Q2 2020 Fortuna Silver Mines Inc Earnings Call
Good day, ladies and gentlemen, and welcome to your Fortuna Silver mines, the second quarter 2020 financial and operational results call. All lines have been placed on to listen only mode and the floor will be opened for your questions and comments. Following the presentation at this time and it's my pleasure to turn the floor over to your host Carlin.
Investor Relations manager, Sir the floor is yours.
Thank you Terry.
Good morning, ladies and gentlemen, I would like to welcome you to Fortuna Silver mines, I, certainly know brace elsewhere, so called for the second quarter up 23.
They are using a webcast presentation, which will be controlled by us.
The presentation these goals or website. Unfortunately, I silver dot com. Please on the metro stop and take on the financials.
Thank you do 20, but any click on the earnings calls I've got me.
Okay. That's all I know right here do you all in director and at least ideal I notice I see it.
We'll be hosting the call from their whole multi system <unk>.
Before I turn over the calls accordingly.
So easy pay the these earnings call contains forward looking information they own the company's current expectations.
<unk>.
These forward looking information is subject to a number of risks uncertainties and other factors actual results could differ materially well 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 as reflected in the forward looking information.
Additional information about the material factors that could cause actual results to differ materially on that conclusion forecast or projection into what we're doing any information and the material factors or assumptions that were applied in drawing the conclusions or making a forecast or projection as reflected in the overlooking formation.
He is contained in the Companys annual information form and N D N eight which are publicly available on SEDAR.
The company assumes no obligation to update such forward looking information in the future except as required by law.
Now I'd like to turn the call over 200, categorical I notice that breaks <unk> CEO and co founder.
Oh Fortuna.
Thank you Carlos and good morning tool.
He said thing then introduction to our second quarter results and discuss the status of our operations and development well you can do some presented covina environment, we're leaving money.
And then during the call over to Luis will take you through the financial statements.
We move on to slide six [noise].
Oh the webcast presentation.
In slide six syndication.
The operational and financial results of the company for the quarter, our mark by the industry wide suspension of activities dictated by the government seen Mickey good andina they do.
During the quarter, this, especially Mexico impacted or San Jose mine for a total of 53, they I mean, Argentina construction of anything they don't really what's called for a Brooks and that seeks easy.
Yes. They do we managed to continue growing with milk processing that are you in my mind, taking advantage of surface ore stockpiles and produce that capacity.
In spite of all of these we reported new drug free cash from ongoing operations.
On May 20, we closed a successful 69 million both the liquidity financing I said the end of June you'd have a total liquidity available for hundred 32 million.
The company I think what do you funded immediate copies of the man on Monday night Shuffling CBD during these uncertain times.
I suddenly end of June or Lindero construction is 97% complete.
The <unk>, he's largely no preproduction commissioning phase with relatively minor construction activity I'm going on HDR I'm sorry.
In March.
We drew or consolidated middle production guidance for the year.
There are certain operational environment, we face in the three countries, which hosts or operation does not support dreams dating guidance at this time.
We have implemented streaks I need very broad locals and causing screening process is not over operations up to these date, we have conducted over 9000 said, although you called.
And over 3000 molecular test.
We have detected goes to do hundred going from <unk> cases.
I have to report decide passing of one going for.
Okay, and one specific gays.
So do they all are operations are operating at capacity.
Moving on since they say that.
Yeah. So they say that we shared with you or key safety performance indicators, we'd be syndicate <unk> I said 12 month Rolling average winter at recent trends and as you can appreciate we are delivering so do you think once he then the improvement.
Year over year.
Slide eight.
[laughter] as you're going to appreciate.
Slide eight or Q2 production for both gold and silver was dramatically impacted by the Cogs industry wide suspension in Mexico in 14.
Both silver and gold production was down 47 per cent compared to year.
My brother lead and zinc production remains stable that I think that you I'm a mine operated the new capacity during the quarter.
Slide nine.
[noise] silver accounted for 49%, though sales and both were 28% for a combined 77% breaches met those contribution.
Water over water, we continued to realize higher silver and gold price it with $17.
And 1727 Brown's respectively.
We observed with expectation that consolidation or what he's configuring Lucky story bull market for precious metals and mining.
Moving onto slide 10.
[noise] or sales you'd be dot net income world negatively impacted by the shortfall seed production.
For Q3, we expect a significantly improved quarter.
With a limited impact of three weeks of suspension of production I think are you a mine during the month of July.
Moving onto slide 11 lease.
[noise] San Jose all in sustaining cost was driven higher by lower metal production during the suspension theory.
