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 leave 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.
President and Chief Executive Officer, Luisa and also Chief Financial Officer say suddenly Lascaux, Chief operating officer in Latin America, and Paul <unk>, Chief operating officer at West Africa.
Todays 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 fee.
<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 I 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 offer 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%.
These solid financial performance in some of the back of record gold production driven by the need they don't 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 $136 million on a run the business with a conservative debt to EBITDA ratio of two <unk> to.
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 continued driving growth for the company like mid 2023.
We concluded successfully or 100 day integration plan, we'd rock school integration 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 had the San Jose mine.
This has been a protracted conflict negotiation, where we achieved an arrangement to the satisfaction of the company and they said Oh sorry.
Now.
What has painted 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 for 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 with romance and second that we have not been evaluation for the regularization of 73 in senior and senior your facilities not declared in 2019 environmental impact statement.
With respect to the first point.
Have already provided proof that dating back to 2019, we have been sued meaning and complied with that said information.
And second we are of the strong view that the Regularisation, often senior 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 for a questionable denial or.
Our San Jose mine is going to be 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 something or not 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. This circumstance requires.
Additionally.
We have not exhausted the avenue of dialog with some are not 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 net 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 their your 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 juries crews in Mexico.
Mexico is a country with a long and proud mining tradition, 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 ESG.
Or prioritize Kpis show improvement for.
For greenhouse gas emissions water and energy efficiency over the last year.
Comparable quarter on figures are benefiting from the inclusion of measurements for more little mind, starting this year.
We reported two lost time.
Axioms of minor consequence in the quarter one of the San Jose mine.
One of them and they don't mind.
Figures for women in the Labor force were impacted by Covid migration from a contractor operated underground mine at San Jose to an owner operation, where we incorporated approximately 265 workers store payroll.
Are you a mining 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 as our expanded by 400% to 65500 ounces.
Our largest contributor for road wasn't yet on local mine in Burkina Faso with 28750 ounces.
<unk>, 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 a route around 5000 ounces a year.
A small amount perhaps in the bigger picture, but a welcome a meaningful contribution to the economy of that mine.
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.
San Jose impacted by downtime at the mine transition from contractor to owner operations at the underground mine and the.
Lower grades compared to the.
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 seven.
Correct.
I will now.
Have a safe velazco, our chief operating officer for our Latam and Paul <unk>, Our Chief operating officer for West Africa provide some highlights from from their respective region. So sessa.
Go ahead.
Thank you Jorge.
Three mines.
I know you guys aren't performing in line with management's expectations and are on track to meet annual guidance.
COVID-19 related restrictions.
Big countries, where we operate have been considerably east and double dose vaccination grade at both operations and now well above 80%.
And they don't mind instructing within design parameters and deliver record gold production of 26200, and say like the third quarter.
It is important to highlight the solid performance of the operation.
Mechanical availability and that increased gold production and trained.
Thank you Kate it means that all is on track to meet guidance and management looks forward to an even stronger performance in the fourth quarter.
Back to you 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 why COVID-19 impacts largely mitigated now with little or no impact on operations today.
90% of employees back from either Yeah, My God production at Yamana opposing along with the planned for Q3 and.
And similarly is the case.
I would like to highlight the excellent progress made by the team on the ground in that to grab a 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 planes, but the schedule and the cost remain on track with approximately 30% of the project completed.
This has allowed us to advancing both the fed and their fourth quarters projects, Google parcel items.
We are executing and commencing the prices playing EPC agreement with lots of podium.
Playing.
Good contract executed the HV substation supplier contracts.
We've continued to expedite the critical mechanical items, such as segment was crushed and Transformers.
And coincident with the work's ongoing in the field the company's footprint capacities being ground with the establishment of the West African Regional office in Abidjan.
Which will support the development effort now and ultimately the operational needs of single aisle and yeah, Mike Hi.
In addition, dialog is ongoing with the mines, but mines and budget Ministry and kind of what we sell.
<unk> planned in the coming weeks advance the conclusion of the project mining convention.
Thank you Jorge.
Thank you Paul.
Yeah, So oh, Carlos ill 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.
Our first question today is coming from Dalton Barreto at Canaccord. Your line is live you may begin.
Yes. Thank you.
Okay, 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 have no doubt you'll get this resolved, but it's going to take some time.
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.
Yes.
We have a different legal actions in place.
And also.
Got it.
Workers have initiated actions in local courts in Oaxaca.
So right.
Right now we.
We are of the view that these legal actions.
Now that there is a negative resolution.
