Silvercorp Metals Q1 2024 Earnings Call Transcript

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August 11, 2023

There are 5 speakers on the call.

Operator

Thank you for standing by. Good afternoon. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silber Corp. 1st Quarter Fiscal 20 24 Financial Results Conference Call.

Operator

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. And I would like to turn the conference over to Lon Shaver, Vice President, for opening remarks. Please go ahead.

Speaker 1

Thank you, Sylvie. On behalf of Silvercorp, I'd like to welcome everyone for joining our call today to discuss our Q1 fiscal 2024 financial results, Which were released yesterday after market. The news release, the MD and A and the financial statements for today's call are available on our website and SEDAR. Before we get started, I'm required to remind you that certain statements on today's call will contain forward looking statements 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 So we kicked off fiscal 2024 with a solid Q1 with our mines delivering a strong performance In line with expectations, revenue in the quarter was $60,000,000 that was down 6% compared to the prior year quarter Due to a number of factors, notably a decrease of $3,400,000 in silver and lead sales, A decrease of $3,900,000 from lower realized lead and zinc prices, but those were offset by an increase of 2 point $6,000,000 from a higher realized silver price and increase of $700,000 from gold sales.

Speaker 1

Based on production levels And realized prices this quarter, silver was 59% of our revenues on a net basis that was up from 54% in the Q1 of last year. Our Q1 net earnings attributable to Equity shareholders were $9,200,000 or $0.05 per share. This compared to CAD10,200,000 or CAD0.06 a share for the same period last year. The main contributors to the slight decrease were a 5% and 9% decrease silver and lead sold, respectively, and a 6% and 33% decrease in realized lead and zinc prices. Also, we had a foreign exchange loss of $2,200,000 arising from the depreciation of the U.

Speaker 1

S. Dollar against the Canadian dollar. These were offset by 6% and 8% increases in realized gold and silver prices, as well as a 36% increase in gold sales And a $1,100,000 gain on investments. Our realized adjusted earnings for Quarter were $12,400,000 or $0.07 a share, and this compared to $13,500,000 or $0.08 a share for the same period last year. And just a reminder, the adjusted earnings is a supplemental non GAAP measure intended to provide investors with another metric To better measure the performance of the underlying business, its continuing profitability and growth potential.

Speaker 1

Our cash flow from operating activities in the quarter $28,900,000 down from $40,200,000 in the prior year quarter due to the previously mentioned factors impacting revenue and net income. Also, dollars 4,500,000 in cash tax paid versus $2,300,000 in the prior year quarter and a positive non cash working Capital contribution approximately $5,000,000 compared to $8,900,000 in the prior year quarter. Capital expenditures totaled approximately $15,900,000 in the quarter. That was up 2% from $15,500,000 in the prior year, Mainly due to increases in ramp development as well as investments in equipment and facilities at both operations. During this period, we also paid $2,200,000 of dividends to shareholders.

Speaker 1

We ended the quarter with $200,600,000 in cash and cash equivalents and short term investments, down slightly to from $203,300,000 as of March, Largely due to a negative translation impact arising from the depreciation of the RMB against the U. S. Dollar. Just to note, this cash position does not include our investments in associates and other companies, which had a market value of 121,500,000 As of June 30th. As previously reported, from a production standpoint, we mined 303,220 tonnes of ore and milled, 295,095 tonnes of ore, that was up 1% and down 1% Compared to the same period last year and we produced on a consolidated basis approximately 1,800,000 ounces of silver, 1600 ounces of gold, £17,800,000 of lead and £6,800,000 of zinc in the quarter.

Speaker 1

These were decreases of 4%, 7% and 2%, respectively, in silver, lead and zinc over Q1 of fiscal 2023. The decrease in silver and lead production as noted in the previously issued news release Primarily reflects a decrease in head grades at Ying, which is in line with the mining sequence and mineral reserves. At Ying, the production cost per tonne of ore processed was $85.58 per tonne. This is down 8% Compared to Q1 of fiscal 2023, the all in sustaining cost per tonne of ore processed at Ying was $103.94 Down 14% compared to Q1 of fiscal 2023. The decreases were mainly due to a 6 percent depreciation of the RMB against the U.

Speaker 1

S. Dollar, but also a decrease of $3,200,000 in sustaining capital expenditures. On the other hand, the production cost per tonne processed at GC was $6,202,000 That's up 7% compared to Q1 of last year. And the all in sustaining cost per tonne of ore processed at GC was $90.94 up 11% compared to Q1 of fiscal 2023. The increase here was primarily due to more tunneling that was done and expensed during the quarter As well as additional cost to run the XRT ore sorting system, which has recently put in place, But obviously, offset by the depreciation of the RMB, as mentioned.

