Q2 2022 Silvercorp Metals Inc Earnings Call
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Thank you for standing by good afternoon, My name is Chris and I'll be your conference operator today.
At this time I would like to welcome everyone to the Silver Corp, second quarter fiscal 2022 financial results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you'd like to withdraw your question. Please press Star then the number two.
Thank you I would now like to turn the conference over to Lon Shaver Vice President for opening remarks. Please go ahead.
Thanks, Chris and good morning, everyone on behalf of Silver Corp, I'd like to thank you all for joining our call to discuss our second quarter of fiscal 2022 financial results.
We released our results after yesterday's close.
Copy of the news release, MD&A and the financial statements.
For today's call are available on our website before we get going I'd like to remind you that certain statements on today's call will contain forward looking information.
And the meaning of applicable securities laws.
Please review the cautionary statements included in our news release and presentation as well as the risk factors described in.
Our most recent second quarter, 10-Q, and form 40 F and <unk>.
Information for them.
So with respect to the quarter. We finished a solid quarter here revenue in Q2 was 58 4 million that was up 4% compared to last year's quarter and.
And I'd like to note that silver was 56% of our revenues on a net realized basis.
It compares to 59% in the same quarter of last year.
Second quarter net earnings attributed attributable to equity shareholders were $9 4 million or <unk> <unk> per share that compares to $15 5 million or nine for the same period last year.
And our adjusted earnings for the quarter were $13 6 million or <unk> <unk> per share and that compares to $15 4 million or <unk> <unk> per share in the same period last year.
A reminder of the adjusted earnings as a supplemental non-GAAP measure.
Now to provide the market with another metric to better measure the performance.
The underlying business.
It's kind of continued profitability and growth potential.
<unk> made were to remove the impact from noncash unusual items.
Including the elimination of share based compensation.
Foreign exchange loss.
<unk> lost in our associates, and unrealized gains and losses on investments and other onetime items.
As we previously reported we produced.
Just over 290000 tonnes of ore and milled just over 270000 tonnes of ore.
In the quarter, that's up 9% and 3% respectively.
Compared to last year's quarter, the milling shortfall in the current quarter compared to what was mined was mainly as a result of transportation interruptions.
Caused by heavy rains and the gang mining district.
We're expecting to maintain a similar mining rate.
The current quarter, but increasing our milling tonnage at <unk> mining district, that's for Q3 fiscal 2022.
In the second quarter, we sold approximately $1 7 million ounces of silver 800 ounces of gold $17 3 million pounds of lead and $7 6 million pounds of zinc.
That represents decreases of 1% at 64% and 7% in silver gold and lead respectively.
I will note that the reduction in gold was due to a special item last year.
And we did show an increase of 3% and zinc sold compared to the prior year quarter.
Our cash cost per ounce of silver net of byproduct credits was negative 165 in this second quarter of fiscal 2022, that's compared to negative $2 nine last year.
And our all in sustaining cost per ounce of silver net of byproduct credits was $7 35 compared to $6 99 in Q2 fiscal 2021.
Our cash flow from operations in the quarter was $30 9 million.
That was $1 $3 million higher than what was reported last year.
In the same quarter.
Expenditures were approximately $14 2 million in Q2 compared to $11 1 million in the prior year quarter and this was driven primarily by a total of 124544 meters or $6 $2 million worth of Diamond drilling that was capitalized and completed in it.
Miami District in this current quarter.
Compared to just over 70000 meters are only $2 5 million in Q2 fiscal 2021, everyone will recall, we are in the midst of a very significant drill program at Yang with lots of results, having been reported and to be reported.
That increase was somewhat offset by reduced tunneling as the drilling activities in some of the previously mined areas are defined resources that require.
Less development going forward.
And that work as I as I said, we're continuing our expanding drilling programs to define additional resources into test.
One is with Goldman amortization at the Yang mining district.
In the second quarter of fiscal 2022 Silver Corp through its subsidiary of new infant silver ink.
<unk> initiated a phase 110000 meter drill program at the <unk> project in Mexico.
With now running at a four active drill rigs as of September.
You Anthony had completed a total of just over 2500 meters of drilling from nine homes and a total of $1 1 million of expenditures have been capitalized.
In terms of corporate development in the quarter, we invested $3 1 million to participate as a refundable deposit.
And a corn Payne project auction.
The quantity project is located in Shanghai District in Henan Province, approximately 33 kilometers north, arguing mining district and covers an area just over 12 square kilometers of being approximately three kilometers wide and five kilometers long.
Adding up these cash flow items, we ended the quarter in a strong financial position with $221 million in cash and cash equivalents and short term investments.
