Q4 2019 Earnings Call
Please standby.
[music], good day, ladies and gentlemen, and welcome to the Fortuna Silver mines fourth quarter and full year 2019 financial and operational results call. After the presentation. There will be a question answer session. If he should require assistance during the call. Please press star zero and an operator will assist you.
This time, it's my pleasure to turn the floor over to Mr., Carlos Baca Investor Relations manager, Sir the floor is yours.
[music]. Thank you Tom.
Good morning, ladies and gentleman Jack to welcome you all tool Fortuna silver mines into our financial and operational goal results call for the fourth quarter and full year 2019 today, we will be using a webcast presentation, which will be controlled by us.
Oh no. The presentation. Please go to our website Fortuna silver Dot com.
On the Investor Stout, then threeq on the financials, so top and under Q4 29 team building on the earnings call webcast link.
Okay. That's all I know so fresh C. N C O one direct or at least ideal I noticed that CFO will be hosting the call from lean up at all.
Before I turn over their coal to Jorge I would like to indicate that this earnings call contains forward looking information that is based on the company's current expectations estimates and bleach.
These forward looking information is subject to a number of risks uncertainties and other factors actual results could differ materially from my conclusion forecast or projection in the forward looking information.
Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection I suspect. It in the forward looking information. Additionally, information about the material factors that could cause actual results to differ materially from the conclusion forecast or projection in the forward looking information.
And that material factor as far as some softness now were applied in drawing a conclusion or making a forecast or projection as we take that into forward. Looking information is contained in the companys I don't information for an M.D.N. eight which are publicly available on SEDAR.
Company assumes no obligation to update such forward looking information in the future except as required by law.
I would now like to turn.
The call over two horizontal then also prescient CEO and co founder all Fortuna.
[laughter].
Thank you Carlos and good morning to wall.
That's cardless dated along with research CFO will be presenting our review of for Q4 and year in financial results [laughter]. A main developments across are probably you extend operations in Mexico.
<unk> and Argentina.
In slide six so that presentation.
[laughter].
Under highlights.
[music].
That's where the year.
We're pleased to report strong financial results, which I know adjusted earnings of 28 million.
Free cash flow from ongoing operations, So 30 court and a half million.
And a robust Davies emerging now 37%.
Equally you'd be available.
Stands at 123 million.
According to adapt we beat the ratio of 1.7.
These ratios is expected to be.
2.4 by mid year before the start of commercial operations happening there too.
As of the end of January we never shows our completion of 89% with 280 million of construction spending on first though do you plan for the end of Q2 2000 twin.
I know you've seen our December construction up.
[noise] a year strong a euro strong financial results.
And difficult challenges that we have overcome well deserved it might not see they'll actually end up on mine contractor that are San Jose mine in August.
The stereo loss, what's that build or any station at a time, where or when our efforts are showing sustained improvement year over year in safety performance indicators as we will show.
We place your go meet men to our culture and procedures conducive.
Let's see work environment, where older personnel goes back home safe and sound every they.
In the second quarter. This year, we will be releasing or 2019 sustainability report.
This is a much improved a comprehensive airport.
Number two or first Polish report for 2018.
We expect this report.
Lets say I saw the baseline from which we can benchmark were progress on key areas environment, social and economic benefits its community.
[laughter] next slide.
In slide seven.
Well go health and safety has always been a priority for doing that starting three years ago, we recognize we could not achieving our objectives, we know what our cultural change.
The plants, we implemented to be saying I ran during strong results as we can show in these three graphs, which free sand trends over 40 years for total recordable injury rates lost time injury rates I'd say very do rates of injuries at gross or operations.
<unk>.
He is a process of continued leveraging an improvement across the sweet corn Trieste involving over 3500 people to the.
Yes, I stated before in this presentation, we pledge <unk> commitment to our culture and procedures can do seem to see work environment, where owner personnel goes back home safe on some every day.
Ladies.
For 2019.
We met or annual guidance. Once again produced 8.8 million ounces of silver and 50500 ounces of gold.
Looking at Q4 prohibition against Q4 last year silver production was up 16% angles essentially flat.
Next slide.
Slide nine.
Oh realized price for silver in Q4 was $17.30 compared to $14 in 60 cents per ounce a year ago.
The story is similar for gold.
Where we realized a bryce.
1483 daughters, compared to 1200 36.
We look with anticipation or the price environment. These year, particularly for go as we plan for significant increase in annual gold ounces produced you'd already under your new probably you're going to production.