Speaker 1

Overall, the cash cost per ounce of silver net of byproduct credits It was a negative US0.31 dollars in the Q1 compared to a negative US1.57 dollars in the prior year quarter. The increase reflects a decrease of $4,300,000 of byproduct credits, but offset by $1,800,000 decrease in expense production costs. And the all in sustaining costs per ounce of silver, net of byproduct credits, was 9.46, up marginally compared to 9.25 In Q1 of last year, increase primarily reflects the same factors that impacted the cash cost that I just mentioned, Offset by a $2,700,000 decrease in sustaining capital expenditures. Turning to our growth projects, We spent $2,400,000 on the construction of the new tailings storage facility at Yang during the quarter. And as of June 30, total expenditures incurred on the tailings storage And the new mill were $7,200,000 Construction is in line with the planned schedule and budget.

Speaker 1

At the Kuanteng project, which is a satellite property north of Ying, environmental, water and soil studies were carried out in the quarter. Reports from these studies are expected to be completed and submitted to the relevant provincial authorities for review later this quarter. In addition, we completed 84.6 kilometers or $2,700,000 worth of diamond drilling over the quarter, Contributing to the steady release of exploration news flow from multiple mines, mainly at Yang over the past few months. With regards to the proposed acquisition of Celsius Resources Limited, which we had previously announced on May 15, we put out a news release earlier this week. The exclusivity period we had with Celsius under the term sheet, which had been extended twice, expired on July 31, With the 2 companies unable to negotiate a definitive agreement along the lines of what was contained in the non binding term sheet, There are no negotiations ongoing.

Speaker 1

Turning to the ORCORP announcement. On August 7, Silvercorp and ORCORP jointly announced the signing of a definitive scheme implementation deed, Whereby Silvercorp will acquire OreCorp at a total consideration of AUD0.60 per OreCorp share, Comprised of $0.15 in cash and 0.0967 Silver Corp. Shares worth AUD 0.45. The transaction will be completed through an Australian scheme of arrangement very similar to a plan of arrangement in Canada. In addition to oral Corp Board support, which represents 4.6% of oral Corp shares outstanding, the news release also noted the deal has received Support from Rollefsen, which controls approximately 12.3% of the ORCORP shares.

Speaker 1

Rollefsen has provided a signed voting intention statement to ORCORP, indicating that it intends to vote in favor of the scheme. That it intends to vote in favor of the scheme. Along with the acquisition, we announced that Silvercorp and ORCORP entered into a placement agreement, Whereby Solitocorp will acquire approximately 70,400,000 shares of ORCORP at a price of AUD0.40 per share For aggregate proceeds of approximately AUD28 1,000,000 after completion of this placement, Silvercorp will hold approximately 15% of OreCorp, And this placement was done as a bridge financing to the closing of the acquisition, providing funding to commence resettlement While more details are outlined in the news release, I just wanted to make some key comments about this transaction. The Nanzaga project adds meaningful resources to Silvert Corp and contained in a project that we can apply our development skills to. Once built, Nyanzaga will make a meaningful contribution to our production profile and financial results, while adding country and commodity And this acquisition takes us into a highly prospective district in the Lake Victoria Goldfields And in Tanzania, a country that is receptive to foreign investment and development.

Speaker 1

And we think the above factors should lead to a re rate for We look forward to providing the market with updates on the progress of the transaction As well as our plans for the Nanzaga project over the coming months. And with that, Sylvie, I'd like to open the call for questions.

Operator

Thank you, sir. You will need to lift the handset before pressing any keys. One moment please for your first question which will come from Felix Schaffigan at 8 Capital. Please go ahead, Felix.

Speaker 2

Thank you. Hi, Long. Congrats on a good quarter. Just a very quick question from me. The year over year increase in the cash costs and all in sustaining costs at GC Mine was it says that it was driven by additional costs to On the XRT sorting system, could you just give a little bit more color on that?

Speaker 2

Are there some issues with it or just any additional information That would be great. Thank

Speaker 1

you. Yes. Hi, Felix. Thanks for your question. I wouldn't say necessarily issues, But bringing in something new into the flow sheet, getting everybody aligned and understanding how it works and how to Incorporated into the flow, obviously, takes some time and some extra effort.

Speaker 1

So I wouldn't say there's issues, but just some additional costs that we've incurred. From an observation standpoint, it looks like it may have made a contribution though given that the grade did pick up.

