Silvercorp Metals Q2 2024 Earnings Call Transcript

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Provided by Quartr
November 10, 2023

There are 4 speakers on the call.

Operator

Good afternoon. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silver Corp Second Quarter Fiscal 20 24 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the conference over to Mr. Lon Schaver, President of Silvercorp Metals. Please go ahead.

Speaker 1

Thank you, Nina. On behalf of Silvercorp, I'd like to welcome you all for joining the call today to discuss our Q2 fiscal 2024 financial results. They were released yesterday after market and a copy of the news release, MD and A, the financial statements for today's call are available on our website. Before we get started, I'm required to remind you that certain statements on today's call may contain forward looking information within the meaning of applicable securities laws. Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent 10 Q and Form 40 F and Annual Information Form.

Speaker 1

So with respect to the quarter, revenue in Q2 was to $54,000,000 that was up 4% compared to the prior year quarter. And this increase was due to higher net realized selling prices for silver, gold and lead, which increased 27%, 38% and 2% respectively, and also due to a 110% increase in gold sales. This offset the lower silver, lead and zinc sold. Based on production levels and realized prices this quarter, Silver was 58% of revenue on a net basis and that's up from 54% in Q2 of fiscal 2023. Q2 net earnings attributable to Equity shareholders were $11,100,000 or $0.06 a share And that compared to a net loss of $1,700,000 or $0.01 per share in the same period last year.

Speaker 1

The main contributors to the increase in earnings were the higher realized silver, gold and lead prices I mentioned earlier, the higher gold sales And also we do not have an impairment of mineral rights and properties, which we incurred in the previous period. This increase though was offset by a 27% decrease in the realized zinc price and also a 12%, 12% and 23% decrease in silver, lead and zinc sold respectively and also a decrease of $3,000,000 in foreign exchange gain. On an adjusted basis with adjustments we make to remove the impacts of non cash and unusual items. Earnings for the quarter were 11,700,000 or $0.07 per share and that compared to $6,800,000 or $0.04 a share in the same period last year. And just a reminder for everyone, The adjusted earnings is a supplemental non GAAP measure that we provide to investors as another metric to better measure the performance of the underlying business, to its continuing profitability and growth potential.

Speaker 1

Turning to cash flow. Our cash flow from operations in the quarter was 28,800,000 that was up from $14,100,000 in the prior year period due to those previously mentioned factors that impacted revenue and net income, But also $1,800,000 in cash taxes paid versus $4,300,000 in the prior year quarter and a positive adjustment in non cash working $3,200,000 compared to a prior year quarter negative adjustment of $6,800,000 Capital expenditures totaled approximately $15,100,000 in the last quarter, down 13% from $17,400,000 in the prior year period, due to lower corporate exploration spending and modestly lower investments in equipment and facilities at both operations. This was partially offset by higher exploration and ramp development spending at the GC and Ying mines. During this period, we also repurchased under our normal course issuer bid just under 200,000 shares of the company for a total of approximately $600,000 We ended the quarter with $189,100,000 in cash and cash equivalents and short term investments. This is down 6% compared to the $200,100,000 we reported at June 30 and was largely due to an additional $5,000,000 investment in New Pacific as a part of participation in their financing and an $18,500,000 investment in ORCORP through a private placement that we completed in conjunction with the signing of the binding scheme implementation date to acquire Orcorp.

Speaker 1

This Cash position does not include our investments in associates and other companies, which had a total market value of $124,000,000 as of September 30. Now looking at production over the quarter, as we previously reported, we mined 273,004 to the Q1 of 2019. Those numbers were down 6% 10% respectively compared to the same quarter last year. The decline was primarily a result from a 5 week shutdown at the GC Mine as we previously reported in both an update as well as the production figures that we put out. So we produced on a consolidated basis approximately 1 point These figures represent decreases of 12%, 11% and 23% respectively in silver, lead and zinc production compared to Q2 of fiscal 2023.