In the second quarter.
Slide 10.
[noise] under consolidated financial highlights for the period.
[noise] border sales adjusted EBITDA and adjusted net income were all higher when compared to Q4 2018.
Not shown in diesel <unk>, but door sales for the year were 257 million DC is 2%.
Lower when compared to 2018.
Hi, I realized silver and gold prices for the year were offset by 7% lower gold production, how your each year sees lower by broke late in seem right.
Adjusted EBITDA for the quarter was 25 million, yielding an EBITDA margin of 36% net income at 11 million or seven cents for sure.
Next like.
In slide 11, we present or all in sustaining cost on a comparable basis for the quarter in year 2019, or consolidated all in sustaining cost $11 on 90 cents ground in line with annual guidance and 13% higher.
As in 2018, the year over year increase is explained by higher cash cost at both are you all know San Jose mine.
Deteriorated commercial terms for concentrate on lower realized byproduct prices for whereby drops a little.
Let us think.
Slide 12.
Capital investments for the year totaled $216 million 188 million allocated to the Lindero construction and pre operation 20 million in sustaining capital at or two operating mines, and approximately 7 million brownfield and Greenfield exploration.
Slide 13.
These like pretty sense or I fear I meet with her current asset portfolio and 2020 guidance for mine and Brian.
Over the last 205 years, we have been doing something that he is not very popular in adult market for mining equities, where investors I'd be largely sector risk out there as we have been building our mine. It is sort of view that in our industry to provide shareholders. We do.
Long term superior returns on acids and growth one must balance either counter cyclical strat they used for capital allocation and that is precisely what do we have done we did timing for acquisition and development of clean data.
Short term it has been difficult.
Were not.
Where we need to be yes, we're very close but not very good.
We have been dealing with the nutrient complexity. So large construction in their remote location in a known mining jurisdictions like Argentina.
Despite all these were showing up 20% deviation in our capex forecast when compared with guidance provided back in 2017.
We plan for the NATO to take or consolidated gold production.
On 50000 ounces.
In 2019 to approximately 810000 into something like 20 and closer to 280000, you know full year for <unk>.
Well these at a time when gold price is trending to higher levels driven by renewed investor Easter is.
When prices are you internal rate of return for the NATO eating the low twentys.
Slide 14.
We provided an update to our construction schedule on February 13th we plan to initiate stacking the floor here early in the second quarter. We're targeting your April and we expect to see first schools in late May or June.
Next slide.
So the end of January.
I mean did a reports in advance of 89% Stuart's completion for February where rate closer to 92% complete.
We forecast constructs from topics.
Between 314 to 320 million, an increase of 28% comfort two or 2017 guidance as I stated before.
Increasing this figure is largely driven by higher owners on indirect cost associated to the extension of where construction time.
Next slide.
You are providing a.
Right.
Okay.
Regarding conducting business in Argentina under current conditions.
Yeah, [laughter], we've been addressing questions from a shareholder some investors regarding the current business environment in Argentina.
I never they put laws and regulations, we have no restrictions on capital repatriation.
Through the use of officials ethics markets, where either company that retain.
For two now expects to fund.
Hundred million or older 200, Amelia research company that so we have the ability to access the official ethics marketing services there.
There has been a stake in the right direction thinking by Argentina authorities.
Early this year.
Yeah.
Using restrictions for repatriation of Scott.
Okay. So they are dealing in distributions I love to officially fix market for up to 30% of convicted Scott Peterson.
Relation that came into effect.
Early this year.
There are no restrictions to conduct a imports of capital boots that supply through official.
Fix market.
So we have the ability to service their requirements for business.
Yeah accessing the official ethics, Mark we confirmed.
With respect to export duties.
But exports are subject to 8% duties and concentrate subject to a 5% dude.
[noise] Fortuna Threed subsidiary Mansfield, These Argentina, [laughter] company stock stability agreements, which perhaps export duties.
Got a a 5% 14 day.
Next slide.
Yeah, we present or.
A series of updated photos.
For for the construction reproach on mining happening they don't comment back in September 2019, we currently have about a medium tonsil meet grade ore stockpile.
And the mine hot.
Or did it full fleet its operational and I can report that eats achieving.
Okay.
They favor it seems like favor early March.
ER deciding.
So my.
Next slide.
Leach side on the stocking system or at least five these are ready to receive Ah or we are concluding and find out I'd seen <unk>.
Installation and commissioning initiation of pre commissioning activities on the second system.
