Q4 2021 Fortuna Silver Mines Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the Fortuna Silver Mines' Q4, full year 2021 financial and operational results call.
At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Carlos Baca Director of Investor Relations, Sir the floor is yours.
Thank you Holly.
Good morning, ladies and gentlemen, I would like to welcome you to Fortuna silver mines and to our cash flow.
Okay.
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Reminder, that statements made during this call are subject to the reader advisory as included in yesterday's news release and in the earnings call presentation financial figures 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.
These 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.
Look any 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 SEDAR The company assumes no.
<unk> shown to update such forward looking information in the future except as required by law.
I'd now like to return the call over to Jorge Alberto and also a co founder of Fortuna.
Thank you Carlos I will be sharing with you the highlights of the quarter and.
Updates on performance.
The business for the first months of the year.
And it will be assisted by Luis our CFO and <unk> and Paul will be providing.
Details on the performance so while the assets in their respective regions.
For the quarter, we reported sales of $199 million, an increase of 92% compared to a year ago.
Adjusted net income of $29 million and adjusted EBITDA of $89 5 million, we ran the business with an adjusted EBITDA margin percentage in the mid Forty's.
The driver so there's a significant growth in financial figures compared to a year ago or they are in their own mind, which in the quarter delivered record gold production of 36000 ounces.
And the contribution of the yet a multiple in mind.
At the end of the year, our liquidity position remains strong at $187 million, while keeping our debt to EBITDA ratio at a low zero point too.
The company remains well funded to meet all its capital projects for the year and in particular, the singular mine construction.
Each once completed will be for 250 operating mine.
As of the end of February the figure that construction is 42% complete tracking in line with our budget and timeline for first gold in mid 2023.
The team is delivering an excellent performance of the project, we are preparing to initiate placing concrete in mid to late April .
<unk> <unk>, our Chief operating Officer for West Africa Africa Cup provide further detail later on the call.
On the exploration front, we continue to exceed their resource growth potential of the singular comp with the recent announcement of the 350000 ounces in.
<unk> heard maiden resource at Sundberg.
<unk> is a recent discovery located only two kilometers from the singular meal site.
We have a high expectation with respect to the opportunities to continue expanding the resources that singular where exploration drilling remains a big area of focus for this year.
During the last months of 2021.
We went through trying times at our San Jose mine.
<unk> in southern Mexico in the state of Oaxaca.
When on October 23rd Mexican authorities' fail to renew or 12.
Please hold the ladies and gentlemen, while we reconnect Carlos his line.
Yeah.
Sorry, we lost the line here on on our end, so I'll try to to retake the.
The discussion.
I think I lost the line, which is our discussion of the.
For me the issue at the San Jose Mine.
As I was stating.
On October 23rd.
The Mexican authorities failed to renew or 12 year environmental impact assessment, a key operating permit.
The renewal was.
Finally granted in late December .
For the requested 12 years only to be reduced in a subsequent communications to two years.
The authorities, claiming at depot graphical error, providing no support of any kind for the term reduction in any document.
We are contesting this in court and federal Judge has accepted our case and granted a preliminary injunction in our favor.
We believe we will hear a ruling from the court later this year.
In parallel to the legal actions, we continue we constructive dialogue with authorities trying to resolve these what in our view as a nonsensical situation and trying to resolve these administratively.
Through all of these.
Grief or mind did not lose one day of operations.
Another topical issue in the second half of 2021 was or.
Our 100 day Rock School integration plan, which was successfully concluded in the fourth quarter.
Sure.
I was one of the.
Outcomes of that process, we have incorporated two talented rockville executives into a combined company senior executive team full Whelan, our senior Vice president of exploration and Julian Waldron.
Senior Vice president of sustainability.
With respect to sustainability performance.
For 2021.
<unk> was good in all of our prioritized corporate Kpis with the exception of women in the workforce.
We are aiming to improve on and maintain the company above the industry average which is 15%.
Last year, we were at their own 17% and we've.
For 2021 last year, I mean 2020.
In 2021, we ended the year at 15%.
We're aiming to get back to or.
Objectives for that API, which are about 15%.
For 2022, we have certain important sustainability initiatives in motion, we have been working on the adoption plans for the ICM global industry standards for tailings management, we expect to be able to make our commitments probably during this year.
With respect to the option plan.
Objectives under the standard for 2022.
Additionally, shortly we will be making public or board approved climate change position statement, which sets out our commitment on this very relevant topic.
