Silvercorp Metals Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2024

There are 5 speakers on the call.

Operator

Thank you for standing by. Good afternoon. My name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the Cellcorp First Quarter Fiscal 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the conference over to Lund Schaeffer, President of Silver Corp. Please go ahead.

Speaker 1

Thank you, Julie. On behalf of Silver Corp, I'd like to welcome everyone to the call this morning. Today, we'll discuss our Q1 fiscal 2025 financial results, which were released yesterday after the close of the market. A copy of the news release, our MD and A and financial statements are available on our website and SEDAR Plus. Before we get going, please note that certain statements on today's call will contain forward looking information within the meaning of applicable securities laws.

Speaker 1

And also please review the cautionary statements in our news release, as well as the risk factors described in our most recent regulatory filings. Now to recap our quarterly financial results, we kicked off the fiscal year with record quarterly revenue of $72,000,000 That was a 20% increase from last year. This growth was driven by a robust commodity market, which led to notable improvements in realized metal prices, particularly in China compared to Q1 of last year. In particular, the realized silver price rose by 36%, gold by 18%, lead by 18% and zinc by 20 3%. Silver remains our most important metal contributing 63% of our Q1 revenue followed by lead at 22%.

Speaker 1

I'll note that silver was 59% of revenue in Q1 of 2024 and 55% of revenue in Q4 of 2024. The results of this quarter reinforce why investors should own our shares, namely demonstrating that we provide leverage to higher metals prices through the response in our financial results. Moving down the income statement, attributable net income for Q1 was $22,000,000 or 0 point 12 dollars per share. This is up significantly from $9,000,000 or 0 point 4. The increase in our bottom line reflects those higher metals prices partially offset by lower sales volume and higher business expenses related to the Adventus acquisition.

Speaker 1

On an adjusted basis, moving the impact of non cash and one time items, our attributable adjusted net income for the quarter was $21,000,000 or $0.12 per share compared to $12,000,000 or $0.07 per share in Q1 of last year. Looking at cash flow from operating activities, our mines generated $40,000,000 this past quarter. This is up 38% year over year and largely reflects those increased metals prices. But also if we look at cash flow from operations before changes in non cash working capital items, the increase was 65%. Additionally, in the quarter, we invested $20,000,000 in our mines.

Speaker 1

This is up 23 percent from last year, largely stemming from increased underground development and tailing storage facility construction activities at Ying. Despite the increase in capital expenditures, we ended the quarter with $216,000,000 in cash, cash equivalents and short term investments, an increase of $31,000,000 from March our year end. This position does not include our investments in associates and other companies, which had a total market value of $108,000,000 as of June 30. Turning our attention to our operating results. As reported in July, our mines performed as expected in Q1.

Speaker 1

We mined 344,000 tonnes and milled 308,000 tonnes of ore during the quarter, representing year over year increases of 13% and 4 percent, respectively. Despite higher quarterly throughput, our production in silver, lead and zinc decreased by 4%, 12 and 6%, respectively, due to lower head grades in the current mine plan. Additionally, we stockpiled 59,000 tonnes of Ouret Ying, which will be milled after the Mill Number 2 expansion is completed later this year. We remain confident in achieving our annual production guidance set in April, which as a reminder was between 6,800,000 to 7,200,000 ounces of silver. On the unit cost front, we are also on track.

Speaker 1

Production costs averaged $80 per tonne in Q1, 2% higher than last year's results, but in line with our annual cost guidance of between $77 to $80 per tonne. The increase was mainly due to more mining preparation tunnels and grade control drilling completed and expensed as part of the mining costs in the current quarter. Our cash cost per ounce of silver net of byproduct credits was negative $1.67 in the quarter and that's a significant improvement from a negative 0.31 dollars in the prior year quarter, and this change was driven by higher byproduct credits from higher metals prices. All in sustaining costs, production costs rose by 4% year over year to $140 per tonne in Q1, but remain below our annual cost guidance of between $144 to $152 per tonne. Our all in sustaining cost per ounce of silver, net of byproduct credits, was $9.82 which is 4% higher than Q1 of last year due to the previously mentioned sustaining capital expenditures.