That's up $6 7 million compared to the $214 4 million we.
We had as of June 30 of this year.
This does not include the investments in associates and equity investments in other companies, which had a total market value of $172 8 million as of the end of September.
Within that number in new Pacific our position of New Pacific represented 145 million of this amount.
And as of yesterday's close new Pacific's value had increased to 151 billion.
In terms of the outlook as we announced on October 13th the company won an online auction to acquire 100% interest in that corn and preach Corning Kwan paying project.
For a total consideration of approximately $13 5 million.
We pay the acquisition consideration in October and expect to complete the transfer of the rights.
And this month in November.
2021.
In October of 2021, the <unk> mine.
Yes at the <unk> mining district suspended production temporarily as a precautionary measure due to the heavy rainfall experienced in the yellow River region.
Water level at the nearby reservoir that discharges into the Yellow River reached an all time high causing the operations at the <unk> mine to be suspended for 10 days.
She has impacted production and head grades somewhat.
Despite this interruption.
We expect to maintain a similar mining rate as we saw in Q2 and increasing the milling tonnage mining district in this third quarter of fiscal 2022.
Looking forward, we continue to be on track to meet our annual guidance of between six three and $6 6 million.
Million ounce of silver between 65, and 69 million pounds of lead.
And approximately 27.
And between 27, and 29 million pounds of zinc or this current fiscal year.
And with that operator, I would like to open the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone.
You will hear at retail and prompt acknowledging your request and your questions will be pulled in the order they are received.
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If you are using a speaker phone please lift the handset before pressing any keys.
Your first question comes from Dalton Barreto Canaccord Dalton. Please go ahead.
Thanks, Good morning, Sean and team.
Thanks, Mike.
Hey.
I heard you say that you are reiterating your guidance here, but I'm, just having a hard time figuring out how you're going to get there. So Yang for example, the low end of your guidance is $5 7 million ounces you've done two eight so far.
I understand you can kind of ramp up the <unk> this quarter, but then you've got that one quarter of the Chinese new year, but thanks, Dan could drop is there.
Something you were planning on doing around that I, just I have a hard time getting step automatic guidance.
No totally understand.
I mean, we hate we hate missing guidance and.
While we are.
Looking ahead to that quarter and typically it's a slower quarter.
I'll, just say that our the company and management is doing everything we can looking at all kinds of options of shifting things around maybe adding extra shifts doing what we can to pull those numbers out and so at this point, we're not in a position where were.
Prepared to concede on that guidance yet.
Okay, and then just on the cost side of things too.
On a per ton basis. It looks like you are running in the mid 90 S. Now.
That's above your guidance range, but even historically you guys used to be high seventy's low eighty's.
And I suspect some of that has to do with the new mining contract. Some of that has to do with the renminbi, but is this kind of a level, we should think about going forward.
Stay at these levels.
Yes, I mean, I think as you pointed out we did have a a renewal of those labor costs earlier, this year, which has impacted that.
As we commented in the disclosure.
The RMB has certainly been a factor and thats something that we can't we can't predict going forward.
Not anticipating any dramatic changes going forward from here.
Yeah.
It's probably a reasonable number and I think overall from an all in sustaining basis, we're still within that guidance. So I think it's maybe better to look at things on that.
That kind of a basis because some of the activities we're doing.
It really is a bit of a judgment call as to whether those are operating costs to be expensed or are these longer term investments that the company is going to benefit from.
Okay.
Understood. Okay, and then just one last one from me is it still your intention to put on a new mine plan for the industry. This year.
Not necessarily a new mine plan and what we're aiming to do is update the reserves and resources early next year or sometime next year based on the drilling with a proposed cutoff date at the end of this year. Obviously, that's the first step to be able to speak to a mine plan, but where we're clearly driving towards.
Being able to give guidance on that.
We've discussed in the past with some of these these results in particular looking at these gold zones.
The work that's being done there is to try to identify a resource in our mine planning is being undertaken right now it's just not to a level, where we can give solid guidance.
But that's obviously, what we're aiming to do we're not doing these activities just.
Just for the front of it and defined.
Find mineralization as defined resources put them into reserves and mine them. So as soon as we're able to give that.
That's our plan and I'm hopeful we'll be in a position to do that in 2022.
Okay, Great and then just maybe I'll squeeze one more in if that's okay from a corporate development perspective.
A lot of this kind of early stage stuff in China and Mexico.
Is that can be the focus going forward are you still actively looking for something that's either operating or later stage. If you will.
No I would say our focus is.
Is that a run the full range of.
More advanced exploration.
<unk> production would be really the.
The criteria.
I comment that the acquisitions of those two projects in the mining district.