Our safety performance was painted at the start of the year on January 28, we reported the tragic loss of life of <unk>.
A member of our process plant team and the little mine in Argentina.
An investigation and findings on this prior.
<unk>, our advanced and action plans have been implemented across all of our sites to make sure nothing like this ever happens again, the health and safety of our employees contractors and visitors to all of our sites is Paramount and a responsibility we take with the utmost seriousness.
During Q4.
Or a record gold production was 76000 ounces.
An increase of 200% compared to 25000 ounces, we produced a year ago.
<unk> production.
2 million ounces was 4% above production last year.
If we look at the gold equivalent production for the 2021, we produced 367000 ounces gold equivalent basically in line with guidance provided at midyear.
For the year precious metals accounted for 91% of sales gold accounted for 69%.
And silver for 22% with the balance being byproduct zinc and lead.
Which in today's price environment. We're also enjoying there I think this morning.
Sink prices, we haven't seen for many years.
At.
Close to over $1 80 per pound.
On March 17th we reported or annual updated mineral resources and mineral reserves.
Our gold reserves stand at a strong three 3 million ounces.
A record for the company and an increase of 81% compared to a year ago silver reserves stand that.
Almost 26 million ounces.
A decrease of 10% with respect to a year ago.
For 2022, we have a well funded exploration budget of $29 million over 50000 meters of drilling with a focus on circular in our underground mines with shorter reserve life.
With respect to annual all in sustaining cost.
At our silver assets, Guyana in San Jose, Although we record higher cost compared to a year ago. These are in line with our guidance.
For the year.
Our gold assets in data for the full year is in line with guidance and yet our Mako deed experienced higher all in sustaining costs for the quarter and the year and that can be discussed by fall further down the presentation in this call.
Now I will let Luis go ahead and share a brief discussion on financials.
Thank you Jorge.
I'll reference slides 10, and 11 for a brief discussion on <unk>.
I mentioned on our results as Jorge mentioned.
I mentioned, we had record sales in Q4 2021 of $199 million driven by a contribution of data on yet a molecule.
Realized prices on gold and silver timber were $800 and $23 $4 per ounce slightly below Q4 of last year.
23% and 4% respectively.
EBITDA for Q4, 2021 of close to $90 million was up 100% over the prior year and 20% above the prior quarter.
These results were driven by higher gold production at <unk> and contribution from Michael.
The EBITDA margin was 45% compared to 43% in 2020.
Net income for Q4, 2021 was slightly down by $1 5 million or 11% over the prior year, we did have higher operating income of $11 million or 39% over the prior year.
This higher operating result, however was offset by a loss on derivatives of $4 $2 million higher interest expenses of $2 $10 million and higher effective tax rate.
Our adjusted net income increased 27% or $6 $6 million over.
Q4, 2020, after adjusting mainly for inventory write downs and realized losses on derivative contracts.
Our free cash flow from operations for Q4, 2021 was $31 million.
Similar to the prior year, we converted 34% of EBITDA into free cash flow compared to 66% in Q4 2021. This percentage from last year was particularly high due to timing factors related to Capex and working capital.
In the current price environment, we expect to see this conversion percentage in a row.
135% on average.
With respect to our liquidity position.
As shown in slide 11, we closed the year with $107 million in cash and $80 million and drawn under our $200 million revolving credit facility.
Whereas total as Jorge mentioned of $187 million of liquidity available to the company.
In the second half of 2021, we spent close to $40 million in singular between construction and exploration.
We expect to spend an additional $110 million and construction activities during 2022.
And finally, the company's net debt remains at very modest levels at $59 million back to you.
Okay.
So you want to.
Thank you Jorge.
In Latin America from a consolidated production perspective, we saw good performance in all three operations.
In data delivering record gold production for the quarter.
We can see in slide 14.
And as I mentioned importantly, Natal finished with record gold production in the upper range of the guidance for the year.
All processing areas performed as planned during the fourth quarter.
One 4 million tonnes of crushed ore placed on in each but.
Via conveyor respecting great.
Great presenting an increase of 17% over the third quarter.
Let's start plant is operating according to plan.
And copper is well under control.
ADR plant expansion was successfully commissioned and is performing according to expectations.
As shown in slides 15 and 16.
As far as our San Jose Yom operations, both of them delivering results as planned and in accordance with guidance with a nice bonus of 6000 ounces of gold from <unk> for the year back to Johan.
Thank you.
Paul do you want to share with US you had a mako performance an update on cellular construction.
Hello, Hi.
Yes, Mike.
