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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by. This is the conference operator. Welcome to the First Majestic Silver Second Quarter 2019 Production Results Conference Call and Webcast. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to President and CEO, Keith Neumeyer. Please go ahead, sir.
Thank you very much, and welcome, everyone, to our second quarter call on production. We have a few people. I am currently traveling, but in the Vancouver office, we have Ray Polman, our CFO; Connie Lillico, our Corporate Secretary; Ramon Mendoza, our interim Vice President of Operations; Todd Anthony, our VP of Corporate Development. And before I get into the news release that went out this morning, I'll pass the call on to Connie Lillico.
Thanks. Prior to us beginning today, I'll read our disclaimer and forward-looking statements. Certain statements contained in this conference call regarding the company and its operations constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the United States Securities Exchange Act of 1934 as amended. All statements that are not historical facts, including without limitation, statements regarding future estimates, plans, objectives, assumptions, our expectations of future performance, should constitute forward-looking statements. We caution you that such forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Such risks and uncertainties include fluctuations in precious metal prices, unpredictable results of exploration activities; uncertainties inherent in the estimation of mineral reserves and resources; fluctuations in the cost of goods and services; problems associated with exploration and mining operations; changes in legal, social or political conditions in the jurisdictions where the company operates; lack of appropriate funding and other risk factors, as discussed in the company's filings with the Canadian securities regulatory agency. Resources and production goals and forecast may be based on data insufficient to support them. The company expressly disclaims any obligation to update any forward-looking statements. Back to you, Keith.
Thanks, Connie. So I'm not going to read the entire news release. I'm hoping that everyone on this call has reviewed it or read it at least or briefed through it. But the highlights for the quarter, the company produced 6.4 million silver equivalent ounces in quarter, which was about 2%, an increase over the prior quarter following -- H2 or first half of the year, 2019 production came in at 12.7 million silver equivalent ounces, which works out to approximately 49% of the company's total guidance for the full year of 2019, which is pretty good. San Dimas is rip-roaring away, 15% increase Q-over-Q, equivalency basis over 3.6 million ounces, which equaled -- or which amounted to 1.6 million ounces of silver and a little bit over 23 million ounces of gold. So San Dimas continues to be the engine behind the company, in addition to Santa Elena, our #2 engine, also doing quite well in the quarter. The HIG mill, by the way that Connie has been talking about for the last year now, the installation is going extremely well. We've had -- it has been ramped up over the last few weeks. And we hope to have additional news out prior to -- or pardon me, during our financial results, we'd put out on August 7, we'll have some additional news on the HIG mill, but the HIG mill is looking fantastic and we're expecting it's going to start really improving that operation despite the fact it's already our second largest operation and a big cash flow contributor to the company. It will just get better with the HIG mill. I guess, most importantly one of the most significant events that occurred in the quarter was really the Ermitaño permit. This is a permit that we've been waiting for, for well over 6 months and that came in, in May. This permit allows us to develop the Ermitaño ore body, which is 4 kilometers away from the current Santa Elena mill. We hope to start development of the underground towards the end of the year, and we're expecting to see production starting to come out of Ermitaño in 2020. Also expanding explorations while in H2 and then Ermitaño is getting some of our focus just due to the prolific nature of the region, we are continually seeing some pretty exciting things happening from a geological perspective around the Santa Elena mill. So that's really it for the highlights. Obviously, there's a lot more to talk about it. People care to ask the questions, and I'll just throw it out to questions now, please. Thank you.
[Operator Instructions] The first question comes from John Tumazos of John Tumazos Very Independent Research.
In the first quarter, First Majestic had a credit for income taxes. Could you just review your tax position? And can we expect negative tax rate going forward in the June and September quarters?
I'm going to pass that question over to our CFO, Ray Polman.
Sure. Thanks for the question. Taxes in Mexico are a very complex matter. We're doing everything we can for tax efficiency. There are quarter-to-quarter a number of variances that are of a timing nature. I will not be counting on a credit for the second quarter, but what I can say is we'll be doing our best to make sure that we come in with a tax rate, which normally when you add the 30% corporate tax as well as the royalty comes in somewhere around 37.5%. So I would use that in your modeling. I wouldn't count on there being further credits.
I don't understand everything I'd like to understand in Mexico. There was some speculation late last year that the new government would change the mining code or royalty or taxes and some other stocks went down a lot. Last week, Grupo México shares went down about 10% as the copper price went up a couple pennies. For example, this morning, Grupo México is down, Southern Copper is up. Is there renewed speculation about changes in the mining law in Mexico?
No. There is -- lot of it's headline driven and that's -- can you hear me, sorry?
Yes.
Okay, okay. A lot of it's headline driven and was up to the election last year and nothing has really come to our plate or come to us in a form of any real changes that have occurred. There are some rumblings in Mexico regarding landholdings, because there is a large amount of mining companies, not foreign -- or some local, some foreign, but they own a large lands package, which aren't being charged taxes. And this liability is building over the years. The government would love to try to come up with a way to collect those outstanding taxes. For a company like First Majestic, it is not -- it doesn't really affect us, but there are several companies out there that have lands that aren't being worked and there are accumulating taxes on an annual basis, which are building all the times and the government has really no mechanism in place to actually collect those taxes. So what we've heard is that they potentially might be changing the tax law, whereby they could affect some potential possible ex-proliferation of land that has long outstanding taxes due. And quite honestly, I think, that's a good thing, in places like United States or Canada companies couldn't get away with not paying their taxes, the government would just simply take away your property and you really don't have any choice. You wake up the next day, your taxes are due, if you don't pay, your property is gone and someone else owns it. Mexico is a lot more lenient and they have been looking at making those rules a little bit more stringent. And I think that will be great for companies like First Majestic because it would open up a lot of land in Mexico for us to potentially acquire and obviously spend money on it and develop over time. But other than that, that's really the only change that we heard of or could expect.
