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Thank you for standing by. This is the conference operator. Welcome to the First Majestic Silver Second Quarter Production Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Keith Neumeyer, President and CEO. Please go ahead.
Welcome, everyone, to our mid-year production conference call. Before I get into the call today, I'm going to pass over to Connie Lillico, our Corporate Secretary.
Thanks, Keith. Prior to us beginning today, I'll read our disclaimer on forward-looking statements. Certain statements contained in this conference call regarding the company and its operations constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the United States Securities Exchange Act of 1934 as amended. All statements that are not historical facts, including, without limitation, statements regarding future estimates, plans, objectives, assumptions or expectations of future performance constitute forward-looking statements. We caution you that such forward-looking statements involve known and unknown risks, and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Such risks and uncertainties include: The duration and effect of the coronavirus and COVID-19 and any other pandemics on our operations and workforce and effects on global economies and society; 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 any other factors as discussed in the company's filings with the Canadian securities regulatory agencies. Resources and production goals and forecasts may be based on data insufficient to support them. The company expressly disclaims any obligation to update any forward-looking statements. Back to you, Keith.
Thanks, Connie. Obviously, the last few months have been challenging for all of us. I wanted -- before I get into the call, I just want to thank the staff here in Canada and in Mexico for the diligence and the hard work that everyone has put into the business over the last 3 or 4 months. I can tell you, it's been pretty challenging to manage the business during this very difficult period of time. And happy to have all the mines back up and running again and getting back to business. Q2 is somewhat of a bit of a write-off, quite honestly, but the numbers are the numbers, and they actually turned out to be better than we expected they were going to be. We are looking forward to ending 2020 on a very positive note, but we can get into that a little bit later. Focusing on Q2, we did produce 3.5 million silver equivalent ounces, making up about 1.8 million silver ounces and over 15,000 gold ounces. As I said, that was higher than what we originally estimated. San Dimas continually operated throughout much of April and then into May. And the other mines were shut down a little bit sooner than that. We did hold back some silver sales. We actually reached a peak of somewhere around 1.5 million ounces of inventory. We started liquidating some of those ounces before June 30. We ended up with about 970,000 ounces in silver inventory at the end of the quarter, which is very nice. We were able to take advantage of today's metal prices, which obviously are much better than they were over the last few months. We were able to get the HIG mill delivered to San Dimas, and this is quite the achievement. This mill was shipped through the Panama Canal. It was dropped at Mazatlan in Mexico and we had to have special permits to transport this very, very large piece of equipment over the highways and into the mine, which is quite a distance away, right, in Central Mexico. We had -- and we were fortunate that the government gave us these permits to do this work, and it worked out perfectly because there was no one on the highways due to COVID. So this piece of equipment was delivered on-site without any ripples at all and is now sitting there, it's been there for over a month now. And then the foundations are now being laid. And the project is slightly delayed, obviously, but we are anticipating early '21 -- early 2021 for this project to be completed. So we're excited about that. Ermitano development activities are continuing, well, they just restarted up. We hit the vein as well. And the grades are nice, and we're pretty pleased with the development work that's going on there. The LNG plant at Santa Elena is now resumed or the construction of it is now resumed. And we originally anticipated that was going to be completed by the end of Q3 or potentially at the beginning of Q4. That is obviously going to be pushed into 2021. But when that project is finally completed, it's going to make a huge difference for the operation coming off diesel and going to 100% LNG or close to 100% LNG. Rigs are back up and running again. We've got 14 drill rigs active. We've got another 7 rigs being added over the next few months. We'll have a total of about 21 rigs active in the third quarter, which we're looking forward to. Obviously, lots of focus on Ermitano and the Santa Elena area. But of course, San Dimas is getting a lot of focus as well. I'm not going to get into reading out the outlook. It's there, and we put out new numbers in line, more close to what they were in earlier in the year. We did lose a little bit of ounces due to the approximate 6-week shutdown. But our focus as a team here at First Majestic is to make up as many of these ounces as possible. We're going to try our best to beat the current guidance that's in this news release that went public this morning. Time will obviously tell. So that's really it for me. I'm going to pass this over to questions, if there are any coming in.
[Operator Instructions] Our first question comes from Heiko Ihle of H.C. Wainwright.
Congrats on the quarter.
No problem, Heiko. Nice hearing from you.
Always a pleasure. It might be a bit too early to ask this question, but can you just provide a little bit of color on the incremental costs that you faced during the quarter in regards to the pandemic and maybe also just maybe a little bit of color on the ongoing costs that you expect, like sanitation, social distancing, people can't be too close together, that kind of stuff. Any just ideas that you can provide us with, both past and present?
We've done an enormous amount of work in Mexico. We've been donating medicines and protective gear and you name it. We beefed up our medical staff. We've added doctors, we've added nurses. We've really come to these communities and supported them every way we can possibly do it. We've shut down the roadways. We've done testing, the list goes on and on. And it's -- from my perspective as the CEO, I'm pretty proud of the work that we've done. The government's come in and done their inspections as well, looked at some of the things that we've done, and they've been very impressed with the work that our GMs and then our COO has accomplished within Mexico. On a cost perspective, it's not really a whole bunch of money. It's -- when you're supplying masks and antibacterial solutions and protective gear and all the different things, medicines and so on, it doesn't add up to a whole bunch. I think we spent probably about $600,000 in the quarter for extra medical costs and related items. So it's not really a material issue at all. The production -- the loss of production is really the more material item. Does that answer your question?