And then Caylloma hi, your all in sustaining goes was driven by significant drops in sync and lit races of 29% and 12% respect.
Moving onto slide 12.
[noise] follow along with the same theme of is suspended activities or rate the.
And then execution was also impacted by the suspension during the period.
Good morning authorities is more fear of 5 million executed I mean there.
Which again was suspended for almost a little over two months during the quarter.
Moving onto slide 13.
[noise] sites are dean.
Shows a glance upward bias, Glenn and here I kind of high like once again and the relevance of <unk>.
Ah seed will that towards the low cost a gold production grows.
Slide 14.
Slide 13 shows they seem to be fight a schedule.
<unk>.
The industry wide suspension in Argentina took effect on March 19th.
I know immobilization back to the project for the resumption of construction initiated during the second half of me effectively over two months of suspended construction.
On July 16, we announce.
As successful commissioning of the primary and secondary crushing circuits and they start a forced stacking on the heap Leach pad.
Accordingly.
On the early stages of the ramp up phase of mine production crushing.
Leach pad operations.
Our next milestone is the start of irrigation, which is planned for later this month of August or early September a delayed.
We plan to being commercial operations in Q1 2020.
For 2020.
We expect a goal though they production.
In the range of 25 to 28000 ounces gold.
Slide 15.
[noise] [noise] from a slight seeking 15 and non works, we're gonna Sherwin use some updated.
Photos.
The lean digital construction.
And reproduction like diabetes.
Yeah.
Here again, I can add that a I suppose the end of June or remaining break funding requirements for got fixed reproduction working capital and B D spend a at around $55 million to $60 million.
Slide 16.
In the coming sites, we show a.
Ill be production activities, we have the initial mine a benches prepared on production or my has already achieved the 40000 dawn breezy in.
Mining got Basi D.
If prior to the suspension in March two they operating only under one shift.
The more than today seems the resumption operating on only under one sheet, we'd five drugs.
We have already achieved a 20000 tons breezy, so we're pretty satisfied with the performance of the mining team fleet.
And.
That is advancing well.
Next slide.
These are Ah.
Views of the.
Leach pad.
And Uh huh.
Bonds area.
We started.
Okay.
Pre commissioning of it.
Bumping and solution management systems.
The bonds.
In.
In preparation for it.
The rig Asian.
So although the pre commissioning activities I did bumping.
You are taking place and the Leach pad is receiving crushed ore every they still under one shoot up to now.
Next I'd just.
These are some photos showing a crushing operations.
Next slide please primary and secondary crushers.
Next slide please.
I might have a delay a man.
I'd feeds deans Deane.
These are views seems like for dean of the.
They're sheree and.
I don't know migrations trick, which.
We have some distortion of they agree with just the marine.
Yeah.
On the Brasenose area and solution funds, that's a view of both of the area that's on their pre commissioning.
Really.
Next I'd just like twin.
One.
Uh huh.
[laughter].
Here, we have a view of the our planned the Argus and the final stages of piping and electrical some pre commissioning activities have initiated already.
A uncertain.
Thanks and portions of the.
Hey solution handling <unk>.
But there's still some finishes and by being an electric other than we expect to go do these month of all those.
Next slide.
[noise]. This is a view of this hard Glenn.
This art Glenn it's not a critical path for initial gold production, which is scheduled for September.
Yeah, we believe it needs to come into this year quit.
Aridity yeah.
But is not a essential or greet you go back as I said for initial gold production.
So a we expect to be competing with ER.
Piping and electrical activities here as well.
In the month of a September or if it stretches in October had delays.
So with that we are concluding with.
The photos, we share on the web cast and Oh, no lit a luis dig due to the.
The financial results.
Mike.
[laughter].
[laughter].
Thank you called <unk>.
Slide 24.
So sales for the second quarter were 44.5.
Million dollars down.
34% from 2019 due to.
Lower metal production compared to prior year, what's good explained due mostly to probably 90 related constrained.
Hi, Silver and gold production was impacted by the garden mandated temporary.
Suspension that doesn't contain mine.
It's stoppage in fact it.
<unk> Middle East 40%.
The reduction for the quarter.
For the quarter, we reported a 1.3 million dollar upgrade was compared to $15.7 million.
Operating income in 2019.
Operating loss was driven by the drop in sales and a significantly higher charge from stock based compensation expense in Q2 2020.
That would show Nader night.
Charge was.
$5.7 million in the water there too.
$7 million in Q2 2019. This increase was due to a rise of cars share price in the quarter.
The operating loss was offset by $2.2 million.
Thanks, Ben So denominated investment gains from cross border trade consulting.
