Q3 2021 Fortuna Silver Mines Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Fortuna Silver Mines' third quarter financial and operational results call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
If you would like to join the queue for questions. Please press star one at any time to lead the queue. Please press star Q. It is now my pleasure to turn the floor over to your host Carlos Baca Director of Investor Relations, Sir the floor is yours.
Yeah.
Thank you Kate.
Good morning, ladies and gentlemen, I would like to welcome you to Fortuna silver mines and to our financial and operations results call for the third quarter of 2021 hosting the call today on behalf of our tune out will be Jorge Alberto <unk>, President and Chief Executive Officer, Luisa and also Chief Financial Officer.
Scott Chief operating Officer in Latin America, and Paul <unk>, Chief operating officer at West Africa.
Today's earnings call presentation is available on the featured presentation box on our homepage at Fortuna Silver Dot Com as a reminder, statements made during this call are subject to the reader advisories included in yesterday's news release and in the earnings earnings call presentation financial fit.
<unk> contained in the presentation and discussed in today's call are presented in U S dollars unless otherwise stated.
Before I turn over the call to Jorge.
We would like to indicate that this earnings call contains forward looking information that is based on the company's current expectations estimates and beliefs. This forward looking information is subject to a number of risks uncertainties and other factors actual results could differ materially from a 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 from the conclusion forecast or projection in the forward looking information.
And the material factors 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's annual information form and MD&A, which are publicly available on.
On a cedar.
The 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 to Jorge Alberto I know, it's a cofounder of tuna.
Thank you Carlos.
In the quarter, we delivered record sales of $163 million adjusted net income of 22, and a half million, even though $75 million with a strong consolidated EBITDA margin of 46%.
The solid financial performance is on the back of record gold production driven by the new Middle mind, and this being the first quarter, where we incorporate the results from our West Africa business.
As of the end of the quarter, we have <unk> level of $176 million and run the business with a conservative debt to EBIDTA ratio of 0.2 also during the quarter, we announced the start of construction of our singular mine in Cote d'ivoire, we plan for it to get up to start production and continue driving.
Growth for the company like mid 2023.
We concluded successfully or 100 day integration plan, we'd rank schools.
<unk> of our combined business has been a smooth process and the main reason of course is the quality of people insured values.
We always said that in combining our business, we were not only acquiring quality assets, but a team of seasoned professionals with whom we shared a similar view of how you create value in their business.
After the end of the quarter on November 5th we renewed our credit facility and expanded it to $200 million.
Of this amount $120 million, excluding the array level with the full amount to become available upon the sample set permit issue being resolved.
In the quarter. We also managed to successfully settle for $99 6 million.
The disputed royalty claim with the geological theory, and secretary of Economics of Mexico.
On one of our main concessions have the San Jose mine.
This has been a protracted conflict negotiation, where we achieved an arrangement to the satisfaction of the company and they say the authorities.
Now.
What has tainted a good quarter as these new issue, where the Mexican Ministry of environment say Martin that half on November 10.
Denied our request for a 10 year extension of the environmental permit off our San Jose mine. These.
These renewal process is something we started on may of this year.
Some are not exciting two main reasons for the denial.
One not receiving requested information from us and second that we have not been evaluation for the regularization of 73 in senior and senior facilities not declared in the original 2019 environmental impact statement.
With respect to the first point.
I've already provided proof that dating back to 2019, we have been soup meeting and complied with that said information.
And second we are of the strong view that the regularisation of ancillary infrastructure, which is a process that we initiated in 2019 and scoring in the hands of set them on that.
And evaluates the mediation of impacts for our greenhouse a soccer field a weather station.
Porsche and drill core storage facilities.
Office, a 40000 liter fuel trend a power transformer and no other infrastructure of similar nature.
Not provide grounds for a denial.
Finally, our legal team is also the strong view that the Regularisation of 73 works does not form part of the request for the extension.
The deadline for similar not to provide a response to a 10 year extension application expired on Saturday October 23rd.
These west informed on our press release dated October 25th.
Before the October 23rd date, and as a precautionary measure.
The company, we initiated legal actions in Mexican courts.
Obtained preliminary protection to continue operations, considering a potential delay in obtaining the extension or a questionable denial or.
Our San Jose Mine is currently operating under the protection of this court actions.
And we think we seek to strengthen this protection from the courts with the recent notification received from somewhere and that our legal team is evaluating and working on this.
Our credit agreement.
On our senior bank facility requires that we obtain a permanent injunction are similar protection before November 20th we have engaged with our lenders to provide for the flexibility and time that these circumstance requires.
Additionally.
We have not exhausted the avenue of dialogue with someone up and Mexican authorities.
We have the right to and we will file an appeal to these negative resolution.
And have scheduled meetings with high ranking similar NASA officials trying to untangle this unfortunate situation.
Someone that has also informed that they favor a consultation procedure on the environmental impact assessment under evaluation coverings did 73 and see dairy facility.
The company is not opposed to any consultation procedure that at three years does it make any sense provided in the environmental impact assessment, which are very clear and supported by jurisprudence in Mexico.
Mexico is a country with a long and proud mining dilution and we view these position for some or not as one precedent. We're pursuing all avenues available to solve these as soon as we can.
Under U S G.
Or prioritize Kpis show improvement for greenhouse gas emissions water and energy efficiency over the last year.
Comparable water or figures are benefiting from the inclusion of measurements from our little mind, starting this year.
We reported two lost time.
Axioms of minor consequence in the quarter, one of the San Jose mine and one of the little Mike.
Figures for women in the Labor force were impacted by the migration from a contractor operated underground mine at San Jose to an owner operation, where we incorporated approximately 265 workers who are favorable.
Got you in my mind in Peru, we successfully closed a six year agreement with the community of <unk>, which provides a solid framework for the relationship with all relevant stakeholders.
There are areas of influence for the coming years.
