Q1 2020 Earnings Call

Please standby we're about to begin.

Ladies and gentlemen, good day and thank you all for joining us for this Fortuna silver mines first quarter 2020 financial and operational results. As a reminder, all phone participants will remain in a listen only mode and today's session is being recorded to get started with opening remarks and introductions I'm pleased to yield the floor to Mr. Carlos.

Okay with Investor Relations manager. Please go ahead Sir.

Thank you very much good morning, ladies and gentlemen, I would like to welcome you to Fortuna silver mines into our financial and operations. We sold goal for the first quarter 2020.

Today, we be using a webcast presentation, which will be controlled by yet you don't know the presentation, he's going to our website I.

W. W. W. Fortuna silver Dot Com peak on the Investor staff, they click on the financial soaked up in under Q1 2020 feet on the earnings call webcast link.

Oh, I know, it's how prescient CEO and director and degrees ideal God knows how to see Oh, we'll be hosting the call from their home all pieces in Lima, Peru.

Before I turn over the quarter to quarter here.

I'd like to indicate that these earnings call contains forward looking information that is based on the company's current expectations estimates and beliefs.

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.

Projection as reflected in the forward looking information additional information about the material factors that could cause actual results to differ materially from the conclusion forecast or projection in the forward looking information.

The material factor or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward. Looking information is contained in the company annual information form and M.D. and eight which are publicly available on SEDAR.

The company assumes no obligation.

To update such forward looking information into future, except as required by law.

In addition, as Fortuna is in the.

Public offering open security My next month will not be taking any questions during or after the call to date.

I would now like to turn the call over two quarters <unk> I know, so prescient CEO and co founder old Fortuna.

Thank you Carlos and a good morning tool Oh, we presenting them introduction to work first quarter results at least cost actions thinking do NBC more months.

Well I'm presuming that there's uncertainty, we're leaving and then turn the gold over to Luis will take you through the financial state.

On slide six of the presentation.

We'll give you that segment so we can move there.

On slide six other presentation.

In the water, we boarded strong free cash flow working media.

And you need the margin of 34%.

Below or targeted 40% margin.

Overall, well results were negatively impacted by lower gold and silver production and sales against a comparable period a year budget.

Do you see the result of mining from lower grade Saum said this of course in line I know silver and byproduct.

Metal prices.

We will provide more detail on these during the presentation.

The company, that's taken actions not thing and I think what level of liquidity going theater in decent certain times and the capital demands. So we're pretty excited like.

So the end of March we reported 88 and a half meeting in cash.

Announced a 60 million equity financing.

Plans for $23 million. He brings 20 topics enough actually these options I propose amendments to financial Covenant seen are great. Okay.

As of March 19.

The date of the demobilization due to mandatory isolation theories Argentina.

Or do you did a broad you use 94% complete.

Remaining funding to commercial operations, he 75 to 80 million.

Or construction operations groups are mobby likes him back inside doing the second half with me.

We expect to be up and running at full speed under a new construction Commission plan by the end of that month.

[noise] considering all the public related to meet somebody with patients. We're now planning to lead commercial operations in Q1, two any twin.

[noise] over the past month, because each time, they make up or generation to an unprecedented test.

During these types of extreme uncertainty, we're actually I'm sad for doing that are being guided by three greenshoe.

Support of local government actions.

Hey steel for personnel are neighboring communities.

I'm business continuity.

We have withdrawn or 2020 production guidance.

Okay, you will not mine that's managed to operate all these fine.

But our lean dado projects in San Jose mine work halted for March 19.

On April 2nd perspective.

During the second half of me remotely like I'm prepared to receive activities at bullet unit.

In there do you may we published toward 2019 sustainability report.

This report he's a more comprehensive and significant improvement already agreed easier publication.

We're leasing indoor stakeholders and working blends right does it not rates in our industry by rapidly changing world.

I invite you to read the documents provide comments.

Moving onto slide seven.

<unk>.

[laughter].

[laughter], it's like seven.

Views a second through.

In slide seven we shared with you or Keith safety performance indicators.

We present the gate access adult month, Rolling average to better address that trend unless you can appreciate we are delivering solid and consistent improvement year over year.

We still have I love to improve on I'm not continuously learning for more me seats.