Adjusted income before income taxes, all point $6 million.
Net loss for the quarter was 5.7 million dollar.
After deducting $6.2 million of income tax provision.
For Q2.
Adjusted EBITDA was nice.
Going forward million dollars, 65%, no 77.4 million recorded.
In 2019.
It is I really don't know our adjusted EBITDA includes the pool stock based compensation charge.
Excluding decide and therefore, they needed a is a 54%.
No. So I was caught his stress.
His.
Prepared remarks in spite of how complicated quarter all the reasons as previously discussed manage mundane slightly positive or neutral free cash flow from ongoing operations.
Year to date free cash flow from ongoing operations.
Was 14.3 million, though.
Not to the next slide please slide 25.
When breaking down or sales performance for the quarter weekend initiated the largest impact came from lower silver and gold production expanding the bulk of lease quarter over quarter of $23.4 million.
Next slide slide 26.
[noise] fear that.
Double that slide we show adjusted operating income for quarter.
$1.5 million.
We had a full reconciliation of our adjusted figures that you end of that presentation and.
The end of.
The news release.
I mean, I didn't know if adjustment Ababa <unk>.
Point 7 million dollar foreign exchange loss stemming from the balance sheet of our arginine succeeded.
That sounds, let's say the impact of that temporary shutdown and EBITDA was partially offset by higher pricing compared to 2019.
You will not significantly lower base metal prices drove the sharp called <unk> EBITDA in the quarter.
At both operations you need cash cost remain below our original guidance for the year and below the prior year.
Next is exactly the same particular the unit cash costs here.
<unk> $66 per tonne excludes $1.7 million caused deer in the temporary suspension.
Our freedom for accounting purposes, I care and maintenance and included under the line item denominated other expenses in our income statement.
Slide 27.
The slide.
Reflects.
Shows the noise execution in our Ginny fired the Vietnam's Boston expense reductions in our Q1 earnings call.
As I mentioned before the large <unk> charge and stock based compensation expense related to the appreciation of for doing a sharp rise up over 100% in the quarter.
The calculation of the effective tax rate yields an abnormally high percentage due to the R&D Brent consolidated earnings days during the quarter.
This was further accentuated by the negative impact that the devaluation of the Mexican that's all had on our income tax provision in the quarter.
What's it made me $2 million.
I live, which 1.2 million was a deferred tax effect.
Next slide slide 28.
Well here, we were highlighting.
Items that had been previously disclosed the amendment that governance renting that he showed flexibility up to you won 2021.
And 69 million dollar equity financing, which the closing was announced on May 20.
Hi, Scott had mentioned or total liquidity position as of end of June is $182 million.
We.
Hobbies close we expect to.
To provide additional funding of between 55 and $60 million up to the point, where we start generating revenue.
Ill.
In Q4.
So we believe our liquidity position today, it says inadequate margin of safety considering the uncertainty that remain from upgrading their current environment.
When the balance sheet I would also like to provide a comment on our VP receivable NATO doing it in the long term receivables line item.
We carry a balance as of end of June 36.5 million dollar, where the total incurred di di when that cumulative basis. Since we started spending in 2017 has been 56 million.
The difference of $20 million.
Is that cumulative loss, we have recorded over this three year period.
It is worth noting and half of that lost two.
[noise] pardon the interruption. This is the operator mr. block it looks like we've lost or other speaker line.
Yes, one second piece.
Not at full time.
Well generally ideal.
No if any from China.
What do you suggest.
I can try to dial back out to the number they came in on if you'd like.
If you don't feel that yeah.
Anyone of them are.
Okay, they're gonna dialed back eat.
Thank you everyone. Please hold for just one moment, while we reconnect our speakers.
Thank you.
[noise].
I'm not what Uh huh.
Uh huh.
I'm going up a couple of without it.
Hello.
Can you hear now.
Yes. This is always a notice how we got disconnected from a goal we're back here.
So back to you catalysts.
[noise], Okay, we will now like to turn the call over 20 questions that you may have.
Ladies and gentlemen, the floor is now open for questions.
You do have a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone we ask that wall posing your question you pick up your handset to provide the best sound quality.
Ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.
Well take our first question for from Trevor Turnbull Scotiabank. Please go ahead Sir.
Yes, Thank you guys.
Jorge I had.
Q2 quick questions.
Yes, maybe I'll start with the one for Luis he got cut off when he was talking about a bad.
Receivables has there been an interest in your ability to get.
Pat receivables.
In Argentina, because of the car on the virus or is that kind of business as usual in terms of I'm getting the house.
