SilverCrest Metals Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 11, 2024

Key Takeaways

  • Silvercrest exceeded 2023 sales guidance by selling 10.25 million silver-equivalent ounces and delivered an average all-in sustaining cost of $12.58/oz, beating the low end of its cost guidance.
  • The company reported 2023 net earnings of $116.7 million ($0.79/share) and generated free cash flow of $121.1 million ($0.82/share), achieving a strong 61% operating margin.
  • Remaining debt was fully repaid in H1 2023, leaving Silvercrest debt-free with $105.2 million in treasury assets (including $86 million cash and $19.2 million bullion), up 107% year-over-year.
  • For 2024, guidance calls for stable sales of 9.8–10.2 million ounces, all-in sustaining costs of $15.00–$15.90/oz, sustaining capital of $40–44 million, and an exploration budget of $12–14 million.
  • A strategic switch to contractor Dumas for underground mining is underway to de-risk operations and target an exit mining rate of 1,050 tonnes per day in H2 2024, with plant recoveries maintained at ~98%.
AI Generated. May Contain Errors.
Earnings Conference Call
SilverCrest Metals Q4 2023
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Silvercrest Reports 2023 Annual Financial Results. 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 Monday, March 11, 2024. I would now like to turn the call over to Eric Fear, CEO.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good morning and thanks everyone for joining. Today, we'll be providing commentary on Q4 and full year 2023 results, after which we'll be happy to take questions. The slide deck we'll be referring to is available on the website at silvercrestmetals.com under the Investor tab. While these results took a bit longer to get filed than we planned, we are extremely proud of what we have accomplished during 2023 and thank you for your patience in making this announcement.

Speaker 1

Before we get started, I'd like to direct you to the forward looking statement on Slide 2. All figures discussed this morning are in U. S. Dollars unless otherwise stated. All of the ounce and per ounce references discussed will be based on silver equivalent ounces sold, unless otherwise specified.

Speaker 1

Our silver equivalent references are based on gold to silver ratio of 79.51:one. On the call with me today is Chris Ritchie, President and Cliff Lepore, Vice President, Operations. Starting on Slide 3, 2023 was our first full year of commercial production and a successful one at that. We exceeded 2023 sales guidance with 10,250,000 ounces sold and beat the lower end of cost guidance with all sustaining costs averaging $12.58 per ounce. Our strong operating margins of 61 percent provided flexibility to allow more than $87,000,000 of capital to be allocated in 2023, while still ending the year one of the best balance sheets in the silver space.

Speaker 1

In the first half of twenty twenty three, we repaid the remaining $50,000,000 of debt, ending the year debt free with $105,200,000 in treasury assets, which included $86,000,000 in cash and $19,200,000 in bullion. In total, dollars 37,200,000 was invested in exploration, share buybacks and bullion purchases. These are all areas of business that we believe drive further value for our shareholders. In 2023, we released our inaugural ESG report and made significant process in our local communities to improve water access and reliability. These efforts allowed for a second planting season, which helped support the increased income for the local community partners.

Speaker 1

We were recognized for our continued efforts and contributions by receiving a number of ESG distinctions in Mexico. I will now pass the call to Chris to discuss financial results for both the Q4 and the year.

Speaker 2

Thank you, Eric. Moving to Slide 4. Los Chisps performed well throughout the Q4 with gold sales of 16,100 ounces and silver sales of 1,280,000 ounces. Silver equivalent sales totaled 2,600,000 ounces, bringing the year to date sales to 10,250,000 ounces, exceeding the top end of our annual guidance. In the quarter, we generated revenue of $61,300,000 and our cost of sales was $24,400,000 2023 revenue was $245,100,000 and cost of sales was $96,800,000 for an impressive average annual operating margin of 61%.

Speaker 2

As costs tend to move with the metal price, this margin is a significant differentiator amongst our peers. Net earnings in the quarter was $35,900,000 or $0.25 per share. Total net earnings for the year was $116,700,000 or $0.79 per share. Free cash flow in the quarter was $24,100,000 or $0.16 per share. Annual free cash flow totaled $121,100,000 or $0.82 a share.

