SilverCrest Metals Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 9, 2023

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Silvercrest Reports Second Quarter 2023 Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, November 9, 2023. I would now like to turn the conference over to Eric Fear.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good morning, and thanks, everyone, for joining. Today, we'll be providing commentary on our Q3 2023 results, after which we'll be happy to take questions. The slide deck we'll be referring to is available on our website at silver Slide 2. All figures discussed this morning are in U.

Speaker 1

S. Dollars unless otherwise stated. All the ounce And per ounce references discussed will be based on silver equivalent ounces sold unless otherwise specified. Our silver equivalent reference are based on a gold to silver ratio of 79.51:one. On the call with me today is Chris Ritchie, President and Pierre Boudrein, Chief Operating Officer.

Speaker 1

Starting on Slide 3. Q3 marked another successful quarter for Las Chasepas And we remain on target to meet our 2023 sales and cost guidance. Our strong operating margins continued to substantial free cash flow in the quarter. Las Chispas continues to perform well With gold sales of 14,500 ounces and of gold and Silver sales of 1,530,000 ounces. Silver equivalent sales totaled 2,680,000 ounces, Bringing today year to date sales to 7,690,000 ounces positioning us well to meet our annual guidance of 9,800,000 to 10,200,000 ounces.

Speaker 1

All in sustaining costs in the quarter were better than expected and compares Favorable to the annual guidance. Pierre will discuss the factors that led to this in his portion of this presentation. We remain debt free and our total treasury assets increased by nearly 40% from Q2 to $81,700,000 Our financial strength and resilience Our unique attributes that deserve attention in the market were accessing capital is both difficult and expensive. Our robust free cash flow and healthy balance sheet provide us with significant capital allocation flexibility, which we used in the quarter to optimistically explore, buy back shares and increase our bullion holdings. On the ESG front, we signed a collaboration agreement to work on agricultural infrastructure, sewage system and water concessions This agreement advances our continued efforts to help our communities secure state and federal funding For water related infrastructure to protect their livelihoods and create long term economic resilience.

Speaker 1

The benefits of these efforts are already being felt in the community. The improved access to water allows for a second planting season, creating an opportunity for increased household income for our local partners. I will now pass on to Chris to discuss the financial results for the quarter.

Speaker 2

Thanks, Eric. Moving to Slide 4. The operational performance of Las Chispas was highlighted by our strong free cash flow and continued growth of our treasury assets. In the quarter, we generated revenue of $63,800,000 Our cost of sales were $26,400,000 reflecting a notable Net income in the quarter was $29,900,000 or $0.20 per share. Net free cash flow was $33,400,000 or $0.23 per share.

Speaker 2

As in previous quarters in 2023, Our net income and net free cash flow in the quarter benefited from financial items like the return of value added taxes and the application of net operating losses, which are commonly known as tax loss carryforwards. Our net operating losses were fully utilized in Q3 and beginning in Q4 2023, well as the extraordinary and special mining duties will be due and paid in Q1 2024, which will impact our income and cash flow in 2024. We will begin making quarterly income tax installments and annual payments for the extraordinary and special mining duties in 2024. Now on Slide 5. Prudent capital allocation has always and continues to be an important area of focus for our team.

Speaker 2

As a single asset company, our first allocation priority is to maintain a defensive balance sheet that allows us to proactively manage risk, Weather the uncertainties of our industry, while also being positioned to take advantage of the opportunities that arise in cyclical businesses. After the $7,100,000 spent on the share buyback, we were still able to grow our treasury assets in the quarter by nearly 40 percent to $81,700,000 Our total treasury included $70,000,000 of cash and $11,700,000 of gold and silver bullion. We remain debt free with access to an undrawn $70,000,000 revolving credit facility. We have also resumed our focus on growth. In Q3, we announced a $10,000,000 exploration budget for Las Chispas that will run through the end Q1 2024.

Speaker 2

This program is focused on both conversion of ounces and the discovery of new ounces. In the quarter, dollars 2,800,000 was spent on exploration. Opportunistically returning capital to our shareholders was a focus in the quarter. In the middle of the quarter, we announced and launched a share buyback that allows for the repurchase of up to 5% of our shares outstanding. In the 7.5 weeks that the buyback was active, we repurchased $7,100,000 or 20 percent of the allowable limit.

Speaker 2

We are also focused on increasing exposure to gold and silver for our investors by adding bullion to our balance sheet as another currency to be managed. In the quarter, we increased our bullion position by $6,100,000 We are actively managing this position through the utilization of an option strategy, which helps to manage both the upside and downside risks. Our objective is to earn a superior yield over our other balance sheet instruments, while increasing exposure to our preferred store of value in a risk adjusted manner. Subsequent to the quarter, we have continued to add to our bullion holdings. With that, I will now pass it on to Pierre to discuss operations at Los Chisbos.