While we've not been in a position to report numbers those projects do have.
A resource numbers calculate on a Chinese basis associated with them. So we are looking at those as being sort of analog to Yang and things that we can fast track into production again, it's just not at a state where we can we can give definitive guidance on us.
With respect to some of the other projects and you know we've talked about Mexico before.
That was.
Arguably a bit of an earlier stage project, but it did have drill holes by the prior vendor and and that's of course why we have.
Selected to put that projects through more of an incubator model.
In terms of the approach, but I wouldn't say that we're in.
Shifting.
Our priorities are sweet spot would be that ideal development asset that we can jump.
Jump into and hopefully bring to production and cash flow quickly.
But we're looking outside of that as well.
That's great. That's all for me guys. Thank you.
Thank you. Your next question comes from Joseph Reagor Roth Capital Partners. Joseph Please go ahead.
Hey, Ron and team thanks for taking my questions.
Hi, Joe.
Okay.
Kind of following a little bit on the cost side of things.
I just mentioned.
Yeah RMB, but.
Are you guys starting to see cost inflation from the general move in inflation around the world.
I can't really say that that's the case I think as we've talked about it and.
We've talked about on this call already and before.
The labor cost aspect, which we which we addressed earlier in the year.
That was playing catch up for contracts that.
Typically have a two year run rate and that were being revised.
And when you look at the mining cost at.
<unk>.
And you back out the.
Other items things like raw materials utilities.
Like there are about 20% of those costs with the balance being either or labor or a contractor costs. So I think a lot of the increases that we've seen on an RMB basis.
Flow through already.
So now it's really just comes down to a question of what that exchange rate.
Whats the exchange rate impact on that.
Okay.
And then.
At year end.
Does have have kind of pointed to the <unk>.
Potential additional.
Yeah, maybe a seventh mine lets call it.
Over time now when do you think we will start to like really get.
Kind of a plan from from the company and a timeline to it how you guys might grow.
Yang from here.
Yeah, GCG that seventh mine I mean, it is in that process of ramping up and delivering small amounts of maybe you might call it development ore.
And you can see from our results. We're also drilling and around <unk> and have identified some some gold zones, but I think to my previous comment we have over 70 rigs drilling generating a lot of information.
We're packaging that up and putting that out in news releases just to alert to what we're doing what we're finding.
Love to be in a position to say what that resource reserve impact is but you know clearly that calculation you know needs to be done here.
With that a targeted cut off of the end of December and Thats really going to be the foundation for a solid plan that we can articulate to the market.
So prior to that I think it's just a matter of.
Please be patient and understand the work's being done and we want to do it right.
Fair enough and last thing looking at the.
The cash balance in the short term investments equity investments the lack of debt.
And then your share performance has almost been.
Perfectly in line with your peer group.
What are you guys doing on the on the corporate marketing side to kind of.
Get out there in different show the differentiation of the balance sheet to.
To investors.
Yes, no thats clearly become a key message in our marketing and we've been participating.
In conferences.
Looking at our outreach to get in front of a broader investor base ramping up our messaging on the social media side to make sure people understand more about the company and what we're looking to do.
And yes, obviously.
We have a very strong balance sheet and we're looking to to use that.
And leverage that for growth for the company with new assets.
These these acquisitions that we've made.
And the heating district tie into a broader strategy of growth in Yang we've begun the planning and.
Permitting process to look at adding milling capacity for Yang that would be a dramatic increase.
The Yang concessions. We currently have would be a key component of that growth, but also the satellite projects would be contributors in terms of mill feed to an expanded.
Milling capacity.
These are all the things that we're looking forward to doing to grow our presence and.
Up our throughput and up our metal output.
You know in terms of our traditional silver lead and zinc, but also potentially that goal and even copper that we're seeing in some of these other zones.
Okay. Thanks, I'll turn it over.
Thank you. Thank you. Your next question comes from Ryan Thompson BMO Ryan. Please go ahead.
Thanks for the update.
I think most of my questions actually I got asked but could.
Could you, maybe just talk a little bit more about light schedule to elaborate on some of the work. That's been done there have you have you gotten any assays back yet do you like what Youre seeing just whatever you can tell us about that project.
Yeah. It's still early days, we have been getting asset assays back we've been getting numbers that have been confirmatory.
Some of the exciting silver grades that we saw in the previous work.
But we know we're looking to get really more a more wholesome package of information.
Together.
From a significant standpoint, we've capitalized $1 1 million, that's not really a lot of spending in the Grand scheme of things. So we want to get a more complete package of results together.
Again, so that we can wrap more context and understanding what is it that we've got.
That we've been drilling into what does it look like what potential does it have on what the game plan for it going forward is it.