The fourth quarter and the year behind that plan.
Principally due to July .
Several high grade stopes.
<unk>.
This coupled with some low cost solution in the starting box demand.
So the real growth in the period approximately I didn't say.
Mine production and mill throughput.
On track in terms of tonnage has moved.
But as mentioned offset by the glad changeover.
As a result, given the high fixed cost nature of the operation we did realize.
All in sustaining cost for the period.
We've added 10 for Q1.
Turning to <unk>.
The project has mentioned Bajo, Ohio, yes.
Continues to advance smoothly as at February 28.
The project to 42% of completion.
The key.
The whiskey Skype.
The bulk earthworks.
Nearing completion.
But to schedule in the budget for the project remain on track at this time.
Very pleasingly side.
We look forward to wrapping up Keith.
Hey, Scott.
Alright.
<unk>.
Our APC contract to lock in the narrow on site and making good progress.
Commenced pouring concrete.
Pricing facility in the coming weeks.
Key structural steel globally.
In some cases ahead of plan. So we're very pleased.
Progressing as you can see.
As per <unk> in the presentation.
Some of the key Skype and teams and project risk.
And as part of the World.
Colleagues more storage.
<unk> are coming out of the ground representing a significant milestone in the project is being de risked and I wouldn't move on tall in our budget.
Yeah.
Thank you Helane.
Okay Carlos Thank you Paul.
We would now like to.
I turn the call over to any questions that you may have.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We ask that while posing your question you. Please pick up your handset is listening on speaker phone to provide optimum sound quality. Please.
Please hold while we poll for questions.
Your first question for today is coming from Adrian day. Please announce your affiliation then pose your question.
Yes, good afternoon.
Management.
Could you.
You mentioned the loss on derivatives.
Was this a realized loss and then can you tell us what the derivatives zurab Nordic currencies or metals.
Hi, Adrian yes so.
Out of the amount we reported for the quarter of a bit over $4 million around 3 million is in real life.
The bulk of the losses will be.
On metal.
Basically zinc and lead.
The sink hedges for our <unk> production and legal out.
Up to.
Half of 2022, and the ranges are in terms of the.
Prices for the hedge.
3200 $3100.
There are also other items in there.
Offset those.
That would be diesel hedges that were put in place.
Back at the beginning of 2020 for all of 2021 on.
2022 for our lean digital diesel consumption, which is a significant component of.
On our cost structure and those certainly are yielding positive.
Positive results right.
Okay. Thank you so much.
Your next question is coming from Trevor Turnbull. Please announce your affiliation then pose your question.
Yes, Hi, it's Trevor Turnbull from Scotiabank.
I think it's probably a question for Paul I was curious at <unk> you had talked about.
Some delays at the end of last year.
Getting to some of the higher grade stopes that you wanted to and it was mentioned I think in the MD&A that that access to those stopes would be coming here in Q1.
I also saw that the kind of the head grade for this year the guidance was around six five grams or so but.
Knowing that youre going to be getting access in Q1 to some of those higher grade stopes I just wondered how we should think about the great profile.
I feel like you ended the year still around the seven Gram Mark. So are we still looking for something to say north of seven grams in Q1 from the higher grade and then.
Tailing off rather significantly to get down to that $6 five gram average.
Thanks, Tim.
Yes.
It was a handful of Skype.
A couple of all natural but really.
Cause that missed.
So yes, we will.
I expect to see a slot and it seems to be the case.
Project Q1 and Q4.
To track a little higher and then depending on the year.
To summarize good bad.
That trend.
I think what we've seen.
At the end of last year start of this year and what was not in the plan for 2022 days of reserves generally either flat or is it flat.
Greg.
For the next little while in that in that seven gram per ton range.
Okay.
And then I had a more general question just on construction at sequela.
There was talk about kind of the critical path items, one of which was to continue to.
I think finalize a few contracts.
You have a maximum price EPC contract already for the plant and I know there was you are still waiting to finalize the mining contract was there anything else in there or is it really just the mining contract.
The last big one to think about.
Yes.
Okay.
PC gaming.
Well.
The key item there within that Sag mill.
Indeed several components.
Thank you John that's in front of me.
Good morning contract is due to be executed on.
On the project schedule.
Like Q1 early Q2, and we're on track for that.
Hi.
Component with you also get some production crew.
<unk> is on track if not a little bit in front so as you.
Today advanced rate is good.
And we're on track to close et cetera.
Great. Okay, yes. It look forward to seeing continued good progress at sequela, but that's all I had thank you.