Speaker 2

Sustaining capital spend in the quarter was $12,000,000 for a total of $37,100,000 spent in 2023, consistent with the 2023 technical report projections. Now on Slide 5. Treasury assets increased by 29 percent or $23,500,000 in the quarter with cash and cash equivalents growing by $16,000,000 and our bullion position increasing by $7,500,000 During 2023, our treasury assets increased by $54,400,000 or 107 percent to $105,200,000 Our bullion holdings outperformed all other currencies on our balance sheet in 2024, and we are proud to be providing increased exposure to bullion for our shareholders while fighting to make a better return on our invested capital. To enter 2024 with this financial strength after only our 1st year of commercial production is a unique accomplishment that we believe is a differentiator in the industry and something that provides resilience, flexibility and the ability to make prudent choices when allocating capital. Over the past 3 years, our stock has had a healthy relationship with the gold and silver price.

Speaker 2

We strive to increase the sensitivity our stock has to the metal price while reducing the risk for our shareholders. Our balance sheet strength and the choice to hold bullion on our balance sheet are ways we believe we are reducing risk while giving investors more exposure to their currency of choice. It is important to note that we do expect our pace of cash build to slow in 2024 due to a number of factors. Our cash flow in 2022 2020 3 benefited from tax loss carry forwards and will slow somewhat in 2024 as we pay accrued income taxes and duties from 2023. These payments will be made in Q1 2024 when we also begin to pay regular quarterly income tax installments.

Speaker 2

In H1 2024, we will also be making payments to our new and outgoing contractors, which will impact our cash flow. This includes an advance of $7,500,000 for equipment purchase, which will save us $1,500,000 in interest costs over the life of the contract. We have worked hard to create this financial strength, and we are happy to be in a position to make better long term decisions that benefit our shareholders. That, I will now pass it on to Cliff to discuss operations at Los Cheesebes.

Speaker 3

Thanks, Chris. I'm now on Slide 6. Underground mining rates in the quarter were 8.55 tons per day and averaged 8.24 tons per day in 2023. This is in line with ramp up estimates of 800 to 900 tonnes per day. The Los Jesus plant averaged 11 36 tonnes per day in the quarter, a slight decline from quarter 3 due to unplanned downtime.

Speaker 3

In our quarter 4 production release in January, we noted that we would have more plant downtime in Q1 2024 for planned maintenance with no anticipated impact to sales in the quarter. We're happy to announce that this work was completed in February and the plant has returned to design operating parameters earlier than predicted. Processed gold and silver grades averaged 7.71 silver equivalent grams per tonne in 2023. The plant recovered 2,500,000 ounces in quarter 4, totaling 10,400,000 ounces in 2023. Metallurgical recoveries in Q4 remained high at approximately 98% for both metals.

Speaker 3

Corporate AISC in the quarter of $14.36 was in line with our H2 2023 guidance, but increased from quarter 3. AISC increased due to higher capital spend and payments to our outgoing mining contractor. Average AISC for 2023 was $12.58 which beat the low end of the 2023 guidance range of $12.75 to 13.7 $5 As announced on January 23, contract negotiations with underground mining contractors took place throughout 2023 and were finalized subsequent to year end. The selected contractor, Dumas, has begun mobilization at Las Chispas and this is going to continue through Q3 2024. We view the change of contractor as a major de risking decision, strategically aligning ourselves in a partnership focused on safety, predictability and costs.

Speaker 3

I was just at site and I'm pleased to report that the transition is going well and we're excited for Dumas to be fully mobilized to begin ramping up mining rates in H2 2024 with a targeted exit rate of 10 50 tonnes per day. I will now pass it back to Eric to conclude the presentation.

Speaker 1

Thanks, Cliff. Moving on to Slide 7. Our confidence in our 2023 technical report is confirmed by our 2024 guidance. In 2024, we have guided for a stable sales profile of 9,800,000 to 10,200,000 ounces. We expect sales to be relatively consistent quarterly.

