Q3 2022 Silvercorp Metals Inc Earnings Call
Thank you for standing by good afternoon. My name is Dennis and I'll be your Catherine So operator today at this time I would like to welcome everyone to the Silver Corp, third 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.
Like to ask a question. During this time simply press Star then the number one and telephone keypad to withdraw your question. Please press Star then the number chose thank you.
I would now like to turn the conference over to Lon Shaver Vice President for opening remarks. Please go ahead.
That's great. Thank you Ann good morning, everyone on the Apple cart rentals I would like to welcome each of US All Corp metals third quarter fiscal 2022.
Actual results conference call.
We released our results after yesterday's close and a copy.
A copy of the news release MD&A and financial statements for today's call are available on our website.
Before we get started I'd like to remind you that certain statements on today's call will contain forward looking information within the meaning of 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.
40 apps and annual information form.
Now getting into the quarterly results we finished.
Nice quarter.
Revenue in Q3 was $59 million up 11% compared to the prior year quarter.
Based on the production levels in realized prices civil was 54% of our revenues on a net basis compared to 58%.
Same quarter last year.
Our Q3 net earnings attributable to shareholders were $5 1 million or <unk> <unk> per share.
Care to $8 4 million or <unk>.
The same period last year.
Mainly due to the mark to Mark charge of $8 $5 million against equity bond investments in this quarter.
Our adjusted earnings for the quarter were $13 4 million or <unk> <unk> per share compared to $13 8 million or <unk> <unk> per share in the same period last year.
Just a reminder, our adjusted earnings as a supplemental non-GAAP measure.
And it's intended to provide the market with them.
Another metric to better measure the performance of the underlying business.
It's continuing profitability and growth potential.
<unk> made our terminals the impacts from noncash unusual items.
Including the elimination of share based compensation.
Foreign exchange loss impairment adjustments and reversals share loss events, such as the operating results gain or loss of investments and one time items.
For the nine months revenue was $176 3 million that was up 13% compared to the prior year period.
For the nine months net earnings to.
To shareholders were $26 7 million or <unk> 15.
Our share compared to $39 4 million or 23.
Last year.
On an adjusted basis earnings for the nine months was $42 7 million or <unk> 24 per share.
That compared to $38 8 million or <unk> <unk> per.
Share in the same period last year.
In terms of quarterly production as previously reported we combined 292000.
72 tons of ore milled 304717 tons of ore and that those numbers were up 5% and 17% respectively compared to last year's quarter.
And produced approximately $1 8 million ounces of silver 1100 ounces of gold 19 million pounds of lead and 8 million pounds of zinc in this Q3.
And that work that was increases of 9% 22%.
11%, respectively in silver Goldman led and a 7% decrease in zinc production over the same quarter last year.
In this third quarter, we sold approximately one 7 million ounces of silver.
1100 ounces of gold $17 2 million pounds of lead and seven 6 million pounds of zinc.
Again, those are increasing 4%, 38% and 2% in silver gold and lead.
But a decrease of 15% and zinc sold compared to the.
The Q3 of fiscal 2020.
Now our cash cost per ounce of silver net of byproduct credits was negative $1 33 U S.
Third quarter of fiscal 2022 compared to negative $2 76 in the prior year quarter at an all in sustaining basis.
Our cost per ounce of silver in U S dollars net of byproduct credits was eight <unk> compared to $6 92 in Q3 of fiscal 2021.
Now looking at nine months results for the nine months, we produced 851775 tons of ore milled 819665 times, those numbers were up 2% and 4% respectively compared to the prior year period.
And year to date, we have sold approximately $5 1 million ounces of silver 2900 ounces of gold 51, 3 million pounds of lead and $22 5 million pounds of zinc.
And on this.
Nine month period that represented decreases of 3%.
9%, 9% and 4% in silver gold lead and zinc sold respectively.
The prior year period.
Also recall last year the goal.
<unk> included 1200 ounces, which was a clean out some of the <unk> mine.