Can be move to move to a permanent.
A more permanent injunction.
Okay.
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.
But where 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.
Okay.
Uh-huh 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.
Sure.
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 are 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 do 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 a figure are near the end of 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.
Progressing.
We believe that the lenders will be.
Working with us to.
Again provides a flexibility required.
Our debt to avoid any unnecessary situation with respect to the status of our credit agreement and our covenants.
Okay. Thank you I have more questions, but ill jump back in queue. That's it for me for now.
Sure.
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 and this is good to see obviously conveyor stocking wrapping up in Q3 Island. Daryl I was wondering if you could give a bit of color on how are lead times are reconciling with the bottle though.
Yes.
Yeah.
Sir you want to provide an answer there.
Yes, it's working.
Reconciliation is looking pretty good it demonstrates our good relationship with.
There were certain moral actually for the Q3, we had a less than 6% difference in there.
Congratulation.
And so.
Year to date, it is even less than 3%. So it's looking pretty good and.
And consistent.
Yes.
We're 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.
Columns.
And what we're seeing is that with a coarser brush.
Around 13 millimeters.
We're achieving.
Similar levels of <unk>.
Gold extraction.
As we plan.
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.
Sure.
And with the much larger HPE or that we have in place probably we are achieving higher comminution of Iraq.
Yes.
Yeah.
So, but so far the metallurgical response is largely consistent with our expectations or better right.
Yeah, that's good to hear.
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.
Okay.
How much of the place material east 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 started to irrigate ing.
What 'twenty, we allow ourselves for safety, what 'twenty 40 meters from the retreat face over the conveyor stacking and we start to regaining.
We started the Rebating a couple of months ago, we started with the program to irrigate slopes, we would not irrigated slope. So we initiated drove irrigation.
Yeah, no, but basically everything is on the irrigation.
Got it.
And then I guess the last thing then there's obviously things are trending.
But 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.
Term there but.
The mines have been operating.
We've seen it consistently achieved design parameters in in.
In.
In the third quarter.
I mean, it's operating within design parameters.
Everything has been flowing food down to cost.
Since we started production in October of last year, a year ago.
So we're not declaring commercial operations I know you you do that when you know you're capitalizing and then you know you can achieve.
Production Oh.
Defined parameters and then you start stop capitalizing and start sending things don't cause.
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.
Okay.
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.
What's the situation, let's say outlook for Q4 and can we expect a rebound.
Perhaps with some higher throughput and grades.
Paul.
Tim.
Yeah, So hi, Don.
Yeah, we suffered.
I think on the Sag mill with people who are not playing.
Yes, Hello van on the pain bearing.
Source of food.
At the same time, sorry, we did August we had a.
I had a requirement to rate sequences starting.
Starting phase, which is very which is lousy prescribing aramark I just given the nature of the deposits.
We saw some high grade starches.
Can we take what's been pushed out into Q4, so yes, when you say does.
Recovered if you like in the fourth quarter.
But we don't haul we currently holding the concerns for Q4 would be the guidance numbers.
And intend to a couple of Ice's current core.
Okay. Thanks for that Paul.
Shifting to and Darryl.
I see that in Q3 of sustaining capex for about $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.
Lynn 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.
We had some.
In <unk>.
Our expansion plans in that are now scheduled to decommission in Q4. So again you should be modeling the same number.
Okay great.
And finally.
Jorge on this situation at San Jose now what I hear from your comments I understand there's two issues or.
And that has put forward, they're not 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 the previous Caller's question then.
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 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 the E mail or excited in the denial.
So are.
There are meetings scheduled with high ranking San Bernardo officials, there is dialogue ongoing right.
The.
So we have a degree of expectation that something positive can come out of that dialogue.
We have to recognize that the Mexican government has made a significant budget cuts across all our government.
You know.
If he says.
And some are not this is yeah.
Sometimes.
A short handed to deal with the complexities of over there.
Their business. Unfortunately, that's a reality.
So you know because there are some things here that we just.
Failed to understand how come.
I mean someone who's not doing their work there.
I think the so probably themselves.
Yeah.
We have submitted.
At least three locations dating back to 2019 the documents they are requesting from.
Mhm.
Yeah.
So dialogue 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.
Is it something similar to what we need 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 it should be not protect protracted process.
There is a 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 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. The court 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 I'm, 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've granted it.
When did seminar last renew it.
No. This is a this permit was granted for a 12 year period back in 2009, when we were granted or environmental impact statement.