With respect to production compared to last year's quarter of gold production has expanded by 400% to 65500 ounces.
Our largest contributor for growth whether they get a multiple mine in Burkina Faso with 28750 ounces.
Followed by leading data with 26000 ounces of gold.
Of note.
In my mind, which since last year is contributing small, but consistent growth that we estimate to be around 5000 ounces a year.
[noise] amount, perhaps in the bigger picture, but a welcome a meaningful contribution to the economy of that mine.
Yeah.
Silver production from our San Jose Mine stood at one 7 million ounces in the quarter the shortfall with respect to the comparable quarter is explained by lower silver production.
Jose impacted by downtime at the mine transition from contractor to owner operations at the underground mine and lower grades compared to it.
Q3 of last year.
<unk> metals accounted for 88% over a $162 million in sales silver accounted for 22% of sales.
Our.
Cost structure in line with our guidance range for the year at all our operations San Jose exceeding cost inflation against the comparable quarter, driven by lower silver and gold production stemming from lower grades and slightly higher opex of about 7%.
I will now.
Have a safe velazco, our chief operating officer for our Latam and <unk> <unk>, our Chief operating officer for West Africa provide some highlights from from their respective region. So sessa you're gonna go ahead.
Thank you Jorge yes, all three mines.
Okay.
Performing in line with management's expectations.
And are on track to meet annual guidance.
COVID-19 related restrictions in the three countries, where we operate have been considerably east and double dose vaccination, great ethical operations and now well above 80%.
In dental mine heats up here.
Within design parameters.
We had record gold production of 26230 <unk> quarter.
Important to highlight.
Solid performance of the operation.
Mechanical availability and that increased gold production trained.
I think David I mean.
That all is on track to meet guidance.
Management looks forward to an even stronger performance in the fourth quarter.
Okay.
Thank you Paul you want to go ahead.
Thank you hi.
Operations in West Africa are progressing well against that plan.
And both Makena and kind of what kind of impact largely mitigated now with little or no impact on operations today.
I need to send their employees back from either Yeah, My card production and micros and along with the planned for Q3.
And similarly is the case.
I would like to haul a lot of the excellent progress made by the team on the ground and that is to grow our project in Cote d'ivoire.
We did in the third quarter, which was highlighted by the board's approval of a construction decision for the project and by September.
As per the project execution plan, but the schedule and the costs remain on track with approximately 30% of the project completed.
This has allowed us to advance both the fed and their fourth quarters projects, Google parcel items.
Executing and commencing the prices playing AT&T agreement with lots of podium.
Playing thought towards contract executed the hygiene substation supply contract.
We've continued to expedite the critical path mechanical items, such as segment was crushed and transformers.
In concert with the work's ongoing in the field the company's footprint and capacity is being ground with the establishment of the West African regional office in Abidjan.
We can support with the guava development effort now and ultimately the operational needs of single aisle and yeah, Mike Hi.
In addition, dialog is ongoing with the mine by mine and budget Ministry in Cote d'ivoire with sessions planned in the coming weeks advance the conclusion of the projects mining convention.
Okay.
Thank you Jorge.
Thank you.
And so yeah, so oh, Carlos will turn it back to you.
We will now.
I'd like to turn the call over to any questions that you may have.
Thank you ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please press star one on your phone now if you wish to leave the queue you May press star two.
We do ask that if you are listening on speakerphone. Please pick up your handset for optimum sound quality. Please hold the moment, while we poll for questions.
First question today is coming from Dalton Barreto at Canaccord. Your line is live you may begin.
Yes. Thank you.
I'd like to start by saying I'm truly sorry, then you continue to face these challenges in Mexico.
These things happen in certain parts of the world and I know, you'll get this resolved, but it's going to take some time.
So that said this temporary injunction that you face when does it expire and what do you need to do to make it more permanent.
Yes.
We have a different legal.
Legal actions in place.
And also.
The workers have initiated actions in local courts and walk.
So.
Right now we are of the view that are these legal actions.
Now that there is a negative resolution.
They can be moved to a permanent.
Yeah.
Permanent injunction.
Because.
Part of the issue with the ore for the granting or the limitation for the granting of a permanent injunction.
We did not know.
Yeah.
What were the grounds for the delay in some or not to reply to us or what they were arguing right.
So now that we have there their argument.
Explain them in the call we are going back to the court.
And based on what's been presented which doesn't make any sense to us or in our legal counsel.
We're seeking a more permanent.
Mhm injunction.
Injunction right, that's a process that can take it.
Our old days right.
The preliminary measures that we have we really.
Our preliminary in nature and and.
Hey.
I would be adventurous to me to say exactly what type of coverage we get.
But it's measured in weeks.
Yeah.
Okay and then.
As a follow up on this two parts to this question here should you not be able to turn this into a permanent injunction by November 20th what is the current penalty from your lenders and then part B of that is should you not be able to do it at all and you're forced to shut San Jose down.
How flexible do you think your lenders are going to be.
At least you were speaking with the lenders you want to come in.
Yes, sure so and while in principle of the straight answer is that noncompliance with under our credit agreement with <unk>.
Figure a new window the slope.
It is our expectation however that will we'll work with our lenders to provide ourselves whatever flexibility is appropriate and warranted given the evolving circumstances.
And.
We are still optimistic that.
Our legal actions.
A strong likelihood of.
Are progressing and we.
We believe that the lenders will be.
Working with us to again provide that flexibility required.
To avoid any unnecessary situation with respect to the status of our credit agreement and our covenant.
Yeah.
Okay. Thank you I have more questions, but I'll jump back in queue. That's it for me for now.
Thank you. Our next question today is coming from Justin Stevens at Pi Financial Your line is live you may begin.
Thanks.
Yes, just a couple from me here, it's good to see obviously conveyor stocking ramping up in Q3 Island Bureau, I wondering if you could give a bit of color on how are lead times are reconciling with the bottle though.
