third parties with silver grades greater than 175 g/t and feed from openpit stockpiles with silver grades of about 120 g/t.

Production from the San Marcos area would be limited until ground conditions had stabilised to support sustainable underground oxide ore production. The sulphide circuit was expected to continue to operate at 1 000 t/d throughout the fourth quarter. 

First Majestic also announced that throughput at Del Toro, in the fourth quarter, would be reduced to 1 200 t/d, owing to limited output from Orebody 3, as a result of unstable ground conditions and too much water. Additional mining areas were being prepared to return production back to normal operating levels by the beginning of 2016.

The operational adjustments more than offset gains of about 500 000 oz of silver or 1.1-million ounces of silver equivalent, in the fourth quarter from the newly acquired Santa Elena mine, as well as more silver and gold output from the San Martin and La Guitarra operations, owing to higher-than-expected grades.

First Majestic now expected to produce between 15.7-million and 15.9-million silver-equivalent ounces (SEOs), compared with the previous guidance of between 15.3-million and 17.1-million SEOs.

Total silver output was expected to range between 11-million and 11.2-million ounces, down from the previous guidance of 11.8-million to 13.2-million ounces of silver.

Q3 RESULTS
Meanwhile, the company reported an adjusted loss of $7.6-million, or $0.06 a share, for the three months ended September 30, compared with an adjusted loss of $3.1-million, or $0.03 a share, in the comparable period a year earlier. The loss was bigger than analyst forecasts $0.04 a share, on revenues of $61-million.

The company generated revenues of $44.7-million, an increase of 10% compared with the third quarter of 2014, mainly owing to having held back 934 000 oz of silver sales in the third quarter of 2014. Compared with the prior quarter, revenues fell 18%, mainly owing to an 11% decrease in the average realised silver price at $15.16/oz in the period.

The all-in sustaining cost was $14.41/oz of silver, a 28% reduction compared with $19.89/oz in third quarter of 2014.

On October 1, First Majestic completed the acquisition of SilverCrest Mines, valued at $104.2-million. SilverCrest's Santa Elena mine is now First Majestic's sixth producing silver mine, adding further growth potential and diversity to the company's portfolio of Mexican projects. It also strengthened the company’s liquidity position by contributing about $28.6-million in cash and $29.2-million in working capital on October 1.

The company’s NYSE-listed stock on Monday traded 1.35% higher at $3 apiece, having lost more than 43% since the start of the year.