Speaker 1

Decrease mainly reflects lower production from GC and lower head grades achieved at Ying due to mining sequencing an increased mining and milling of gold ore during the quarter. In total, 12,800 tons of gold ore, grading 1.9 grams per tonne and 82 grams per tonne silver were processed in Q2 to produce a gravity gold concentrates leading to the pouring of the company's first gold dore and contributing to a record quarterly gold output of 2,500 ounces of gold. Year to date, we've produced 3,400,000 ounces of silver, 4,000 ounces of gold, £34,000,000 of lead and £11,000,000 of zinc. The cash cost per ounce of silver net of byproduct credits was negative $1 in the second quarter compared to a positive $0.77 in the prior year quarter. The improvement is mainly due to decreases in per ton production costs, contributing to a decrease of to $4,100,000 in expense production costs.

Speaker 1

Unit production cost improvement also reflected a 6% depreciation of the Chinese RMB against the U. To the same prior year period. The all in sustaining cost per ounce of silver net of byproduct credits was $11.50 this compared to $8.25 in Q2 of fiscal 2023 and the increase primarily reflects a 5 point $4,000,000 increase in sustaining capital expenditures and a $7,000,000 increase in G and A expenses and government fees and other taxes over the same prior year period. Turning to our growth projects. We spent $1,700,000 on the construction of the new tailings storage facility at Ying during the quarter.

Speaker 1

As of September 30, total expenditures incurred on the tailing storage facility were $8,900,000 and construction is on track for completion in 2024. At the Kuangping project, a satellite property located to the north of Ying. The company has completed environmental, water and soil assessments. These reports have been approved by the relevant provincial authorities and an updated mineral resource estimate report to be prepared in accordance with Chinese standards is currently under review by the province. The company is also in the process of preparing a comprehensive report that includes the Mineral Resources Development and Utilization Plan, our reclamation plan, environmental rehabilitation plan.

Speaker 1

We'll provide additional details when they are available. Looking ahead at Ying, we are considering opportunities to increase to operational efficiencies through enhanced mechanization of our mines in the Ying Mining District. Underground stoping activities will increasingly pivot to more shrinkage mining with LHD loading. This will help to reduce the labor intensive mucking associated with the cut and fill over suing stoping method, which is being used predominantly. This shift is expected to increase mine output, improve labor efficiency and reduce unit operating costs in the future.

Speaker 1

And as part of this initiative, the company has ordered 20 SCOOP trams or LHDs for Ying with the first unit delivered to site in late October. To Mobile XRT ore sorting system is being installed at the number 2 mill to address the higher anticipated dilution associated with shrinkage mining. This is one of 3 XRT ore sorters planned at Ying to upgrade ore from the various mines throughout the district. This type of sorting system has already been implemented at the GC to Seamarine with reported improvements in head grades. Silvercorp is considering alternate strategies to expand Ying's mineral processing capacity.

Speaker 1

Instead of the original plan to build a new 3,000 tonne per day mill and then decommission the existing number 1 mill, we are currently considering the option of adding 1500 tons per day of capacity to the number 2 mill, which would increase the processing capacity at the Ying Mining District to 4,000 tonnes per day. The company will provide additional details when available, but as expected this expansion could be operational sooner and at a lower cost both in terms of absolute dollars to implement and on a dollars per ton per day increase in capacity. With respect to our ORCORP acquisition, on August 6, 2023, the company ORCORP announced the signing of a definitive agreement whereby we will acquire ORCORP pursuant to an Australian scheme of arrangement subject to the satisfaction of various conditions. Since the announcement, the company and ORCORP have been working together to seek the necessary regulatory approvals, including an application lodged to the Tanzanian Fair to the competition commission for which approval was granted effective November 3rd. The scheme booklet, which includes an independent expert's report saying the transaction is fair and reasonable to ORCORP shareholders has been completed and provided to ORCORP shareholders to assist them in the to the operator to vote in favor of the scheme at the scheme meeting.

Speaker 1

The scheme meeting is currently scheduled to take place at 10 am to Australia Time on Friday, 8th December. We look forward to providing the market with further updates on the transaction over the coming weeks. And with that, I'd like to turn the call open over to questions. Operator?

Operator

Thank you, sir. Ladies and gentlemen, we will now conduct a question and answer session. One moment please for your first question. Your first question comes from the line of Joseph Reagor from Roth MKM. Please go ahead.

Speaker 2

Hey, Yvonne. Thanks for taking my questions.