Yeah.
Yes.
Yeah.
Sir you want to provide an answer there.
Yes, it's working.
Reconciliation is.
Looking pretty good it demonstrates a good relationship with.
There were certain moral actually for the Q3, we had a lizard 6% difference.
The reconciliation.
And.
Our year to date.
Even less than 3% so it's looking pretty good.
Houston.
Yes.
You were asking not so much about the reserves, but the the leaching kinetics and.
We have loaded the leach columns.
And.
Right now what we're seeing in we have loaded.
The first columns.
Yeah.
We loaded.
And we have final assays for some of those collyn.
Columns.
And what we're seeing is that with a coarser brush.
Around 13 millimeters.
We're achieving.
Similar levels of.
Gold extraction.
As we planned.
In the engineering phase and design phase with a six millimeter crush.
Yeah.
And perhaps the explanation there is that the lab work was done with a small H <unk> crush.
Pressure.
With the much larger HPE or that we have in place probably we are achieving higher comminution of Iraq.
Yeah.
So, but so far the metallurgical response is largely consistent with our expectations or better right.
Yeah, that's good to hear I'm just kidding.
The following up on that I guess about how much of the material stock to that sort of year to date at the end of Q3 would you say you have an actively under leach.
How much of the place material under Leach.
Yeah, just a rough percentage in terms of how much is being actively engaged.
Everything.
Everything Okay. So it's just following your at least if you're following along pretty closely behind your stocking.
Yes, yes.
You know we start to irrigate ing.
But 'twenty, we allow ourselves for safety, what 'twenty 40 meters from the retreat face over the conveyor stacking and we start irrigation.
We started the Rebating a couple of months ago, we started with the program to irrigate slopes, we would not irrigation slope. So we initiated it.
Irrigation.
No, but basically everything is under revision.
Got it.
And then I guess the last thing then there's obviously things are trending better.
Linda do you have an idea of when you might expect to declare commercial production there.
You know we have the early adoption of I forget the at least what the accounting.
Therm, there, but you.
The mine has been operating.
We've seen it consistently achieved design parameters in in.
In our industry.
In the third quarter.
I mean, it's operating within design parameters.
And everything has been flowing through down to cost.
Since we started production in October of last year, a year ago.
So so we're not declaring commercial operations I know you you you do that when you know you're capitalizing them then you can achieve.
Production Oh.
Design parameters, and then you start and stop capitalizing and start sending things don't cost right.
We've been doing that seem so over last year.
Yeah. So just to clarify though that doesn't have any effect with regards to the Oh you have to do in terms of the Argentinian peso and the export sale for your door right.
No nothing to nothing.
Hi.
Great. That's it for me thanks, so much.
Thank you. Our next question today is coming from Don Demarco at National Bank Financial Your line is live you may begin.
Thank you, operator, and Hello, Jorge and team I Suppose my first question for Jorge or perhaps Paul Yarmulke was impacted by unplanned downtime on Sag maintenance and re sequencing of production stopes in a 55 zone.
Or what's the situation, let's say outlook for Q4 and can we expect a rebound.
Perhaps with some higher throughput and grades.
Paul.
No.
Yeah, So hi, Don.
Yeah, we suffered.
He'd been the Sag mill.
What I'm, saying.
And then on the on the pinion bearing with tours have food.
At the same time, sorry, we did August we had a.
Had a requirement to raise sequences starting.
It's Doug.
Which is very which is largely prescribed the aramark I just given the nature of the deposits.
We saw some high grade starches.
<unk> has been pushed out into Q4, so yes, when you say.
Recovered if you like.
In the fourth quarter.
But we don't hold we currently hold any concerns.
Q4 would be the guidance numbers.
And in terms of a couple of hours and just kind of cool.
Okay. Thanks for that Paul.
Shifting to and Darryl I see that in Q3 of sustaining capex for $10 6 million.
Do you expect to spend a similar amount in Q4 or should we model. This see start easing.
Uh huh.
Okay.
I had a problem with the audio can you. Please repeat the question.
Yeah Sure says Hey, I was just asking about the.
When bureau, sustaining Capex shall we continue the run rate of about $11 million that we saw in Q3 or would should we model something lower than that.
No it should be it should be in line with that so you should be modeling and I think.
We had some.
In <unk>.
Our expansion plans in that are now scheduled to be commissioned in Q4. So again you should be modeling the same number.
Okay great.
Then finally.
Jorge on this situation at San Jose now what I hear from your comments I understand there's two issues that center has put forward there.
They alleged that they haven't received requests and then they're pointing to some ancillary infrastructure 73 works.
You're going through the proceedings, providing proof and whatnot.
Spending your position.
Just building on a previous caller's question on it.
What should we look to next then I understand that the timing may be uncertain may take days for the courts to review what you've submitted well shall we look for a press release or are in a week, maybe or how will you keep the markets updated on this as new information becomes available.
Yes, and I want to go back to something I said, no we have not shut down dialogue with them or not.
We're still trying to solve these.
Administratively no.
We cheese.
I mean, some are not.
Reassess.
And their position based on the fact that.
We have presented proof.
That we are in compliance with the issues. They raised in their E mail or excited in the denial.
And there are meetings scheduled with high ranking semi officials there is dialogue ongoing right.
The.
So we have a.
A degree of expectation that something positive can come out of that dialogue.
We have to recognize that the Mexican.
Chicken government has made a significant budget cuts across all our government.
You know.
Offices.
And some are not.
Yeah.
Sometimes.
Short handed to deal with the complexities of over there.
This unfortunately, that's a reality.
So you know because there are some things here that we just.
Failed to understand how come no.
I mean someone who's not doing their work there.
They cannot I didn't diversify themselves.
We have submitted on at least two locations dating back to 2019 the documents they are requesting for them.
Right Mhm.
Yeah.
So.