For the nine months period, the cash cost per ounce of silver net of byproduct credits was negative $1 47.
And this.
Nine months of fiscal 2022.
Paired to negative $2 eight in the prior year period.
And on an all in sustaining basis for the nine months was $7 88.
Compared to $6 48.
In the nine months period of fiscal 2020.
Compared to our fiscal 2022 production guidance on a consolidated basis. After this nine months or three quarters of the year.
Our billing tonnage is at 83% of the production target and with respect to the metal production basically at this point achieved 78% of our silver target, 78% of our target and 82% of our zinc targets for the year.
Turning to cash flow, our cash flow from operations in the quarter was $28 7 million.
That was up 20%.
Compared to $23 9 million in the prior year quarter.
Capital expenditures in the quarter were approximately $17 3 million.
<unk> $15 5 million in the prior year quarter and this is mainly driven by the expanded exploration programs.
We have been undertaking FTA mine.
As of December .
31 <unk>.
We had completed.
$2 8 million of expenditures that were capitalized.
The project.
Our nine months cash flow from operations was 95.
$97 million up 15% compared to $83 7 million in the prior year quarter.
Capital expenditures totaled approximately $44 million for the nine months. This was up 9% compared to $35 4 million in the same prior period same prior year period.
And compared to our original fiscal 'twenty to Capex guidance for this nine months.
December our Capex was about 115% guidance again this was mainly due to <unk>.
Standard exploration programs that we have.
Take care.
Jason bonds.
The company has been consistently exploring through extensive drilling and tunneling to delineate your.
Graham has also included the explanation evidenced additional access ramps and tunnels that are expected to facilitate the efficiency level or equipment and personnel within the mines and provide access to new areas of mineralization.
It will be suitable for mining in the current and future periods and more to follow on that basis.
With respect to corporate development in the quarter the acquisition of the quantity project was completed in November .
<unk>.
Some cash received was approximately $13 1 million.
The <unk> project is located in the <unk> district, and Henan provinces, approximately 33 kilometers north of bargaining mining district.
It is an area of roughly $12 four square kilometers.
Previously the company through its subsidiaries.
<unk> had won an option to acquire a designer silver project. This was in December .
The 2020, but the execution of the transfer contract has been subject to a delayed national security clearance.
By the relevant Chinese authorities in January of this year.
I had to withdraw our application for this national Securities.
Adding up these cash flow items, we ended the quarter in a strong financial position with just under $212 million in cash and cash equivalents and short term investments and this does not include investments in associates and other equity investments and other mining companies, which had a total market value of 100.
$56 2 million.
Remember.
So as part of our release, we are also providing our guidance for fiscal 2023 as it relates to production cost and capital expenditures.
In fiscal 2023, the company expects to process approximately.
$1 million 40000 tons to $1 million 140000 tonnes of ore.
Which is expected to produce six.
302, 7900 houses a goal.
7% to seven 3 million ounces of silver six to eight points or 71 3 million tonnes of lead and 32 to $34 5 million pounds of sand.
Now this production guidance for fiscal 2023.
Presents.
An increase of approximately 9% in oil production.
100% increase in gold production.
11% increase in silver production at a 3% increase in led and between 12% to 21% increase in zinc production compared to the.
Current guidance for fiscal 2020, the current year.
Also noteworthy is that in fiscal 2023, we expect to process a bulk sample of between 30% to 43000 tons of gold or patch.
With a head grade of three nine grams per tonne and this is expected to yield 300 to 4900 ounces of gold.
Combined with an additional 2900 to 3000 ounces of gold from our Super Bowl.
As previously disclosed our number one mill has.
There has been upgraded by the installation of that Nelson gravity concentrate or.
This is to maximize our.
Gold.
Recovery from the <unk>.
Now this increased production guidance, it's really made possible by the <unk>.
629000 meters of exploration and resource upgrade drilling that will be completed at the two mines between 2020 in 2021.