Next slide please.
Primary secondary crushing too which are currently under a commission, we though we are rising or two primary and secondary crushers.
Yeah.
As part of hot commissioning or TV.
Thanks, Mike.
The Theres very crusher, which is the H.B.E.R.
Yeah were high pressure grinding role.
Yes hundred pre commissioning.
In the Crusher here has been a lounge.
Yeah.
Already.
We don't vote as far to pre commissioning activities, we expect to be a running the crush the tertiary crushing system, we or in line with primary secondary and tertiary crushing systems. This month.
Excellent.
Yes, I did narrow view.
Our Uh huh.
Processing facility.
If we then theory facilities as well, maybe our land sorry lab or power plants.
That's a lot.
80 outlast these.
On a.
I think I'm on the electrical installation.
At this stage we are expecting.
Hey, commissioning for me on this.
SARC Lucky isn't to say.
Basically mechanical installations are 90% concluded.
We are advancing with piping and electrical.
With that I turned the goal to Luis So you can take you through or.
Results for the beer.
Thank you.
On slide 25 US has been discussed what I call. It here, we had a strong fourth quarter driven by higher sales up 16% over Q4 2018.
We reported quarterly net income was $19 million compared to $2.2 million in Q4 of 2018.
And after adjusting for non cash and certain nonrecurring items, we recorded adjusted net income of 10.9 million daughters.
[noise] significantly above the 4.4 million in 2018.
As a Jorge mentioned, that's well adjusted EBITDA increased 11% to $25.1 million free cash reform ongoing operations was $6.4 million.
Down 46% over 2018.
Mostly to timing issues on our sales and trade receivables as well as an accumulation up you receivable at our San Jose mine.
For the full year 2019, we recorded adjusted net income of 28.4 million daughters spending 6% below 2018, that's ever sold don't slightly lower sales.
Hi production cash cost over the prior year and hotter share based payment expenses and exploration and evaluation cost.
Our I know EBITDA of $95.4 million was 16% below the prior year.
And we generated annual free cash flow from ongoing operations for the full year old $34.5 billion, which was impacted by an accumulation of E. T receivable in Mexico off around $10 million in the year [noise].
[noise] next slide slide 26.
When breaking down our sales performance for the quarter, we can see the highest impact came from a higher silver and gold metals prices, which were 19 and 20% above Q4 2018.
That's where a lot higher silver and things.
Production [laughter].
[noise] moving onto the next slide slide 27.
When looking at our comparative segmented results over Q4, 2008, and 18, we can see that does strong results in the quarter were driven by that sounds lets say mine, which saw improved EBITDA of 34%.
As we have discussed these results were in turn driven by higher sales, which more than offset an increasing production cash cost at both San Jose. Thank you Omar.
Production cash cost, sometimes let's say in Q4 was slightly above our annual guidance range.
But we remain within guidance for the full year.
I got your my Gosh cost was in line with the guidance both for Q4 and a full year.
On slide 20 age.
The bulk of the increasing total Jennie O $9.4 million for the quarter.
Comes from share based payment expenses related mostly to a higher share price.
We do have hired DNA expenses at the operating mines for Q4 as shown in the first line item.
Where are the increase is due mostly to expenses of a non recurring nature.
Moving forward, we expect an average of $2.5 million per quarter on this line item.
For corporate Gionee, we expect average quarterly expenditures inline with the amount we see for Q4 of 2019 of 3 million dollar.
Our effective tax rate on an adjusted basis was 23% for the quarter and 46% for the full year.
The lower effective tax rate in the quarter reflects.
Higher deferred tax credits related to the recognition of that convertible debenture.
The positive impact on movements in foreign exchange affecting our income tax provision.
Although not included in this slide there are two additional items pertaining to financials that merit a comment the first one being the $11 million off investment gains in Q4.
He said gains denominated in Argentina passes and related to trades, which constitute part of our strategy to bring daughters into the country as we seek to obtain the best possible exchange rate under current market conditions.
We do not expect any further significant gains in relation to the streets in Q1.
The second item for things that EPA receivable in Argentina.
So what are the p. incurred as of yearend 2019 on a cumulative basis is $49 million and accumulated foreign exchange losses reported recorded so far amounted to $14.9 million.
Which is 12 million took place in 2019, we expect to begin collection of B D. As we start generating revenue at the middle.
And even though they laying the schedule that's increase our exposure, we do anticipate that once in operation, we should be able to recover.