The next question comes from Don DeMarco of National Bank Financial.
Just a question regarding San Martin. I was wondering if you could just provide a little bit more color about the insecurity and the concerns about safety that led to the suspension of operations there. And I'm just wondering I see that this is expected to have no material impact on guidance for the year. So I guess that assumes that you probably have a backup and running in short order, and so -- is that fair to say? Can I -- I'll let you answer my question.
Yes, Don. For one, the San Martin produces 3% of our total revenue, our total production. So it's -- if it's there or not, it's not going to materially impact the business. We are expecting it to be up and running again prior to the end of the year. We don't have a time line on that because of the situation in the area. But due to the sensitivities that are presently occurring, we won't be commenting at this time. We hope to have additional information out to the shareholders or interested parties during the August 7 news release, which will be the financial statements.
Okay. That answers my questions. We'll just look forward to the financials when they are released.
Thanks.
[Operator Instructions] The next question comes from [ Andy Schopick ] a private investor.
I don't have a production-related question, but I would like to take this opportunity to ask you, your thoughts about the effects or implications of Basel III elevating gold to a Tier 1 asset, and how this may be affecting the gold-silver ratio? Do you have any thoughts about this?
Well, there is definitely a lot to talk about it up until it happens and then surprisingly within, I think the day after that took effect, it disappeared from all the headlines. It will be interesting for somebody to do an analysis of whether the Central Bank buying that has been occurring but as you know, Andy, there has been -- I think there is about half a dozen central banks currently in the market buying gold, and that's -- the pure reason for that could be Basel III, but I'm not close enough to really comment. It would be nice to see someone do some analysis on this topic though.
The next question comes from [ Jeff Kresnak ], a private investor.
Keith, my name is Jeff Kresnak, I own a mining gravel pit company up here at Grand Rapids, Michigan or Portland, Michigan. Couple of questions, like you mentioned that you recently got permitted on an extra piece of property there. Did you guys find that's a permit that you received, was everything that you will need to, because I don't know the procedure with the mining, but did you get what I would call a good permit for hours. Do you -- are you seeing in the borings? Are you seeing better than you thought, worse than you thought in the borings or however you mine a mine, was question one. And then the second question was that you plan on -- I've talked to Mark, do you plan -- could you possibly start -- I see you are selling bullion, can you start finding a refinery yourselves to sell 100-ounce bullion bars?
Let me try to attack this, because you've got a couple of different parts in there. The permit that we received is really all we need to exploit the Ermitaño project and bringing into production. As like any permit, there are several conditions, of course, that have been met. So the government does, of course, come into inspections during the whole startup phase and even after you are in production the government still comes in, visits the operations. So assuming you follow the permit as stated and you stay in compliance then everything goes fine, and you can produce ounces from that ore body. We're expecting obviously that's going to be the case, and we have been in Mexico for 17 years. So we know what we're doing and Ermitaño is going become a significant part in the future of Santa Elena. Regarding what you are referring to as bore holes better or not, I'm assuming you are referring to drilling. The drilling has gone very well and continuing. We have 3 rigs active there now. We hope to actually add a couple of more rigs in the northern part of the property late in the year. So we could have up to potentially 5 rigs operating in the region prior to the end of 2019, but this is a big, big property. This is 100,000 hectare land package, which is the equivalent of 250,000 acres of land surrounding this mill. The mill has a capacity of 3,000 tonnes per day. It's currently running at about 2,700 tonnes a day with these different ore bodies that we're expecting to feed the Santa Elena mill over the coming years, the grades are going to increase, which should, in theory, and according to what we can tell so far is that the production will go up and cost will go down, which is exactly what you're trying to achieve as a mining company. So if you have another question, feel free, I could cover that a little bit more. We also have Ramon Mendoza on the line as well, he could cover anything technical more than what I've just stated. The other comment regarding bullion, we don't own our own refinery. We use other sources like Sunshine Mint and others, and they produce our products and we do not have an intention to go and buy refinery at this time.
Okay. No, that's fine, you answered the questions. I just -- I guess if you're happy with the permit, I know that I just recently got a decent property permitted for gravel and stone and the permitting hours were good and then in turn, I guess, we look at it as borings, you call it drilling, and our borings ended up producing a lot, it was much better with the capacity of the hard stone and there was greater veins than we anticipated. So I just wondered if you could let us know if you have hit veins that are like, "Wow." We didn't know this could quite be so good or vice versa, the veins are quite thinner than we thought.
No, not being geologist, of course, listening to our geological staff, they are very happy with the exploration program that's currently underway, and we continually discover new areas of the property and we're very optimistic. As far as we're concerned, Santa Elena is going to be producing for many years into the future and a lot of that as a result of successful exploration programs that have occurred to date and will continue to occur going forward.
This concludes the question-and-answer session. I would now like to turn the conference back over to Keith for any closing remarks.
Well, thank you, and today must be a nice and beautiful day where all our listeners are today because there were very few calls that are coming in, but that's fine. But feel free to contact either Mark or Todd at the office in Vancouver for any additional questions. And I appreciate you following us today, and have a great day. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.