So 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 and we get snow and we or application was for a 10 year renewal, but again I would have to double check with you. If that is the maximum you kind of Blackberry.
Okay. Thanks, Jorge good luck.
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, yes. 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 loyalty on the royalty.
<unk> I just wanted to clarify is that playing 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 you know 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.
Our approach to it.
Keep in the mind going in to the workers and then 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 the sermon that.
Is there a moat set that they have in 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.
The Mexican Geological survey.
Claimed.
We owed an amount of $30 million plus.
Four on paid royalties on a concession.
We disputed the legality of the claimed royalty and when we went to court.
Right.
Just like now and then we went to court.
To have a court decide either royalty was legal or or not.
And.
And at.
At the same time, we continue trying to broker dialogue 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 the half.
On owed.
The amounts.
Again, they were claiming that the all of the amounts were plus $30 million right.
And we have agreed to a 3% growth 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 raised sturdy and our historic typo.
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 Terry 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.
<unk> initiated in May of this year. They had one request for information shortly after we initiated the process where they requested.
Three four.
The.
Items of additional information and those were.
Very immaterial.
Asking who was the contact person in the file.
And Oh, there's three minor issues of that nature.
And it seems then we'd never heard Buck we requested meetings.
We never got a replay.
So they were quite nonresponsive.
To our requests and based on that fact.
They will 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.
In so in two locations, we managed to speak with a low level official.
And you know she's 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 and.
And.
So based on that uncertainties that we've placed ourselves in multiple scenarios and we decided to initiate preemptively.
Some legal actions.
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 dialogue, he's still playing a pivotal role in our effort to 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 a R R plane.
A key role in supporting and they have sent letters to there.
Representatives in Congress, they have gone to Mexico C D 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 secret that President Lopez, Obrador is not fond of mining and particularly Canadian mine right I mean, that's no secret right.
Yeah.
Yeah.
And.
She has also said that what are you know its operating mines will continue to operate in.
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 you know.
The.
I think there is a compounded effect of the cut budget cuts in different government offices like some are not.
And the fact that everything slowed down through the pandemic.
And certainly 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 a national office with different subs in the different states right.
But he is not local theyre not governed locally it's.
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, our 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 all the actions that we are 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. So protracted.
Right.
Right.
But you have like 1200 people working there.
At 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.
Contractors are you know tire shops for the contractor trucks.
And.
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.
Yeah.
Education health.
They have only this year about 160 scholarships in the town.
And we support many initiatives.
On greenhouses for tomato growers.
[noise] 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 $1 million.
So all of that investment plus the direct and 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 and 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.
So so.
You know I believe that some.
Some are not oh, so they get more knowledgeable on this particular case.
It will also become sensitive to this issue right.
Right and it got the Mexican government they can't afford to hurt people like their so called like go on the issue.
Permit later on in future.
Gather because that's just.
Too many people out of work.
Yes.
You might as well.
Our government here.
Yeah on the.
Also very important to note is that we.
We have never been signal for for environmental pollution or anything like that I mean, the only thing they're citing is.
You know wrongly we believe the paperwork.
Shareholder for over six months or so.
Probably nine months or so.
Because I know.
You're very undervalued you 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 help you and us Investor Relations and where you get a return on my call right 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 and 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 just started building I think well I'm hearing.
A lot of your peers that are building projects in either place.
No 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 I mean, you just taking a capex budget up by $32 million.
How much of that is already captured in the budget what is the contingency and look like and are you seeing any delays that you start to bring Stephanie. Thank you.
Yeah. That's that's a very good question and something we have addressed with the team and then I'll, let Bob provide delta details here.
Okay.
Thanks, Tom.
The raw you.
Contact.
Our Raleigh concerned about what's happening as of late.
I guess the one.
One of the key one of the.
The key.
Features of Howard executing two hours.
Well our the closer.
Closer to 60 odd percent of the.
133, and you know the capital budget.
It's fixed cost.
Oh yeah.
Is that you know that comes at a premium to do that we get various contracted.
So.
Alright.
The ability to improve the project in the third quarter and actually execute those agreements or why are those contracted to Mike.
Procurement decisions Tomatoes, CAGR is crucial and sorry at the moment all the share gains and call that you see in front of me there.
Incorporate the current realities that we're seeing the world.
The current critical path.
Cleveland perspective around the new.
The crushing.
Around transforming all of those have been awarded and are being expedited as COO.
Schedule, so as we sit today I don't have any schedule concerns.
Yes.
We 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.
Yeah, Mike as you know in Burkina Faso.
The equipment is required to operate that project does come through at the job right.