Dialog continues and you know through dialog, perhaps we can have a breakthrough with them.
Sooner then.
And.
Then later, but parallel to that we have to continue advancing with our measures in court.
This is something similar to what we eat when you know two years ago, we had an issue with the royalty claim.
As you guys might recall.
The Mexican government issued a cancellation procedure on one of our main claims.
Citing our royalty dispute.
So you know eventually we're able to solve this is where it should be not protect protracted process.
There is an administrative part.
Dialogue with the government and then the legal path in the courts. So we're pursuing both and.
You know I believe that the as I explained to the previous caller as well as some of these legal measures.
<unk>, which we are.
Taking now that we have more information so we're feeding the courts that the additional information that we believe strengthens our position in court.
Should should lead to.
The responses from the court so that can be measured in days.
Right.
Right and so yeah you.
Pursuing this on two avenues and be Havent CT Avenue could lead to an outcome could be a permanent injunction, whereas the administrative avenue, perhaps could lead to and.
An extension of the permit perhaps so but my last question then just going to that permit maybe the preferred outcome here as an extension of the permit.
How often is this permit renewed.
Is it on an annual basis every couple of years and some are not presumably would have granted it.
When did seminar last renew it.
No. This is a these permit was granted for a 12 year period back in 2009, when we were granted orphan and rheum.
Mental impact statement.
So you view, what I mean, you might recall that when we build the mine the mine had our reserves and resources for a five year life of mine.
So we requested a 12 year environmental permit I am not sure right now that is the limit that can be requested I would have to check with counsel.
But we requested double almost double the loan we had back in 2009.
You know the years past exploration has been successful.
Good to know.
Or application was for a 10 year renewal, but again I would have to double check with you. If there is a maximum you kind of Blackberry.
Okay.
Okay. Thanks, Jorge Good luck are pursuing both path. Thank you.
Thank you.
Thank you. Our next question today is coming from Adrian day at Adrian Day asset management. Your line is live you may begin.
Oh, yeah. Thank you. Thank you Jorge I, sorry to go back to Mexico, Okay, and I had a few questions.
Maybe I'll just ask them all in a row with I'm a.
First just a quick one on the royalty on the royalty.
Settlement.
Wanted to clarify is that settling what they claim you owed in the past or is that actually finalizing it so there's no future royalty.
And then the rest of them the rest of our questions were all to do with some of that so I'm. Just wondering if it's sem and that has had any contact with you prior to that decision, saying, we're still looking for this we're still looking for that.
Secondly has the local government got involved in this are told that they have a sort of they have any sort of a bundle.
You know our approach to.
Keep in the mind going in to the workers.
And lastly, I don't know what question you might not actually wanted to answer but I.
I've heard from.
Several companies that are getting decisions from some of that but.
And now you know in the different different companies' views simply don't make sense and are unprecedented.
And I'm wondering if there is something going on in semi that is there a motive, but they have been and trying to put stope mining in Mexico.
Okay. Those are my questions.
Thank you Adrian with respect to the royalty question.
By way of background, the Mexican Geological survey.
Claimed.
That we owed on the amount of $30 million plus.
For unpaid royalties on a concession.
We disputed the legality of the claimed royalty and when we went to court.
Right.
But just like now and then we went to court.
To have a court decide if the royalty was legal or or not.
And.
And.
At the same time, we continue trying to broker dialogue with with the Mexican Geological survey and the.
And the secretary of mines.
The secretary of Economics, and eventually we did so.
Yeah.
What we have achieved is a an arrangement by which we are paying $9 $6 million.
And with that we settle any past.
Hey claim.
The half.
On old.
The amounts.
Again, they were claiming that they all of the amounts were plus $30 million right.
And we have agreed to a 3% royalty moving forward.
Right Okay.
So with that.
There is no royalty dispute there is no claim and we are actually.
Removing from title the.
The old.
Royalty that was registered in the historic title.
Hey, which gave rise to their claim.
And we are replacing that with the new agreement with the company for a 3% royalty moving forward. So that's closest to the issue and I have to say that through the process. We have gained a lot of our goodwill.
With the Secretary of Economics, the Secretary of subsequent area with mines in Mexico and jewelry closer.
And moving forward with your questions number two somewhere in that process.
The answer is no.
Through the process.
On the extension of the permit that we.
We initiated in May of this year. They had one request for information shortly after we initiated the process where they requested.
Three four.
The.
The items of additional information and those were.
Very immaterial.
Asking who was the contact person in the file.
And Oh, there are three minor issues of that nature.
And it seems then we'd never heard back we requested meetings.
We never got a replay.
So they were quite nonresponsive.
To our request.
And based on that fact.
They became nonresponsive to us.
Is that we'd be she decided to initiate legal actions.
Ahead of the October 23rd date, because you know, we we really know what was happening and.
And.
In so in two locations, we managed to speak with a low level official.
And you know if you reply to us would be that this is being managed at the higher levels and.
And then there are a lot of delayed files and Hum.
And.
So based on that uncertainties that we placed ourselves in multiple scenarios and we decided to initiate preemptively.
Some legal actions.
And number three is a local involvement.
I have to say that.
We have had.
A remarkable support from local authorities and when I speak about local authorities first.
The governor of the state of Oaxaca.
Alejandro moved up.
I think we.
We could not have asked for more support from the governor of the state no. He's been behind US trying to help broker dialog and he's still playing a pivotal role in our airport to a broker dialogue and he's been quite supportive and more in the town of San Jose.
<unk>.
The mayor of the town.
Also.
Entire eh.
Carey Lowe.
Yeah.
However, also played.
Played E R R plane.
A key role in supporting and they have sent letters to there.
Representatives in Congress, they have gone to Mexico City and speak with Representatives of Congress.
Send it.
And.
There are certainly very active in support of the company.
And last is the attitude of Sim or not.
[laughter].
No.