Speaker 3

Okay. Thank you.

Operator

Thank you. And your next question will be from Justin Steven at PI Financial. Please go ahead.

Speaker 3

Hey, Alain. Good chat presentation there. I think you answered a few of the things I was going to ask anyways. But the one sort of leftover here, Ying, particularly the mining cost on a per ton basis dropped obviously at least pretty considerably. Is this the sort of thing obviously the RMB devaluation has an impact there, but even this is a bit more beyond that.

Speaker 3

Is this the kind of thing that we're seeing the benefits That sort of focus on lateral development as opposed to development at depth? And if so, do you think that that's Maybe not quite sustainable at these low levels, but is there potentially come in at the lower end of the guidance in the per ton range?

Speaker 1

Yes. Good question. Obviously, we're not in the business of forecasting the exchange rates here. I I think I would go back because there's a lot of factors that come into play from year over year and quarter to quarter in terms of Different elements. Can't speak specifically to that being A component of going shallower or falling laterally as you indicated, I think that may have been part of the contribution to the change, but I mean I would stick really with what we put out in terms of guidance Like for the quarters going forward and the year and if there truly is what I would say a shift in thinking, We'll update the numbers and give you more granularity on that.

Speaker 3

Got it. And I know that you've been sort of talked before, but is there a plan for the timing on reserve and reserves update, Broadly speaking, for at least for the Young District.

Speaker 1

We haven't discussed that internally. Obviously, we just did one Based off of that, the big drilling we did starting in 2020 and that got published last fall. So And obviously, we put some new news out since then. There haven't been plans from a timing standpoint. And typically, we've Rotated between doing a formal update on Ying 1 year and then GC in the next and going back and forth.

Speaker 1

I think we'll have to have some conversations here to determine if the drilling that's been done That did not make it into the last report as well as any of these other changes warrants an update. But at this time, I don't have any Set time and target, and we've not started currently to do an updated 40 three-1 101 on Yingying.

Speaker 3

Got it. And then just, obviously, once Mill 3 does come in, is the plan just to, I guess, accelerate The previous mine plan pulled from a few more dopes and phases to meet the increased capacity there?

Speaker 1

Yes. Well, and obviously with number 3 coming on, number 1 gets shut down. So we do lose that contribution. But it's definitely a portfolio mix. I mentioned Quan Ping with what's progressing there.

Speaker 1

I mean, I'm hopeful, I'm optimistic that we'll have an amount of disclosure relative to what we think that can contribute in terms of tonnage and grade to the centralized milling facility sometime later this year or early next year. So that will be a contributor. And yes, we're working through plans with respect to What we can add or increase or update for the existing 7 mines Across the 4 mining permits. And again, it's 7 minutees across roughly 70 square kilometers. So there's, I think opportunities to increase production at some of these existing ones and potentially looking at bringing on new areas.

Speaker 1

But a lot of the work has to be done, and we put out the disclosure that this work has to get wrapped up into Not necessarily the 40three-1 101 you're referring to, but more the Chinese resource development plans that have to get filed To get permit approvals for that.

Speaker 3

For sure. No, exactly. That sounds good. Looking forward to seeing then with the next couple of quarters, Brian.

Speaker 1

Well, thanks Justin. Appreciate the questions.

Operator

Thank you. Next question will be from Gabriel Gonzalez at Echelon Capital Markets. Please go ahead.

Speaker 4

Hi, Echelon. Just a question regarding the OraCorp announcement and the end of the And I apologize if this was already addressed earlier in the call. I did jump a few minutes late. I wanted to ask if the company will continue to look for acquisitions or does the end of the Celsius exclusivity period And acquisition of ORCORP, I mean that for now it's ORCORP sort of a one and done type situation on the acquisition front for now.

Speaker 1

Yes. I mean, I think, obviously, ORCORP had the benefit of seeing what we had disclosed on the Celsius transaction, And they were aware of our activities there. They also know that we have ambitious growth plans For the company and that's part of the excitement and part of the reason to roll into the Silvercorp story with the transaction that we've announced. But certainly from a near term standpoint, getting the ORCORP transaction closed And being in a position to also post closing of that deal, provide a bit more updates as to the development of Nanzaga is

Operator

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

Speaker 1

Well, that's great. Thank you, Sylvie, and thanks everyone for tuning in today and for the questions. Please, if you have any additional questions, We'll be happy to address them at that time, and we look forward to updating you again on our next call for a

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Silvercorp Metals Q1 2024
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