During 2021 alone over 409000 meters of drilling was completed.
Now some of this.
Drilling has provided additional benefits and that includes slowing down the rate.
Mining GAAP increases and with some lines, we're seeing the average mining deaths are becoming shallower.
It's also reducing the amounts of tunnel development.
Wrap development is more resources and reserves are being identified shallower near existing infrastructure.
Now in terms of the costs for that.
Next year.
Dissipating on a consolidated basis in terms of production costs between $83 $385 nine.
Per ton on a cash cost basis.
141, six to 103 five on an all in sustaining basis.
Now in fiscal 2023, some of our plans to reduce the ramp development, but continue with more drilling and exploration and development tons overall capex for the year.
Is forecast at $88 6 million black.
$39 nine a roughly $40 million as part of the budget to construct a new 3000 ton per day Floatation mill and associated tailing storage facility FDA mining district, as we've reported in the news release November .
Now excluding the Capex for this new mill in storage facility Capex for equipment and facilities is budgeted at.
At approximately $7 1 million.
As a nominal decrease compared to our.
Fiscal 'twenty two year to date results plus the Q4 estimates.
Also looking ahead to next year.
With respect to the quantum King project, we're expecting total capital expenditures at this project in fiscal 2023 at around $1 2 million and that includes 700000.
10100 meter drilling program.
500000 to complete reports and studies to apply for a mining permit.
And I think with that operator, I'd like to open the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have any questions. Please press star followed by one on your Touchtone phone you'll hit it right on product margin or a question. Your question will be bold in their order get receive two do we should decline from the polling process B Smith stifle fight too if you're using a speaker phone please lift the handset before.
In any case all my mum one moment. Please for your first question.
Your first question comes from Delta on Barreto with Canaccord. Please go ahead.
Thank you good morning, Lana team a couple of questions from me first one now that we're past the lunar new year holiday, but what's your assessment of the impact it's had on production I remember you were flagging potential issues I just wanted to know how that all pans out.
Yes, I think right now looking at.
This year.
Yes. It is.
A return to a more normal year, it's maybe a little bit too early to have any sort of definitive answers.
But it doesn't look like it's been sort of disruptive years that we've seen in the past is related to.
Obviously the big.
Covid interruption in 2020.
So I think from the question that you asked last time, and where we are recognizing that our guidance is a range and looking at the.
The lower end of the range.
I think we're going to come pretty close to that lower end for this last quarter and really the final numbers are going to be determined by what we see in the next few weeks.
Got it okay.
And then.
I've got actually a couple of questions on this expansion here.
First I just wanted to square away from numbers. So if I look at your November press release. It says the mill is going to cost $25 million, it's going to be done by the end of 2020. The tailings dam is going to cost $38 million in phase one is going to be done by the end of 2024.
But off that $63 million budget, you're going to spend $40 million. This year alone just trying to kind of square away the timing there.
Timing I mean, yes, there obviously the tailings facility is expected to be operational with a bit of a lag relative to the mill and so you can see that we have.
Putting money into both the mill and the facility in this next fiscal year.
And recognizing that those numbers in our November news release, not that it's a big difference but were related to calendar years.
Okay, but I guess Im just wondering if you're spending 63% of the budget this year.
Well why wont the mill will be done until the end of next year and the tonnage down the year. After if you're spending this much upfront.
No no it will be spending in this fiscal.
Year to then be looking at.
Producing in fiscal 2024 with them.
<unk>.
Billings for the tailings facility coming on.
Later in calendar 2024.
Okay and then.
As a follow up to <unk> question here based on something you said in your comments the number one how should we think about the production profile post the expansion and number two I thought I heard you say that the Zohar project is no longer on the table I think you pulled your application is something.
It wasn't that supposed to be kind of be a piece of the expansion and how should we think about that.
Well I think it was it was intended to be initially a potential source of satellite <unk> expanded mill, but I think what we're showing in the results. We've got enough to work with at R. R.