But a cultural change has been set in motion no organization I need it shows would there be sold.

Slide eight.

[laughter] in slide eight.

Our Q1 production for both.

Gold and silver was negatively affected by lower grade.

Slide lower tonnage throughput there were San Jose mine in Mexico.

Sample set production in the quarter deviated from the annual plan to accommodate two initiatives.

Beeler recovery I know I know this for a long hole stoping.

These changes to the blasted berardi sports mining do higher risk areas from that perspective, a great predictable <unk> <unk> and mining dilution.

Leading to lower grade seem to water.

Do you see she has been addressed grexit. He late Q1 I know the we have withdrawn 22 any guidance we plan for great. So we like we did they said assumption. So quickly 20 guidance for the remainder of the year.

For the second quarter last year, we expect a significant drop in silver and gold production. That's every sold to the Mexican garbage response plan, which mandated an industry wide stoppage, which I'd be San Jose mine gain into effect on April six.

Based on the recently published woman guideline mining has been included in the lease of essentially industry and he is expected to resume operations either on May 18 or June 1st.

They they for each operation will depend on the Gorman reading all the states and then well the virus contagion at this moment the government has not provided any further guidance.

Slide nine.

Oh.

[laughter] and there's like nine.

Silver accounted.

For these 2% of sale.

On gold for 29%.

For a combined 81% leashes methods contribution.

Silver price, what's a wrong or cost during the quarter.

We realized an average right so $16.30 per ounce.

[laughter] for silver about price at the end of Q1 bills that are slightly below $40 $13 and nineties.

Silver spot price do they knew what was a buck around 16, and I have a dog ours.

Well continues to show us that's past performance would be prices today trying to build a.

So did they see a ball 1700 compared to 15 pounds during that same before the war.

Slide 10.

Well give it a minute for this indication too.

<unk>.

Update to the news light.

[laughter].

I'm just like then.

Compared to a year ago sales dropped by 11 and a half million.

[noise] negatively impacted by the previously described lower metal production.

Lower by broad base metal prices on commercial terms for constant.

Core EBITA, let's keep primarily by the lower sales.

The adjusted net loss was deep and by 92.6 needed here.

Income tax from eastern Missouri, something that evaluation of the Mexican peso.

And a 1.2 million D.V. and we Toby ducks.

Slide 11.

[noise], south wholesaling sustaining cost, but driven higher by lower metal production.

But on a cost per ton basis, we were in line with their budget, but $71 for Tal.

Are you will not all in sustaining cost was driven higher by lower see unless prices, which were down 20% I made percent respectively.

[laughter] cost and the birds on basically language <unk> budgets approximately $80.

Sure, we're still waiting for they'd like to help build I don't know.

Everybody seemed to same slide into Chris.

I'll move on to slide 12.

[noise].

Oh boy not just like well in the order we reported consolidated I'd.

And it yourself when you see sports seeks medium the bulk of these of course, we made it would be better pre construction and commissioning activities.

Yeah accounting for 21.4 meeting.

On slide 13, or Lucas inflation.

We sure or probably pipeline.

Here I can highlight once again to render them suffered there'll probably were low cost core production growth.

On slide 14 of the presentation.

Hey, we disseminated a comprehensive news release updating the market on our plans to resume construction activities happening there.

Okay.

[noise], we also provided guidance on our revised construction and commissioning timelines, which take into consideration gabi related restriction suddenly mediation.

The construction workforce is what we liked him back to site you pick on top of me.

We plan to initiate or stuck in the leach pad in July.

Game publishing first gold as part of the commissioning and ramp up say starting in September and going until December.

Be real goal do they production you say needed.

The range was 25000 20000 ounce.

On slide 15.

The <unk> completion stands at 94% as of March 19.

The date, it but he'd be mobilization to blaze.

We're working to huh.

Oh for construction workforce operational them side by early June.

For the start of commissioning and initial ramp up we plan to bypass the tertiary H.B. York rushing to within agglomeration.

This means we will be placing secondary crushing or on the leach, but until November when did tertiary crushing circuit is scheduled to come on line.

The objective of these bypass flat it's to remove the read the initial production commissioned H.B. here and there are tight time line without onsite vendor support.