It is no no secret that prescient Lucas umbrella is not fond of mining and particularly Canadian mine right I mean, that's no secret right.
Yeah.
Yeah.
And.
But he has also said that what are you know its operating mines will continue to operate.
He'll be supportive over that that's something that he is on record saying.
But at the same time, she has placed a moratorium on new mining claims in the country right.
You cannot apply for new mining concessions in Mexico.
And so yeah.
The.
I think there is a compounded effect of the budget cuts in different government offices like some are not.
And the fact that everything slowed down through the pandemic.
And certainly on an issue with the attitude towards mining that permeates right.
So I believe that that is compounded but I have to say that there are also quite sensitive to the risk of loss of jobs right except to say that.
Throughout the Mexican government.
They are also very sensitive to that right now.
Right.
Okay.
Thank you and I'm, sorry, Jorge just quickly.
Life decisions made at the local level regional level are already made at the national level.
So that is a federal office, so its a national office and someone that has.
The local.
The offices, but they depend of central government and all of it. It's it's a national office with different subs in the different states right.
But he is not local they're not governed locally.
Uh huh.
Everything is favorable right Central Asia Central Gulf.
Okay, great. Thank you. Thank you. Thank you very much.
Right.
Thank you. Our next question today is coming from Michael Anthony a private Investor. Your line is live you may begin.
Yes, sorry, I didn't catch it earlier when did you say you just don't get the permit without.
We have not provided a date for when we believe we can get the permit because we just don't know that.
Yeah.
We have describe these are the all the actions that we're taking.
In hope that we can get.
Get a permit.
The measures the legal measures, we're taking to protect ourselves in case D. C. Some protracted.
Right.
Right.
But you have like 1200 people working there.
But that mine, we we employ directly directly.
Direct employees around 1200 people.
But in addition to that there is an entire eh.
The World of service providers that go from a local mess hall for contractors, a tire shops for the contractor trucks.
On and on.
And you name it.
Our community support agreement.
At San Jose Progresso East of the amount of about a million dollars a year that's invested in infrastructure.
Sustainable development.
Okay.
<unk> health.
They have only this year about 160 scholarships in the town.
We support many initiatives.
On greenhouses for tomato growers.
The support.
Irrigation programs.
Well, we do all of that to these structured community agreement that every year you seem to have a in the amount of roughly about a million dollars.
So all of that investment plus the direct in the employment and indirect employment has a huge impact on the area.
Well, that's not industrialize I mean.
You know mines are located in.
In a remote area. Soon this mine is not particularly remote but there there is no other or there are no other decent jobs opportunities available in the valley, where we are located.
These towns are full of.
Have large female populations because most of the male migrate to the U S for work.
And what you're left with single mothers and broken families because of the migration.
And so so.
You know I believe that are some are not so as they get more knowledgeable on this particular case.
It will also become sensible to this issue right.
Right and it got the Mexican government they can't afford to hurt people like there. So they've got like going to issue a permit later on in future that I gather because that's just.
Too many people out of work.
Yes.
Payments as well.
Our government here.
Yeah.
Also very important to note is that we have never been signal for for environmental pollution or anything like that I mean, the only thing they're exciting news.
Wrongly we believe the paperwork.
A shareholder for over six months or.
Probably nine months or so.
Because I know.
Youre very undervalued trade at book value and I know that everything don't get solved because I know the type of person you are and matter of fact, our ecology I Hope you and your Investor Relations in where you get a return on my call light around just after I don't know if you get a chance at a mall.
We will thank you very much. Thank you and good luck I know you don't get things taken care of because I know you get folks.
Thank you Sir thank.
Thank you.
Thank you. Our next question is a follow up from Dalton Barreto. Your line is live you may begin.
Yeah. Thanks for taking the follow up I've got a much simpler question for you and maybe this one's for Paul actually.
You've just started building I think whaler I'm hearing.
A lot of your peers that are building projects in either place.
Massive inflation in steel and consumables and labor all that good stuff I've also heard recently that there is a lot of congestion in the port of Abidjan I'm. Just wondering if you just take your capex budget up by $32 million.
How much of that is already captured in the budget what is the contingency and looked like and are you seeing any delays that you start to break stuffing. Thank you.
Yeah, that's a very good question and something we have addressed with the team and then I'll, let Bob provide them the details here.
Okay.
Thanks, Tom.
The raw you contact.
Our Raleigh concerned about what's happening as a week.
One of the key one of the key.
Features of Howard executing two hours.
Well our the closer.
Closer to 60 odd percent of the.
And there's two or three years on the capital budget.
It's fixed cost.
Cool.
Is that you know that comes at a premium to do that with your various contracts.
Alright.
The ability to improve the project in the third quarter and actually execute those agreements or why are those contracted to Mike.
Procurement decision to meet those shadows is crucial and sorry at the moment all of the share gains and call that you see in front of me there.
Incorporate the current reality that we see in the world.
The current critical path.
Cleveland perspective around the new.
Around the crushing it's around transforming all of those have been awarded and are being expedited.
Schedule. So as we sit today I don't have any she'll do concerns but yes.
We've increased our allowances in the budget and initiate use.
All the current members of congestion.
John.
So we're closely monitoring that but we had contemplated these kind of like.
Thank you.
We are moving our equipment and people in and around West Africa, We continue to operate.
Yes, Mike as you know in Burkina Faso, and all of the equipment is required to operate that project does come through every job, but I think you know here, we have a reasonable handle on that.
That's not decided we're not going.
That's great. Thank you for that and golf in there.
Awesome.
Thank you.
Our next question today is coming from Jack Bartman at Laurentian Bank Securities. Your line is live you may begin.
Yeah, Thanks very much.
Jorge just so unclear did you indicate earlier in the Q&A.
Linda Arrow is now at design capacity, how would you characterize the current ramp up stage given the.
The COVID-19 related issues with.