Yes, I'd say, we're yeah, I'm, sorry, I wasn't able to gauge where exactly I got cut off but I just want fluid. So we've seen.
I was I was highlighting the fact that are are carrying balanced they take it takes some time you didn't daughters, we have.
In a record the accumulated laws.
On this item since 2017 of $20 million, which has been offset due to an extent by air accumulated gains on on our cross border trade.
Of $14.3 million.
Well I'm going to your question we.
We are not where we will not be able to collect a D E up until the time, we started generating revenue.
It's a an expectation initially that we could do so.
Oh, the construction phase, but a as we know there was a defendant or contingent on the procedure being.
Issued by the garment a there is a a lot it.
Seeks to favor in investments for investment in country, but it hasn't been a bleak doubled since there hasn't been a formality required to put in place. So our expectation today is that we start collecting upon the though the start of high revenue generation.
Project.
Okay.
Thank you for that Louise So my my other question was far Jorge.
And it relates to the commissioning and getting everything up to speed.
I remember that there was some commissioning concerns a with people needing to come into Argentina, but because of travel restrictions that that was getting delayed.
I couldn't remember if that was related to the H.P.G. ours, but it doesn't sound like that's a problem, but you mentioned the sorry plant, it's not on the critical path, but it's just that still something that's contingent on being able to get people in a for the commissioning phase.
Okay, Yeah with respect to.
It is foreign technicians required for commissioning.
We have identified.
The H E. R. S. A critical equipment that requires more.
Vendor support in the commissioning phase they each be our has been free Commission is.
As you see installs and be commission.
But we still have to running with low.
So.
We decided and he's was explained on or me a news release to a.
I think out of the critical path.
I'm place them on stand by that entire series.
Hey, So we're currently running at the mine, the crushing and placing or in the leach pad bypassing H E R.
What's the glad we'd H.B.R., we're not counting on having added.
You gave for in the technicians on site.
But we are have developed.
Glad to have a remote assistance through the commissioning, but because of that.
We have giving ourselves plenty of time for the commissioning period.
So I commissioning phase that.
You know under normal conditions would take a three weeks.
A work even ourselves almost three months.
Right.
And does the how we're meet the gating their risk.
Oh.
Hey, commissioning and without a onsite and vendor technicians.
So where basically allowing.
Plenty of time.
Okay to work with remote assistance.
Yeah.
With respect to the sorry.
It's hard yes, yes. It has never been into Queasy go Oh production there is a debate.
Between or mentioned, Larry just on a how soon do we need it as you recall the purpose of it you know the purpose of the it's hard that used to help us a keep.
Copper in Ah pregnant solution.
They were below 500, yes.
It so.
The question is how fast.
It is the copper going to build an even you fields of all 550 in their or their alternative ways to manage the copper in solution.
This through a higher cyanide leach.
You know so we don't know.
If it's gonna take among.
Three weeks or two months for the copper is to build do that creek a level of 500 500 bps.
That is why we believe we needed early but not on day, one and once again, what we're doing is ER developing that plan.
Hey, we the or.
In process Engineers to commission DC remotely.
And with remote assistance, we have a our operators.
We have a couple of operators we started the experience and then we're preparing to work through with a remote assistance.
Through the commissioning phase Oh, sorry, I don't know that addresses your question sorry.
No. It does Jorge I knew that originally you were ER.
Youre going to bypass your H.P.G., our circuit and and I guess, you are because you're already crushing on the primary and secondary circuits and and I didn't realize that the extra time for remote commissioning a use what gets us to ER.
Sure that being used in towards the end of Q4, so yeah that cleared it up thank you Jorge that's all I had.
No.
Thank you.
Well take our next question from Shacks Wortman with Laurentian Bank. Please go ahead.
Yes, thanks, very much my question regarding but it's been answered Vicki.
As a remainder ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time well take our next question from Justin Stevens with P.I. financial. Please go ahead.
Hi, guys. Most of what I was going to ask has already been answered but for the presentation and.
Previous callers, but just a couple ones do you have every one done on site the you'll need to to complete commissioning Oh the.
Like that but leach circuit.
Was there anything that you're still sort of waiting on fourth that happens.
We have it didn't die here.
Hey, John Dean onsite, yes, everybody, who is under blind and these required to be onsite under or May eight plan, a he's onsite in Argentina.
At this time.
Great and so yeah, you either I guess, then that the next critical path items won't be finishing that are you I P work to get.
Police plant up and running and then sort of the start you're getting the heat and second letting the Dallas.
Yes, and we are.
Hey.
Pre commissioning, we'd wider as we speak.