Within a 12 month period.
Our next slide slide 29.
We provide a summary of our liquidity position at year end and our projection of liquidity over the coming quarters as we transition lean down towards the commission fee based on the updated scheduled for the project.
Our liquidity position as of yearend 2019, once the hundred $23 million.
We expect to maintain a minimum liquidity of between 30 and $45 million through the start of commercial operations based on our existing credit facility and free cash flow generation.
On top of these were looking to put in place a short term completion facility at the asset level as we go fully into that commission fee.
With that I conclude my prepared remarks and back to you Carlos.
[noise]. Thank you Louise.
We would now like to turn the call over to any questions that you may have.
Thank you and ladies and gentlemen, if you'd like to answer a question at this time. It is star one on your Touchtone telephone. Please make sure. Your mute function is turned off to a liar signaled to reach our equipment again that star one at this time, if he'd like to ask a question.
Paul It's just a moment.
And we do have a question coming through from Justin Stevens with P.I. financial.
[noise] Justin please check your mute button on your phone we cannot hear you at this time.
Again, ladies and gentlemen that star one on your Touchtone telephone if you'd like to ask a question star one at this time please.
And just in your line is open again could you Chicken me then please.
Hello can you hear me now.
Hello No.
Yes, we can hear you okay, sorry about that thanks, guys you actually most of my question I was mostly wondering.
On power Lindero.
You have a power purchase agreement from a contractor right. So the diesel generation has done another fixed price per kilowatt hour.
Okay.
We are responsible for its sourcing or the fuel for their power generation.
Well go a we are.
We are currently contemplating.
The price for picture on or hedging during that Steve.
Yeah, taking advantage of whereas.
And.
Oil.
Been trending now so.
Yeah. So you might be because you a supply if you're sourcing all the diesel for the site then you could theoretically realize or some of this sort of a recognized some of these lower prices and lock them in going forward.
Yes, yes, great.
Although not yet just the timing on that first dori poor I guess will depend on how quickly you can you hear gate after stocking, but their current plan is to stock you said in April.
And then when do you think you'll be irrigating.
Yes, absolutely.
Okay, Sean Hey, it's a function of available surface area on the.
They are placed under leach, but.
If there are several factors there one lease or ability to have a.
Smooth.
The commissioning of a I'm placement or from the start.
On the Leach pad. It we have a commissioning curve than we are working under a you know that delays that we have a being ah.
Encountering.
Yeah on the unfortunate.
Also create opportunities and give time for us they were not just sitting there. So you know the primary crushing the secondary crushing. It for example, we are stressing the equipment.
Okay, we already a are advancing with ER.
Yeah, we'd addressing issues that otherwise we would be dealing with in the commissioning phase.
Hey, we didn't dire suit we didn't operation.
For example, smalls deals and corrections.
On on structures and shoots that our typical.
They have the.
Start of commissioning. So we are gaining time and primary we're gaining diamond secondary.
Okay and ER, we're gonna start doing the same with tertiary soon.
Yeah. So you know we are we well you know we have a curve for the commissioning and and operation ramp up well.
It or systems to start placing more on the leach pad.
Okay and ER, we believe we can start irrigating you know relatively soon and that's that or is gonna be closer to plastic we expect we can be generating.
Enough solutions.
Is that we can start run rate we are by late May or June no.
Okay, No that's sounds good and you currently I'm, assuming you've got to everything that you need.
On site now there's nothing that's really outstanding yet.
And.
In terms of supplies you me.
Yes, I bought supplies and equipment everything has been transported to site.
Yes, yes, yes is there was always the only to have everything in terms of supervise.
Okay.
Explosives, we're drilling and blasting every day for seen September cyanide, we have.
Yeah.
You know due to our concerns on on a supply chain.
It due to the Cardona virus, we are.
Taking action to guarantee or he supplies to site.
Yeah, and I'm just on the stockpiling are you still sort of mostly running a.
Moving waste and some of the lower grade or to expose a hybrid or have you started moving with some of the higher grade ore yet.
If we are going to start now yeah.
Building the eastern a smaller in.
Higher grade stockpile.
Okay in preparation for only a week to two weeks of or.
In the higher grade stockpile.
Yeah I.
Again, the idea was to Minimise rehab.
Yeah, I never mind plan.
Or my plan has a mid grade stockpile, we manage for the first years meet grade stockpile. So we have basically a company should that through these said preproduction phase we have the primary the higher grade ore expose we're gonna start building that's more.