Speaker 1

Corporate all in sustaining cost is expected to be between $15 $15.90 per ounce, which aligns with our 2023 technical report estimate despite continued industry cost pressures. Corporate all in sustaining cost in H1 2024 is expected to be higher than Q4 2023, in part due to contractor change and will reduce in the second half of twenty twenty four. Our expected sustaining capital spend of $40,000,000 to $44,000,000 benefited from recent improvements in the mine plan, which increased efficiency and decreased forecasted spend. A $12,000,000 to $14,000,000 exploration budget in 2024 will focus on reserve replacement, leveraging existing infrastructure by aiming to convert inferred resources in the first half of the year to indicated resources and then moving on to new target generation in the second half. After a few years of supporting the transition to production, our exploration team is looking forward to strategically approaching exploration with a focus on outlining sustainable resources and reserve growth.

Speaker 1

That wraps up our formal commentary for today. Operator, please open the line for questions.

Operator

Thank First question comes from Alain Chartrand, an investor. Please go ahead.

Speaker 4

Yes, good morning. I wanted to know if Silver Crest is now looking at investing or acquiring other mining silver companies?

Speaker 1

Yes, this is Eric. We are there is a Board mandate to look at other producers in our space, preferably silver producers. We'll see how that goes for this year.

Speaker 4

Okay. I have another question. What is the income tax rate in Mexico? And does the rate go up if the silver price goes over $30

Speaker 1

Hi there, it's Chris here.

Speaker 2

The rate in Mexico is about 35%, including duties. The tax rate itself doesn't change with the metal price.

Speaker 4

Thank you.

Operator

Thank you. Next question comes from Travis Anderson at Gildergannonhau. Please go ahead.

Speaker 5

Good morning, gentlemen. Quick question just on the Mexican election coming up. I haven't been following it that closely, but I just was wondering if there are any changes expected from either party. I know it looks like the almost chosen person is likely to succeed, but I was wondering if you know of any specific plans or platforms by either one that might affect you significantly?

Speaker 1

Yes. The leading party right now is AMLO, the Marina party. So lots of rhetoric as you know Travis that goes around in Mexico and a lot of that doesn't come to fruition. So we'll just sit back and wait and see. The ammo party will probably be taking the same agenda as Overdore maybe with some twists, but it's really too early to say.

Speaker 5

And another quick question, the bullion you're carrying on your balance sheet, is that carried at cost or at market price at the time you mined it or refined it? How do you account for that?

Speaker 2

Travis, it's Chris. We carry the bullion at the market price. So I mean, we added our bullion, I think the average price was around 18 point $5,000,000 And since then, we've seen an appreciation. As discussed, the bullion itself was our best performing currency on the balance sheet for 2023. And obviously, this year, it's off to a good start.

Speaker 2

So for everybody to know, we also do a covered calls on that to generate revenue. But when we see the volatility pick up, we've also taken some feedback from investors to push out the exercise price on those options in order to give the investors more exposure to the metal.

Speaker 5

Okay, great. Thanks.

Operator

Thank you. There are no further questions at this time. Another question coming in from Paul Stanley, an investor. Please go ahead.

Speaker 4

Yes. I've been a long time investor in Silvercrest. Can you tell me approximately how many shares were repurchased in calendar year 2023? And I assume that you're planning to repurchase additional shares in 2024. Is that correct?

Speaker 2

Hi, Paul, it's Chris. In 2023, we purchased approximately 1,500,000 shares and the Canadian price was in the neighborhood of $6.50 So we do have a budget for an NCIB this year. The main way in which we use it is more to be opportunistic. We are in a cyclical business and if there are moments of weakness, those are the main areas where we want to be aggressive.

Operator

Thank you. At this time, no further questions. You may proceed.

Speaker 1

Thank you, everyone, for attending the Silvercrest Metals Q4 and full year 2023 results call. Have a great day.

Operator

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

Powered by Quartr