Speaker 3

Many thanks, Chris. I'm now on Slide 6. On the ground mining rate increased during the quarter, averaging slightly over 900 tonnes per day. This increase in mining rate is linked to a higher proportion of long haul stopes and plant and to a lesser extent, Higher localized dilution in Bobby Main vein. In Q4, it's expected that mining rates will be in the range of 800 to 900 tonnes per day, in line with the ramp up rates outlined in the technical report.

Speaker 3

During Q3, lateral development averaged 34 meter per day, in line with the plan. During the quarter, the Los Chistos portal was further advanced ahead of the mining in this area in 2024. We continue contract negotiation with mining contractors, including our current contractors. We're still targeting to complete these discussions in Q4 2023 for implementation in the first half of twenty twenty four. In the updated technical report, we made assumption as to the outcome of this negotiation, but the final details may differ.

Speaker 3

The last Distress plant averaged 12.45 tonnes per day, slightly above what we were expecting for the quarter. It was originally anticipated that the plant would have lower availability in the quarter Due to seasonal condition impacting the power supply, however, this did not materialize allowing for higher average mill throughput than plant. As expected, average processed gold in silver declined slightly from Q2 of 2023. The plant recovered 2,740,000,000 silver equivalent ounces and metallurgical recovery remained As the mine is gradually developed and tonnage ramped up, it's expected that this benefit will remain a significant contributor to plant feed through 2025. Our corporate level AISC in the quarter was $12.23 per ounce compared favorably to our annual guidance.

Speaker 3

ASIC was lower than expected due to higher sales volume, decreased cash costs and lower capital spending than planned. Capital spending was below plan due to delays in procuring key underground material as well as some slight change to the scope both on the ground and on surface. These delays are not material and we're expecting to progress with capital spending in Q4. I will now pass it back to Eric to conclude the presentation.

Speaker 1

Thanks, Pierre. Moving to Slide 7. As noted earlier, we remain well positioned to execute our 2023 sales and cost guidance, As you can see on Slide 7, please note that our guidance is based on 20 to 1 Mexico peso to U. S. Dollar exchange rate.

Speaker 1

We have seen a notable move in this rate to the levels of approximately 17:one in Q3. We estimate about 40% to 50% of our costs are peso denominated. So what is next? My favorite subject, exploration. Our exploration efforts will continue with $10,000,000 of drilling budget Through Q1 2024, the program is currently targeting 10,000,000 higher grade inferred ounces Proximal to current and planned operations for potential reserve replacement.

Speaker 1

We also look Forward to exploring early stage opportunities with over 23 kilometers of underexplored veins at Las Chisbus. We are in the process of year end planning now. And as part of this, our exploration budget Is being put together and our priorities for 2024 are being defined. This wraps up our formal commentary for today. Operator, please open the line for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Eric Wimble with Scotiabank. Please go ahead.

Speaker 4

Hi, good morning. Thanks for taking my question. Nice to see the stock outperforming this morning. Just I wanted to ask a quick question. In the disclosure, you talked about Spending on CapEx below plan from delays in procuring underground materials as well as some changes to scope, any additional elaboration on that, please?

Speaker 3

Yes. So it's Pierre speaking. We had some delays in procuring some

Speaker 1

of the electrical material we need for

Speaker 3

the expansion of the Material, we need for the expansion of the mine and also some plans that was for underground. And we decided to change the scope of the our second furnace for the process plant. But none of this is material as I noted on the script on the call.

Speaker 4

Great. Thanks, Pierre. Very helpful. Just another question on the share buyback. So obviously, the

Speaker 2

Thanks, Eric. We look at the NCIB as one of the tools in the toolkit. When we look at capital allocation, exploration is a key focus, buying back shares is a key focus, adding bullion to the balance sheet. And the flexibility that our balance sheet That said, we do want to continue to return capital to shareholders. We don't share the specific budget or price thresholds that the Board has set

Speaker 1

for that, but it is still

Speaker 2

a key focus for us going into the end of the year.

Operator

Your next question comes from David McCawson.

Speaker 5

Good morning. I have a couple of quick questions. Nowhere can I find what the special mining The equity percent rate is, can you tell me? Your tax rate is 30%, but is it 10%, 15% on top?

Speaker 3

It is 7.5%.

Speaker 5

7.5%, okay. Is there any cartel obstruction you're experiencing there? Any kind of we want to close you down unless we get a piece of the pie here?

Speaker 3

Yes. We don't have these issues in Sonora. We all go in time and we can enjoy the walk at night without any problems. So we've seen it not

Speaker 5

a Very nice. Don't hold it against me for asking because it could be a big issue. I don't know that it is. So if you just That's the answer I'd like to hear. Let's put it that way.