Speaker 1

Hi, Joe.

Speaker 2

So at GC, You guys are obviously trending a little below expectations with the issues in Q2. Do you think you can make up the tons to make the low end of guidance on tonnage by the end of the year? Or is it just a matter of like seeing how much You can make up and then revising later.

Speaker 1

Yes. I mean, I think the first thing to say is that GC is back up and running according to plan, if not even ahead of plan with respect to tonnage. I think what we're more focused on is really from a corporate standpoint and also just given the relative size of GC to Ying, what's Really important with respect to guidance is that, we still see silver as being achievable from a low end standpoint of guidance. Yes, lead and zinc looks difficult at this point here. But we're talking about sort of Rounding numbers not huge differences.

Speaker 2

Fair enough. And then obviously as the as it ramps back up to normal rates, we should expect the operating cost for time to come back down in your fiscal Q3, right?

Speaker 1

Yes. I mean, what we have at all the mines a bit of a small numbers factor that can bite us when those small tonnage numbers are made even smaller and you're having to allocate those costs to smaller tons. And so we've seen that over periods. So with it back up and running. We see things falling back into line and a more normal operating rates and costs going forward.

Speaker 2

Okay. And then based on current expectations for the ORCORP transaction, if it closes on time, What would be the timeframe thereafter that we would see an updated financial study with your guys' outlook for the project?

Speaker 1

Yes. That's anticipated in terms of a technical report that we would issue exact nature of it To be determined still, but probably in sort of January, February timeframe in terms of an initial report. But obviously, we look to give as much guidance in advance of that as we can.

Speaker 2

Okay. I'll turn it over. Thanks, Lana.

Speaker 1

Okay. Thanks, Joe.

Operator

Thank you. And your next Question comes from the line of Felix Schaffigan from 8 Capital. Please go ahead.

Speaker 3

Hey, Elon. Thanks for taking the questions. Hi, Felix. Hello. Yes.

Speaker 3

Yes. Can you hear me? Yes. So my question is around the alternative plan for expanding the processing capacity at Ying. No, I understand it's probably early days, but can you give a ballpark figure for what you're expecting the CapEx to be to add this extra processing line at Mill Number 2?

Speaker 3

And also how much money is left there to be spent on the new tailings facility?

Speaker 1

We'll tackle the second question first. We're at roughly $8,900,000 And as you recall, the cost was 38. So we would have 30 to go through in through the next sort of I guess it would be 5 quarters really from a calendar standpoint to get to the end of 2024 calendar. And then with respect to your first question, yes, we're still working on the estimates. Our sense is the numbers here would come in sub $10,000,000 So it's actually quite a reasonable cost with respect to getting that to production increase.

Speaker 1

And the other elegance of it is from a timeframe, we can see it being completed at some point over the course of 2024, which as you recall is ahead of schedule relative to the number 3 mill plan that we've articulated.

Speaker 3

Okay. That makes sense. And if I recall correctly, I think you were using the number 1 mill, most of the gold processing What's happening at the number 1 mill, will that be will that remain to be the case going forward?

Speaker 1

That's a bit to be termed. Obviously, with the number 3 mill plan, we're anticipating shutting mill number 1. Now if we're keeping it open And looking at Kuang Ping, we may actually dedicate Mill Number 1 to address ore coming from Kuang Ping, in which case we would move the gold circuit over to the number 2 mill, but that's yet to be finalized.

Speaker 3

Okay. Okay. Understood. Thank you, Lon.

Speaker 1

Okay. Thanks, Jonas.

Operator

Thank you. To this conference. This concludes the question and answer session. I would like to turn the conference back over to Mr. Lon Shaver for any closing remarks.

Speaker 1

Okay. Well, thank you, operator. Thanks everyone for joining today. We appreciate your time and interest. And as we finish the call, please remember that our lines of communication are always open.

Speaker 1

If you have additional questions you didn't get to put to us on the call today. Please reach out to us by phone or e mail and we will follow-up with you and get you the information that you need. As we head into the holiday season, Sending our best wishes for a wonderful and relaxing time for you and your loved ones. And we are looking forward to what promises to be an exciting and successful 2024.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a

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Earnings Conference Call
Silvercorp Metals Q2 2024
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