Travel restrictions I'm, just I'm, just trying to get a sense of where things sit because I thought from or to the stock to Leach pad you were still behind and there was still some.
You know some things to iron out go ahead.
Yes in the third quarter, starting around mid third quarter.
And we have been a cheat achieving.
E E.
Yeah.
The rate of production.
We've seen.
Yeah.
80% of the design parameters sorry, yeah.
At 80% plus of the signed parameters right.
You know all of the equipment in.
In isolation had been tested.
Oh on core performance criteria, and everything had performed but making the entire train and bear in mind that here we have.
Although the data is has always been viewed by assets.
No.
The project with low technical challenge from the mine.
We moved 40000 tons per day.
Between ore and waste at a strip ratio to a loved one or under one.
With five trucks and two low there's no 40000 tonnes per day with five trucks into LOE.
And the or is a myth.
Metallurgy.
Call It is quite sweet.
There are no or gold leeches quite easily.
And we the good leaching kinetics.
Yeah.
But the issue is that we have a primary crushing system secondary crushing system. The tertiary crushing agglomeration convey your stocking of course they are.
Sorry.
And that's where the complexities and getting that entire train.
Working.
Yeah.
At or above 80%.
Yeah.
Capacity is what has been.
A protracted challenge through coffee for the last year right.
So I think we're comfortable now.
Seeing the operation steady.
That's great.
The that are at or above 80% of the site.
No.
So in July when you gave your updated guidance you had indicated that you thought you'd be at design capacity I would assume it's 100% of design capacity.
Early in Q4 and that I guess hasn't been achieved and that's because of these travel restrictions when would you guess would be your best guess of when you'll be at at design capacity.
Simply 80 per cent of do you think that's a quarter away two quarters away.
If you want to get that granular until you have the people on the ground that can.
Help you achieve that with the entire train, but just your best your best estimate at this point I guess.
No.
We provided our revised guidance.
And that revised guidance continues to project a production rates that increased slowly but steady.
I will let our CIS or provide for example, some of the details regarding some of the work that we're doing on Q4, we're still doing some miner.
The adjustments to the system in Q4.
And changes in for example that generates downtime right.
That's a scheduled downtime if you will but he's downtime there.
But the system is operating you know steady.
And all.
That or very close to the same parameter sets or you want to add something to that.
Yes.
Correct.
The birth process.
You did have a very accurate and remarket. There. This is a process and he took profits on 111 stage impact rather.
So it has to be balanced and aligned and we have been able to achieve over the past few months.
Steady growth.
In delivery.
Plenish can each bank by means of conveying and stacking.
Close to.
Design.
I see.
Now focusing on Dublin.
Hum.
Borrowing.
Hum activities.
I need to get them done.
The third is kicking in the second quarter of 2022 lots of them and then.
We continued delivering.
According to the point.
Capacity.
Hmm appointing a beta impediment.
Yeah.
So there was a little bit rough are you, saying you believe you'll be at 100% design capacity by the end of Q2 is that what I heard.
Well, we we do have the problem.
<unk>.
We expect to have.
Maybe on a vulnerable.
With some capacity although.
Obviously, we operate at a lower.
On a on a permanent basis.
But we should be able to debottleneck.
There's more people.
But we don't like pipe.
My Q2.
Jorge if you could just confirm if you heard better than I did.
I'll, let it go but I'm out here in Q2.
Well, we have some work.
Some you know more or less for example, we are making changes to the liners can do.
Yeah.
The liners and the like.
On the ocean drums, and whatnot that will require some downtime.
And all of those works it will not be done by Q cool Nick.
But if we talk about run rate.
Operating steady within 80% of them.
Yeah.
Thank you very much.
Thank you.
Yeah.
Thank you. Our next question today is coming from Trevor Turnbull Scotiabank. Your line is live you may begin.
Yeah.
Hi, Jorge and I apologize this might have got touched on before but just a really simple question going back to the to the royalty. What's this royalty now going to cover the entire San Jose property or is it still limited to the Progresso concession, which is kind of where this all started.
Rover alone Trevor.
So if that's the case and again I apologize I missed the first part of the call, but if that's the case our progresso only represents something on the order of 25% of the production.
Or how much of it going forward does progresso and this new royalty really impact.
Yeah.
I don't have the breakdown of resources and reserves on the progress of concession on my head right now, but it is a meaningful amount you know north of 20.
25, 30% right.
And bear in mind that all of those concessions belong to.
Either to get to the Mexican Geological survey.
And a lot of those where we've been producing since day, one do carry royalty commitments right.
Yeah.
But this one.
And through this dispute.
Is that we have paid the nine and a half of $9 6 million to settle any.
His story.
Claim that.
And we have agreed voluntarily to to pay on an ongoing basis, a 3% royalty.
It would have to double check and Carlos can provide that to you and a follow up on the exact amount of research resources that are subject to that 3% moving forward I don't have the number in my head right now.
No. That's fine yes, Carlos can can send that through that would be great. Thank you very much Jorge.
Thank you.
Thank you.
Once again, ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please press star one on your phone now.
Okay.
Our next question today is coming from Eric Mcferran, our private Investor. Your line is live you may begin.
Hello, gentlemen.
I thought the results were basically good obviously the main concern is the San Jose property.
A couple of you touched on it earlier in the call, but I just wanted to get your feel again.
Do you feel that the summer Ah.
Actions are a personal matter.
Their wishes or is it just the infrastructure that it seems like you are willing to do.
I didn't know if there was any clarity on that I had three questions I was just one of them.
One was is there any thoughts on obviously the.
Market cap and the stock has been pummeled over three days, 20%, which seems to be.
A large market capital of $350 million of loss, but the San Jose only.
Brings in at least from your from your numbers are about 172 meals. So what's your thoughts on the overselling for lack of a better term.
And then with this type of a price.
Crash is there a thought of any stock buy back program that could help support some of the.
