SilverCrest Metals Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 6 speakers on the call.

Operator

23 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, the 10th August, 2023. I would now like to turn the conference over to Eric Fear, CEO and Director.

Operator

Please go ahead, sir.

Speaker 1

Thank you, operator, and good morning, everybody, and thanks for joining. Today, we'll be providing commentary on our robust Q2 2023 results and H2 guidance, after which we'll be happy to take questions. The slide deck we'll be referring to And this presentation is available on our website at silvercrestmetals.com under the Investors tab. Before I get started, I'd like to direct you to the forward looking statements on Slide 2. All figures discussed this morning are in U.

Speaker 1

S. Dollars Unless otherwise stated and any references to the report are in relationship to the recently released Updated technical report. All of the ounces all of the ounce comments on ounce and per ounce references discussed On the call with me today is Chris Ritchie, President And Pierre Baudoin, Chief Operating Officer. Starting on Slide 3, Q2 marked another successful quarter for production. We have continued to generate free cash flow after eliminating our debt With $25,000,000 repayment in the quarter, also adding approximately $4,000,000 in bullion and $8,000,000 of cash to our treasury assets, while spending about $10,000,000 in sustaining capital.

Speaker 1

Our balance sheet continues to be a differentiator among our peers. The Los Chispas operation continues to perform well With 13,400 ounces of gold and 1,450,000 ounces of silver sold in the quarter, In line with estimates in the report and quarterly levels outlined in our guidance, almost all operating parameters Showed improvement over Q1 2023, including underground mine ramp up, which continued to progress well With an average mining rate of 8 18 tons per day for the quarter, a 16% increase From Q1 and in line with the updated technical report estimates. Last week, we released the results of the updated technical report, which will be filed within 45 days. The data used to compile the report was generated from underground operations resulting in a production and cost profile that we are confident in. The change in the broader economy and our project from the last 3 years warranted an updated study that is more in line with current operating environment.

Speaker 1

We hope the release of these Q2 Results are we'll continue to highlight our strong margins and balance sheet as well as our unique Positioned to opportunistically allocate our capital. We continue to advance our ESG initiatives, including a strong focus on health and safety, as well as managing the risks and opportunities within the communities which we operate. During the quarter, we've delivered our inaugural ESG report, an important derisking event to align our disclosures with the meaningful work that has been completed to date. We are very proud to have been recognized in Mexico with the ESR socially responsible company distinction for 2023. I will now pass it to Chris to discuss financial results for the quarter.

Speaker 2

Thanks, Eric. Moving to Slide 4. The operational performance of the Los Chispas asset was highlighted by our strong free cash flow and growth on our balance sheet, while increasing our Sustaining capital spend and repaying $25,000,000 of debt. In the quarter, we generated revenue of $62,000,000 Our cost of sales was $23,700,000 reflecting a strong mine operating margin of 62%. As costs tend to track prices in our industry, these margins can be a significant differentiator relative to other assets.

Speaker 2

Net income in the quarter was $23,700,000 or $0.16 per share. This is inclusive of an $8,600,000 or $0.06 per share unrealized foreign currency loss, which compares to a $1,100,000 unrealized foreign currency gain or $0.01 per share in Q1 2023. Net free cash flow was $43,700,000 or $0.30 per share, which compares to $21,800,000 in Q1. Our net free cash flow in the quarter benefited from financial items like the return of value added taxes and deferral of payables and taxes, which are scheduled to be paid in Q1 2024. We ended the quarter with $59,000,000 of treasury assets, which included approximately $53,000,000 in cash and $6,000,000 of bullion.

Speaker 2

An undrawn $70,000,000 revolving credit facility remains available. Now on to Slide 5. Capital allocation is critical to the success of any business and given our strong margins and free cash flow, we find ourselves in a unique position to have choices. A single asset company, our first allocation priority is to maintain a defensive balance sheet that allows us to weather the uncertainties of this business, but also to be well positioned to be opportunistic. Equally as important is our focus on growth.