Okay.
Okay.
Your next question for today is coming from Don Demarco. Please announce your affiliation then pose your question.
Thank you operator, so my name is dawn tomorrow going on with National Bank Financial Hi, Jorge and Paul.
My first question is on Sequela and I was wondering if you could maybe just confirm.
Capex, we should be modeling in 2023.
The financials are clear in that for 2022. The Capex is on the order of about $110 million and I see that maybe $34 million was spent last year.
Adding those together takes us to.
Over 140, which implies that maybe there is there is about maybe $30 million to be spent in $2023 $50 million a quarter before the first core mid year and ramping up thereafter.
Is that right do we should we model the capex tailing off in 2023 as those numbers would suggest.
Yes, let me take that one here.
Yes that is correct Don.
Should be tailing off just like you described.
Okay. Thank you for that.
And unemployment.
Uninflated <unk>.
Is there any preliminary indications that.
Yeah.
That capex might might be facing some pressure.
The 173 total capex estimate or are you still comfortable with that at this point.
At the time for the time being we're comfortable the nature of the agreements of mine.
All of the.
Critical to the equipment.
Subject to that inflation risk.
Very early on the pace and so I really have that information.
I think.
Yes.
On the <unk>.
These ongoing in terms of is it appropriately.
Frightened and access to fright process and access to it.
Again, we also offer yes.
And pilot premium towards secured a lot of that.
Towards the end of last year, we commenced the project.
At the moment and I'll give you an example between 90.
Transformers with a project, which you might add a copper and things that are under pressure at the moment are actually a couple of weeks ahead of schedule.
At the moment, we're holding of Longbow.
But on a monitor.
Is happening out there.
For the moment, we are doing okay.
Okay. Thanks, Paul I would like Ooh, I would like to add to that that bear in mind that before we announced the construction decision in late September .
Last year, we went.
Through a revision of with the team.
Okay.
Trying to better ascertain the type of inflationary pressures that we could expect.
And.
As a result of that exercise.
We the time increased the capex in the range of $24 million with respect to what was in the published feasibility study of earlier in the year 2021.
That study was published in early 2021.
And before going public with the construction decision again, we did our best effort to.
Update those fears with with inflation considerations that were reasonable at the time and those are the $24 million that we added to the capex.
<unk>.
Against that figure like Paul described.
To safeguard that figure we have.
Smart structure in the agreement.
The team has been trying to lock in early as much as we can on the.
Okay.
Key items and were feeling so far good and it's something we monitor closely.
Okay. Okay. Thank you for the Hurricane and one additional question on <unk>.
We see that with the resource update recently last week.
The reserves there was some depletion on the reserves, we see Capex guide.
Guidance for 2022.
<unk> historical norms.
What is the longer term strategy for this asset.
Kevin can we hope for maybe.
A reversion to lower ASC lower costs in 2023.
Exploration success or Paul Paul what should we.
What should we hope for on <unk>.
Well I think the.
Yeah.
No.
Similar to yours.
I think that we.
We are currently executing.
Deep drilling program.
I would say just testing some of the <unk>.
Good.
And in fact, some of the IP.
<unk>.
Mr substantial way.
As you can appreciate the ability to get platforms to access that drilling is just a simple progress issue.
So that drilling is underway.
Sorry, it will be will be continued in the current quarter next wrapped up.
Towards the end of the year.
Right.
Yes.
<unk> has continued to do our bit was generally speaking.
Drilling into it.
Funded.
Yes.
These programs are important for us to get.
A little bit more visibility on that.
<unk>.
So we will see that in the coming quarter too.
Okay.
Thank you good luck with the continued developments umbrella and.
Cost decreases at Lazaro.
That's all for me.
Okay.
One zero.
Sir Ronnie once again, if there are any questions or comments. Please press star one at this time.
Operator.
I, usually would like to share a comment here for the benefit of the audience.
For the first hour or so.
For the first hours of market trading this morning.
Stock, which posted an erroneous heading for year end results, saying that Fortuna lost $59 million in 2021.
In reality, we earned $51 million.
No losses here.
That was corrected at around mid morning Eastern time.
So we are looking into this and put it into the easier to lead this right. So.
I just wanted to share that because I think that was.
We're fortunate.
We're stopwatch mishap this morning.
As a reminder, please press star one if you have a question.
Okay.
Yeah.
Thank you Holly if there are no further questions I would like to thank everyone for listening to today's earnings call. We look forward to you joining us next quarter.
Okay.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Okay.