Momentum shorter's that are kind of hurting this company because I said market cap doesn't make a difference. Thank you.
Yes.
Thank you for three questions with the first one.
Yeah.
I I would not like to think that D C.
You know.
Directed.
Action or attack on the company right by any means.
I wouldn't like to think in your opinion or anything like that.
Yeah.
No we have to admit also that southern Mexico is not an industrious part of Mexico right now more industrious part of Mexico.
These are the northern States, where for example, you have.
The congregation of mines in states like a good angle.
Duke Zacatecas Wonder what tool so no water.
Right.
So southern Mexico is not a C industrious.
In Oaxaca.
There are only two operating mines and.
Apart from the wind farms.
Yeah. They are.
We're only theres somebody once he meant plant in and.
The beer Corona Vir bottling factory.
And I would tell you, though that theres nothing else right. That's all of the industry that you're finding in the state of work.
And so.
Does that have something to do with us getting a bit more attention.
I don't know.
I can only speculate right.
But I.
We know that there are many companies because we speak with them that have.
Are there environmental files.
Tuck.
In that office.
We know that.
What what sort of pricing is two axes.
In our view the little care taken in citing their arguments they put forward.
Order not to extend.
Right.
With respect to.
To the over selling you know it's hard for us to comment on market activity, we can say that.
Hey, you know.
D. C is a nishu that we take with a high high degree of seriousness in consideration I myself been.
Directly involved in supporting the team in Mexico, along with SASSA.
We're very involved.
Yeah.
This is something we take very seriously.
Hey, Jose mine accounts for roughly 25.
The percent of our sales or consolidated sales.
25, 28% of our consolidated sales right.
So it's an important asset, but each one of the legs that the support the chair right. It's not the only one.
Yeah.
And but you know what I can say that we are always hopeful that reason will prevail here and we'll be able to sort this one out.
As I said during the call we are in dialogue as we speak with.
With the authorities and apart the court the legal actions right.
With respect to the stock buyback.
Yeah.
Considerations that go into a stuck by buyback are many.
Of course valuation being central one, but also a use of funds.
The capital short term medium term capital commitment.
And so in assessing a share buyback program, we have two bringing all of those considerations.
And and make a decision based on that eastern east not only on you know we're undervalued.
It's stuck.
Yeah.
Again, we have a large.
Well not large, but the $170 million in capital commitments.
For cigarette laden and that's something that's a key project for us.
We you know say realize a project.
Once you somebody in operation will be perusing 130000 ounces of gold annually at our all in sustaining costs below $1000. The internal rate of return for that project.
Spot prices is in the high Thirty's low forty's.
<unk> percent internal rate of return so it's.
It's technically very simple.
And we have the right team building it so.
I think you.
You know that's a key project and a key.
The place, where we want to commit capital right. So all of those things were waiting a decision to do a stock buyback right.
Correct, Yeah, I appreciate that Jorge I, just like I said I'd just because the mine is still active and it seems like the market is.
Is treating you like them, there's nothing no production.
And at San Jose and even still it's only 25%. So I just felt like an opportunity with I mean, it's a $350 million market cap loss jetson no matter of 24 hours. So that's a that was my concern at least at that point. So because you know yeah snowball I think.
At a personal level, it's certainly something.
I might be in the market certainly.
Now that the blackout is removed.
Personally consider buying yes.
A company well I appreciate it.
Clusters.
Thank you very much.
Thank you. Our next question today is coming from George fully at Pacific income. Your line is live you may begin.
Hi, Jorge.
Or are you really dropping the ball on all of us.
Number one.
Said about 18 months ago, we're doing 100000 ounces when Daryl and were 49 ounces for nine months.
It's not working why are you sitting out there in Peru.
Your miles from all the actions you should be in Mexico dealing with the Mexico or you should be out there.
Daryl getting the property to work, it's not working right and things don't work quite unless the owners there.
And especially in South America.
Number two.
Blewitt with this.
Merger, you bought a class C mining company with.
Our minds in Timbuktu, the world's worst places.
They have one decent mine and the rest of them are junk you gave away our stock was eight bucks today, it's four it's down 50 fucking percent.
I you Jorge you really need to tune in your jockstrap and find another team to play for it because you have screwed this company horribly.
Yeah.
No.
Thank you for your questions and.
You know we're in a conference call. So the cursing I will always address all mine shareholders with a lot of respect.
And I would expect the same type of respect back right.
With respect to your first question.
Yes, I am based in Peru, but I live in an airport.
So I have spent the last.
Amongst them.
In Mexico <unk>.
In support of the team.
And today, we have a chief operating officer in Mexico for the last three weeks.
Right.
Yeah.
And with respect to.
Your views on or.
Our business in West Africa.
You know the largest gold producer in the World is China produces 380 tons of gold annually.
Yeah.
The second largest gold producer in the world.
Group the countries in West Africa East West Africa.
He is the head of the U S, Russia, Australia, Canada.
So we believe it's a place where you know.
Yeah.
If you're a mining company you need to be there right.
If you were gonna produced precious metals, you need to be there.
And are you sort of view that the medium long term this is an.
The investment that will fill.
Hey off.
For the benefit of our shareholders very handsome right.
So.
No that is what I can say to you and.
Uh huh.
C O neither of this company and the one who.
Created this company back 15, 16 years ago from an idea to where are you. These two they can tell you that I'm very committed to the success of this company long term.
Scheming the game and I'm, putting all of my energy and effort into the success of this company now mining you said challenging business and you need to stomach for it right.
Mexico is not for the faint of heart, either alright, well HOKA is not for this thing to heart and.
It's been a good mine for 10 years and I expect it will continue to be a good mine for 10 years, and we're doing all of our efforts to to ensure that okay.
So thank you for your question.
On a continuous speaking with me I'm are available anytime.