Speaker 5

I think pretty much all shareholders would.

Speaker 1

Do you

Speaker 5

have a man camp there? And many employees do you have? And are they living in the local town? Are they hard to get if you need to staff up? What's the labor situation there?

Speaker 3

First of all, first question, we have a 500 man camp, but we allow our employees to live in the community Or at the camp based on what they prefer. And this camp has been a good tool for us In the industry. And with regards to the difficulty to get people, the best way is to keep them, obviously. But also we are we have a contract with the mining contractor that gets its manpower in the lower part of Mexico. So far, it's been very good on our side.

Speaker 5

Well, that's a good thing too, for sure. Labor problems in companies today are big problems, I think, way too often. Hey, I really think you've done a great job since for the 6 years I've owned your stock in your drilling and your exploration. Mr. Boisdeoin, the video of the plant that you built was amazing, okay.

Speaker 5

So I can't give you guys a good enough credit for building such High percentage recovery plant with huge tons tonnage or maybe not huge, but I mean significant And stockpiling with I don't know the grades dropped a little bit this quarter. I don't do you think that's a trend that we're going to continue to see because maybe you knew where the

Speaker 3

It's something that we monitor very closely. We consider that as our best stopes and it's on surface. And so this is something that we monitor against the value that we have in our model. And at this point, I can say that We're very happy with the level of our stockpile. And with regards to the start of your question, With regards to the question on grade in the plant, I'm just going to say that this is per design.

Speaker 3

We expected the grade to be lower in this quarter. And Doug, we should not read any more into this. We still have to plan to produce between 9,800,000 10,200,000 ounces for the year And we're well on our way to complete that.

Speaker 5

Okay. Well, thanks for taking my questions and thanks for doing such a good job.

Operator

Your next question comes from Alain Chartrand.

Speaker 1

Yes, hello. I'm pleased with Success of the company, I wanted to know if the company right now is looking actively at other projects or mines in the area Or in the world? Thank you. Yes, this is Eric. Our growth plan is in 3 paths.

Speaker 1

1 is exploration. It's priority 1, Continued exploration at Las Chispas, we have a lot of value, I believe, is still to come and still to see at Las Chispas. So we'll be spending dollars there. We also have a regional program that we're working on That's within haulage distance of the mill at Los Chisps. That is continuing.

Speaker 1

It will continue for years to come as We look at projects that are earlier stage that still need to be drilled and mapped and sampled. So That feeds the some of the exploration appetite for discoveries. And our 3rd path is M and A, and We continue to look at M and A projects. We're being a bit selective To be in the Americas, that's our target. North America is a great place to play right now.

Speaker 1

So, yes, there's Lots of things to do. There's not we don't have a big team to be running out, so we have to watch our resources As far as what we select and where we go with it, so. Thank you.

Operator

Your next question comes from Garik Gojian with Stansberry Research.

Speaker 6

Hey, guys. Can you hear me okay? Yes. Good. Great quarter.

Speaker 6

It's been a while since I've seen a free cash flow generation like that in the silver industry. Capital allocation, you guys are doing a great job. I'd love to see the share buyback. Are you thinking about paying dividends? Because if you just That $20,000,000 that'd be close to 3% yield highest in the industry.

Speaker 2

Thanks, Garrett. It's Chris here. When we evaluate the difference between a share buyback and a dividend, the first thing we did was look at other companies, Single asset companies and there was only 2 to 3 in the world that were actually paying the dividend. So The flexibility or lack of flexibility that a dividend creates is something we were definitely cognizant of given that we do want to allocate capital for future growth. So we thought that the share buyback was a better option because it allows us to be more aggressive at the right times in the cycle.

Speaker 2

And that flexibility is something that's quite unique for us. So we thought the share buyback was just a chance to be more aggressive and flexible.

Speaker 6

I agree. In the future, if you sit

Speaker 2

down the road, that's something we'd like to be able to consider. Okay.

Speaker 6

The share buyback is the best way to do it. Lower shares out increases earnings per share and drives the share price higher. So Your capital allocation looking at drilling and internal growth, that's where you see your life might be an extended primarily at this

Speaker 1

Right. Or expand it. There you go. So I mean, we got, as I said on the talk there and it's in the news release, Garrett, about $10,000,000 We spent So just under $3,000,000 of that so far to get to Q1. We're really focused on inferred resources That didn't get converted to indicated and considered for reserve conversion for the updated tech report.

Speaker 1

So It's to get through that or get some new reserves back into the pipeline That's near infrastructure. And as we're doing that, we'll be spending money at Los Chispas to look at the 23 kilometers of weather vein that's underexplored. So we're seeing some interesting things right now. Cross my fingers, hope we can get some news out on exploration for the end of the year. We'll see.