Our existing.
Mining permits to justify the expansion.
And so while it's.
Yes.
Unfortunately, we haven't been able to proceed on this.
Important to note, we haven't put any money down on that on that project.
It's unclear exactly what the outcome will be here weather.
There's still the ability to move forward.
Or what happens.
Doesn't really change the planning that we have or the UN proper mining facilities as well as this mill expansion.
Okay. So then how should we think about the production profile.
Fiscal 2024 and onward.
Well I think I think at this point, it's early days for us to provide guidance in terms of the studies and projections and we haven't completed sort of rate.
Alright, what your colleagues 43, 101 report that we could put out on that so.
So what I would guide to is looking at the.
And the next fiscal guidance for 2023.
As an indication of what we can do with your existing facilities in terms of growth and later in the year. We're looking forward to providing more details on what the expansion will actually provide.
Okay. So what is your intention to put out a tech report this year.
Yes.
The exact.
The exact nature of that report is still to be determined for sure we're going to be addressing the reserves and resources and likely a mine plan.
Not certain whether that mine plan will factor in the expansion it may not but as we obviously are driving towards getting these details finalized getting.
The planning in place will be in a better position to give guidance on what we expect from the expanded facility.
Okay, but since were.
Did you for the Capex is it fair to say.
Is that the mill will run at 3000 tonnes per day at reserve grade is that a reasonable assumption.
Sorry, I heard the first part of the 3000 tonnes per day I'm, just saying is.
If we're going to give you credit for the Capex is it fair then to just assume that.
The mill run at excuse me 3000 tonnes per day at reserve grades until you have a better mine plan.
Well I think you know that our current mine plan doesn't run at reserve grades there is obviously a.
Our prioritization of higher grades at the beginning of the mine plan and then typically those will trail off we've done a good job over the years with our ongoing exploration.
New higher grade reserves and resources to keep deferring the lower grade.
That obviously brings the overall down to the reserve grade average.
But obviously with an expanded facility different economics, the additional resources reserves were identified within the mining permits.
About planning has yet to be done.
And exactly what that production profile will look like.
So I think if I were to give you guidance I would run.
I would run.
The numbers off the existing facility and based off of a reasonable expanded mine plan similar to fiscal 2023 guidance.
And look at expansion as Optionality.
That will be providing more information on.
Okay. That's all for me thank you.
Thank you. Your next question comes from Joseph Reagor with Roth Capital Partners. Please go ahead.
Hey, thanks for taking the questions.
Couple of things first.
Yes.
Alright off some bonds in the quarter any additional color than just we had a write off on bonds.
Well I guess I'll color I think.
Unfortunate but.
We'll get through this.
Noncash charge.
That we've taken.
Going forward are.
No show that in terms of the mix of short term investments.
As of December .
Roughly 50 of the $59 million.
As in money market instruments, and there is only $10 million in bonds. So we're not anticipating any further impairment charges, but obvious thing.
We'll wait and see there's also the potential for <unk>.
Our recovery.
Okay.
That's fine.
Second thing.
<unk> gold bulk sample youre doing.
Yes.
Can you give us any color on timing of that should we spread it evenly across the four quarters as it can be done in a specific quarter.
Obviously, it's going to impact the gold production.
<unk>.
Yes.
Not.
In terms of time, that's obviously not a huge huge number I don't have the.
The quarterly breakdown.
So at this point I would credit over the over year until we have further guidance for you on that.
Okay Fair enough and then.
Then.
I think the.
Previous person asking questions.
Trying to get to.
I think the point.
<unk>.
If we're putting all of this capex into the model.
Sure.
Yes.
How should we be accounting for properly.
The sense I get is that while you guys don't have specific guidance yet.
That.
Your reserve grades are based off of a mine plan that's based off of.
Or more.
<unk>.
Our lower throughput kind of scenario and that as you expand and try to.
