Q4 2021 Fortuna Silver Mines Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Fortuna Silver Mines' Q4, full year 2021 financial and operational results call.
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.
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 financial and operations results call for the fourth quarter and full year 2021 hosting the call today on behalf of our tune out will be Jorge.
President and Chief Executive Officer.
And also our Chief Financial Officer say Saturday last Scott, Chief Operating Officer, Latin America and fault Cradle.
Chief operating officer of West Africa.
Today's earnings call presentation is available on a featured presentation box on our homepage.
Www 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 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.
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.
The material factors or assumptions 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 obligation to update such forward.
We're look any 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 co founder of Fortuna.
Thank you Carlo so we'll be sharing with you the highlights of the quarter and.
Updates on performance and on the business for the first months of the year.
It will be assisted by Luis <unk>, our CFO and safer and Paul who will be providing.
Details on the performance of 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 drivers of the significant growth in financial figures compared to a year ago are they in their own mind, which in the quarter delivered record gold production of 36000 ounces.
And the contribution of the multiple mine.
At the end of the year, our liquidity position remains strong at $187 million, while keeping our debt to EBITDA ratio at a low single point too.
The company remains well funded to meet all its capital projects for the year and in particular, the singular mine construction.
Once completed will be for Tunis fifth operating mine.
As of the end of February the singular 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 at the project, we are preparing to initiate placing concrete in mid to late April .
<unk> <unk>, our Chief operating officer for West Africa Africa can provide further detail later on the call.
On the exploration front, we continue to exceed their resource growth potential of the circular camp with the recent announcement of the 350000 ounces.
<unk> maiden resource at Sundberg.
Sunbird 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 at scale, where exploration drilling remains a big area of focus for this year.
During the last months of 2021.
We went through trying times that our SaaS Jose mine located in southern Mexico in the state of Oaxaca.
On October 23rd Mexican authorities fail to renew or 12.
Please hold the ladies and gentlemen.
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 with 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 the combined company senior executive team, Paul Whelan, our senior Vice President of exploration and Julian Waldron.
<unk> Vice president of sustainability.
With respect to sustainability performance.
For 2021 performance 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 above 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 a member of our process plant theme and the little mine in Argentina.
An investigation and finding some these are advanced and action plans have been implemented across all of our sites to make sure nothing like this ever happens again.
Health and safety of our employees contractors and visitors to all of our sites.
Higher amount and a responsibility we take with the utmost seriousness.
During Q4.
Our record gold production was 76000 ounces.
The increase of 200% compared to 25000 ounces, we produced a year ago.
Silver production at <unk>.
2 million ounces was 4% above production last year.
If we look at 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 and I think this morning.
Sink prices, we haven't seen for many years.
<unk>.
Close to over $1 80 per pound.
On March 17th we reported or annual updated mineral resources and mineral reserves.
Gold reserves stand at a strong $3 3 million ounces.
A record for the company and an increase of 81% compared to a year ago silver reserves stand at.
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 and our underground mines with shorter reserve lives.
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 lean 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.
I'll reference slides 10, and 11 for a brief discussion on <unk>.
Financial results in.
Mentioned, we had the record sales in Q4 2021 of $199 million driven by the contribution of data on mobile.
Realized prices on gold and silver were $800 and $23 $4 per ounce slightly below Q4 of last year or two.
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 the contribution from multiple.
The EBITDA margin was 45% compared to 43% in 2020.
Net income for Q4, 2021 was slightly down by one 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 Q.
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 at around 35% 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 Undrawn 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 figuring that between construction and exploration.
We expect to spend an additional $110 million in construction activities during 2022.
And finally, the company's net debt remains at very modest levels at $59 million back to you.
Okay.
Do you want to think of it. Thank.
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.
As we can see in slide 14.
And as I mentioned importantly data 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 stacking.
Presenting an increase of 17% over the third quarter.
Let's start plant is operating according to plan and copper is well under control. The 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.
It's a nice bonus of 6000 ounces of gold from Toyama for the year.
Back to you.
Thank you.
Paul do you want to share with us yet on local performance an update on cellular construction.
Thanks Jose.
Yes, Mike.
Fourth quarter media behind that plan.
Principally due to the July .
Several high grade stopes.
Yes.
This coupled with some localized solution in the starting box demand.
For the period, approximately I didn't say blocks mutation.
Mine production and mill throughput was on track in terms of total tonnage has moved.
But as mentioned offset by the Grad scheduled.
As a result, given the high fixed cost nature of the off price Dr. Mike We did realize a higher Roe.
All in sustaining cost for the period.
Yes that is tuned for Q1.
Turning to <unk>.
<unk>.
The project as mentioned by Ohio.
<unk> continues to advance smoothly as at February 28.
The project to 42% of completion.
<unk> K.
De risking Skype.
Okay. It works.
Completion.
But to schedule the budget for the project remain on track at this time.