Speaker 1

Turning to the Ying Growth projects. The Mill Number 2 capacity expansion remains on track and on budget to be completed by November of this year. As a reminder, this project will increase Ying's total production capacity to 4,000 tonnes per day. Construction on the 3rd tailing storage facility is expected to be completed later this year. With $14,000,000 spent to date, the total cost of construction is expected to be below the original estimate of $38,000,000 We plan to release an updated Ying technical report imminently.

Speaker 1

This 40 three-1 101 compliant report with an effective date of June 30th will incorporate drilling completed up to the end of 2023 to update reserves and resources as well as provide an updated life of mine plan including economics. Regarding the Kuangping project, the environmental assessment report was approved in July and the remaining mine safety report is pending approval by the province. We expect to commence development in fiscal 2025 and have allocated $1,000,000 for mine construction in this year's budget. Last but not least, after the quarter ended, we successfully completed the acquisition of Adventus Mining on July 31. This is a significant step in our strategy to create a globally diversified green metals producer.

Speaker 1

It provides an excellent opportunity to leverage our technical expertise and financial strength to unlock value for all stakeholders through the development of the El Domo project. Also, after the acquisition closed, Ecuador's Ministry of Energy and Mines issued the resolution of change of phase for El Domo, a milestone that enables the construction and subsequent operation of the mine. Once in operation, El Domo will make a meaningful contribution to our production profile and financial results, while simultaneously adding country and commodity diversification. We are dedicated to working collaboratively with the government of Ecuador, local communities and Salazar Resources, our in country partners. Our commitment to modern responsible development will benefit both the local communities and the country as a whole.

Speaker 1

We intend to provide more indications of our plans for development of the El Adomo project in the near future. With that, I'd like to open the call for questions.

Operator

Thank you, sir. Ladies and gentlemen, we will now conduct a question and answer session. Your first question comes from Joseph Reagor from ROTH Capital Partners. Please go ahead.

Speaker 2

Hey, Lon. Congrats on a good quarter and thanks for taking questions.

Speaker 1

So on Adventist, I know you just said that you guys will be providing updates soon, but can you give us kind of like

Speaker 2

a rough timeline on what we should expect as far as news flow post acquisition now that it's closed? Well,

Speaker 1

the as I said, we're going to be putting out an update in terms of what the go forward plan is. Adventist and the Kure Mining team did a great job developing El Domo. And so what we're looking to do is kicking off the advancement of more detailed engineering and other project activities and looking at some of the areas where we can get going with development of the project, early lead time items and certain projects that are going to be necessary to build the mine while we're looking at advancing the status of engineering and potentially fine tuning some of the other development plans.

Speaker 3

Okay, fair enough. Also you

Speaker 2

mentioned that this Yang technical report that's coming I think the wording you used was imminently. Will this report be designed to show a full use of the mill or should we expect a certain like capacity level utilization?

Speaker 1

Well, I think Joe, you should wait for the report. I don't want to give events to you until the actual report is out. But the report does contemplate and factor in the expansion that's underway.

Speaker 2

Okay. And remind us, what's the current expectation as far as completion date for the mill? November. November.

Speaker 1

Okay. All right. I'll turn it over. I think I should add Joe, the thing is that the mill expansion is only one element of the expansion program. Recall that we're shifting mining methods, the the permits renewed and extended to allow for an increased throughput rate.

Speaker 1

So all of these things have to dovetail together and this get covered off in that report.

Speaker 2

Okay, fair enough. I'll turn it over. Thanks a lot.

Speaker 1

Okay. Thanks,

Operator

Joe. Your next question comes from Felix Sheffigalyn from Haight Capital. Please go ahead.

Speaker 3

Hey, Lon. Congratulations on a good quarter.

Speaker 1

Thanks, Felix.