And then -- it does, yes. And just with the HIG mill at San Dimas. I mean it seems to be -- everything arrived as planned, but your plan is to leave it there until next year. Just thinking out loud, if we were to have another shutdown, which I don't expect, but just if we do, could you install the equipment then? Is there any other potential ways, areas, roads, that it could be installed sooner? Or should we just simply expect it sitting there until 2021?
No, it's not a matter of sitting there. You've seen the Santa Elena installation or at least photographs of the installation. And it's a very complex process. There's lots of plumbing and lots of stuff that goes on. It's not just a matter of erecting the HIG mill and expecting it to operate. There's a bunch of things that have to happen. And all those crews, the construction crews, the contractors that were doing all that work, had to leave site. So all that work stopped. So now the equipment did arrive, and we had a 150-tonne crane arrive during COVID. We had another 50-tonne crane arrive. We had the HIG arrive. We had all the ancillary motors and equipment. We had trucks and trucks and trucks of equipment arrive over the last 60 days on site. So all that has been happening quite nicely. Crews coming back is another issue. And that's what takes time. So we have to get the crews back, mobilize and start putting foundations in place and start the plumbing and everything else to erect this piece of equipment, which is quite large, and get it running again. So we are getting it running, period. So we're only really delayed about 3 or 4 months in the entire process.
Excellent. That's it for me. And very good quarter, congratulations yet again.
[Operator Instructions] Our next question comes from Craig Hutchison of TD Bank.
Just in terms of the costs for Q2, will you guys account for all the COVID-related costs in your C1 cost structure? Or will there be some additional costs that you sort of -- you strip out your C1 cash cost when you guys report your financials?
I'll pass this to Ray Polman, our CFO, who's sitting beside me.
Yes, the costs are not material, but they are rolled into the cash costs. They are the cost of the operation. We have the mining cost, the milling costs and the overhead costs. So it's spread across those areas as it's applicable to each area. And yes, it's factored into our forecast and our projections going into the second half of the year.
Okay. In terms of your capital budget, your updated one, I believe you've reduced the capital for automation efficiency projects to $29 million. I think previously, it was $47 million. Can you just provide some context in terms of what the delta is there? Is it related to the HIG mill at San Dimas, et cetera? Or is that something else?
No, it's just a delay. It's -- all that money is still going to get spent. It's just a matter of pushing it into 2021. So you've got Ermitano in there. You've got all the construction, the transportation of the ore system. There's a lot of work that's going in on Ermitano, but of course, San Dimas as well. So those are the 2 big projects.
Okay. And then just my last question, just in terms of grades at San Dimas, they were quite good in Q2. Can we expect similar grades sort of through Q3 and Q4?
Yes. Very similar grades, yes. The Tayoltita mine is coming online as well. That's the first time we've been -- we spent over a year putting that or rehabilitating the rail system and still another, I think, about 2 kilometers to go. I think we've developed about 3 kilometers already. And we're pulling about, I think, 300 tonnes a day out of that old silver mine that was really the beginning of this mine, dating back over a couple of hundred years. So we're pretty excited about getting that old operation back up and running. And over the next year or 2, it's going to start to supply more ore to the mill.
Our next question comes from [ William Crews ] of [ Neil Advisor Professional Services ].
My question is related to the government. Have you guys had any interaction with the government to see if their policies will change or will be adjusted in the future depending on how this COVID crisis impacts Mexico and different centers?
Well, nice hearing from you, Willie. I didn't quite understand the question. When you say are we expecting change from the government, what are you referring to?
Yes, it's like America is right now. I mean the numbers may be accurate, maybe not. So we don't know one day, everything is fine, but next day, everything looks very terrible. So I don't know if the government has given you guys in the mining industry assurances that things will stay the way they are, that you guys will not be interrupted. Or is it just one day after the next, the government may change their policies and may lock you -- may shut you down in 1 or 2 months? Or have they already established a policy that mining will continue operating business as usual in Mexico?
Well, governments are unpredictable. So I'd hate to say anything that would be certain in any way. But the government of Mexico has deemed mining essential, so it's allowed all the mines to restart. We've had -- we've been lucky. We've had very limited cases of any issues. We've locked down the communities. We're working very closely with the communities to prevent any spread of the virus, and it's been working out quite well. So if things change, I can't predict that, but we're not anticipating any change from the status of mining in Mexico that was announced back on May 23, I believe it was.
Our next question comes from Jake Sekelsky of ROTH Capital Partners.
Congrats on the quarter. Just from a high level, can you just speak a bit to the 1 million or so ounces in inventory at quarter end? And just kind of the thinking around the timing of selling that down, if you haven't already sold a significant portion of it?
Yes, it's not the first time we've done that. We -- when we've seen volatility like that in the past, I have made the decision to hold back ounces. And this time around, when silver did what it did back in March, it was pretty shocking. So we decided just to stop the sales of the metal. And we started to resume sales in mid-June, and we brought the inventories down to the around the 970,000 level, which is in the news release, and we've now pretty well liquidated that entire amount now at these current prices. So it was a great decision on our part. I don't know exactly what the math is on it, but you can probably -- maybe if you went $4, $5 times 1 million ounces or whatever the number is, it's a substantial amount of revenue that comes to us versus going into the hands of the banks who are manipulating this market.
Got it. Okay. That's helpful. And well done on staying nimble on that front.
Okay. Great. And that's it, I think. So thanks very much for everyone's time today. If you have additional questions or comments, please contact Todd Anthony or Mark Carruthers -- I'm being waved down here. We're good. Okay. Thanks very much, everyone. Have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.