Very pleasingly site.
We look forward to ramping up.
This guidance again in the coming months.
The mobilization.
Our APC contract block apart in the narrow on site.
And making good progress.
We will commence pouring concrete at the processing facility in the coming weeks and expect a key structural steel.
In some cases ahead of plan. So we're very pleased.
Progressing as you can see in the.
<unk> provided in the presentation.
Some of the key Skype and teams and project risk.
Projected as part of the World.
Things like talent more storage and <unk> are often out of the ground representing a significant milestone in the projects being de risked and able to be delivered on time and on budget.
Thank you Hawaii.
Okay fair enough. Thank you.
Yes.
We would now like to.
I'll turn the call over to any questions 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 pickup your handset 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, Adrian day asset management.
Could you.
You mentioned the loss on derivatives.
Was this a realized loss and then can you tell us what the derivatives zurab, all the 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 realized.
And.
The bulk of the losses really.
On metal.
Basically zinc and lead.
The sink hedges for our <unk>.
<unk> and they go out.
Half of 2022, and the ranges are in terms of that.
Prices for the hedge.
3200 $3100.
There are also other items in there.
<unk> offset those.
It would be diesel hedges that were put in place.
Back at the beginning of 2020 for all of 2021.
2022 for our lean NATO 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.
Yeah, 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.
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 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 the 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.
Okay.
Thanks, Tim.
Yes.
It was a handful of stripes.
We're seeing a couple of all matches that really.
Cause that missed.
Yes.
We will expect to see a slot and it seems to be the case with project Q1, and Q4 seem to track a little higher and then dependent heavily with a summary that.
That trend appears to be.
I think what we've seen.
At the end of last year start of this year and what we've noted in the plan for 2022 days of reserves generally it is a flatter 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 for the plant and I know there was you're still waiting to finalize the mining contract was there anything else in there or is it really just the mining contract that that's kind of the last big one to think about.
No.
Okay.
Say agreement as well.
And the key item there within that Sag mill.
Indeed stable component, it's all about hockey jobs back in front of us.
Good morning contract is going to be executed.
On the on the project schedule.
Like Q1 early Q2, and we're on track for that.
<unk>.
Hi.
Component with you also get some production crew.
He is on track if not a little bit in front so as you.
We sit today.
Vance right is good and and.
We're on track to close et cetera.
Great. Okay. Yeah look forward to seeing continued good progress at sequela, but that's all I had thank you.
Okay cool.
Yeah.
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 to Mark going on with National Bank Financial Hi, Jorge and Paul.
My first question is on sequela.
I was wondering if you could maybe just confirm what 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 pour about mid year and ramping up thereafter. So 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.
Uninflated <unk>.
Is there any preliminary indications that.
Yes.
That capex might might be facing some pressure.
There the 173 total capex estimate or are you still comfortable with that at this point.
At the time for the time being we are comfortable with the nature of the agreements with <unk>.
All of the <unk>.
Critical pieces of equipment.
Subject to that inflation risk.
We're very early on the pace and so I really have that information.
I think what.
Yes.
On the <unk>.
These ongoing in terms of is it appropriately.
Frightened and access to frighten process and access to it.
But again, we also see.
And pilot premium for secured a lot of that.
Towards the end of last year, we completed the project.
At the moment and I'll give you an example, the 290.
Transformers.
What you might have a copper and things that are under pressure at the moment are actually a couple of weeks ahead of schedule.
At the moment, we are holding a long time.
But on a mindful of what's happening out there, but for the moment, we are going okay.
Okay. Thanks.
Like Ooh I would like to add to that that the bear in mind that before we announced the construction decision in late September of last year, we went.
Through a revision of our with the team and.
You know 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, known that 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 and.
And against that figure like Paul described.
To safeguard that figure we have a smart the structure in the agreement and some are the team has been trying to lock in early as much as we can on the <unk>.
Okay.
Key items and were feeling so far are good and it's something we monitor closely right.
Okay. Okay. Thank you for the Hurricane and one additional question on your multiple.
We see that with the resource update recently last week.
The reserves there was some depletion on the reserves, we see the capex.
Guidance for 2022.
Above 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 an ear melco.
Well I think the yeah.
My hopes are similar to yours.
Think that.
We're currently executing the deep drilling program.
They just testing some of the.
Good.
And in fact, some of the RFP.
Hi, good areas, which there are niches 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 all of it was generally speaking.
Drilling into it has responded so 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.
Okay.
Thank you good luck with the continued developments umbrella and.
Ah cost decreases that Linde Darryl.
That's all for me.
Yeah.
One.
Once again, if there are any questions or comments. Please press star one at this time.
Operator.
I just 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 watch 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 a when.
Fortunate.
Stopwatch mishap this morning.
Yeah.
Okay.
As a reminder, please press star one if you have a question.
Okay.
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.
Right.
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.