Thank you we have a reasonable handle on that.
But it's not decided we're not going.
That's great. Thank you for that that's all for me.
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 I'm clear did you indicate earlier in the Q&A.
Linda Arrow is now at designed 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 an ore 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 the meat 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 resigned parameters right.
And you know all of the equipment in.
In isolation had been tested.
Oh poor 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 of below one or under one.
With five trucks and two low there's no 40000 tonnes per day with five trucks into LOE.
On the ore is met.
Metallurgy.
Call It is quite sweet.
There are no or gold leeches quite easily.
And we are 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 a 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 would 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 thats 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 a revised.
<unk>.
And that revised guidance.
The news to project, our 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, a veterinary downtime right.
And that's a scheduled downtime if you will but he's downtime there isn't it.
The system is operating well.
Steady.
And that.
That or very close to the same parameter sets or you want to add something to that.
Yes.
Correct.
That process.
We did have a very accurate and remarket. There. This is a process and we took profits on 111 impacts the other.
So it has to be balanced and aligned and we have been able to achieve over the past few months.
Steady growth.
In delivering.
Plenish to the.
Each bank by means of conveying and stacking.
Close to.
Design capacity.
You know what.
He came on board.
<unk>.
Hum.
Activities plenty to get them done by the second quarter of 2022 lots of them.
Hmm.
Thank you Bill.
And even according to the plan.
Capacity on it.
I'm appointing the daytime headwind.
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.
Right.
We do have to blossom.
We expect to have.
The properties.
One a vulnerable for 100% capacity although.
Obviously, we operate at a lower.
Anthony on a on a permanent basis.
But would you be able to debottleneck.
There's nothing going on.
Deepwater.
Alright.
Mike.
T.
Yeah.
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.
And we have some work to remove some you know more or less for example, we are making changes to the liners can do.
Yeah.
The liners in the agglomeration drum and whatnot.
It will require some downside.
And all of those works so it cannot be done by Q COO of Mic.
But if we talk about run rate.
Operating study with 80% of them.
Yeah.
Okay. 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.
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.
Regret so alone Ah trial.
Sure.
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 all 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.
25, 30% right.
And bear in mind that all of those concessions belong to.
Either to be to the Mexican Geological survey.
And a lot of those where we've been producing since day, one do carry royalty commitments right.
And.
But this one on.
Through these 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 from Covid.
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 on my head right now.
No. That's fine yeah, it's 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.
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 is 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.
Price crash is there a thought of any stock buy back program that could help support somebody.
Momentum shorter's that are kind of hurting this company because I said market cap doesn't make a difference.
Yes. Thank.
Thank you for three questions. The first one.
Yeah.
I I would not like to think that D C.
No.
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. They more industrious part of Mexico E C.
Or are the northern States, where for example, you have.
The congregation of mines in states like.
Good angle.
But zacatecas, one o'clock tool so no water.
Right. So so southern Mexico is not a C industrious.
In Oaxaca.
There are only two operating mines and.
Apart from the wind farms.
Yeah.
The only there's only once he meant plant and and 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 youll find in the state of work.
And so.
Does that have something to do with us getting that leave more attention.
I don't know.
I can only speculate right.
But I.
We know that there are many companies and because we speak with them that have.
Their environmental files.
Tuck.
In that office.
We know that.
What what sort of pricing is to asses.
In our view the little care taken in citing their arguments they put forward.
In order not to extend the permit right.
Yeah.
With respect to.
To the over selling you know it's hard for us to comment on market activity, we can say that.
No.
Yeah.
D C is a nishu that.
With a high high degree of seriousness in consideration I myself.
Directly involved in supporting the team on and Mexico, along with SASSA.
We're very involved.
And then this is something we take very seriously to they are the San 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.
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 are part of the court the legal actions right.
With respect to the stock buyback.
Yeah.
Considerations that go into a stock buyback are many.
Of course valuation being central one, but also a use of funds.
Got it.
Capital short term medium term capital commitment.
And so in assessing a share buyback program, we have to bring in all of those considerations.
And and make a decision based on that you said.
He is not only on me.
We're undervalued.
Yeah.
That's why I stuck.
Yeah.
Again, we have a large.
Well not large, but the $170 million in capital commitments.
Or cingular and that's something that's a key project for us.
We you know say realize a project you know that.
Once you start mining operation will be producing 130000 ounces of gold annually at the all in sustaining costs below $1000. The internal rate of return for that project.
At spot prices is in the high Thirty's low forty's.
At present, no internal rate of return so it's.