Speaker 2

Our infrastructure has been built and adding more ounces to the production profile through exploration success has the potential to benefit our valuation. Another priority is to add bullion to our balance sheet as another currency to be managed. We believe ounces above the ground are worth more than ounces in the ground Given that the risk of producing them has been incurred and we believe that these ounces are a better store of value than fiat currency. While we look for new projects to develop, we believe that bullion on our balance sheet will enhance our multiple relative to cash, while providing healthier leverage for our investors and a hedge against inflation. We are also happy to have announced a share buyback or normal course issuer bid Yesterday, supporting a capital allocation priority to return capital to shareholders.

Speaker 2

We are in a healthy operational and financial position because of the support of And despite our risk being significantly reduced, approximately 1 third of the shares issued were done so at higher levels then the share price today. We are well aware of the challenges to discover, permit, finance, build and operate a mine. And as a result, we see the NCIB as an opportunity to both reinvest in our own asset at a much lower risk level and recognize our supporters. With that, I will now pass it on to Pierre to discuss operations at Los Chisbos.

Speaker 3

Thanks, Chris. I'm now on Slide 6. Ramp up of underground mining rate increased during the quarter, averaging over 800 tonnes per day, in line with the report. The underground mining rate is set to stabilize at this level in H2 as we prepare to ramp up in 2024. During Q2, the lateral development rate increased to 33 meter per day.

Speaker 3

This is a significant improvement over Q1 and a level similar to the expectation to the report. During the quarter, the 3rd party toll was also established To access the last Tispe Soria. Once progressed enough, this area is expected to provide more front and ease the transition to an increase to development rate of 42 meter per day. In Q3, we plan to resume contract negotiation with mining Including our current contractors and we're still targeting to complete this discussion in H2 of 2023. As highlighted in our release last week, we've made allocation to reflect the potential impact of these negotiations.

Speaker 3

The last Chispas processing plant averaged daily throughput of 11.86 tons per day, A number that is in line with expectation in the recently released technical report. The plant recovered 2,840,000 silver equivalent ounces in Q2 as a result of much improved silver recovery And an increase in feed grade. As outlined in the report, the company continues to benefit from strategic Stockpile used to supplement processing plant feed as the mine is gradually developed and tonnage ramped up. Still on Slide 6, Our corporate level ASIC which aligned with World Gold Council definition was $12.70 per ounce silver equivalent And the mine level AISC was $11.41 an increase over Q1 due to a planned increase in mine development And an increase in mine output. Over the next few quarters, one important measure of success will be our ability to execute on the development plan And as a result, we expect the sustaining part of our AISC to increase accordingly.

Speaker 3

We should note that we've adjusted Q1 'twenty three results to align with our new silver equivalent ratio from the technical report of 79.5 to 1 And to align better with the costing in the report. It's important to highlight that making this ratio change impacts over equivalent parameters by about 5%. I will now pass it back to Eric to present the H2 2023 guidance and conclude the presentation.

Speaker 1

Thanks, Pierre. Moving on to Slide 7, with the release of the updated technical report, we are now in a position to release guidance for the remainder of the year. For H2 2023, the company expects to produce 4,800,000 to 5,200,000 ounces At cash cost of between $7 to $8.50 per ounce sold. Also for H2, mine level all in sustaining costs are expected to be 11.75 to 13 point That $5 per ounce sold and all in sustaining cost as defined by the World Gold Council are expected to range from $13.75 to $15.50 per ounce sold. Please note that our guidance is based on 20:one Mexican peso to U.

Speaker 1

S. Dollar exchange rate, and we've had a notable move And the rate to levels of 17.7 to 1, we estimate about 40% to 50% of our costs are peso denominated. Full year 2023 guidance is 9,800,000 to 10,200,000 ounces At all in sustaining cost between $12.75 to $13.75 per ounce sold. Costs for H2 are projected to be higher based on increased sustaining costs related to underground development. Moving on to Slide 8, what's next?