Speaker 3

Yes, just a couple of questions from me. Regarding the mining cost of being that kind of, I guess, ticked up a little bit in this quarter compared to a year ago quarter, should we be looking at that as kind of just a one off due to more tunneling and grade control drilling that was expensed? Or is that something is that like an issue that might persist for some time going into the future? What is kind of the right way of looking at it?

Speaker 1

Well, again, we're so close to a life of mine plan to speak to what are going to be year averages to not be sort of caught up in sort of a quarter to quarter basis. We don't think that the uptick that we saw in this quarter is hugely material. So I think I'll just ask for your patience on that report when it's out and we look at sort of more longer term numbers. That's a question we can address at that time.

Speaker 3

Okay. All right. So my next question, I mean, I imagine it would probably also be addressed in the report, but I'll ask it anyway. So looking at this 59,000 tons of ore that was stockpiled in this current quarter, and I think the production update also said that it will basically be more ore that will be added to the stockpile. As I'm trying to wrap my head around it, I don't recall this kind of happening in the past.

Speaker 3

And yes, the additional kind of 1500 tons per day additional capacity from the new production line would resolve those issues presumably. But why did so much ore just not get processed?

Speaker 1

It seemed kind of strange that this happened. Actually, if you look back, we have seen some carryover and even in our Q4, which traditionally is our weakest quarter because of Chinese New Year. Mining activity ceases because of the shutdown, but it's easier to keep the mill running. And so we actually even in this last Q4, we did play a bit of catch up in Q4 to cover some of the inventories that were developed in Q3. So it's just more of the fact that as we're advancing and developing, we're looking at ramping up that mining activity and we are hitting up on those capacity limits at the mill.

Speaker 1

And so I think this is sort of evidence of why the expansion plan and why the mill expansion specifically is needed as part of delivering this growth in production that we're expecting to show in this life of mine plan that will come out in the report. So I don't know if that helps,

Speaker 3

but So some of this ore that was stockpiled, if I understand correctly, some of it is kind of, I guess, let's just say, runoff from Q1. Is that kind of the right way to think about it?

Speaker 1

Yes. I mean, it's mine production. Okay.

Speaker 3

Q1 calendar 'twenty four is what I mean. So Q4 fiscal? No.

Speaker 1

No, no, no. This increase was generated in this quarter. Okay, got you. Yes. What I was referring to is the fact that even in the last Q4, we were able to mill more than we mine in Q4 because of what had been mined and stockpiled in say Q3.

Speaker 1

So I was saying that we have had the ability to play catch up in Q4 because mining activity has been less than milling. And in this case, we've got mining activity greater than milling in Q1. So that's created that inventory I think you mentioned the remaining

Speaker 3

kind of CapEx spend. I mean, I think you mentioned the remaining kind of CapEx spend on the new tailings facility, but I didn't quite catch it. What's the number that we should be looking at there?

Speaker 1

Budget for this year is $13,000,000

Speaker 3

So that's the remaining?

Speaker 1

Yes, that's the remaining for the year. And obviously, we've put a bit that will include some of the 14 that was spent to date because we do pick up what was spent in this current quarter.

Speaker 3

Okay, got you. All right. Thank you, Lon. Appreciate it.

Speaker 1

Okay. Thanks, Alex.

Operator

Your next question comes from Dalton Berritto from Canaccord. Please go ahead.

Speaker 4

Thanks. Good morning, guys. Hi, Alon. I wanted to ask you about the permit at El Domo, Domo, the lower courts throughout the challenge. And I'm just wondering, do you guys think it will be appealed?

Speaker 4

And how are you planning your next steps based on that?

Speaker 1

Well, I think the indications that were put out to the market were that the plaintiffs indicated at the end of the first lower court hearing that they intended to appeal. And so we fully expect that to take place. And that will move then from the local court to the provincial court. And we intend to respond to the case as Adventus and the team in Ecuador have been. And we feel positive about the outcome just given what we've seen not just in terms of the outcome of the hearing, but in terms of the case, the way it was handled, the commitment from all parties on our side to defend against the allegations made by the plaintiffs.