It's technically very simple.
And we have the right team building it so.
I think.
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 just like an opportunity with I mean, it's a $350 million market cap loss just in a matter of 24 hours. So that's that was my concern at least at that point. So because you know yeah snowballs I think.
At a personal level, it's certainly something.
I might be in the market certainly.
Now that the blackout is removed.
It's only continuing buying yes.
Well I appreciate all the 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.
Jorge you really dropping the ball on all of us.
Number one you said about 18 months ago, we're doing 100000 ounces at <unk>.
And were 49 ounces for nine months.
It's not working why are you sitting out there in Peru, when your miles from all the actions you should be in Mexico dealing with the Mexico's 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.
<unk>.
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 per cent.
I I you Jorge you really need to tune in your jockstrap and find another team to play for because you have screwed This company horribly.
No.
Thank you for your questions and.
You know we're on a conference call. So the cursing I will always address all my shareholders with a lot of respect.
And I would expect the same type of respect dock right.
With respect to your first question.
Yes, I am based in Peru, but leaving an airport.
So I have spent the last oh.
Months.
In Mexico no.
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.
Business in West Africa.
You know the largest ER.
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 to West Africa.
He is the head of the U S, Russia, Australia, Canada.
So we believe it's a place where.
Yeah.
You're a mining company you need to be there right.
If you are going to produce precious metals, you need to be there.
It is our view that the medium long term. This is an investment that will pay off for the benefit of us shareholders very handsome right.
So.
No that is what I can say to you in the us.
Uh huh.
<unk> CEO neither of these company in.
Who.
Created this company back 15, 16 years ago from an idea to where these two they can tell you that I'm very committed to the success of this company long term they have skin in 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 them.
Right and.
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.
When a continuous speaking with me I'm a available anything.
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.
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 are 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 must move us any moody's has anybody else on metal prices.
Uh huh.
But I mean, you know and I do subscribe to some of these ideas.
With respect to price manipulation.
I mean I've been in the business for about 30 years now over 30 years pardon.
Probably getting closer to four.
If I count the first time I went to them right, but.
You know I haven't seen yet.
The.
The actions taken.
That you propose.
Serving our purpose.
Breaking the still so sure.
Got that one right.
Manipulating the price.
In short we are.
Stage not contemplating.
Holding off 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 an on a few of those.
One that.
Hold the vehicle 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.
Right.
And starting.
This month of.
October.
We are going to be paying 3% royalty on 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.
Right.
Sorry to interrupt was that $9 6 million.
Based on what.
Time frame was that for was that a settlement there.
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 yes. They are.
To derive the $9 $6 million fee here.
We resorted to the time when they.
Hey.
Registered the their claim.
Two the royalty on the public mining registry.
The only deep debt in 2017.
Alright, so they claim there's been a royalty there forever.
And and.
Hum.
Under their quantum of 30 plus million dollars came from.
Then.
The deriving a figure.
From 2011 onwards, which is when the mine started production.
So through the negotiation, we said well you know.
When did you register the claim they their royalty in 2000 and December 2017, Okay, and let's use that as a basis for or negotiation.
Right.
Yeah.
Again here.
It was either it.
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 just right.
Totally understand the settlement I was just trying to figure out like.
What.
Either going looking backwards or going forward.
Is it a <unk>.
$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 some.
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 have their salaries.
C over the lifetime over the remaining life of mind, considering the tonnage that's coming out of that particular claim and nominal amount of that 3% SaaS approximately $6 million and that is.
Pre tax so net of taxes.
And so being somewhere in the range of $4 million in terms of the net impact to our bottom line, but 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 mine.
Oh, Okay and.
The current projected remaining life of the line mine is 10 years.
No it's over four and a half years.
I have been over five 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 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 are comprised of a syndicate our that includes.
BNP.
Think of Nova Scotia.
Banco among trial in Societe Generale.
So up on upon closing of a new facility.
The total amount of outstanding debt.
<unk> been restricted to $120 million, that's been the amount drawn on.
On the new facility and as we disclosed.
In the news release.
I mean, the outstanding prior assumed debt from the Brookfield transaction with Societe Generale, a $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.
Some of the committed amount under the facility will become available once this issue is resolved.
In terms of what was on.
On November 28 again.
We will touch on this earlier in the call, but that they really had to do where regionally with the expected time that.
The legal process to go from a provisional injunction to a definitive injunction injunction takes now things are evolving not necessarily in the same way that was planned for unexpected so hence our expectation that.
That.
We'll 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.
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.