This plan will also allow to reduce barley like do you need be allowing a better concentration of resources.

On completion and commission.

Solution handling easy our I'm sorry.

Oh remaining but are you finding requirements book topics.

We grew up action working capital and B D them that 75 to 80 million.

[noise] following we have a a theory so are.

A recent features.

From our construction.

In my computer here the presentation has frozen.

One of their lease lights.

Yeah.

So I don't know that's the case for everybody, but I do apologize if studies.

Case, it but I will now turn the.

The presentation to Louise.

To provide a you further details on our financial results.

I.

Thank you called <unk>.

Well I'll make reference to slide the 20 <unk> the webcast.

That's what it has described sales were impacted mainly by lower production at San Jose Sharp drop in base metal prices.

And then be fine charges.

And water and to replace adjustment.

Compared to the first quarter 2019 sales fell 11.5 billion dollar.

The net loss of $4.5 million I'd be adjusted net loss of $2.2 million are the result of making sales combined with an unusually high income tax provision for the period.

Free cash flow from ongoing operations on water was $14.2 million strong increase over that same quarter in 2019.

The increase was due primarily to positive changes in working capital of $9.5 million compared to negative changes in the core in the first quarter all 2019.

As well as lower capital expenditures in 2020.

On the next slide slide.

When you won.

As mentioned before the main component of the drop in sales was nowhere precious metal production in particular, a the effect of gold at San Jose.

And they got itself the Jasmine.

Well $2.8 million correspond to the drop in Denver think let prices at the end of March which when combined with a positive right the effect of $1 million.

Salt in a negative impact from metal prices, so $1.8 million the negative impact of Beekman, then be finding charges reflects a deterioration of commercial terms for zinc and lead concentrate in 2020.

[noise] onto next slide slide 22.

Our adjusted operating income was 5.5 billion bonded.

Your second from lower sales was mitigated by lower GE Aneel $2.9 million Sino foreign exchange gain on an adjusted basis, so $1.9 million.

This is after adjusting for a $3.2 million laws related devaluation of Argentine peso.

The detail of these adjustments are shown on the appendix section.

Slide 29 of the Wicca.

That's a.

Separate note. We also recorded in the quarter $1.1 million. So I think that they saw denominated investment gain which partially offset the negative impact that Doug evaluation of a pencil continues to have on our BHP receivable doubling NATO broad.

[noise] gosh costs, both San Jose I'm sure, you'll know were mostly within seem to have leveled off in 2019.

The fog in EBITDA, both abrasions was mainly a result, but really scale.

This effect was more pronounced jamo, which recorded a sharper dropping EBITDA associated with a larger fall in sales when compared to 2019.

Onto slide 23.

Well, what a DNA was.

We point $6 billion, which was $2.9 million below 2019.

Your name for corporate and subsidiaries taken together, what Dearborn $3 million lower.

Dan Q1, 2019, well the main reduction came from a credit.

Sure they statement of $1.4 million showing the table.

Bird to a charge of $1.3 million in 2019.

Our effective tax rate in the quarter briefly.

But that's what can mentioned those out evaluation of a Mexican peso large extent it seems like it's under different components of the income tax provision.

No wonder I, if I read that got relation of the income tax it's subject to volatility of foreign exchange.

We estimate this is fixed at around 2.6 million daughter recently, there was a onetime charge in the water related to one point $25 million oak withholding tax.

Onto next slides legend before.

Your old sounds mentioned they hold a kid we have taken measures to strengthen our balance sheet preserving liquidity and address the impact was a suspension of operations at San Jose on our financial I'm, calling them.

We expect these out but you'd reduction so well need in dollars and topics and brownfields exploration.

And $11 million <unk> operating in corporate expenses.

We'll be constantly we had said over the coming on the older old situation related to that and then in commodity prices as well.

Oh gosh agreed to position I'd be another quarter was 88.5 million Bucks.

Thank you and back to do cartilage.

[laughter].

<unk>.

[noise] they believe.

As noted at the beginning of the call for Tonight, you seem to me, it's a public offering up in securities.

Accordingly management will not be taking any questions today I would like to thank everyone for listening to todays earnings call and we look forward to you joining us next quarter.

[music].