Hi, Great stockpile, just to small and then hey, we're going to start slowing down or mining rate.
A on deal.
Our crushing circuit these ready to start thinking though.
Right and then once once you put us one of the that's a the drainage layer like the liner on top of the liners have I'm, assuming sort of low grade.
The first thing down will be some of that high grade from both the pet as well as that stockpile.
Yes, yes right.
Perfect well that is it for me then like lot guys.
Thank you.
Well take our next question from Adrian Day with 80 Gale.
Engine from Lindero first one is on San Jose I'd I don't I, Obviously, you you got you'll stay cool.
Which which was you know essential but I noticed you can't just say all you in negotiations with the Mexican authorities on on a potential settlement or are you just pursuing it didn't look courts.
And then the second question will be Okay. OMA do you had any sense of the next you know for next several quarters, what the mix upsell. The this is zinc et cetera might be.
Okay. Thank you for the questions agent.
Hey.
We are pursuing it three in light of action.
With respect to or to the royalty clean.
In Mexico, or San Jose mine.
First it or the legal once we have as you mentioned, we requested an injunction who do they do a court.
And are they or request for an injunction was first admitted by the court.
The second the court issued a first it temporary space.
That is later moved into on March 2nd moved into a permanent state of execution.
So in.
The DG EM and Mexican mining authorities have a period to appeal that.
I believe late this week early next week is there deadline.
Okay that appeal.
Yeah.
Likely take a several weeks even amongst to get a result.
Okay.
But ER or legal team in Mexico believes that our arguments are sound and ER.
Hey, or legal position is strong.
And the reflection of that he's in the continued.
Yeah.
It was solutions, we have been getting these core.
Second yeah, there is a uh huh.
Excluding Mexico and administrative court, where we have not filed an injunction, but we haven't filed a request that they'll sort these removed description of the royalty from or type.
In the administrative court hearing this case, we presented these requesting front of that worked last year.
And.
That is a process that is ongoing.
I'm sorry.
Hey directly to your question.
It does take negotiations with it the authorities.
Yes, we would like to have a agreement with sorry piece, where we can settle these out of court.
It is our strong view that are they.
There's no legal basis for the royalty.
But you know, we we would agree to do a reasonable settlement to lease out of court sorry, I personally met already into occasions, We did secretary of mines, Mexico, We have had a.
Conversations.
We have worked toward so you'll have to achieve these negotiation the Mexican law allows the authorities to engage in these type of these cautious I negotiations individual settlements.
It's not an easy process I see.
It involves a authorities and not only from the secretary of economy and mines, but also other branches will gorman.
Yeah, but we're working towards that as well. So those are the three line. So functions. We are working on all day that you'd be show corked administrative court.
And.
I mean restrictive solution we deferred.
Okay.
With respect to get your mouth.
Okay.
Here so we.
We changed the revenue composition of Caylloma by are focusing more on a base metal songs.
Great and leaving behind the silver someone so these mine or just a remote refresher yeah. Those silver songs were not really means.
Yeah very labor intensive.
ER, we the related higher operating costs.
So we believe that to return to those it narrow range.
Okay, you'll know that kind of help.
Hey.
In Greece, and even double or silver output from the quarter in those 2 million ounces. We present said that my would require sustain prices above EUR $19.
So at this stage we are monitoring these closely.
Yeah, but we're not there yet.
So for the a year for 220, and a mean or loans, but we have he's a.
Well I'll boot composition similar to a new being seen over the last year. So does not.
In South, Louisiana around a 20% silver and revenue composition today, yes, yes.
Alex.
Okay.
But that there'll be no difficulty going back to those silver rich or areas. They use.
Maybe to be Reos for a brief operation.
Okay.
I would if I have to provide a ballpark figure to you today, he likely take a several months.
To a open up.
And ER and prepare those area for production back again, no. He will be made three months.
Okay I appreciate that thank you.
[noise] getting ladies and gentlemen that star one on your Touchtone telephone if you do have a question star one at this time, please well pause just another woman.
Like give everybody a final opportunity if you'd like to ask a question day star one on your touched on telephone.
And Mr. bucket there appears to be no further questions at this time I'll turn the call back over to you for closing remarks.
Thank you Tony.
There are no further questions I would like to thank everyone for listening into todays earnings call and we look forward to jumping us next quarter, how about great day.
Ladies and gentlemen, thank you for joining us today on todays conference call. We appreciate your participation you may disconnect at this time and have a great day.
Great.
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