Speaker 6

Okay. What area looks most prospective to you guys?

Speaker 1

Ares as far as in Las Gisps? Yes. Yes. Okay. Yes.

Speaker 1

So there's we're working as you're familiar with the map, we call it the treasure map. We're working on Bobby Sur which is in the south and some extension of that. We're looking to depths now for The Babacanora main vein going to depths. We're also quite encouraged as what we're seeing in the Los Chisps If you recall, we haven't been back to Las Chispas since the 2020, so it's been pretty much on the shelf working on the Technical report and doing the infill drilling mostly around Bobby Canora. So it's Okay.

Speaker 1

In West? Yes. There's some new opportunities that we're seeing at Las Chisps. We'll see how they come to fruition. Okay.

Speaker 6

And then last question, how many phases do you have working now and where is the work primarily coming from?

Speaker 1

We have we maintain roughly

Speaker 3

all the time we maintain between 12 16 phases. And our limit at this point is certainly not the phases, but More of our drilling capacity, which we're working actively with contractors to expand.

Speaker 6

Okay. And then where is the work primarily coming from, which veins?

Speaker 3

Mainly in Bobby Canora, Bobby Norte and Bobby Vista.

Speaker 6

Okay, good. Thank you, guys.

Operator

Your next question comes from Matthew Roper with Malate.

Speaker 7

Hey, Chris, Eric and Pierre. Congrats on the quarter. Well done. As a long term shareholder Since 2018, it's this is what why I wanted to be involved with the project. So it seems like it's finally coming to fruition with Yes, that's throwing off a significant amount of cash.

Speaker 7

So I'm pleased with that. I wanted to follow-up With some of the previous questions on exploration, so we had a 13% reduction or roughly 10,000,000 ounces from the TR, If I'm not mistaken, obviously, myself and my investors are excited that you're getting back to growth mode. And Eric, I like that you Your favorite thing is exploration. That warms my heart. I wanted to ask about these 23 kilometers of veins.

Speaker 7

I'm just trying to again understand there's back in 2019 or 2020, There was a new section of the property, newly defined section of the property, I believe it was called 118. Is that Part of the Laschisga section that you have not really spent too much time on over the last few years in terms of exploration, is that or is that 118 A different part of the property?

Speaker 3

118

Speaker 1

Zone is part of the Las Chispas main vein.

Speaker 7

Okay.

Speaker 1

And that's the storage vein. So it's below the underground workings. We're just starting back in that area right now to do further exploration. We're just returning after 4 years of being over in the Wabikanaur area.

Speaker 7

And how many rigs or drills are being utilized at the moment on the property?

Speaker 1

At the end of the quarter, Q3, I'll speak to that. We had between 7 to 8. I got one rig floating there because it likes to do operational work too. So it jumps from external So at the end of Q3, we had 7 to 8 bills.

Speaker 7

That's great. And In terms of communicating that the results from that from the market, I know there was like lab backlogs and things like that Due to COVID delays and such, are you seeing the processing time from what you guys are finding on-site to having like a lab analyze The results of your drill findings, is that lag time decrease? So like you said, you're hoping to have communication to the market by the end of this year. Is

Speaker 2

that are

Speaker 7

you seeing a decline in that lag? Obviously, my investors are big growth investors And we're happy again that we're getting back to that level now that the mill is operating as we expected And the financial health of the company is very strong. So just curious on that, on what you're seeing from that side of things?

Speaker 1

Yes. We use 2 labs ALS Chemex and SGS. I'll speak of ALS Chemex And the exploration samples that are going there for assays, and then I'll turn it over to Pierre and he can talk about SGS, okay? So our lab turnover is decent right now. It's 3 to 4 weeks.

Speaker 1

It was during COVID Because everybody is scurried home, double that, but it's a decent rate now As we use ALX and they're out of Hermosillo in North Vancouver. So Pierre, if you can talk about STS.

Speaker 3

Yes. So if you look in our technical report, we actually build our own lab In Ariespe, that was part of our ESG efforts to return some work in the municipality. And this lab, we contracted it out to SGS. And SGS is in the process of Getting this lab certified, they've been working on it now for more than a year. And we expect to that this lab is going to be certified within before the end of the year.

Speaker 3

And when this happens, actually all the samples from the company are going to go to this lab And the turnover is going to go from essentially 4 weeks down to probably days because it's going to be our own certified facility.

Speaker 7

That's great. Thanks for answering the questions. The last comment I want to make is not a question. Just Chris, keep buying back that stock. I appreciate it.

Speaker 6

Thanks, Matt.

Operator

There are no further questions at this time. Please proceed.

Speaker 1

Thank you everyone for attending the Silvercrest Q3 2023 results call. Have a great day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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SilverCrest Metals Q3 2023
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