Grow you're going to pick up maybe a lower grade halo around the stuff you've been mining that overall grades might come down a touch but since production rates are going to go up so much.
Anna.
Margin basis, it might be the same.
Is that something we could think about is that a fair assessment.
Yes, I think thats certainly possible.
Would you consider in that model is is on the higher throughput basis.
That may be.
Enable us to incorporate a bit more mechanization, which should lead to lower unit costs.
Mining activities.
Alright, alright, so so.
Yes.
That would basically the economies of scale offset potentially lower grades.
This is kind of the assessment I am coming up with here.
Yes, yes, no no that's.
Yes.
That's certainly a possibility where we're looking we're obviously looking at.
Refreshing the mine the mine has been running and producing profitably for many years. It still has a long licensed some of it we're seeing opportunities here to grow the resource reserve base as well as the production profile and nobody I mean, some changes, but we're not anticipating.
The economics to be.
To be less than what we've been experiencing but in fact to be better.
Deliver.
Bigger earnings and cash flow for investors going forward.
Okay and then one final thing I saw re is also going to be CEO of another company.
Again.
How do you think this might impact to.
Use of his time between the two entities.
Well I think it's important to recall he was CEO of previously.
Both companies.
Both companies have developed an advanced since that time.
Really seeing given the the team in place.
<unk> with.
With the <unk>.
Progress at either company.
We will see more progress.
Based on what we're reporting as well as.
News, that's been put out by new Pacific.
Feature news on development of silver sand and Theres other projects.
Okay, Great I, just wanted to confirm it wouldn't.
No.
A time issue for them.
No no no we're not anticipating.
Just kidding.
Any issues or not.
Okay.
Alright, great ill turn it over thanks.
Thanks, Joe.
Thank you, ladies and gentlemen, as a reminder, if you have any questions. Please press star one.
Your next question comes from Craig Stanley with Raymond James. Please go ahead.
Thank you.
Hello, everyone.
Just first off on your Shanghai, So somebody else come in now and take that project.
Well, it's unclear exactly what the process will be going forward.
There might be a way that we can resolve this.
Procedural and pass it might be put up for auction again.
At which point, we may or may not participate in it's really too early to say.
It's just from our standpoint, we're sending the message that we are.
In a position to move on because it's just taken too long and we're not seeing sort of a clear path forward to resolve this.
Sort of this regulatory process.
Okay.
Yes.
Bulk I guess, you're calling it a bulk sample that youre doing on the gold.
How many minded it being taken from.
I think it's mainly at this point I don't have the mine by mine breakdown I think it's mainly focus from some one maybe two mines at this point.
Yeah.
More details on this.
The technical report that we will put out later this year.
Okay perfect.
Okay.
Yes.
It's around like sort of existing stopes and stuff.
Well, yeah, it's obviously.
If you look at the capital we have been putting in Boston drilling tunneling at rapid access there as you said.
And of DNA.
Blanket programs across all the mines and.
And with that we have identified different zones provided created access.
There is part of normal course activities to get to your silver lead zinc areas that renewables, but then also realizing that these cold zones that are available.
We're obviously now in a position to.
<unk>.
Included in our guidance that we'll be mining.
Some of these cold zones, and producing primarily gold ore from those areas.
Okay.
The write down that you had to do with those bonds, where those bonds are domiciled.
A lot of those would be a bonds held in China.
In terms of a range of different companies some of them.
Yes of course.
Range of industries.
Okay.
And just finally smelter charges are you seeing anything much changes.
No I don't think Theres really been any change in that area and I know you flagged a question in terms of realized numbers I think.
I think it's important to note that our realized pricing in U S dollar as a function of obviously.
Western based pricing.
When we're actually selling what the move is in the western markets relative to the Chinese market and then also how the changes, especially how the changes in the exchange rate can have fluctuations in certain periods and what we have seen in recent years as the strengthening of the R&D to the U S dollar.
So that has had.
And the impact on what appears to be our realized numbers in U S dollars, whereas the relationship on the ground really hasnt changed.