Thank you. Our next question today is coming from Sean Bedford at nomadic publishing your line is live you may begin.
Oh, hi, Thank you for taking my question so.
First majestic silver as quarter three.
According one thing they mentioned was that.
They were holding back silver inventory due to suppressed silver prices in the third quarter and I'm here.
Here, we have one of the biggest silver miners.
Hourly, saying that the comex silver spot price is a fiction.
Suppressed by the banks and they're doing something about it by refusing to sell some of their silver and I'm. Just wondering if you would be willing to do the same thing.
Yeah.
Yeah.
The short answer is yes.
No not at this stage.
And I have to say something no I'm I'm I'm as bullish as Moody's has anybody else on metal prices.
Oh, but I mean, you know and I do subscribe to some of these ideas.
With respect to price manipulation, but I've been I've been in the business for about 30 years now over 30 years.
Probably getting closer to four.
If I count the first time I went to them right, but I you know I haven't seen yet.
Yeah.
The.
Yeah.
The actions taken there.
You propose.
Serving our purpose.
Breaking the still so sure Scott.
Right.
Manipulating the price.
In short we are at this stage not contemplating.
Holding off our silver sales no we're not.
That's something we can consider evaluating you know absolutely that's something we can revisit but not at this stage.
Okay. Thank you.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one now.
Our next question today is coming from Rick Sherman of private Investor. Your line is live you may begin.
Hey, good afternoon, I had a question again on the royalty stream that you mentioned was going to now be 3%.
Is this a royalties was there any previous.
Royalty stream that you were paying to the government entity or this is completely brand new after the settlement you made and.
Do you have any quantifiable.
Number is too.
What this will cost the company on a net basis.
Yes, we have a series of concessions in and around the San Jose mine and on.
A few of those.
One that.
Hold the Google for reserves and resources.
We have it.
Royalties, but we did not have on where we're not paying a royalty on the progresso too.
Alright.
Hum.
And starting.
This month of.
October.
We are going to be paying 3% royalty and in order to settle any past claims.
The government had.
On the royalty, which they quantified in the amount of 30 plus million dollars.
We agreed to pay.
$9 6 million.
Yeah.
Right.
Sorry to interrupt was that $9 6 million.
Based on what.
Time frame was that for was that a settlement there.
It was base or even if you were using their $30 million number.
Was the royalty based on 10 Years' worth of payments are five years or what what yes.
To derive the $9 $6 million fee here.
We resorted to the time when they.
Yeah.
Registered the their claim.
So the royalty on the public mining registry.
Only did that in 2017.
And.
Alright, so they claim there's been a royalty there forever.
And.
Under their quantum of 30 plus million dollars came from.
Them.
The deriving a figure.
From 2011 onwards, which is when the mine started production.
So through that negotiation, we said well when did you register the claim they their royalties in 2000 and December 2017, Okay, and let's use that as a basis for or negotiation.
Right.
And so again here.
It was either.
Get stuck in court.
For years, we would.
Your host government.
Or and.
You know I have to say again that the Mexican government today is not so fond of Canadian mining right. So we decided to sucks that'll be right.
Totally understand the settlement I was just trying to figure out like.
What.
Either going looking backwards or going forward.
Is it a.
$2 million 3 million number that is a reduction of operating earnings net after having to pay the new royalty I was just trying to come up with something.
General idea to figure out.
Yes.
I don't know I don't have the numbers freshman on my head right now I don't know if Luis does but if not we can certainly follow up on the call and provide you more color.
Okay, Yeah, Jorge let me help there this is luis.
C over the life of them over the remaining life of mind, considering the tonnage that's coming out of that particular claim the nominal amount of that 3% is us approximately $6 million and that is.
Pretax so net of taxes.
And so being somewhere in the range of $4 million in terms of the net impact to our bottom line right. The nominal value of Lam is around $6 million.
Is that 6 million over the life of the mine.
The remaining life of the mine or on an annual basis.
No over the remaining life of the mine.
Oh, okay.
The current projected remaining life of the line mine is 10 years.
No it's over four and a half years.
And they don't have a front half years.
Okay, four and a half years. So just a back of the envelope you would divide the four and a half years into the $6 million and it's basically costing you $1 million in a quarter, a year or a million and a half somewhere in there.
Approximately yes.
Okay.
Thank you very much for that color I appreciate it.
Thank you. Our next question today is coming from Ron <unk>, a private investor Your line is live.
Thank you operator.
So much for the answers today I've got a question on the bank and the bank Covenant I'd like to know, which banks are the with how much money are we talking about.
And is the problem with the bank more serious than a dawdling by the authorities. Thank you.
With you one off yes.
Yes.
Yes, so so the new lenders hired comprised of a syndicate our that includes <unk>.
Dnb Bank of Nova Scotia Bank.
Bank of Montreal in Societe Generale.
So up on upon closing of a new facility.
The total amount of outstanding debt.
Been restricted to $120 million, that's been the amount drawn on the.
On the new facility and as we disclosed.
In the news release.
F&D outstanding prior assumed debt from the Brookfield transaction with Societe Generale of $28 million was paid out so.
After the closing the total senior secured debt outstanding is $120 million and as we've also disclosed.
The.
Additionally, $80 million.
All of our committed amount under the facility will become available once this issue is resolved.
In terms of November.
November 28 again.
We will touch on this earlier in the call, but that date really had to do a regionally with the expected time that.
The legal process to go from a provisional injunction to a definitive injunction in conjunction takes now thanks.
Our evolving not necessarily in the same way that was planned for unexpected so hence our expectation that.
That's.
We will work with our banks to gain additional flexibility around that.
Yeah.
That is all I have on that question.
Okay. Thank you.
We have no further questions in queue at this time.
I will now turn the floor back over to management for any closing remarks.
[noise] if there are no further questions I would like to thank everyone for listening to today's earnings call. We wish you a great end of the year.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day, we thank you for your participation.