Speaker 1

So from our standpoint, I guess the second part of your question is, we don't intend to hold back from advancing the project pending that appeal.

Speaker 4

Are there any restrictions on you guys while this is still in the court system or can you move ahead as of the

Speaker 1

We can move ahead.

Speaker 4

Got it. Okay. And then in the event that it gets all the way up to the Supreme Court, what sort of timeline are we talking

Speaker 1

here? Well, to be specific, Supreme Court in this case, if it makes it to the sort of the 3rd level, which would be the constitutional court, that could be a matter of 2 to 3 years potentially. And in some cases, there's other cases in the country that have outstanding challenges that have been open for years and not addressed or resolved. And Roger, you've gone ahead.

Speaker 4

So would you guys be willing to sort of put shovels on the ground while this is going on in the background?

Speaker 1

Yes, I think that's what we're indicating in the sense that this development plans that we're going to come out with are going to speak to the activities we're looking to target initially to move forward and build the project.

Speaker 4

Got it. And maybe one last one for me. How are you thinking about financing the actual build?

Speaker 1

Well, the actual build based on the previous feasibility study and our work that we think we can make some improvements can be covered off based on the funding package from Wheaton as well as cash on hand.

Operator

Your next question comes from Kevin O'Haloohrung from BMO. Please go ahead.

Speaker 2

Hey, Alon. Thanks for taking my questions. Good morning, Jonathan. Just on the Ying optimizations and the technical report, will the other optimizations you're making like the XRTs and the equipment upgrades, will those all be included in the updated because we're looking at

Speaker 1

operating costs, because we're looking at operating costs, cut off grades based off of all these different factors coming to play, mining method, whether that be shrinkage, we're suing, also introducing 2 other mining methods on a very minor basis from a tonnage standpoint. So we've been looking at all of those factors and looking at the costs and both for determining the reserve resources as well as coming up with the life of mine plan and economics. So you'll see all of that in that report. And in terms of comments, I'd say, yes, things are tracking well, tracking to plan. And if anything, some of the work that we've been doing in developing these ramps have opened up areas, new access, shift in mining.

Speaker 2

Okay, great. Yes, looking forward to seeing that come through in the report. Last one for me is, can you just remind us of the timeline that you're envisioning for Quanping in terms of getting that into development and then how long until first production?

Speaker 1

Well, that's going to be sort of a bootstrapping situation where we will break ground and develop and obviously looking at developing, how would I say, efficiently and finding a way to get into early ore even if that's development ore that we can bring to the mill, but looking to see ground broken and the mine starting to be built by the end of this fiscal year. Okay, got you. Thanks guys. I think you know, I think you know, I think you know, manage I think just should manage expectations in terms of what initial tonnages are going to be, but look to break ground and get that mill up and running. So I get that mine up and running.

Speaker 1

By year end early in the New Year.

Speaker 2

Okay, great. Thanks a lot and congrats on a strong quarter. Thanks, Kevin.

Operator

Your next question comes from Felix Schaffigan from Haight Capital. Please go ahead.

Speaker 3

Yes, thanks. Just one question for me. I just wanted to double check the XRT sorters are operational already, right?

Speaker 1

Well, they're coming in, in a phased approach. And so we've got one that's in trial that has been installed has been installed and is operating on a trial basis at Mill Number 2. And it's based off of the results on a more consistent operating basis that will determine the addition of the other 2 that are planned at the other mine site locations.

Operator

This concludes the question and answer session. I would now like to turn the conference back over to management for any closing remarks.

Speaker 1

Great. Well, thanks, operator, and thanks everyone for joining us today. If anyone has any further questions, please feel free to call or e mail us. We look forward to hearing from you and look forward to following up with some of these exciting news items that we are going to be releasing here in the coming weeks. Have a great day.

Operator

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

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Earnings Conference Call
Silvercorp Metals Q1 2025
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