And obviously, where we're not there yet having just started this summer.
Okay.
And then maybe just one more follow up.
The previous caller's question there.
On capital allocation I think you guys put a ah.
The share buyback program in place.
A little while back there can you just talk a little bit about it.
How youre thinking about that is it something you plan to execute on or is it more just you have.
And in place in case, there was a big drop in the share price how do you guys think about that.
Yeah, well I think you've kind of answered it in saying that.
It's always good to have options have flexibility. So that was clearly why we wanted to have it in place and.
At this time, we don't have any immediate plans to use it but but that'll.
That'll be decided upon.
Circumstances as they arise.
Right now it's.
It's good to have in place just like we have a shelf in place just to be able to respond quickly to opportunities.
Got it okay. That's all I had thanks, a lot for the update.
Thanks Ryan.
Thank you, ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone.
Your next question comes from Justin Stevens Pi financial Justin. Please go ahead.
Yes, thanks for that and congrats on a pretty good quarter. Despite the challenges.
I know you guys said youre looking to ramp up the processing rate at Yang in fiscal Q3 should we assume that you were probably targeting somewhere to get the milling rate around what the mining rate was achieved in fiscal Q1 or fiscal.
Fiscal Q2.
And will that be using I guess, probably more mill, one as well as mill too.
Yes.
That's that's correct I mean, we do have that flexibility.
From a modeling standpoint.
Also you know when you when you look at.
The.
So some of the issues around Chinese new year shutdown that has a greater impact on on our mining rates and milling.
So as it relates to being able to run the mill.
Through that period at a higher rate, that's definitely easier than than operating the mines.
From an obvious standpoint, we're rolling over with.
Approximately 20000 times at that got in mind, but not process. So that's obviously being coming.
Coming into this quarter.
But yeah I.
You're bang on in your assessment in terms of what we're trying to do.
Got it yeah, and so you just you said about 20000 tons was what the I guess the stockpiles.
And sort of increase was given that delta in mining and milling rates.
Yeah, Yeah that's.
That's the difference in the current quarter. So we have the flexibility now off of.
Bleeding that into our milling rate you know for their current quarter and then looking at what we're mining now in the scheduling things appropriately too.
Addressed this quarter, but then also the fiscal fourth quarter when we would have.
The Chinese new year shutdown.
Got it yeah that makes sense.
I guess anything on the <unk>.
Thermal coal prices have been a bit of a swing lately and there's some reports that China is looking to stave off power shortages you guys expect any impacts to your operations either from potentially higher power costs or potential power rationing.
No to the former not really any indication in terms of power costs, we were alerted to potential power rationing that could have taken place.
But that notification.
For us at least was in the month of October.
It did not really kick in and have any impact and as of the end of October it was.
We sort of past that period, there's no guarantees or assurances that you know as we head into the winter heating period that for other reasons as we've seen in the past such as pollution mitigation that there might not be power.
Cutbacks, but we don't have any sort of anything specific or any <unk>.
Solid guidance at this point.
Got it makes sense.
And then last for me with quantifying.
Curious what your rough circles exploration timeline would be.
And if you think that you might need to do much new exploration before you could get a 43 101 compliant resource for or do you think it will just be sort of re logging and verification.
It's more of the latter there has been there's been some work there has been a resource I think that the main focus here is that this project is it.
That state to be able to apply for a mining permit and sort of more typical of what we've done in Yang as is.
Get that permit being able to start looking at mining activities.
Zing those early mining activities.
It means justification to open up open up the mine get in and do exploration simultaneously.
That makes sense, yeah, and but the so the it should be hopefully completed this month.
And then youll probably be underground fairly soon thereafter I suspect.
Yes, I mean, the completion is really more of the closing of the deal.
The transfer of the interest in the company that owns the mine and so that's intended to take place this month.
And then shortly thereafter, its the planning to be putting in the application for the mining permit, but yes as you point out we'll be able to get over there and.
The team we have at Yang just like for the other project that we've acquired the team at Yang is the one that's going to be tasked with going back and looking at where to pick up from an exploration and development standpoint.
Got it sounds good that's all for me thanks, guys.
Thanks, Kevin.
Thank you, ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone.
Okay.
There are no further questions at this time. This concludes our question and answer session I would like to turn the conference back over to Lon Shaver Vice President for any closing remarks.
That's great. Thank you, Chris and thanks, everyone for joining us today.
That's all we have for this call, but please do you have any additional questions or any new questions as.
As always feel free to give us a call reach out.
Happy to answer those and look forward to updating you again in February.
Our Q3 fiscal 2022 results have a great day.
Thank you. This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.