Speaker 1

Exploration efforts will continue With a newly approved $10,000,000 drilling budget through Q1 2024. Phase 1 of the program will target This is 10,000,000 higher grade ounces in silver resources in proximity to Current and planned operations for potential reserve replacement. Phase 2 will focus on another 5,000,000 Inferred ounces in H2 twenty twenty four when underground access for these areas become available. The program will also target earlier stage opportunities with over 23 kilometers of underexplored veins at Los That will we are looking forward to start exploring. That wraps up our formal commentary for today.

Speaker 1

Operator, please open the line for questions.

Operator

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. Your first question comes from the line of Stephen Sook from Stifel. Your line is now open.

Speaker 4

Hi, guys. Congrats on a good quarter. I mean, extinguishing that debt and building the balance sheet quickly is an impressive feat. I just had a question around the stockpile accounting. The use of some higher cost stockpiles looked like in the quarter Kind of drove up a little bit of the unit cost a little bit.

Speaker 4

Can you just maybe provide some color on that? And then how we should think about that going forward Compared to, I believe, it was a credit from the stockpiles in Q1. Thanks.

Speaker 2

So I think the high level answer for you there, Steven, thanks for the question, We did a lot of predevelopment. We had a lot of stockpiles available. As time progresses, we need to ramp up the mine and make sure we're delivering more tons from the mine relative to

Speaker 4

Okay, thanks. So that's what we saw this quarter, the higher proportion of Primary mine tons hitting the mill versus material source from the stockpile? Or I thought there was some commentary about the Cost allocation within the stockpiles actually used this quarter versus previous quarter?

Speaker 2

Yes. The average ton coming from the underground is going to increase.

Speaker 4

Okay. Sorry, from the stockpile. Sorry, from the stockpile. Apologies. Okay.

Speaker 4

Got it. No, that's helpful. I appreciate that. And then I guess just one other one on from the accounting on taxes. I mean, no cash taxes paid this quarter.

Speaker 4

You mentioned that will probably continue until it's trued up in Q1. And then from that point forward, will it be regular Cash tax payments or we would expect to see this kind of build through the year and then big cash outflow in the Q1 of each year as you kind of file your taxes?

Speaker 2

Yes, correct. We expect to start paying cash taxes in Q1 and that will be sort of an ongoing quarterly event from that time on.

Speaker 4

Perfect. Thanks. That's it for me. I'll free up the line for anyone else here. Thanks a lot guys.

Operator

Your next question comes from the line of John Claude Nik from Desjardins. Your line is now open.

Speaker 5

Hey, thanks for taking my question guys. And yes, great quarter there and yes, very impressed by echo Steven's comments there on How quickly you paid off the debt and obviously shows free cash flows are ramping up here. My question is just on the exploration budget of $10,000,000 and just wondering How much of that will be capitalized and how much of that is going to be expensed? And I guess related to that, if you're going to look at El Picacho or It was going to be really kind of more near mine exploration.

Speaker 1

Yes. Most of it will be focused on the near mine Exploration, okay. We have no planned budget right now for Picacho. We're waiting for some permits there. So from a split of non sustaining to sustaining, a majority is going to Reserve replacement, which would be in the sustaining side.

Speaker 5

Okay. So we shouldn't expect to See much of that exploration budget expense then. Is that fair?

Speaker 1

Sorry, that was unsustaining side. There you go. Not the sustaining capital side. Okay.

Speaker 4

Okay, great.

Speaker 5

Yeah. No, that's it for me and yeah, great quarter and very straightforward. Thanks a lot.

Operator

There are no further questions at this time. I will now hand over to Eric for closing remarks.

Speaker 1

Great. Thanks everybody for attending the Silvercrest Metals Q2 2023 results call. Have a great day.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
SilverCrest Metals Q2 2023
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