Perfect. Thanks, a lot.
Thanks, Greg.
Thank you your.
Your next question comes from Gabriel <unk> zealous with echelon capital markets. Please go ahead.
Hi, Ron.
Good morning.
Too many questions on principally on costs.
Just considering the guided cash cost and on a sustaining cost increases.
I just wanted to ask given all of the drilling and development work that was done and it sounds as though that is producing better access and perhaps.
Yes.
In terms of cost.
Not much in the way of.
Potential increased costs to access deeper or harder to reach or.
Is it fair to assume then that the majority of that cost increase is mainly related to increased labor.
Consumables and COVID-19 related to pie.
Chain issues.
On the all in sustaining costs.
Is it part of that increase going to come through from.
Drilling exploration drilling.
Coming on the heels of all of the drilling that you did to get to where Youre at right now.
With that.
The drilling that was done.
This particular year.
Yeah. So.
It was quite a bit to unpack there.
Obviously, we've been doing a lot of drilling the numbers the numbers show that.
Still expecting to be working and drilling pretty.
Pretty good.
Aggressively going forward as we see a lot of opportunity there some of that drilling is capitalized.
In particular.
The surface drilling.
Some of the underground drilling is also capitalized.
As well you can see.
And the numbers, we are bringing down for fiscal 2023 are ramping so at year end.
For 2022 over 6100 meters $5 2 million dropping that to $3. Two so that's an example of where we're sort of shifting activity based on the results that we've been seeing but obviously getting drilling is still very strong.
And then I guess yet to your previous point, we have seen is as we reported.
Earlier, this year that with the renegotiation of contracts.
With the contractors as well as our employees, we did see some increases there.
Most recent quarter there were some.
Increases just in power prices.
Or.
Those are not permanent fluctuate based off of.
So market market conditions.
We are anticipating.
In terms of supplies and consumables.
Regulatory shifts in terms of the blasting caps that were using is increasing some of the consumable costs, but that as a whole is not a huge number I think really the bigger driver is.
Now just the activity that we're putting in.
Two to explore and develop this mine.
Accommodate our growth plans going forward.
Okay, great. Thank you and so just.
Related to the capital cost for the expansion at <unk>.
With the.
Capital costs, as a whole and increasing considerably.
Four projects really throughout the world.
<unk>.
I guess, what are you able to quantify the confidence that you have in the numbers that you've published.
I believe it was November four the expansion or should we potentially be taken a little bit of conservatism.
And then what are you seeing that conservatism might might entail to those capital costs as we model them.
Yes Gabriel.
That's a tough question obviously those are the numbers the best numbers, we had at the time, that's not just picked out of.
Anywhere that's been with us.
Very detailed discussions with the engineering groups that we've engaged to.
To work on the detailed design.
The work that they're doing is also not just picking numbers out there looking at realize quoting in the marketplace for what.
Products and services would be.
So I think those are the best numbers that we have at the time as of November <unk>.
No reason to change them at this point.
Your guess is as good as mine, what we're dealing with going forward in terms of inflation.
So I would say.
You'll have to sort of make us make your call, but we'll we'll keep the market up to date. If we do think there is if there is a.
Change that needs to be.
To be disclosed.
I would say those are those are quality numbers based on on the ground experience with people that would be working on on actually executing on this plan given this timeframe that we're looking at.
Okay perfect. Thank you very much lines.
Thanks Kimberly.
Thank you, ladies and gentlemen, as a final reminder, should you have any questions. Please press star one.
This concludes the question and answer session I would now like to turn.
The conference back over to Lon Shaver, Vice President for any closing remarks.
Thank you.
Thank you and us.
Thanks to everyone for joining us today.
Obviously, we will wrap up here, but please if you have any additional questions.
As always please to call or E mail us, we'll be happy to respond.
To you in and.
We look forward to updating you again.
On our year end fiscal 2022 results.
Have a great day everyone.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.