ER solution handling systems.
Ponds and were doing ER and war tests, we walked wider on the heat.
A research to leading the you know trespassing handling and solutions from onto bonds. So what does that work these taking place in.
So I haven't really and nothing to report.
Yeah outside of our plan on on on that matter, we have a high expectation.
That we will be able to meet.
Yeah or milestone for irrigation.
You're not by the end of a these Oh you know you know 10 15 days.
Early next at the very latest.
Great I think that's Oh, my husband midsize sounds good and best of luck with the commissioning.
Thank you.
Our next question will return to Trevor Turnbull Scotiabank.
Sorry, I just one another.
Yeah, I had one other follow up Jorge.
I was wondering when things starting to ramp up on the construction and commissioning front.
When will you be able to start spending time evaluating some of the brownfields opportunities that lindero a is that something that is exploration able to resume and is the is that weren't something you're planning to be able to do early in 2021.
If you say for certain 20, if anyone that di di Trevor.
Yeah right now we have 1200 nine count.
A that I'm aware only hosting.
About half of that population because of the social distancing measures we have implemented at the probably.
So every bad he's thinking by either a construction personnel or a operations personnel at this stage.
Okay, and we expect that we'll continue to be the case.
It until the end of year every time, we conclude a construction task and we mobileyes construction if people.
Okay. Those bets are taking by a mine operations personnel were pushing for the initiation of night shift work really working only when they shoot.
So we won or be able to two or you know you can get are nice shoots going and ER.
Yeah soonest someone from construction leaves the where these taken by an operator, so that will continue to be negate likely until the end of year. So expiration, we assume 2021.
Okay, Yeah, I look forward to it thanks Jorge.
Well take our next question from Gergen with gold stock analysts. Please go ahead.
Well and it appears you no longer has a question as a reminder, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time again, that's star one on your telephone keypad.
Well take our next question from Ryan Thompson with PML. Please go ahead.
Okay, all right if I could just a follow up on drivers question can you, maybe just touch a little bit on exploration at the other two assets.
Yes.
Expiration at a or San Jose mine has resumed.
Hey, he is a a priority for us.
Over the last.
You're in a half two years, we've been are.
Doing that that mining and revie seating and they didn't see a work that we have done throughout the years generating new ideas, so were really drilling from underground and from surface.
Okay testing and new ideas.
Okay and on both the underground uncertainty.
So we have one rig and drilling underground looking to build it into two rigs and well have a one regan surfaced and testing and new media mens and and and structures. So.
We know that we enjoyed a significant exploration success at San Jose up until 2016 and seems then we've been on a certified dry spell at San Jose So a weird doing different things were trying different ideas.
We have been looking at the <unk> with different ice.
Okay, and a one of the first things we have done.
It is a resume exploration activities at San Jose I got you will now we have some spend that exploration yeah, we have a substantial.
Resource base at Caylloma and ER.
A resumption of exploration adopts it will likely take place it in the first half of 2021.
That's helpful and maybe just a quick follow up on Caylloma I know that you have some silver rich starts a areas and in that mining silver prices sort of I'm doing what they're doing what is the thinking there and how long do you think silver prices sort of need to to stay here before you could actually started.
Hey, guys concrete decision to maybe chase after some of those area.
Yes, we the commission it it just to put it into perspective it when we had those songs seed production those areas is sourced 5% throughput at the meal.
Contributed 50% of the silver we produce.
So a there are significant contributors to silver.
And and we commissioned those areas when Ah silver and dropped below $20.
Okay bucking when was that.
Long ago.
[music] long ago.
And so we but when silver beers through the 20 dollar.
Yeah.
Mark He said we started decommissioning those zones, so we will need to see sustained.
The price is about $20.
And for Us.
Hey, incorporate or reincorporate those areas indoor mine plants no those are narrow veins.
Is that require and conventional labor intensive mining.
And ER.
I will.
It's not only that imitation of prices, but also the fact that they are labor intensive right. So those narrow veins don't support high degrees of make any station that they will not so we would also need to see a meeting all garbage restrictions and probably due to bring those inc.
About bringing those things into production. So it's a combination of Bryson govies environment for sure where those me right.
Okay. Thanks, that's a that's very helpful and good to hear that you've got a drills turning out I know there again, thanks for the uptick.
Well, it's more ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time again, that's star one on your telephone keypad.
And Sir there appear to be no further questions at this time.
Thank you Karen.
I would like to thank everyone for listening to today's earnings call and we look forward to you joining us next quarter have a good day.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation that you may disconnect. Your lines at this time and have a great day.
[music].